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Saudi Arabia: jobs for the boys.

The Saudi economy seems set on a steady path of expansion, which is what the government needs. Its paramount concern is to foster the growth of the private sector. This is central to its development strategy of creating a viable free market system. But it will also be crucial if a larger than expected number of young Saudis look for employment in the next few years.

GROSS NATIONAL product in Saudi Arabia will grow by 5% this year, according to the latest annual report of the Saudi Arabian Monetary Agency (Sama). This compares with the extraordinary levels of 10.8% and 9.1% in 1990 and 1991 when growth was fuelled by the government's huge war-related outlays and the oil capacity expansion. But by maintaining the same growth rate as last year under more normal conditions, the kingdom seems set on the course of steady expansion through the mid-1990s projected by the current Five Year Development Plan.

Achieving consistent growth is critically important for the creation of the kind of stable economic environment in which business confidence will continue to flourish. In the long-term the government is committed to promoting private entrepreneurship and gradually shifting responsibility from the public sector to the private sector. Contrary to some sceptical prognoses, the economic resurgence after the Kuwait crisis has not collapsed. On the contrary, the private sector is reckoned to be expanding at twice the rate of the economy as a whole.

The private sector will have to go on outstripping the rest of the economy for several reasons. First, the emergence of a vigorous free enterprise system is the yardstick by which the government's massive and continuing investment in infrastructure and basic industries (such as petrochemicals and steel) since the mid-1970s will be ultimately judged. Second, only a buoyant and self-sustaining private sector can permit the government to reduce public spending and get rid of nagging budget deficits.

The third reason, less talked about but of increasing concern, is that only the private sector can productively absorb the growing number of educated Saudis coming onto the labour market. The government hopes progressively to privatise large parts of public sector industry (outside the strategic oil industry, that is). Neither there nor in the civil service does it want to become an employment repository for future generations of Saudis.

It looks as if there will be plenty of Saudis to employ. The kingdom's most comprehensive population survey was carried out last autumn and the results published in December were startling. Far more Saudi nationals were counted than had been expected (at least by foreign observers). There is one caveat to be borne in mind, of course. The number of Saudi nationals may not reflect reality. It may well be the case that an important number of those claiming to be Saudi citizens are in fact expatriates (a phenomenon which the Kuwaitis have discovered in the past).

But even taken at face value, the census results contain broad implications. In one sense, they must be gratifying to the government. Saudi Arabia has always been sensitive about foreign estimates of the size of its indigenous population. It has to deflect what it sees as unwarranted criticism from poorer and more populous countries that too few people are sitting atop too much oil. The census (which by all accounts was scrupulously conducted) goes a long way to demonstrate that this is not the case. It states that out of a total population of 16.9m, nearly three quarters (or 12.3m) are Saudi nationals.

However, the figures also imply that well over 40% of Saudi citizens are under 14 years of age. With an annual growth rate estimated by the World Bank at around 3.7%, this indicates a Saudi national population of 15.8m by the end of the century, an increasing proportion of which will soon be looking for employment.

The challenge presented by all these young Saudis is one which Saudi planners have enthusiastically brought upon themselves. The huge investment over the past two decades in health care and education has provided the kingdom with a young population which is not only growing but is also growing up to be better educated and more cosmopolitan than previous generations.

In principle, this should be good news in that Saudi Arabia is creating the skilled workforce to man its burgeoning industries and services. In practice, it will be more complicated. Since the surprise census results emerged, the kingdom's Labour Council under the chairmanship of the interior minister, Prince Nayif bin Abdul Aziz, has been reviewing the implications for future employment of Saudi nationals. The government hopes to accelerate the employment of young Saudis throughout the economy since it is unwilling (and indeed unable) to absorb all new graduates and particularly those not in possession of technical TABULAR DATA OMITTED qualifications.
Predominantly national
Population census results, 1992
Nationals 12,304,835 (72.7%)
of which:
males 6,211,213 (50.4%)
females 6,093,622 (49.6%)
Non-nationals 4,624,459 (27.3%)
Total 16,929,294 (100.0%)

If, on the other hand, the census has exaggerated the number of Saudi nationals, it means that there are more foreign workers in the kingdom than the government would like. Either way, however, it is imperative that "Saudiisation" of the labour force proceeds effectively, either to provide jobs for a growing number of Saudis or to replace an uncomfortably large number of expatriates.

There are inbuilt obstacles to absorbing Saudis into the private sector. First, the rapid expansion of Saudi manufacturing and services has been accomplished by using skilled expatriate labour in the absence of trained Saudis. This continues to be the case, largely as a matter of convenience and partly because foreign labour can be employed more cheaply.

Convenience arises from the fact that expatriates can be chosen from an international pool of skilled managers and technicians according to requirements. It would be unrealistic to expect two generations of Saudis to produce a comparable range of qualifications and match these with employment demands.

The remuneration factor is also important. Less expensive foreign labour is a key element in a Saudi company's competitiveness and profitability. Employers cannot expect to switch suddenly to higher cost labour and inflate their salary and wages bills.

So far the government has pursued its Saudiisation strategy in a piecemeal fashion. It encourages vocational training, regularly urges companies to take on Saudi employees and uses labour offices to refuse work permits for foreigners where Saudi candidates are deemed to be available. But exhortation and edicts are not enough, and can give rise to resentment on the part of businessmen who take the government's commitment to untrammelled free enterprise at its word.

What will be required in the future is the introduction of real financial incentives to hire Saudis who will gain experience and skills in the work place, particularly as a result of technology transfer from foreign partners in joint ventures. The need for financial inducements to encourage overseas partners to retain their commitment to the kingdom's development is thoroughly appreciated.

In May, for example, Mohammed Abal Khail, the finance and national economy minister, announced that foreign companies which increased their capital stakes in industrial projects would be exempt from corporate profits. There have been growing complaints from foreign joint venture partners in Saudi companies about the scale of taxation on profits once initial tax holidays expire. Currently, corporate tax rates for foreign partners amount to between 25% and 40% of gross profits, while Saudi partners are only required to pay zakat (an islamic tax levied on assets). Similar inducements will be necessary if companies in the kingdom are expected to make a concerted effort to increase their Saudi labour force.
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Title Annotation:Business & Finance; search for productive employment for Saudi's rapidly growing population
Publication:The Middle East
Date:Jul 1, 1993
Previous Article:Nostalgic about the bad old days.
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