RIYADH, 20 January 2004 — The horsepower of Saudi Arabia is its $180 billion economy. Oil dominates one-third of the GDP. The public sector’s share is currently 21 percent, leaving the remaining 44 percent to the private sector. In 1970, the distribution was 58 percent oil-based, 12 percent represented the contribution of state-owned economic establishments, and the remaining 29 percent was the share of the private sector.
The service sector contributes more than $80 billion, contributing about 48 percent to the economy. Its contribution is twice that of mining, refining, manufacturing, utilities and construction combined.
The employed work force tops 7.6 million, two-thirds of them foreigners. Approximately 50 percent work in personnel and social services, around 1.5 million in trade, and roughly another 1.5 million in manufacturing and agriculture. The unemployment rate is officially estimated at 8.34 percent for year-end 2001. This is equivalent to about 500,000. The unemployment rate rose from 8.1 percent in 1999, to 8.15 percent in 2000. The rate for 2002 is expected to top 9 percent.
Is the Sky Falling?
Technically, the Saudi economy generates enough jobs for it to attain close to full employment. The average was about 140,000 jobs annually, for the period 1994-1999. Average annual demand is estimated to be around 160,000 until 2004.
The issue is that, on average, jobs are almost divided between Saudis and expatriates. This is true even of jobs created in recent years. There is reason to believe that this structural “sharing” is the fundamental contributor to the mounting unemployment in the country.
In principle, job creation is a function of local factors of production, namely public services, private capital, and entrepreneurial skills. Jobs should not be given up willingly, as a matter of convenience, practice, or inclination. Additionally, economies, including G-8 and OECD (Organization of Economic Cooperation and Development) member states, do not open their job markets to immigrants. The guiding principle is that foreign workers are admitted cautiously on a needed basis.
Saudization is a government initiative to progressively improve the participation of Saudis in the work force. The two basic pillars of Saudization are for Saudis to re-claim jobs filled by expatiates and to keep the majority of newly generated jobs. The current inflow of new entrants into the Saudi job market is estimated to average at 160,000 a year.
It can be argued that unemployment went up in recent years because the policy was not consistently carried out. For instance, the plan was to reclaim 320,000 jobs over the period 1995-1999. But the expatriate work force grew by 60,000 jobs by the end of 1999. In short, inconsistent Saudization kept about 380,000 Saudis out of job.
Turning Saudi Labor Policy Inside Out
The need for better economic performance is fueled by a relentless three percent population growth per annum. Two-fifths of the population is below 15 years of age, in need of stable families, quality education, meaningful training, and ultimately adequate jobs. But efforts to realize stable prosperity bump up against dwindling economic growth, averaged at about 1.5 percent for the last two decades, 1.1 percent for the second half of the nineties, and less than one percent for 2002.
When it comes to human resources, swift and fundamental restructuring is essential. The motive for streamlining the local labor market is three-fold; namely, higher use of endogenous human resources, lower overall cost of the expatriate work force, and better control of poverty, illness and illiteracy all over the country.
Structural economic reforms mean abolishing distorted market arrangements, and that includes the labor market. Reforms cannot be complete without comprehensive utilization of ICT and a tight system of corporate and public governance.
The information, computer and telecommunication sector is set to play a pivotal role in turning the Saudi socioeconomic outlook around. The newly established ministry and regulating board are expected to facilitate investment and job opportunities in the sector. In Saudi Arabia, ICT is in the initial stages. Jobs and business opportunities abound, but mature and well-coordinated initiatives are needed to realize them.
The IT industry is human-based, and the rewards for developing Saudi ICT professionals will be great. ICT is the core activity of the “new economy,” and closely related to the traditional economic sectors.
We need to work harder, smarter, and keep our eyes on closing up the economic gap as quickly as possible. That is a call for efficiency and enhanced competitiveness.
Currently, businessmen and jobseekers alike wait for the structural reforms program to unfold. Thus far, the prospects have been encouraging. Intellectual dialogue, structuring the financial market, restructuring ICT, enforcing competition, curbing monopolies — these are but a few examples.
Nevertheless, we need to come up with a strategy so that all forces work in harmony toward achieving economic growth, efficient use of human resources, and modernization. If we shy away from tackling the fundamental issues it will add to the risks of economic marginalization externally and societal volatility internally. These are very real threats.
The Saudi HR Paradox
The paradox is clear; we have a growing percentage of inexperienced unemployed nationals in a country flooded with a growing expatriate work force.
Even though government services represent close to 20 percent of GDP, Saudi public education has limited capacity to develop skilled professionals. Additionally, the private sector, whose contribution is better than 40 percent of GDP, is generally tilted toward “plug-and-play” attitude. The government cannot spend, and the private sector cannot compete. That duality left, until recently, the challenge of developing Saudi human capital to the unemployed.
In an effort to help the unemployed, the government recently founded the Human Resources Development Fund (HRDF). The fund finances the job training and offers wage-sharing to businesses that employ Saudis. Additionally, the government took a number of administrative steps to better enforce Saudization, such as delegating expatriates’ work permit issuance, renewal, and revocation to the Ministry of Labor and Social Affairs.
Since government’s programs are too scarce to support all applicants, jobseekers may well get a strong negative message: “It’s your problem, go solve it.” The difficulty is realizing a balanced solution that offers adequate jobs to the young and, at the same time, defends the competitiveness of local business.
The ‘Recruit, Retrain, Retain’ Initiative
The slogan “recruit, retrain, and retain” defines the challenge confronting the Saudiization program. Continuous development and accumulation of human capital are the basic survival strategy in the era of globalization, the Internet, and dominance of knowledge-based economic activities. It is even more true in the case of Saudi Arabia, where the job market is truly global and highly competitive.
The ILO states in one of its documents that “with rapid changes, preparation for employment can no longer be regarded as a ‘once and for all’ process that ends with initial education and training. Strategies are needed to ensure that training goes beyond this and develops an ongoing capacity for the renewal of the knowledge and skills of workers. Continuous training and learning are increasingly seen as a major, if not the main, vehicle for individuals to improve their chance for decent work throughout their lifetime.”
Saudization is the cornerstone. Resolution 50 of the Council of Ministers has been instrumental in bringing the human resources issues to the top of the national agenda. However, there are indications that the resolution might be revised to allow for greater flexibility. The basic building block in the Saudization policy should be encouraging employers to lower the number of expatriates whether they employ Saudis or not. The Saudization policy is also to be finetuned to the peculiarities of diverse economic activities. That will make for more realistically attainable Saudization goals.
The importance of policy design and evaluation cannot be overemphasized. Restructuring the Saudi job market is a genuine challenge. The government is serious in devising sensible strategies and drawing effective policies. Implementation will provide ample business opportunities in education, vocational, rehabilitation, training, certifying, and labor consulting.
As a final point, a business-level initiative for skills development and enhancement is worth a look. Its central justification is harnessing Saudi human capital. The basic elements of the initiative may be summarized as follows:
• Training of executives and managers
• Knowledge managers/experts
• Technical staff — infrastructure/ICT/content developers
• Vocational training/professional rehabilitation
• Telecommuting
• Professional and vocational certification
• Labor affairs support services.
In principle, the initiative is driven by two intertwined factors: Fulfilling captive demand for skilled Saudis, and generating value jobs for new entrants.
If realized, the initiative would directly influence about three million jobs by empowering qualified Saudis to compete with expatriates.
The initiative acknowledges that there are more than five million expatriates in Saudi Arabia. In terms of skill, they may be classified into three groups. About 15 percent of the non-Saudi workers are highly skilled; another 15 percent are illiterate.
Studies show that the challenge to the development of indigenous human capital stems from the third group, which comprises 70 percent of the expatriates. Typically, people in this segment hold educational and vocational qualifications ranging between the ability to read and write in their mother language to a high school diploma or equivalent.
Supposedly, Saudis entering the job market bring comparable qualifications. But in order for the local workers to seriously compete, they need to elevate their productivity to world-class level.
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(Ihsan Buhulaiga is an economic consultant. He can be reached at: [email protected].)