Oil revenues have fallen sharply this past year in a way that has made many Saudis accept the notion of reducing the Kingdom’s total dependence on oil — the very thing they had been used to for decades. Although the proposed solution is harsh, it is indispensable for the country’s sake, to secure the future of coming generations and to build a stronger state as well as a healthier economy.
The announcement of the country’s new budget a few days ago made many people aware that the Kingdom is entering a new phase. Work has already begun in order to reduce dependence on oil and reduce the role of the “central” government. Saudi Arabia is undergoing a transformation; depending much — as highlighted in Vision 2030 — on the private sector as a key partner in providing basic services such as education, medical care, transportation, etc. Such a successful model is present in countries whose economies do not rely on the public sector.
Assigning a large part of this task to the private sector is a wise decision. Yet the problem, in my opinion, is that the private sector is weak and cannot be depended upon to carry out the required tasks. With the exception of a few companies, the rest are enormous scattered shops that live on the easy money derived from oil. If the government is looking forward to switching to a country with an effective private sector, it needs to be able to depend on the economy of large corporations.
With due appreciation to the experts who always talk about supporting small and medium enterprises as a solution to employing thousands of job-seekers, I think the best option for Saudi Arabia is the other way around. Transforming into the market of giant companies will contribute to the development of services and industries, facilitate the process of qualifying, training and employment for citizens, as well as protecting Saudization which the government has failed to impose on the private sector for 30 years.
Giant corporations can organize and develop the market according to their own interests. Moreover, corporations with large capital can introduce costly and sophisticated technology, spend on building large distribution networks and expand across the country. Maybe it would be better for labor-intensive countries, such as Egypt, or with low investments, such as Pakistan, to develop small enterprises as they are the way to employ people at the lowest costs.
The option of Saudi Arabia is to transform into an economy of large companies in terms of construction and industries — medical, educational, technical and vocational services, including engineering, plumbing and electricity. The Kingdom will be able to build a huge and organized market through turning to global expertise and adopting the state-of-the-art technologies. Large companies can, in collaboration with government institutions, serve the market by imposing their needs on the educational and training sectors.
The essential role of the state would be to “generate” giant companies through the development of systems and granting of loans and contracts. In this regard, we have few previous examples. SABIC, however, is a model of an advanced industrial corporation with 40,000 employees, mostly Saudis, serving in advanced specialties.
Meanwhile, other experiments have failed often as a result of regulation and the lack of systems. The most recent example is the project of Panda markets in neighborhoods — an experiment rather like thousands of “franchise” shops of major US brands. The project may have failed because of the market chaos and the lack of license regulations that enable major companies to offer their services in the neighborhoods. The failure is clear evidence of the bad role of small enterprises which turned into a cover-up for trade and unhealthy monopolies for foreigners.
Because the government will continue to be the source of life for the economy, it will be able to rebuild the market. For example, the government can, through its mega-construction contracts, stipulate a percentage of works to be implemented by major local companies specialized in providing engineering and electrical services. This would employ thousands of Saudi professionals at minimum wages and long-term contracts in order to ensure consumers have good services for many years — as is the case in organized communities.
At present, the Saudi private sector lacks enough major specialized companies. Most of the existing ones are commercial agencies which cannot be relied upon to establish a real productive and sustainable market. Big companies are fewer than 10 and it is impossible for them to make use of hundreds of thousands of graduates, especially after the government has decided to give up the role of employer. The government’s philosophy is that it helps them to learn and motivates them to train and they have to work in the market. However, the market is simple — there are thousands of small shops that do not qualify, train, expand or develop.
As the government has decided that the private sector is its partner, it has to re-shape and re-establish it anew. The current market has been built for different purposes during a past that was very different from what we see today. I believe that the government should plan and encourage companies to establish similar companies for advanced markets in all fields, and to list them in the stock market as it did with SABIC, electricity and transport companies. Only then can the state rely on the private sector with the government’s role being an organizational rather than a regulatory one.
• Abdulrahman Al-Rashed is a veteran columnist. He is the former general manager of Al Arabiya news channel, and former editor-in-chief of Asharq Al-Awsat, where this article was originally published.
