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Cabinet changes signal employment reform

Last updated: Thursday, February 02, 2012 1:22 AM

By Andrew Torchia

RIYADH — In a cavernous exhibition hall on the outskirts of Riyadh, dozens of young Saudi women, clad in full-length black abayas and veils, stroll between corporate booths in search of jobs.
Each has completed a 3-1/2 hour aptitude test that gives her scores for 10 behavioral characteristics and two types of cognitive ability. The results are shown to as many as 81 potential employers which schedule job interviews using a centralized, online system.
It is Women’s Day at the first of a series of job fairs launched by the Saudi government this year to find employment for its citizens. In coming months the scheme aims to arrange interviews for 15,000 men and women out of 100,000 applicants, holding similar fairs in the cities of Jeddah and Dammam.
“In the past, finding a job was an uncertain process,” said Mohammed Mosly, a former investment banker who manages the scheme. “We’re using technology to make it predictable.”
Saudi Arabia’s economy is booming, fueled by high oil prices and heavy government spending. Gross domestic product of the world’s top oil exporter surged 6.8 percent last year, according to preliminary data, the fastest expansion since 2003; economists polled by Reuters expect growth to stay comfortable at 4.0 percent this year.
But at top levels of government, there is little public complacency. Instead, officials are talking of the need to find millions of jobs for Saudis over the coming years – a challenge which will require the economy to move beyond decades of dependence on oil and state investment to stress private sector growth and entrepreneurship, and which has become more urgent in the wake of last year’s social unrest in the Arab world.
Financial, legal and labor reforms are under discussion and may be introduced as soon as this year. Fresh steps are expected to encourage firms to hire Saudis in senior positions; the stock market may be opened to direct foreign investment; and there may be legal changes to stimulate the housing industry.
Unexpected changes of personnel in two top economic posts in December, moving the well-respected central bank chief to head the Economy and Planning Ministry, were seen by some officials as a preparation for reforms.
So far, the economy has developed “in the easy ways, moving from upstream oil industries to downstream. The bigger challenge is going from that to non-oil, private sector industries,” said Khan Zahid, chief economist at Riyad Capital, a financial firm. “The government is looking at the big picture issues now - the generation of employment, the question of education, diversification of the economy, all of these things.”

Economic model
Saudi Arabia has been talking of diversifying its economy for well over a decade, but the vast budget surpluses created by its oil wealth have limited pressure for reforms. The non-oil private sector provides less than 50 percent of GDP; nearly eight million foreign workers have been brought in to operate the oil sector and fill low-paying jobs, while Saudi citizens account for only about 10 percent of private sector employment.
Last year the vulnerability of this model was exposed. Saudi Arabia had to spend over $100 billion on welfare and infrastructure projects. Because of such spending, the government needs global oil prices to average $84.50 a barrel this year to balance its budget, according to the Reuters poll, up from $73 last year and around $50 in 2007.
With Brent crude oil now around $110 and the state sitting on huge fiscal reserves, there is no significant risk of Riyadh running out of money in the next few years. But in the long run, any slide in oil prices will undermine the country’s finances if it cannot find new revenue sources and broaden its economy.
“Assuming seven percent spending growth - which would be lower than the annual average of 12.5 percent in 2002-2011 - modest oil output growth, and an average oil price of $100, the country would run a deficit of one percent of GDP by 2015,” Fitch Ratings, a credit ratings agency, said in an assessment in January.
Adding to the challenge is looming demand for jobs among Saudi citizens; as much as 75 percent of the population is under 30. Unemployment among Saudis is already about 10 percent, a politically uncomfortable level.
The government estimates the Saudi labor force will expand to 10 million in 2030 from 4.1 million in 2008 because of population growth and the entry of more women into the workforce, which is being encouraged under social reforms.
Former Sintelligence chief Prince Turki Al-Faisal cited both the pressure on the state budget and the growing demand for jobs when he said last week that the country needed to focus more of its resources on developing its domestic economy.

Stock market reform
Much of the reforming energy is going into education, where the government is working with the private sector to try to make school graduates more employable, and into a complex system of job fairs, job subsidies and regulations to push private sector companies into hiring more Saudi citizens instead of foreigners.
A scheme launched last year penalizes firms if they fail to reach minimum ratios of Saudis in their workforces and rewards them if they greatly exceed those targets. Labor Minister Adel Fakieh said last week that a new version of the scheme, likely to be launched in coming months, would add targets for the minimum ratio of each company’s payroll paid to Saudis – an incentive to employ locals in higher-paying jobs.
But officials recognize that labor reforms by themselves cannot transform the jobs market – indeed, the targets for hiring Saudis may be hurting growth by making it harder for some companies to operate efficiently. So other reforms are being planned in an effort to jump-start private sector activity.
Legal changes are underway to improve enforcement of contracts and help smaller enterprises obtain credit, Ayedh Al-Otaibi, legal advisor at the Saudi Arabian General Investment Authority, told Reuters. He said the central bank might ease some rules on loans to make lending less restrictive.
The government is considering whether to open the stock market to direct foreign investment, not because listed firms need the money but because it hopes long-term investment by foreign institutions would focus the highly speculative market, now dominated by retail investors, on corporate efficiency.
Other reforms are being prepared but could be delayed further by political sensitivities. Passage of a long-awaited law facilitating mortgage lending could boost the home loan industry and galvanize the real estate market, but the law would have to deal cautiously with issues such as letting banks take away a borrower’s home if there is a default. Preparations for the law are advanced: “They have already gone nine miles, there is only one mile left,” said Zahid.
One far-reaching reform, which looks likely sooner or later, would be to raise the ultra-low prices which industrial users and households pay for energy. That could push companies to operate more efficiently, ignite a boom in energy-saving investment, and limit domestic energy use, making more oil available for export. — Reuters
 
   
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