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Skills mismatch key hurdle in Gulf jobs creation

Last updated: Saturday, July 28, 2012 4:06 PM

JEDDAH In spite of massive investments in education in recent years, the ability of the GCC economies to provide national employees with the skills demanded in the marketplace remains constrained, the National Commercial Bank said in its latest "GCC Economic Review". Indeed, the employment of expatriates for specific skilled positions remains an important aspect of the regional labor markets. In many cases, the sought-after skills are not limited to precise technical qualifications but include various soft skills, experience, and the ability to transmit international practices and standards. Local educational investments are hence not necessarily sufficient to fully level the playing field in the near term.

The regional shortage of highly skilled employees is reflected by the fact that for instance in Saudi Arabia, university degree holders made up only 0.2 percent of the total number of job-seekers in 2010. High-school graduates were the most important group accounting for 38.9 percent of the total. 25.9 percent of the total had an intermediate school certificate and 15.2 percent only a primary school certificate. In terms of age, 42.8 percent were 25-34 years of age, which suggests that a large number of people may lack the skills sought after by the labor market or struggle to compete against low-cost expatriate employees in the current environment.

Part of the challenge historically has come from the poor alignment of the education system with the needs of the labor market. For instance in the UAE, only 24.6 percent of university students study science and technology-related subjects. However, the proportion of business and economics is a reasonable 27.4 percent. In Saudi Arabia, the proportion of science and engineering students is 14.8 percent of the total number of students while the share of business and social sciences is 9.1 percent. The share of education is a remarkable 41.7 percent. A further 7.9 percent are enrolled in general faculties of arts and sciences where the breakdown by discipline is not provided. At the moment, there are still typically few mechanisms to remedy such mismatches.

While it has been a strategic priority for the Gulf governments for a long time, labor market policy has dramatically increased in salience during the past year or so in connection with a general shift toward a more inclusive growth paradigm. With the demographic momentum in the region showing little sign of waning, the ability of the GCC labor markets to effectively absorb the growing numbers of new entrants remains the central challenge. Up to 4.5 million GCC nationals are due to enter the labor force in 2010-2015, a figure that is close to the total current employment of nationals - some 5 million. The Saudi national population alone is growing by close to 450,000 a year. At the same time, the ability of the sectors historically preferred by the nationals to absorb new job seekers is limited.

International precedents suggest that entrenched patterns in labor markets cannot be overcome without significant regulatory intervention. Far-reaching reforms are necessary to enable the GCC labor markets effectively absorb the new entrants as it is unrealistic to expect that this will happen by virtue of economic growth alone. For instance, the above IMF estimates on linkages between growth and job creation suggest that Saudi Arabia would need 7.5 percent annual growth to halve unemployment over a five-year period. This still looks like an unlikely outcome in view of historical trends. Consequently, the key challenge for regional policy-makers is to reshape the regional labor markets in ways that are economically as undisruptive as possible.

A central element of meeting the employment imperative comes from enhancing the ability of the private sector to absorb new job seekers. The targets involved in this transformation are unprecedented. In Saudi Arabia, the government’s ninth five-year plan foresees the creation of 1.2 million new jobs in 2010-14, of which 92 percent is expected to go to Saudi nationals. Recent government initiatives have sought to boost these numbers much further. One statement put the objective at some 3 million job opportunities by 2015 and up to a total of 6 million by 2030 while other projections foresee 3.5mn jobs by 2025. This compared to the current total number of Saudis in paid employment of 3.8 million (2009). The overall national labor force stands at 4.3 million. The Omani Ministry of Labor is targeting 50 percent Omanization which would be a major quantum leap from the current estimate of 12.8 percent (March 2012).

The Saudi government last year launched the Nitaqat program with the objective of boosting the private sector participation of Saudi employees from current 10 percent to 50 percent over three years. Instead of setting rigid quotas, the program compares private sector companies on a number of indicators in terms of their Saudization record. A flexible system placing companies into 230 categories based on their sector, sphere of activity, and size is designed to better account for the idiosyncrasies of particular sectors. Within each group the top 50 percent of companies are marked green or silver, the bottom 20 percent red. SG

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