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Tue 2 Jul 2019 07:18 PM

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Why the gov't is still dominating the job market in Saudi Arabia

Saudi Arabia's private businesses may be shedding jobs, but the government continues to hire

Why the gov't is still dominating the job market in Saudi Arabia

Saudi Arabia’s private businesses may be shedding jobs, but there’s one place that’s hiring - the government.

Payrolls are swelling at state agencies involved in Crown Prince Mohammad bin Salman’s revamp of the economy - from the wealth fund to new entities called Vision Realization Programs. Not surprisingly, the kingdom is finally making a dent in citizen unemployment after it peaked last year at nearly 13 percent, the highest in over a decade.

But that’s where the good news ends. Although joblessness among Saudis declined to 12.5 percent in the first quarter, the number of citizens working in the private sector actually fell. The government, still the main employer for the kingdom’s nationals, has added more than 20,000 jobs for Saudis since the third quarter of last year, when the statistics service started reporting the breakdown by sector.

In some ways, Saudi Arabia has actually “gone back” to an older model of state-driven employment and growth, according to Monica Malik, chief economist at Abu Dhabi Commercial Bank.
Government Boost

“The pickup we are expecting in non-oil activity this year is largely due to higher government spending, either directly or indirectly,” Malik said. “So that’s also going to be where the job creation will be.”

Joblessness is one of the biggest challenges Prince Mohammed faces three years into his efforts to diversify the economy of the world’s biggest oil exporter. Persistent unemployment presents a threat by testing the patience of young Saudis entering the labor market.

While Prince Mohammed’s blueprint for the post-oil era was based on cutting the public payroll, he acknowledged in an interview last October that government hiring could be part of the solution, but said “the job creation in the private sector will also grow with time.”

The wait is far from over. The number of citizens employed in the private sector fell 2 percent over the past year, a side effect of the economic slump that’s frustrated years of efforts to get companies to hire more Saudi nationals. Known collectively as Saudization, the initiatives have included recent measures that restricted a slew of jobs to citizens. Yet foreigners are leaving their jobs at a faster rate than Saudis can replace them.

The plight of companies has only been made worse by a string of fiscal reforms such as new taxes and fees. Business confidence has also been hit by political events.

“The economy has not generally been creating employment,” said Mohamed Abu Basha, head of macroeconomic analysis at investment bank EFG-Hermes in Cairo. “It’s the same sectors where expats have been losing jobs that Saudis have been losing jobs.”

One bright spot is the rise in the number of working Saudi women. The late King Abdullah reserved certain retail jobs for Saudi women, while Prince Mohammed has ended a longstanding ban on female driving.

The female unemployment rate continues to hover over 30% on the back of a higher participation rate, meaning that more women are looking for work.

In contrast, even as unemployment has fallen to 6.6% for Saudi men over the past year, their share in the labor force has also gone down, albeit slightly.

“There are fewer men looking for work,” Malik said. “Even though the headline trend showed some improvement, it’s still a very challenging situation.”