Could more mega projects solve Saudi unemployment?

Bank of America Merrill Lynch says Saudi Arabia may need to launch new mega projects to hit Vision 2030 targets on jobs
Could more mega projects solve Saudi unemployment?
By Sam Bridge
Sat 20 Jul 2019 12:07 AM

Saudi Arabia may need to launch more mega projects in the coming years to hit its Vision 2030 targets on unemployment in the Gulf kingdom, according to new research.

Bank of America Merrill Lynch’s latest report on Saudi Arabia said it sees the Saudi Aramco bond proceeds and the possible finalisation of the Aramco-SABIC-PIF deal as a stepping stone in creating sustainable employment opportunities over the medium-term.

Middle East equity research analyst, Belal Sabbah, said: "While it is difficult to quantify the impact of these projects, the availability of funding post-SABIC deal could support a first phase of mega projects."

Unemployment rates among Saudi nationals are still high - 12.5 percent in the first quarter of 2019 - and Vision 2030 sees that falling to 7 percent.

Sabbah said: "Mega projects may be needed to structurally reduce them [unemployed] by providing new industries and venues for creating jobs. Initially however, job creation could likely be geared towards expatriates in the construction sector."

Other Vision 2030 targets include increasing female workforce participation from 22 percent to 30 percent, increasing the private sector contribution to GDP from 40 percent to 65 percent, and increasing the assets of Saudi sovereign wealth fun Public Investment Fund from SR600 billion to SR7 trillion.

Sabbah added in the research note: "High unemployment rates among Saudi nationals is one of the most critical long term challenges for the consumer sector... as Saudi's young demographic profile suggests large additions to the workforce over the next 5-10 years.

"Thus, job growth needs to at least match labour force growth to maintain unemployment rates at current levels, or exceed it to reduce them."

The research said 1.6 million Saudis are expected to enter the workforce over the next five years.

Sabbah noted: "With Saudi Arabia's young population base, the labour force size should increase substantially over the next 10 years. This trend thus highlights the challenge (and opportunity) for creating new jobs and reducing the long-term unemployment rate."

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