By Sam Bridge
ICAEW research says rising output is yet to translate into higher hiring activity in the Saudi private sector
The Saudi Arabian economy, the largest in the Gulf, is set to see minimal growth of around 0.5 percent in 2019, according to ICAEW’s latest research.
Despite major diversification efforts, economic activity in the kingdom remains weighed down by the renewed oil production cuts by OPEC+, it said, adding that private sector job creation is crucial to Saudi Arabia achieving long term fiscal sustainability.
The accountancy and finance body's Economic Update: Middle East Q3 2019 report, produced in partnership with Oxford Economics, said the Saudi economy continues to tread slowly towards economic diversification and improving the overall business environment.
It said the non-oil private sector expanded by 2.3 percent in Q1 – the fastest in six quarters – and in June the Purchasing Managers Index (PMI) reached its highest level since December 2017.
Preliminary estimates show that the economy grew by 1.7 percent in Q1, buoyed by an uptick in both oil and non-oil activities compared to the same period last year.
Nonetheless, solid economic growth and rising output are yet to translate into higher hiring activity in the private sector, the ICAEW said.
It added that as the government pushes Saudization policies to tackle the high levels of unemployment among locals, the number of expats in the private sector has significantly declined, with over 1.2 million expats leaving the labour market since the end of 2016.
But it said the number of employed Saudis has not picked up as a result.
Michael Armstrong, ICAEW regional director for the Middle East, Africa and South Asia (MEASA), said: “We applaud the necessary reforms the Saudi government has implemented to achieve economic diversification and to improve the overall business environment.
"Although we see signs of improvement in the non-oil private sector, the Saudi economy still remains closely tied to the dominant oil sector. In order to achieve Vision 2030 goals, improvement of the overall business environment through pro-business policies and initiatives is a must, especially addressing the high unemployment level in the private sector as this is a key area of growth for Saudi Arabia.”
The Saudi government posted a $7.4 billion budget surplus in Q1, the first in almost five years while construction activity in the kingdom has also shown signs of recovery.