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Thu 17 Feb 2011 02:11 PM

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Silent kingdom

Despite simmering economic tensions, Saudi Arabia’s streets have remained quiet in the face of mass Arab uprisings

Silent kingdom
The issue of unemployment in Saudi is rooted in the educational system

So far, the biggest fallout from the contagion in Egypt in the Gulf’s biggest economy has been the affect on the stock market. After a crisp start to the year, the Tadawul All-Share Index dropped by six percent on January 29 due to investor concern about the situation in North Africa. Since that time, however, the Tadawul’s losses have been largely erased. In fact, the Egyptian situation has even played into the kingdom’s hands to a certain extent, as it has pushed the oil price higher.

While some Saudi companies have bought into Egyptian companies, the investment seems to be one way; the North African nation is not a big foreign direct investment player in Saudi Arabia. So long term, while individual Saudi firms may be worried about their exposure to Egypt, the same is not the case for the wider Saudi economy.

“A further economic link is the large number of Egyptian migrants that work in the kingdom,” said a recent research note issued by Riyadh-based Jadwa Investment. “According to recent data Egyptians accounted for around fifteen percent of new work visas; if they constitute a similar proportion of the expatriate population, there would be around 1.1 million in Saudi Arabia.

"Uncertainty at home may well affect the amount of money Egyptian expatriates remit from the kingdom.”

Aside from economics, there seems to be little sign of political tensions in Saudi Arabia, which is perhaps surprising given that the high levels of inflation and unemployment bear comparison — in numbers, at least — with Egypt. But actual protests  have been few and far between. Any form of political opposition is completely banned in the country, and previous protests by the Shi’a minority in the Eastern Region of the country have been met with severe crackdowns. Two recent incidents, one of which was entirely unrelated to demonstrations elsewhere in the region, will no doubt have highlighted to the ruling family that perhaps more introspection is required.

In the first instance, a small group of people were detained by local authorities in Jeddah after flooding wreaked havoc in the city for the second year running. This month, 40 women staged a protest in Riyadh, in a push for the government to release political prisoners. Elsewhere, reaction has largely been limited to the internet, where a Facebook campaign calling for political reform in the country has garnered just under 300 supporters.

“While there has been no real voicing of discontent, I don’t think anyone at the moment can afford to ignore what’s going on domestically,” says Marie Bos, a political analyst with Control Risks. “So they’re likely to reconsider some of their policies slightly and I wouldn’t be surprised if there was an increase in government spending, especially in Jeddah to avoid incidents like the flooding which have now happened two years in a row. There is also a possibility that there will be a small distribution of cash stipends in the future.”

Other analysts agree that the disruption elsewhere will force a slight revision to the country’s economic plans.

“It [Saudi Arabia] is susceptible and you are going to have to see some concessions from the government in terms of social welfare projects and that kind of thing,” says Theodore Karasik, an analyst from the Institute of Near East and Gulf Military Analysis. “It is the speed which it needs to occur over time as the wave that is sweeping.”

There is evidence to suggest that the Saudi authorities have pushed far harder than their counterparts in Egypt to try and find employment solutions for the country’s youth. The unemployment rate sits at around ten percent, but the kingdom is pouring several hundred billion dollars into an economic plan that aims to cut that figure by 50 percent in the next five years.

Saudi Arabia is also working hard to attract foreign direct investment, and in encouraging foreign companies to set up in the kingdom and employ Saudi nationals.

However, it is a slow process. External observers suggest that the kingdom will be lucky to maintain its current unemployment rate due to the swiftly rising population.

“Concern over whether the education system is arming students with relevant technical skills for the workforce is paramount since only one out of every 10 employees working for a Saudi private sector company is a Saudi citizen," says John Sfakianakis, chief economist for Banque Saudi Fransi. "This scenario must be drastically reversed if the private sector can shoulder the burden of future job creation."

 The ongoing presence of King Abdullah, who has made several concessions towards greater reform in the country, is a key stabilising point. However, the king has recently undergone major back surgery in New York, and has still not yet returned to Saudi Arabia, instead convalescing in Morocco. Crown Prince Sultan is deputising for the king in the meantime, although he himself is aged 83 and has had several health problems in the past. Recent rumours suggested that King Abdullah’s condition had seriously deteriorated.

“You have a leader that is susceptible to the succession issue, not that it is a problem but who is healthy in terms of the royal court," says Karasik. “It is happening at an unusual time for the kingdom.”

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