Jobless rate down, but challenges ahead for Saudi economy

Even with unemployment at three-year low, kingdom will face higher deficits next year

AN ARAMCO employee looks over the company’s Ras Tanura oil refinery and oil terminal in Saudi Arabia on May 2. (photo credit: REUTERS)
AN ARAMCO employee looks over the company’s Ras Tanura oil refinery and oil terminal in Saudi Arabia on May 2.
(photo credit: REUTERS)
At 12%, Saudi Arabia’s unemployment rate has reached its lowest level in three years.
The recently announced figure indicates a drop of 0.3% percentage points from the second quarter of this year and a decrease of 0.9% percentage points from the high of 12.9% in the first and second quarters of 2018.
Joblessness has shrunk for a variety of reasons.
The number of people the kingdom employs has gone up by close to 3% this year. The government has also tried to boost the number of jobs in the nonpublic sector. In addition, more women are obtaining work.
The unemployment rate announcement falls on the backdrop of the Saudi oil company Aramco’s initial debut on the stock market last Monday. For a short period, last week, the company was worth around $2 trillion.
Saudi Crown Prince Mohammad bin Salman has made economic reform a crucial part of his Vision 2030, which includes integrating more women in the workplace, increasing the role of the private sector and building up the King Abdullah Financial District in Riyadh.
The crown prince’s target unemployment rate is 7%.
“Raising employment numbers is an arduous process that requires structural changes to the economy,” Jim Krane, a research fellow at Rice University's Baker Institute in Houston, told The Media Line.
“MbS is in the early phases of pushing some of these changes. It's not going to happen overnight,” he said, using a popular appellation for the crown prince.
Quentin de Pimodan, a Gulf Cooperation Council analyst at the Research Institute for European and American Studies (RIEAS) in Greece, told The Media Line he does not directly attribute the drop in unemployment to Vision 2030.
“Maybe in some ways [the drop in unemployment] is thanks to the contracts given for construction of various projects, but not solely the Vision itself,” de Pimodan said.
Dr. Ellen Wald, a senior fellow at the Atlantic Council, agrees.
“It’s impossible to say whether Prince Mohammed’s Vision 2030 reforms have anything to do with the 0.3% drop in Saudi unemployment,” she told The Media Line.
The Saudi government has also tried to reduce the kingdom’s international labor force, but this has not significantly impacted unemployment rates.
“These labor market interventions have created some additional employment opportunities for Saudi citizens but have not made a major dent in the unemployment rate,” Robert Mogielnicki, a resident scholar at the Arab Gulf States Institute in Washington, told The Media Line.
However, RIEAS’s de Pimodan believes that nationalization might diminish the unemployment rates among Saudis in the future.
“This will force, one way or the other, Saudis to fill in,” de Pimodan said. “The main problem here is perception, mentality and social pressure, as many Saudi citizens still consider some jobs to not be ‘decent’ enough to do them. I am confident this will change with time.”
However, not all is well with the Saudi Arabian economy.
“Though inching downward over the past couple of years, the total unemployment rate has remained persistently high,” Mogielnicki said.
In addition, women are still suffering in the economy despite increased participation rates, with their unemployment rate at around 30%. Women comprise less than a quarter of Saudi employees, and Riyadh hopes to boost the number of women in the workforce to 30% within 10 years.
People in cities are doing better employment-wise than people in less-populated areas.
“One of the major tasks for the [Saudi Arabian government], whether it's economic, cultural [or] social, is ending the isolation of the most remote communities,” de Pimodan said. “The construction of universities, industrial sites and agricultural programs aren’t new, and they aim at ending this isolation. However, the infrastructure is still lacking.”
Another major fiscal challenge the Saudi Arabian government is tackling is its budget shortfall.
The government projects that its already high deficit will continue to grow to almost $50 billion from close to $35 billion this year, which will account for almost 6.5% of the kingdom’s gross domestic product.
The actual GDP is expected to expand by 2.2% in 2020.
Budget deficits started nearly six years ago as the cost of oil, a major source of revenue for the Saudi economy, decreased. During this time, government spending skyrocketed due to the cost of social programs and benefits for those on the public dole.
The government has tried to offset the spending by increasing countrywide assessments and reducing benefits to some segments of society, but expenditures are still soaring.
“Over the coming year, Saudi Arabia expects lower oil revenues and only a minor increase in non-oil revenues when compared against the previous year. Meanwhile, the government views spending on education, security and defense, and health and social development, as strategic priorities,” Mogielnicki said.
“The deficit,” he said, “is a reflection of wanting to do more with less.”