Dubai: Saudi Arabia is expected to miss its job creation targets despite its strategies based on expansion of the economy and substitution of expatriate workforce with Saudi Nationals, according to Bloomberg Economics.
“The unemployment rate among Saudi citizens reached 12.9 per cent in the first quarter of 2018. The government’s National Transformation Programme (NTP), a set of development objectives for 2020, aims to cut this to 9 per cent.
"We estimate that requires the creation of at least 700,000 jobs in the next two years — a target unlikely to be achieved,” said Ziad Daoud, Chief Middle East Economist for Bloomberg Economics.
According to estimates, reducing the jobless rate to 10.6 per cent would take a further 100,000 jobs followed by another 100,000 to reach 9 per cent.
- Ziad Daoud | Chief Middle East Economist for Bloomberg Economics
The government has two available strategies to meet its target — expand the economy or replace expatriates with Saudi citizens.
Analysts say neither option will realistically generate enough jobs to meet the job creation goals.
“Take the growth option. The last time Saudi Arabia managed to create more than 700,000 jobs was between the first half of 2018 and the first half of 2014. Back then, oil prices were above $100 (Dh367) and non-oil growth was running at 5.5-6.5 per cent,” said Daoud.
Things are very different today.
Non-oil growth was 1.6 per cent in the first quarter of 18. The government forecasts this will pick up to 3.1-3.7 per cent over the next two years.
Yet despite this optimistic outlook, growth will be nowhere near enough to meet the unemployment target.
It would take a huge fiscal expansion, which the government can ill-afford, to achieve such strong growth rates and add 700,000 jobs.
There are about 7.8 million expats employed in the economy. If only 10 per cent of them are replaced by Saudi nationals, the government will be able to meet its aim.
Two problems will undermine this strategy: a mismatch of skills and the high wage gap between locals and foreigners.
“There is a good reason to think that displacement won’t happen — Saudi pay expectations. Saudis are paid 1.5 to 3 times more than expatriates with the same education level. Will unemployed Saudis accept lower wages just to start working? That’s unlikely, 29.2 per cent of them cite low wages as the reason why they left their previous jobs,” said Daoud.
The government tried to close this gap by imposing an expat levy, a 400 riyal monthly payment companies make on every foreign worker.
It also offered to subsidise Saudi salaries. But these measures are too small to narrow the large wage gap between locals and foreigners.
