Why is Saudi Unemployment Falling?

Why is Saudi Unemployment Falling?
Employees work at the Saudi National Health Emergency Operations Center (NHEOC) in the capital Riyadh on May 3, 2020, during the novel coronavirus pandemic crisis. (Getty)

The Saudi business sector got a hard blow in 2020. Tens of thousands of employees lost their jobs in different sectors due to the lockdown and the oil price crash. The GDP declined by 4.1% last year according to the estimates of the Saudi General Authority of Statistics (GASTAT).

Year 2021 has shown a better performance for the Saudi economy. Based on the Labor Force Survey, GASTAT issued its latest figures on the unemployment rate among Saudis. The rate is now below the pre-Covid-19 level at 11.7% in Q1 2021, down from 12.6% recorded in Q4 2020.

Majalla English is exploring the reasons behind the decline of unemployment rate in the Kingdom.

Oil Price Doubled in a Year

With the launch of Kingdom Vision 2030 in 2017, Saudi Arabia has accelerated its steps to make oil one of the sources of income, but not the only source as previously after the discovery of oil in the late 1930's. However, the economic transformation needs more years to evolve and yield its fruits.  The Kingdom is a rentier state in the sense that it is still oil dependent.

The average oil basket price in June 2020 was USD 37.05. The prices have continued to rise to stand at USD 74.84 in July 2021, i.e., the price has doubled in a year. Higher oil prices have helped the government continue spending, financing its current projects and launching many more.

The government is the biggest spender that is able to boost the job market with a huge impact. More jobs have been created in the past few months with the launch of new mega-projects such as The Line, The Saudi Green Initiative, The Middle East Green Initiative, etc. What is equally important to the creation of new jobs is job retention for existing employees. Mass layoffs, which were common during the lockdown, have decreased to minimum levels. Greater amounts of cash in the Saudi treasury ensures that banks have more liquidity, enabling the private sector to get credit facilitation easily and continue growing.

A picture taken late on June 3, 2021 shows Saudi staff checking attendant's mobiles for vaccine certificates or a negative Covid-19 test, at the entrance of a theatre hosting the first concert in the Saudi capital Riyadh since the start of the COVID-19 pandemic. (Getty)

Female Unemployment

Opening new sectors for women in the Saudi Army and other security organizations which can absorb more labor has helped women explore new career paths and reduce female unemployment.

According to the latest unemployment report of GASTAT, the unemployment rate of Saudi females stood at 21.2% during the first quarter of 2021, compared to 24.4% in the previous quarter.

The Saudi policy of encouraging the engagement of more women in the job market has had a great impact on this demographic segment. Saudi women are known for being more loyal and dedicated to the workplace. The financial side is not the only decisive factor in their career choices.

"In our company, the rotation of Saudi female employees is far less than that of males. They have proven to be more loyal despite the wage equality policy we have adopted long time ago. Once they feel fulfilled, respected and satisfied with the workplace, they respond less to new job offers," said Khalid, an HR manager at a local Saudi company.

Internal Public Investments

The Saudi Public Investment Fund, Saudi Arabia's sovereign wealth fund, has committed to invest USD 40 bn into new investments every year until 2025 under a new plan called VRP2 (The 2nd Vision Realization Program). The vision refers to the Kingdom Vision 2030. It is interesting to know that the PIF will invest annually 5.7% of the Saudi Gross Domestic Product (GDP), which was estimated at UDS 701 bn at the end of 2020.

When talking about the local Saudi market, the PIF is working currently in two directions:

1-Buying stakes/shares from local established companies to fulfill their expansion and growth plans; and,

2-Setting up new companies, such as ROSHN, a mega real estate developer, which was launched in 2019.

The PIF policy focuses on the employment of Saudis. For example, ROSHN posted on its social media platforms that it will create 170,000 direct and indirect job opportunities for Saudis. IT is just one example of how PIF is becoming a major employer in the Saudi job market. Between 2021 and 2025, the PIF plans to create around 1.8 million direct and indirect jobs in the Kingdom, making it the second largest employer after the government.

Unemployment Expectations

The Ministry of Human Resources and Social Development has recently targeted a variety of sectors with its Saudization Program including Custom Clearance, Cinema Professions, Driving Schools, Engineering Technicians, Telecommunication, and Private Education. More sectors are localized according to the availability of local talent which can replace the employment of expats. The Ministry has a program to Saudize and create over 200,000 jobs in 2021.

The government agencies are playing a bigger role in creating new jobs for citizens and will continue to do so as the Saudi job market has 350,000-400,000 new entrants every year. The upcoming GASTAT report will show the development of employment in the biggest job market in the GCC region.