London, Asharq Al-Awsat – As I write this article today Saudi Arabia is celebrating the 80th anniversary of its founding on 23rd September 1932. I wish everyone on the Kingdom of Saudi Arabia my congratulations. I will start this week’s article by thanking HRH Prince Mohammed bin Nawaf Al Saud for inviting me to the National Day celebrations the Saudi Embassy in London. This milestone provides an opportunity for looking at the Kingdom’s opportunities in the international sense.
This week it is appropriate therefore to think about ‘the concomitant challenges that lie ahead’. King Abdullah has been described by political analysts as the Kingdom’s most popular king thanks to his political, social and economic reforms. In early 2011, King Abdullah issued a series of decrees announcing a number of social welfare projects. And there is no doubt that the strong Saudi economy’s higher spending is addressing social issues and helping the region.
Last week the IMF said in its annual economic review that the outlook for the Saudi economy remains buoyant. It grew at 7.1 percent last year with 8 percent growth recorded in the non-oil sector; the highest since 1981. The private sector grew at 8.5 percent, with the construction and manufacturing sectors providing the largest increases. The latest numbers are that Saudi GDP has reached 2.2 trillion Saudi Riyals, an increase of 31.4%.
That is a fantastic achievement in the current economic climate. Saudi Arabia is going from strength to strength.
The only possible cloud on the horizon is that the oil sector continues to dominate the economy. The cloud comes in the shape of a research note from Citibank suggesting that Saudi Arabia risks becoming an oil importer within 20 years. Saudi Arabia’s per capita consumption of energy is already higher than the developed world and Bloomberg’s research finds the country’s energy consumption is increasing at twice the rate of its population growth. The country already consumes one-quarter of the oil it produces and it already consumes all the natural gas it produces. I am no oil analyst but this should be considered as a call to increase efforts to diversify.
Of course the Saudi government is very aware of this and has been working hard in the past decade to create an environment that encourages risk-taking, creativity and value-creation. Entrepreneurship enjoys high-level support. All sectors are contributing to building a start-up culture in the country, such as the Prince Salman Young Entrepreneur Awards, the National Entrepreneurship Center, and the Saudi Arabian General Investment Authority (SAGIA), which established the Saudi Fast Growth 100.
Saudi Arabia is encouraging the growth of the private sector in order to diversify its economy and to employ more Saudi nationals. Almost 6 million foreign workers play an important role in the Saudi economy, particularly in the oil and service sectors, while at the same time Riyadh is struggling to reduce unemployment among its own nationals.
In countries that need to create huge numbers of new jobs for indigenous people there is scope to be entrepreneurial in the approach to developing the vocational and development training that are required to support localisation programmes; programmes like Nitaqat, the Saudisation programme that came into effect in June last year. Not everyone will go to university, nor should they. This leaves a training gap and that gap must be filled if local people are to provide the workforce that the country requires.
New businesses are developing in advanced economies in clusters: a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular field and often with smart small businesses. Clusters are considered to increase the productivity with which companies can compete, nationally and globally. Linking academic excellence with vocational training will encourage these new businesses.
Globally youth unemployment is a problem and in Britain, as in most countries, lack of qualifications in some sections of society is a big contributor to this. Britain has a very well educated work force but also has young people without any skills and they are much more likely to be unemployed. In Saudi, officials are particularly focused on employing its large youth population, some of whom lack the education and technical skills the private sector needs.
A lack of suitable skills for the jobs that need to be done brings unemployment for sections of the population. In the desire to protect people from the hardship of unemployment countries that can afford it cushion their people through providing unemployment benefits. However, it is really important to avoid creating a culture of dependency on unemployment benefits: is not a long-term solution as has been found in Britain. Britain accidentally created a new problem: that of households in which there is little work ethic as complete families have not worked for more than one generation. Britain is now addressing this through a new approach to reform the benefit system that extends a ladder of opportunity to those who have previously been excluded or marginalised from the world of work.
The private sector is now involved in a programme of vocational and development training to provide the skills that employers require. An education system must prepare people for the world of work. University education is right for some but not for others. In any case a balanced economy needs assorted skills to be sustainable. Any successful programme of vocational training and education will incorporate domestic private sector organizations and experienced international experts.
In order to sustain the future of any country it is necessary to align the capabilities of its citizens with the strategic requirements of the government. This involves ensuring that academic and other training institutions are teaching courses in the necessary skills and in the correct proportions. International experience has shown that it is difficult for government to reform its own capabilities and methodologies without the external input of a third party.
The King Abdullah Scholarship Program (KASP) was the starting point of turning the Saudi economy away from oil dependency and toward a knowledge-based one.
The Kingdom of Saudi Arabia is adjusting to its future with great resourcefulness but if the Citi report is even slightly accurate then the process must be accelerated. This will need close cooperation between the Saudi Government, its private sector and appropriate international experts.
I hope everyone in Saudi enjoyed the Saudi National Day and that the future remains as bright as the current economic situation clearly is. Saudi Arabia is going from strength to strength.