Despite efforts by the government to reform the labour market, closely associated with Deputy Crown Prince MBS, new data show that the number of locals in private sector jobs is falling
The unemployment rate edged down to 11.5% in 2015 compared to 11.7% a year before, but only because fewer locals joined the labour force, according to data from the General Authority for Statistics. The figures ought to provoke alarm in government, suggesting that efforts to get more locals into private sector jobs have stalled.
There had been a slow but steady rise in both the proportion of Saudis participating in the labour market and the Saudisation rate in the private sector in recent years, but those trends have apparently reversed. The participation rate fell from 41.2% in 2014 to 40.2% in 2015 and there was a decline in Saudisation from 22.1% to 20.7%; sectors such as manufacturing and wholesale and retail were particularly badly affected. All of which creates a headache for modernisers grouped around Deputy Crown Prince Mohammed Bin Salman (MBS), who has been championing much-needed reforms in the jobs market and other parts of the economy (GSN 1,008/1).
The main issue is that, while jobs are being created, employers still mainly hire migrant workers. According to analysis by local bank Jadwa Investment, 417,000 new jobs were created in 2015, up from 339,000 in 2014. Of the new jobs, 368,000 (88%) went to non-Saudis. Net employment of locals rose, but only because the public sector hired 93,000 more of them; the number of Saudis in private sector jobs fell by 43,000, the first such drop since labour market reforms began in 2011.
The number of locals outside the labour market increased by 85,000 in 2015, with the rise particularly sharp for those aged 15 to 24. The situation of Saudi women also appears to be getting worse. The female unemployment rate rose to 33.8% in 2015, despite a fall in their labour market participation rate. Unemployment among Saudi women aged 20 to 29 was 62%.
The government will have to redouble its efforts if it is to succeed in getting more Saudis into private sector employment, perhaps by making public sector jobs less appealing. Public sector productivity remains substantially lower than in the private sector, but initiatives such as the National Transformation Plan 2020 and the King Salman Programme for Human Resources Development could help to change that. The latter is designed to give staff promotions and pay rises based on merit rather than length of service.
More privatisations of state-owned firms could also help to shift the balance. A proposed sell-off of oil giant Saudi Aramco grabbed the headlines following MBS’s interview with The Economist in January, but others have since been mooted, the latest being the Saudi Ports Authority. However, such moves are likely to run into difficulty given the bloated nature of many state-owned companies. Layoffs are politically unpalatable but potentially unavoidable if companies are to survive as standalone private sector enterprises.