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SURGE IN UNEMPLOYMENT

Saudi must boost private sector to meet jobs demand: IMF

Riyadh, December 4, 2013

Saudi Arabia needs to strengthen its private sector to satisfy demand for jobs by its young population and reduce its dependence on oil exports, said a senior International Monetary Fund official.

The world's top oil exporter has long seen unemployment among young people as its biggest challenge in coming decades, but it has struggled to turn private-sector growth into jobs for Saudis.

"We need more private-sector growth -- even much more stronger -- to absorb the potential labour supply," said Min Zhu, deputy managing director of the IMF, at an event in Riyadh.

The IMF said last month Gulf states would need to create 600,000 private-sector jobs by 2018 just to maintain the percentage of nationals working for private companies. And that would still absorb only a third to a half of the people expected to enter the labour market.

Zhu said the Saudis also faced a challenge in reducing dependence on the main energy markets, such as China.

"The global credit expansionary cycle is ending," he said. "That means [the Middle East] needs to look at more growth drive from inside the economy rather than from external demand."

The kingdom is the world's top oil exporter and China is its main crude market. It is also a big customer for Saudi petrochemicals, the main non-oil industrial export. Any reduction in Chinese government investment would have an exponential impact on Saudi growth.

"Our studies show if China reduces 1 per cent of GDP of investment ... it will have a negative impact on GDP growth of 0.35 per cent in Saudi Arabia," he said. "And China should reduce investments as a percentage of GDP by roughly 10 per cent".

An IMF official said the estimate did not take into account actions Saudi policymakers might take to counter the impact.

The kingdom's private sector grew to about 700 billion riyals in 2011, Finance Minister Ibrahim Alassaf said at the same event. That represented 58 percent of gross domestic product, he said.

Private companies now employ 250,000 more Saudis in 2012 than they did in 2011, Alassaf said. That means more than 1 million Saudis now work in the private sector.

Still, most of the new private-sector jobs the Saudis have created were taken by expatriates, economists say. Across the Middle East, Alassaf acknowledged, private-sector growth requires "an acceleration of structural reforms aimed at improving the business environment."

Saudi Arabia began a series of reforms last decade that opened to private and foreign investment sectors of the economy that had long been limited to state-owned companies. It also strengthened its stock market, partly privatised some government operations and acceded to the World Trade Organisation.

The official unemployment rate slipped to 11.8 per cent in the second quarter from a peak of 12.4 percent in 2011. But that does not count Saudis neither working nor actively seeking work.

Economists estimated Saudi participation in the work force at 30-40 percent. And most working Saudis still work for the government.

The kingdom has over the past two years pushed a crackdown on visa irregularities among expatriates to push more Saudis into jobs now held by foreigners.-Reuters




Tags: Jobs | Saudi | IMF | Private sector |

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