The image most people have of Saudi Arabia is one of extraordinary and extravagant wealth driven by an abundance of oil. That may once have been the case. Not so much anymore.
Saudi Arabia still has a lot of oil. According to OPEC Saudi Arabia has 18% of the world’s proven petroleum reserves and is the world’s largest oil exporter.
Its economy has been built on oil. Profits from the petroleum sector account for around 80% of the government’s revenues.
The problem is that it developed little else and now oil prices have collapsed from peaks of over $140 per barrel. The advent of shale oil production, and the return of Iranian oil to the market, makes it unlikely for prices to return even close to that level, certainly for the foreseeable future.
Market oil price forecasts indicate a range $50-$60 per barrel even with the recently announced production cuts.
Saudi Arabia’s oil export revenues have fallen $200bn from their 2012 peak. That’s around 30% of its GDP.
Unsurprisingly this has put the country’s oil-reliant budget under increasing pressure. In 2015 Saudi Arabia’s budget deficit ballooned to a record 15% of GDP (or $98bn) which in the context of the UK’s 4.4% is staggering.
In response Saudi Arabia has cut spending by around 25% – mainly through reductions in public sector wages as well as cuts to subsidies and infrastructure spend. It has drawn down on its savings (foreign reserves stood at $540bn at end October 2016 down from the peak of $737bn in August 2014). It has also increased borrowing (by 2020, Saudi Arabia expects its debt to reach 30% of GDP, from less than 8 per cent now).
But these are all only short-term fixes. They are not the answer to the long-term structural problem Saudi Arabia has of needing to diversify its economy away from its reliance on oil.
There are also limits to which these measures can be applied. In order to retain power, Saudi Arabia’s ruling family needs to avoid any cause for unrest. This is a risk if it continues to cut subsidies and public sector wages along with the introduction of tax (along with other GCC states Saudi Arabia is to introduce VAT at 5% from 2018). Quite simply it needs to keep the lions fat and happy.
Earlier this year Saudi Arabia announced its Vision 2030. This is a plan to reduce its dependence on oil and includes expansion of the private sector, part-privatisation of some state-owned assets (including Aramco) and a reduction in unemployment.
The latter will prove a meaningful test for Saudi Arabia given its burgeoning young population. Saudi Arabia has a population of around 32m of which around 20m are Saudi nationals. Almost 60% of Saudi nationals are below the age of 30.
According to government statistics the country’s unemployment rate stands at a high 12.1%. What is more concerning is the gender split – male unemployment is close to 6% while female unemployment is over 34%.
Even more significant, however, than female unemployment is the lack of female participation in the labour force.
Less than 20% of all Saudi Arabian women over the age of 15 are either in work or looking for work – that’s less than one in five. This is derisory when compared with a number of other countries.
| Country | Female Labour Force Participation (aged 15 years +), % |
| Saudi Arabia | 19.0% |
| Turkey | 29.3% |
| Malaysia | 44.5% |
| Mexico | 45.1% |
| Russia | 57.1% |
| Brazil | 59.4% |
| Japan | 48.7% |
| Germany | 53.7% |
| UK | 55.8% |
| US | 56.3% |
| Sweden | 60.2% |
| Norway | 61.2% |
Source: World Bank
There are certainly cultural obstacles to women gaining employment in Saudi Arabia such as women needing permission from their male legal guardians to undertake any form of employment. Lack of mobility is another obstacle – women are also not allowed to drive and there is no properly functioning public transport system.
What is not an impediment is education. While women account for 45% of Saudi Arabia’s population they account for 60% of graduates. The country has the world’s largest women-only university – the Princess Nora bint Abdulrahman University – which is projected to reach a capacity of 50,000 students.
To add, with the global shift towards technology-driven industries it is worth noting that 80% of girls in Saudi Arabia are interested in studying engineering. Saudi Arabia needs these women.
Despite levels of education women with undergraduate degrees and higher account for almost 50% of Saudi Arabia’s total unemployed, men and women. This is a massive waste of human capital.
One of Saudi Arabia’s Vision 2030 initiatives is to increase the female labour participation rate to 30%. This scarcely seems ambitious and limits a genuine opportunity for economic development.
Saudi Arabia’s unemployment is a function of the fact that the country’s reliance on oil has led to a lack of skilled employment opportunities. The country needs to create these opportunities.
A first step would be in allowing women to drive which would, in the first instance, eliminate the cost to the economy of employing foreign drivers who then send their earnings back to their home country.
Having female drivers could also lead to the creation female-only taxi services.
The country would clearly want to avoid job competition between men and women. Companies would also want to avoid additional costs from the need for segregation of the genders in the work place. However, this could be outweighed by the potential for entrepreneurship by an educated and skilled segment of the population.
It could even be that the obstacle created by the requirement to have gender-segregated workplaces could, to some extent, be turned to an opportunity if women are able to foster a ‘pink collar’ economy. Female entrepreneurs or business executives might prefer to engage women in high value-added service industries, such as lawyers, bankers, accountants, consultants, etc. The setting up of a women-only business park could become the kernel of this opportunity. It could also lead to the development of ancillary businesses, e.g. food services, dry cleaning, personal care, childcare, etc.
This is not to say that segregation should continue but it does allow for some way to work around the current system.
Ultimately for Saudi Arabia to increase female labour participation a major cultural shift is needed. While this is likely to continue to be resisted the country needs to acknowledge that it is in unchartered and quite serious economic territory.
Locking down such a large proportion of the educated workforce is akin to driving with the handbrake on. Having women work may not be what many men want but it’s what the country needs.
Heidy Rehman, CEO of professional career wear brand Rose & Willard