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Mega projects could help tackle Saudi structural unemployment trends

What does the Saudi job market need to do to deal with unemployment?

Unemployment rates amongst Saudi nationals are still high (12.5% in 1Q19) and mega projects may be needed to structurally reduce them There is higher unemployment amongst Saudi nationals compared with expatriates (12.5% unemployment rate amongst Saudi nationals versus 5.7% overall) Job growth needs to at least match labour force growth to maintain unemployment rates at current levels

By:  Bank of America Merrill Lynch

We see the Aramco bond proceeds and the possible finalization of the Aramco-SABIC-PIF deal as a stepping stone in achieving Vision 2030 targets, and specifically in creating sustainable employment opportunities over the medium-term. Unemployment rates amongst Saudi nationals are still high (12.5% in 1Q19) and mega projects may be needed to structurally reduce them by providing new industries and venues for creating jobs. Initially, however, job creation could likely be geared towards expatriates in the construction sector.

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While it is difficult to quantify the impact of these projects, the availability of funding post-SABIC deal could support the first phase of mega projects. The economy could thus move closer towards Vision 2030 targets. Some of these targets include: 

1) Reducing the unemployment rate from 12.8% to 7%; 

2) Increasing female workforce participation from 22% to 30%; 

3) Increasing the private sector contribution to GDP from 40% to 65%; and, 

4) Increasing the PIF's assets from SAR600bn ($162bn) to SAR7trn ($1.89 trn).

Related Survey: Q1 2019 Middle East and Saudi Arabia job market 

Unemployment: a key long-term challenge 

High unemployment rates amongst Saudi nationals is one of the most critical long term challenges for the consumer sector as: 

1) The unemployment rate has increased considerably over the past few years 

2) Saudi's young demographic profile suggests large additions to the workforce over the next 5-10 years. Job growth needs to at least match labour force growth to maintain unemployment rates at current levels, or exceed it to reduce them. Also, the initiative by the Ministry of Labour to replace expatriate employees with Saudi nationals over the medium- to long-term will also aid in reducing the overall unemployment rate given higher unemployment amongst Saudi nationals compared with expatriates (12.5% unemployment rate amongst Saudi nationals versus 5.7% overall).

Read more: Expats in Saudi are at great risk of losing their jobs

… 1.6mn Saudis are expected to enter the workforce over the next five years

There were 1.4 million students enrolled in higher education (pre-university diploma and higher) in 2017, according to the most recent statistics available. Also, we estimate there are approximately 170,000 Saudi students studying abroad. These can be expected to be enrolled in the labour force over the next 4 to 5 years. Similarly, there were 5 million students attending schools (kindergarten to grade 12), of which 1.2 million of them are in grades 10-12. This trend thus highlights the challenge (and opportunity) for creating new jobs and reducing the long-term unemployment rate.