The sweeping reforms promised by Saudi Crown Prince Mohammed Bin Salman’s Vision 2030 got an important boost and pledge of support by Saudi Prince Alwaleed bin Talal, Chairman of Kingdom Holding, who was once detained for 3 months following a November 2017 anti-corruption crackdown, and later released without divulging the type of deal he struck with probe officials.
“I was honored to meet with my brother HRH the Crown Prince and to discuss economic matters and the private sector’s future & role in #Vision2030 success,” he tweeted with a photograph of the royal cousins embracing in front of a desk.
“I shall be one of the biggest supporters of the Vision through @Kingdom_KHC & all its affiliates,” Prince Alwaleed added, referring to his international investment company, as reported by Reuters.
Vision 2030 is Prince Mohammed’s scheme to wean the world’s top crude exporter off oil, but the far-reaching initiative is facing two uphill battles: Foreign direct investments (FDI) and an employment crisis.
FDI drying up
According to Business Insider (BI), hit hard by the oil-price collapse, the Saudi kingdom is now experiencing a plunge in foreign investment.
Nasdaq reported that FDI inflows shrank to $1.4 billion in 2017 from $7.5 billion in 2016, according to figures from the UN Conference on Trade and Development, and which fall in line with data published in recent weeks by the Saudi Central Bank.
Saudi reforms launched two years ago aim to boost FDI to $18.7 billion by 2020, in order to create and help diversify the economy beyond oil exports.
Expat exodus from Saudi
Hundreds of thousands of expatriates have been leaving Saudi Arabia as the economy stagnates and the authorities impose more fees on foreign workers, according to The Week, a UK based family of publications for global news.
According to April figures released by the Directorate General of Passports (Jawazat) in Riyadh, an average of more than 1,500 foreign workers have left the country daily since the Q4 2016.
“Dependents fees for lower-income expatriates, as well as greater efforts to nationalize the workforce, make it less economically opportune for foreign workers,” says John Sfakianakis, director of economic research at the Geneva-based Gulf Research Center, as reported by The Week.
Bloomberg reports that “the number of foreign workers, about one-third of the Saudi population, declined by 6% to 10.2 million in Q1 2018 compared with a year ago, taking the cumulative drop over the five past quarters to about 700,000”.
“Unemployment among Saudis has risen to 12.9%, amounting to 800,000 Saudis, which further emphasizes the struggle to create jobs as the economy recovers from the “worst economic slowdown since the financial crisis in 2009”, says Bloomberg
Saudization and job creation crisis
Under the National Transformation Plan 2020, a stage-setter for Saudi 2030 vision, Saudi targets an unemployment rate cut to 9%, by generating some 450,000 new private sector openings.
Companies who fail to hire Saudis in what is called Nitaqat or Saudisation, are subject to hiked up levies and restricting the sectors in which they can work.
BI said many areas of the retail and service industries are now strictly confined to Saudis.
“The measures are said to be driving the expat exodus, evident in the marked downturn in the rental real estate market and empty shopping malls,” said BI.
“The majority of foreigners in the country are from the Middle East and Asia, many employed in low-paid jobs in the sectors now earmarked for Saudis.”
Dr. Mohammad Bassnawi, a columnist for the Saudi Gazette, recently wrote: “Over time, companies began circumventing the regulations surrounding the Nitaqat program. Many companies hired Saudis and paid them small salaries for what in effect were fake jobs. These Saudis did not carry out any tasks and did not even report to work.”
He added: “The World Bank criticized the Nitaqat program because it left companies no choice but to give Saudis fake jobs and “hire” them just to meet the requirements of Saudization. In its report, the World Bank said that only 10 percent of real job opportunities were given to Saudis; in other words, around 20,000 jobs out of 200,000 a year were provided to Saudis by the private sector. The rest were fake jobs.”
In February, the Saudi Gazette reported that a number of heads of chambers of commerce and industry had called on the government to exempt the private sector from “100%” Saudisation, especially posts that are hard to fill amid concerns that many businesses may close down.
Karen E. Young of the Arab Gulf States Institute in Washington wrote in February that it will take a decade or more to create a working class of Saudis willing to do service sector, retail, and construction jobs.
In May, an item revealed that over a three-month period over 5,000 fines were issued to businesses breaching Saudisation rules in sectors ranging from telecoms to hotels to car rental.
Funds that Saudi needs
BI said Saudi hopes to generate some $17.33 billion through the new expat taxes by 2020 in order to help address the budget deficit — projected to be $52 billion in 2018 — and finance new economic projects.
Fortunately for the country, a rebound in the price of oil has provided some financial respite. Foreign reserves, which have in part been used to finance the budget deficit, experienced a month-on-month rise of just over $13 billion, to nearly $499 billion, in April, still way down from their peak four years ago, when they stood at $737 billion, reported BI.
Brexit giving Saudi a way out of a crisis
Brexit will lead to stronger trade and investment opportunities between the UK and Saudi Arabia, and attracting listings such as Saudi Aramco would be among a string of important deals Britain hopes to secure after it breaks with Europe, according to Chris Innes-Hopkins, UK executive director for the Saudi British Joint Business Council (SBJBC), reports Albawaba, a business site.
“Brexit does provide many opportunities for the UK and Saudi Arabia,” he said, speaking to Arab News after his address at the 12th BMG Economic Forum at the London Stock Exchange Group on Wednesday.
In March, the UK and Saudi Arabia agreed to a goal of $90 billion of mutual trade and investment in the coming years during a meeting between the UK’s Prime Minister Theresa May and Crown Prince Mohammed Bin Salman.
“There are lots of areas where they and the Saudi Stock Exchange (Tadawul) can work together. Obviously, post-Brexit, we are very keen to work with the Public Investment Fund (PIF) of Saudi Arabia to attract more Saudi investment into new sectors in the UK,” he said.
“There are a lot of new sectors including education and health care reform, smart cities — and not forgetting entertainment and tourism — where UK companies can help and get involved to implement new projects and provide the assistance needed that will support the grown small and medium-sized companies (SMEs) in Saudi Arabia.”