Saudi job creation dries up as oil price slump hits broader economy

Saudi Arabia’s plans for economic reform foresee winding down ‘jobs for life’ in an inefficient state bureaucracy and replacing them with new careers in a dynamic private sector.

That’s the theory, at least. But in the short term, there is a problem: 2016 is set to be an abysmal year for job creation. Public spending is being slashed and growth forecasts for oil and non-oil portions of the private sector are gloomy.

A tough market awaits first-time job seekers in the world’s largest oil exporter, where “employment week” fairs are currently helping to pitch some 400,000 graduates to prospective employers.

For Nezzar, 26, who will finish a master’s program in computer systems at a U.S. university in May, the scale of the problem became apparent when he received a pho ne call from home in Jeddah. There were no jobs this year, his father told him, offering the advice: “‘Don’t come home’.”

Saudi net employment rose by only 49,000 in 2015, its slowest annual increase since records began in 1999. That is far short of the 226,000 jobs that the economy must create each year to accommodate new entrants to the labor market, according to a February report by Riyadh-based Jadwa Investments.

The number of working-age Saudis outside the labor force also rose by 85,000, most of them young people, said the Jadwa report. That was nearly double the number entering the labor force, representing the first drop in the participation rate since 2009.

“Government hiring has slowed down due to austerity measures, while at the same time the private sector has started to stagnate,” said Steffen Hertog, an academic at the London School of Economics.

“There’s just a shortage of jobs,” he said.

SIGNS OF STRAIN

In a country where nationals generally count on steady government paychecks to support them, Saudi citizens have so far been largely sheltered from the effects of prolonged low oil prices.

Even as the oil slump pushed the kingdom into a 367 billion-riyal ($97.89 billion) deficit last year, hefty public spending kept government salaries flowing and propped up the non-oil private sector, which depends heavily on state subsidies and contracts. Consumer demand barely budged.

But as the economy has slowed and the government has begun tightening its purse strings, signs of strain in the labor market have started to show.

The government hired 10,000 fewer Saudis in 2015 than it did the year before, adding only 93,000 new employees to the public payroll compared to 103,000 in 2014.

Meanwhile, the number of Saudis employed in the private sector in 2015 fell for the first time since the Nitaqat labor market reforms began in 2011, introducing targeted hiring quotas for private companies to make their staffs more Saudi.

Even as the non-oil economy continued to grow overall, prompting companies to add some 369,000 non-Saudis to their payrolls in 2015, expansion slowed to its lowest rate since 2009.

They hired 43,000 fewer Saudis than they did the year prior.

A CHALLENGING YEAR

Hiring prospects are likely to shrink even further in 2016, as proposed government spending cuts totaling some 135 billion riyals ($36.01 billion) take their toll.

The government’s 2016 budget included explicit pledges to rein in state spending on “recurring expenditures” like salaries and benefits, which means curtailed public sector hiring.

Economic growth is widely expected to slow, with the IMF projecting GDP growth of 1.2 percent, only slightly lower than the central bank’s own expectations of around 2 percent.

Professionals surveyed by online job portal Bayt.com expressed diminished expectations: 65 percent expected their companies to hire new employees in a year’s time, down from 78 percent last August.

“This is going to be a challenging year for employment. Employment generation in an economy slowing down is very difficult,” said Said al-Sheikh, the chief economist of NCB Bank.

Some economists, including al-Sheikh, expect to see increased pressure from the Ministry of Labor for “job substitution,” in which companies are compelled to swap out cheaper foreign workers for Saudis.

But upheaval in the workforce would place additional pressure on an already wobbly private sector, risking an even sharper slowdown.

Even then, no feasible amount of substitution would accommodate the hundreds of thousands of young Saudis about to start the job hunt.

Source: Reuters