Executive Summary

The challenges of reconstructing Iraq loom large on the horizon. After the dust settles, more than ever before, the focus will be on the basic economic conditions of the Middle East region, and the importance of those economies to the United States. This involves the reconfirmation of long-standing common needs and interests, along with new understandings about what these mean on a map redrawn by political and strategic realities. Central among those needs are considerations for the productive and reliable employment of the national populations that, hopefully, would live-on in prosperity and peace. 

The bottom line, for American and Saudi companies, will be reflected in the shared gains from meeting the challenge of raising the productivity of Saudi workers while at the same time finding how to employ more Saudis. All this is to be achieved at a time when the restructuring of Iraq could present a broad range of new opportunities to existing and new US-Saudi business partnerships. The good news is that this is a process from which all can gain in the billions of dollars of new revenues and investment.

The following essay is about unemployment in Saudi Arabia. It looks at the basics: the demography, macro-economy, and labor market. The source data are from the annual national accounts, the current five year economic plan (2000-2004), and the first official study about unemployment in Saudi Arabia for the basis year 1999. Compared to others across the region, overall Saudi unemployment is low at about 4.3 percent. In 1999, there were are about the same numbers of expatriates and Saudis in the workforce with the Saudis mostly working for government and the expatriates running much of the private sector. The labor participation rate for women is small, and for Saudi women extremely low. But the pressures for change are growing rapidly, with unemployment for the 20-24 age group (the new graduates) at around 27% and 33% for Saudi males and Saudi females, respectively.

It is important to appreciate that the current unemployment situation was not unanticipated. The 1992 Census gave the data about the "oil boom baby boom" that is now coming of age. Concerns about employment are discussed in virtually every segment of the 2000-2004 economic plan. On the national level, the plan aims to create jobs through economic diversification and the growth resulting from greater privatization, liberalization, opening-up, restructuring, and reforming the economy. The plan aims to expand the nation's economic potential as reflected in higher productivity and investment - the only real solution for the long-term for finding needed jobs for young Saudis. As for the labor market more specifically: through a variety of measures the plan progressively restructures the labor market, aiming to reduce reliance on expatriates in the workplace at average rates of 2-3% per year.

To succeed, the plan needs considerable participation and support from the Saudi and international private sector. But then, it is the private sector that will enjoy in the substantial and tangible rewards. The reforms will yield to the private sector the ownership and control of more than half of the economy (up from 42% in 1999). And even the modest shifts in reliance on expatriates will not only absorb the unemployment overhang, but also add some $1-2 billion per year every year to national GDP going forward. This is thanks to the fact that much higher economic multipliers are associated with Saudi households than with expatriate households. Such handsome rewards will not be earned without effort. Companies across Saudi Arabia are looking at their human resources in a whole new way. And the young Saudis are grappling with finding their own value in the workplace, and with committing to the education, training, and experience needed to enhance their value to employers.

American companies have a unique opportunity to participate in this process - while at the same time benefiting from the expansion in Saudi GDP that Saudi-ization will bring. And looking at the regional markets, Saudi Arabia brings unique strengths toward meeting the challenges and opportunities of the new regional business environment. The preponderance of owners and senior managers of Saudi businesses hold American college degrees. For them, American is the language of business, not just that business is English-Arabic bilingual, but also in regard to how the goals and the arrangements that make for good partnerships are conceived and discussed.

American businesses will want to take note of the special talents and networks that the Saudis can bring to new joint regional undertakings. Saudi business is free market oriented in the American sense, unlike most others in the region with their socialist or Ba'athist traditions. The Saudi trading networks lace all across the Islamic world, and are centuries old. They remember trading with Iraq in the days before Saddam, and thus are in the best position to reach back and revive old contacts and affiliations. Just such talents are needed in order to restore rapidly the internal and regional trade and commerce that the new Iraqi economy will very much need. A good memory and other talents for doing business in Iraq and elsewhere in the region is just one example of the value that Saudi human resources can bring to new Saudi-American enterprises.

The reconstruction of Iraq presents American business with unprecedented opportunities - but again, the rewards do not come without effort. In regard to Saudi man- and womanpower, the most required efforts are also the most familiar. Just as they have done so many times before for their own employees, the Americans that partner with Saudis will want to work for steadily rising productivity by effectively tapping the talents of an increasingly trained, motivated and Saudi human resources organization.

Post Script: This all needs a "9/11 awareness" - i.e., a recognition of the common aims and interests that both countries share to detect, deter, and apprehend terrorists and those who would support them. For American businesses considering working with businesses in Saudi Arabia, there are basic confidence and control issues to be addressed. There are the matters of "What constitutes good business practice? What do prospective partners need to know about each other and about their workers? How will the enterprise insure against any possible use or abuse, intended or unintended, of its business activities and assets in support of terrorism?" And similarly in the interest of good commerce, "Will all work together to establish a more effective and intelligent U.S. visa and immigration process, aimed at replacing the current exceptional measures with systems and controls that give even greater confidence?" For more on what the U.S.-Saudi commercial relationship and the subject of having a "9/11 awareness" means toward addressing the basic confidence issues, see the cap-piece for this series: Stakes and Stakeholders in the U.S.-Saudi Commercial Relationship

Myths and Realities about Unemployment in Saudi Arabia
By Kevin R. Taecker

Saudi Arabia's current five-year plan, covering the period 2000-2004, deals extensively with the challenges posed by Saudi demographics and unemployment. Briefly, the plan's demographic data (illustrated below) point to a large 'youth bulge' in the Saudi population. As a result, the numbers of Saudi young people leaving school and entering the job market every year are large and growing every year. The labor market they are entering appears unfriendly in many respects.

GRAPH

During the plan period, there will be little growth in government hiring, and the private sector workplace is overwhelmingly dominated by more or less entrenched expatriates. For every one Saudi working in the private sector, there are four expatriates. The schools are producing male and female graduates in approximately equal numbers with equivalent qualifications, but only 20% of the national workforce are women of which fewer than one in ten are Saudis.

The plan's solution, in a nutshell, is to restructure the Saudi economy in order to find the needed jobs in the private sector - in the near term by replacing expatriates (job "Saudi-ization") and for the long term through greater investment for economic diversification and growth.

According to free market principles, the plan aims to accelerate the expansion and diversification of the private sector by much more generally privatizing, liberalizing, opening-up, and reforming the economy. By providing national treatment and leveling the playing field for both local and foreign businesses and investors, the plan encourages Saudi industries and service providers to enhance their competitiveness. And, through Saudi Arabia joining the World Trade Organization and unifying Gulf Cooperation Council markets, and implementing the Arab Free Trade Zone, the plan would open-up and stimulate new market regions - the better for Saudi businesses to exercise their comparative and competitive advantages in order to extend and expand. Under the plan