Modern corporate building in Saudi Arabia

Economics

Le Royaume au-delà du pétrole

Dec 23, 2015 Gassan Al-Kibsi

RIYAD – Au cours des dernières semaines, le gouvernement de l'Arabie saoudite a entamé un examen de politique stratégique sans précédent qui pourrait avoir des répercussions sur tous les aspects de la vie sociale et économique du pays. Tous les détails devraient être communiqués en janvier, mais il est déjà clair que le Royaume (la dix-neuvième économie mondiale), a désespérément besoin d'une profonde réforme.

Deux raisons rendent ce changement urgent. La première est la chute spectaculaire des cours mondiaux du pétrole, de plus de 100 dollars le baril au milieu de l'année 2014 à moins de 40 dollars aujourd'hui. Avec des exportations de pétrole qui représentent près de 90 % des recettes publiques, la pression sur les finances de l'Arabie saoudite est intense : la balance budgétaire est passée d'un léger excédent en 2013 à un déficit de plus de 21 % du PIB en 2015, d'après les prévisions du Fonds Monétaire International.

La deuxième raison est d'ordre démographique. Au cours des 15 prochaines années, près de 6 millions de jeunes Saoudiens seront en âge de travailler, ce qui va exercer une pression énorme sur le marché du travail et va potentiellement doubler sa taille.

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j. von Hettlingen Dec 28, 2015

Gassan Al-Kibsi says Saudi Arabia is sensing the ramifications of the "dramatic drop in global oil prices, from above $100 per barrel in the middle of 2014 to below $40 today." As oil exports account for "nearly 90% of government revenue," a black hole has opened up in the budget, seeing a deficit in its fiscal balance. In recent months the government has been under pressure to review its policy, seeing perhaps the urgency for "far-reaching" reforms.
The author has not mentioned that it was the Saudis' decision to put the short-term pain ahead of the long-term gain and to keep on pumping even when the oil price was collapsing. They wanted to drive the American shale industry out of business, by pushing the cost of crude down to levels that would make the US production unprofitable. America has been a major exporter of cheaper oil.
Apart from a shortfall of oil revenue, Saudi Arabia faces a demographic challenge - the creation of jobs for some "six million young Saudis," who will join the labour market in the coming "15 years." For the moment the kingdom has an unemployment problem that may lead to social unrest. Two-thirds of the population is under 30 and the unemployment rate for the 16-29 age group is 29%. How would the reduction of "its unhealthy dependence on oil" help to "double its GDP and create six million additional jobs by 2030?"
The author praises the Saudi leadership for recognising the challenge and the determination to face it. He also highlights the opportunities available that give "reasons for optimism." The country should develop its tourism sector, hosting not only pilgrims, but attracting "leisure tourists" with the Red Sea and other "unspoiled" spots. It should also upgrade its "small-scale" manufacturing industry, to cater to domestic consumers.
The question is where to find the $4 trillion "in investment /and/ radical improvements in productivity?" This is "two-and-a-half times the amount of money that flowed into the kingdom’s economy during the 2003-2013 oil boom." The country's reserves are said to exceed $700bn and have a dual function - to smooth out the budget and to act as a sovereign wealth fund for the benefit of future generations.
No doubt the leadership realises that it is running an expensive country. Fearful of Iran, it has bought the latest weapons to show that it is the military power of the region. Its intervention in Yemen and the fight against ISIS have led to higher defence spending. Public spending and social largesse had been signifcant during the boom years of oil economy. It is a daunting task for the government to reduce the number of public servants - about 70% of Saudi nationals work for the state - and let the private sector create jobs.
To transform the economy will require "radical policy reforms" involving investors and an increase of productivity. The author says: "For now, the Saudi economy relies heavily on low-wage and low-productivity foreign workers on limited contracts; indeed, such workers hold more than half the jobs in the country." Over 6 million foreign workers play an important role in the Saudi economy, particularly in the oil and service sectors. Meanwhile the government is struggling to reduce unemployment among its own citizens, by seeking to employ its large youth population. Unfortunately it generally lacks the education and technical skills the private sector needs.
The author suggests the government to cut subsidies and to impose VAT as options for new revenue. It remains to be seen how successful the government's reforms will be. So far it has been able to keep its citizens quiet. If reforms start to take a toll on their livelihood, they may take to the streets. .
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Marc Laventurier Dec 25, 2015

McKinsey is notorious for concealing its failures; it will be interesting to see how such capitalist happy-talk about all that "high-quality silica" and DisneyMecca works out.
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Walter Gingery Dec 24, 2015

Thanks for the bulletin.

I find it hard to believe that the Saudi government will be able to make much progress without confronting the role that religion plays in the country.

The regime has always depended for its survival on support from the Wahhabi sect, and the Wahhabi clerisy has shown no willingness to give up its power to define what is acceptable behavior.
- Walter Gingery Dec 24, 2015
  
  The first place to make changes, obviously, is in family planning policies.
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