Analysis: Saudi jobs push costly and fraught with problems

DUBAI/JEDDAH Thu Jun 2, 2011 4:06am EDT

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DUBAI/JEDDAH (Reuters) - Saudi Arabia is anxious for its citizens to have jobs and tackle the social pressures that come with unemployment, but a big job-creating private sector push is so far unlikely to yield positive results.

Facing an increasingly younger and larger population, the world's No. 1 oil exporter is spending an estimated $130 billion, or nearly 30 percent of its annual economic output, in government handouts to quell any grievances that could result in a challenge to the conservative kingdom's status quo.

"The main challenge facing Saudi Arabia is unemployment and youth unemployment in particular and that is the main source of instability going forward," said Farouk Soussa, Middle East chief economist for Citi.

"What we have seen since the packages were announced is a greater urgency to confront the labor market distortions."

A jobless rate of around 10.5 percent is a pressing issue for the country, as the Saudi population grows at an average 2 percent every year, five times the rate of the developed world.

Saudis make up 69 percent of the total population of 27.6 million people, while the rest are foreign workers. Almost 70 percent of Saudis are under the age of 30.

Despite its massive oil wealth -- Saudi Arabia owns a record $468 billion in foreign assets -- the country has found it hard to trim unemployment.

That is because of an outdated school system focused on religion producing graduates without the skills to compete for private sector jobs, a shortage of cushy government jobs and companies preferring cheaper and skilled imported labor.

Dozens of university graduates and teachers staged rare protests in two Saudi cities in April, demanding jobs and better wages in the kingdom, where dissent is quickly stamped out.

Popular uprisings in Tunisia and Egypt, and protests sweeping through neighboring Bahrain, Oman and Yemen, have emboldened those seeking change in the kingdom with minor sporadic protests seen in March and April.

In a bid to ease tensions, King Abdullah unveiled in March and February measures including a new $533 monthly unemployment benefit, higher public sector salaries, the creation of 60,000 security positions and construction of 500,000 new houses.

WORK ETHIC

The Saudi Labour Ministry has announced a plan to hire 1,000 inspectors to enforce an updated system of quotas for Saudi employment in private companies, which classifies firms by how they fulfill the rules and sets penalties for laggards.

However, analysts doubt authorities would be able to effectively monitor some 1.2 million registered businesses in the kingdom, especially smaller ones.

"It's creating an additional burden on the private sector ... and it could end up as being another failure," said John Sfakianakis, chief economist at Banque Saudi Fransi. "You could see side-stepping of the rules ... and additional corruption."

Despite 16 years of efforts to promote "Saudisation," nationals account for a mere 10 percent of private sector employees, as firms favor laborers from Asia willing to work long hours for lower salaries, or well-paid foreign experts.

Over the years, companies found a number of ways to circumvent Saudisation rules, including paying off Saudis, who stay at home, or outsourcing some jobs to fulfill the quotas.

Unlike in other Gulf oil producers, such as Kuwait, state jobs are no longer guaranteed in Saudi Arabia, whose per capita income stood at nearly $24,000 last year, less than half of the neighboring United Arab Emirates.

"Having a huge number of foreign workers has affected our work ethic and has made many Saudis lose interest in work," said Saudi commentator Jamal Khashoggi.

In a new initiative, the Saudi labor minister said on Monday authorities would not renew work permits for foreigners, who spent six years in the kingdom, but gave no details.

UNINTENDED IMPACT?

In fact, some say the unemployment benefit measure could backfire since many low-income Saudi workers may quit their jobs ahead of its introduction in November to be able to take home a similar income from benefits as their jobs.

"There is no official minimum wage by the Labour Ministry, which leads employees to leave their job if their wages are close to the benefit," said Turad Alamri, a head of Bait Assawadah, a private employment agency in the city of Jeddah.

Some 2 million people were reported to have registered to get the allowance since the king announced the benefits in March, estimated to cost $2.9 billion per year. Economists expect authorities to try to cut number registered by around half by November, but that would still be double the number of people unemployed in 2010.

"I applied for the unemployment benefit and now I'm waiting," said Salem Alharbi, 25, a security guard in Jeddah.

"I think it will happen. That was an order from the king," said Alharbi, who supports his mother, three brothers and three sisters with a salary equaling the allowance.

Unemployment is high among Saudi women, at 28.4 percent out of the overall native labor force of 4.3 million in 2009, as they need permission from their guardian, husband, brother or son, to work and many prefer them to stay at home.

Despite government efforts to encourage more female employment, only 17 percent of women of working age are economically active, one of the lowest rates in the world and below the 20 percent participation in impoverished Yemen, according to the World Bank.

The ministry has yet to release final rules on how to claim the 2,000 riyal a month benefit which is expected to run for a year.

But with continued unrest continues across the region, many doubt it will be removed. That will only encourage further distortions in Saudi employment.

"It has proved very difficult to take away things like this in the past," said Paul Gamble, head of research at Jadwa Investment.

(Additional reporting by Jason Benham in Riyadh; Writing by Martin Dokoupil; Editing by Reed Stevenson)

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