Authorization

Saudi Arabia’s pace of reform must quicken to avoid rapid slowing

Saudi Arabia’s pace of reform must quicken to avoid rapid slowingSaudi Arabia must quicken the pace of reform to avoid a “rapid economic deterioration over the next 15 years,” according to a report that highlights the impact of the oil price slump on the kingdom’s finances.

McKinsey, one of a number of consultancies hired by the kingdom to advise on reform, called on Riyadh to treble its pre-slump level of job creation to meet an expected doubling in the size of the labour market to 10m by 2030. It warned that even if the kingdom froze spending and limited the number of foreign workers, unemployment would still treble to 22 per cent and household income would slump by a fifth to $3,000 a month.

“We are calling for them to step on the gas, to go for a significant change,” said Jonathan Woetzel, a McKinsey Global Institute director and main author of the report. “The reality of the demographic bulge and a more competitive energy market is not going away.”

The proposals, driven by Mohammed bin Salman, deputy crown price, constitute a radical overhaul of the Saudi social contract with its royal family, which has traditionally provided cradle-to-grave welfare and jobs in return for political fealty. This has been threatened by the slump in oil prices from more than $100 a barrel in the summer of 2014 to close to $40.

Without reform, government finances would “deteriorate sharply”, the report concluded, with current levels of reserve assets equivalent to 100 per cent of GDP swinging to a net debt of 140 per cent of GDP by 2030 even if expenditure was frozen in nominal terms.

A raft of economic reforms are expected in January, including the end to energy subsidies and privatisation of state industries. The kingdom has already overseen an $80bn cull of planned public spending and asked consultants, including McKinsey, to advise on reforms.

The US-based firm outlined a “viable opportunity to transform the Saudi economy” through an acceleration of productivity growth in non-oil sectors and $4tn of investment. The non-oil private sector’s productivity growth outpaced the wider economy over the past decade, but this was still “not as big as it needs to be”.
Saudi Arabia’s pace of reform must quicken to avoid rapid slowing

Under this scenario, unemployment would fall to about 7 per cent and non-oil revenues rise from 10 per cent of government revenues to 70 per cent. The sectors to “supercharge” the economy are mining, petrochemicals, manufacturing, retail, tourism, healthcare, finance and construction.

Saudi participation in the labour force would also rise from 41 per cent to 60 per cent, with the percentage of jobs held by foreigners dropping from 55 per cent to 26 per cent. The number of women in work would rise from 18 per cent to 45 per cent, in line with other G20 emerging economies.

But this would require improvement in educational standards. Despite spending a quarter of the budget on education, Saudi academic performance is below global averages.

“Our focus is on education to employment, how to make clearer the linkages between education and employment — there isn’t much vocational education,” said Mr Woetzel.

Although the report did not deal with politics, Mr Woetzel conceded that the changes could require a new social contract, with Saudis having to work harder, usually in the private sector, and the public sector delivering services more efficiently.

“That productive participation implies more transparency and accountability between government and the citizen — but how that is intermediated is another question,” he said.

Source: Financial Times
See also:
Leave a comment
News
  • Latest
  • Read
  • Commented
Calendar Content
«    Январь 2021    »
ПнВтСрЧтПтСбВс
 123
45678910
11121314151617
18192021222324
25262728293031