Saudi Arabia needs to invest $4 trillion in non-oil economy to meet jobs demand, McKinsey says

McKinsey expects that even jobs growth above historical trends would result in mass unemployment.

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Saudi Arabia will have to rip up its social contract and invest $4 trillion in its non-oil economy if it is to provide jobs for its swelling population, and cope with an era of lower oil prices, management consultants McKinsey argue in a new report.

Six million young Saudis are set to enter the labour market by 2030, McKinsey says, creating an urgent need for new jobs. “To absorb this influx would require the creation of almost three times as many jobs for Saudis as the Kingdom created during the 2003–13 oil boom,” the report says.

McKinsey expects that even jobs growth above historical trends would result in mass unemployment, and major cuts to standards of living.

But “there is another path”, McKinsey says.

A $4tn government-backed investment drive across eight industries, and labour market reforms that would result in the end of privilege for Saudi public sector workers, could provide the Kingdom with enough growth to avoid mass unemployment.

McKinsey identifies as problems the facts that “public-sector workers on average earn about 70 per cent more than those in the private sector, unemployment benefits and welfare transfers are relatively high compared with wages, and [that] many employers would rather hire low-skilled migrant workers than Saudi nationals, who can cost four to six times as much.”

Of course, getting more women into work is also vital.

These changes would constitute the end of the Saudi social contract – which sees Saudi citizens guaranteed high-paying public sector jobs and a generous welfare state.

“The government would need to reframe its mandate away from providing cradle-to-grave dependence and security to focus on enhancing the potential and productivity of every Saudi citizen,” McKinsey says, euphemistically.

But the way the government spends money would also have to change dramatically.

“The existing fiscal model, which is based on income from oil revenue and public spending, would need an overhaul, not just of its methods but also of its underlying philosophy,” McKinsey says.

Saudi Arabia can no longer afford to have a break-even price of around $105. It must cut spending, cut subsidies, introduce a range of new taxes, cut subsidies, reform its sovereign wealth funds, and overhaul public sector procurement.

In short, McKinsey argues that Saudi Arabia has the means to save itself from a looming economic catastrophe.

It simply has to stop being Saudi Arabia.

abouyamourn@thenational.ae

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