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Investment

in Arriyadh

The Saudization drive, known as Nitaqat, to turn over more jobs

to Saudis has in some areas so far had uneven and challenging

results. But the Government’s policy remains both firm and

clear in steering employers towards achieving Saudization.

With a youthful population and huge investments in education

and training there are significant opportunities to tap into the

prospects offered by recruiting sophisticated young, capable and

aspiring Saudis. The total working population in the Kingdom

according the Government’s 2013-2014 Labour Force survey is

11.4 million. Of that 5.3 million are Saudi nationals. Significantly

in the public sector, almost 95 percent of employees are Saudis.

Expatriate workers currently dominate in the private sector, which

employs some 1.1 million locals against 7.3 million foreigners.

Moreover, although the changes in the labour market and the

subsequent short-term workplace disruption have impacted annual

growth, the quality of that growth has been improving. Analysts

have pointed out that in the first quarter of this year growth

has been spread remarkably evenly and not just concentrated

in the hydrocarbon, petrochemical and construction sectors.

Even allowing for the fact that every first quarter tends to be

the strongest, because of the weather and current lack of public

holidays, inflation-adjusted gross domestic product was boosted

by 3.4 percent as against 2.7 percent in the previous quarter, the

fastest growth in the previous 12 months.

The key observation that economists are making is that this

is quality growth. While construction shrank 5.6 percent in the

first quarter on 2014 over the same period the previous year and

was down 9.9 percent on the last part of 2013, all-important

manufacturing grew 6.5 percent. This was the fastest in two years

and a solid four percent up on the final quarter of last year. A

survey of Saudi purchasing managers in June 2014 showed that

the expectations were positive. The consensus among analysts is

that the non-oil economy will continue to its steady pick-up. The

only yellow rather than red flag, is the level of consumer credit

that has built up in the past few years, which may have an impact

on discretionary purchases.

Rise of Non-Oil Economy and Private Sector

The drive towards economic diversification in order to build

a strong non-oil economy has been a priority of Government

planning over the last two decades. From simply being the

world’s most influential oil producer, Saudi Arabia has invested

downstream, to become one of the leading international players

in petrochemicals from its plants in the Kingdom and a strategic

portfolio of overseas petrochemical assets.

The Saudi private sector is dominated by Small and Medium

Size Enterprises (SMEs). The Government fully appreciates the

importance of these businesses to the success of the non-oil

economy. Indeed it has underlined its active support for the sector

in its ninth economic plan (2010–2014). It has also recognized

the imbalances that currently exist with SMEs. Although they

represent some 90 percent of all Saudi firms, they currently

contribute only a third of the Kingdom’s Gross Domestic Product

and employ just 25 percent of the total workforce. In most

industrial countries they contribute over 75 percent of industrial

production.

Of equal concern to the government is the fact that only two

percent of domestic bank lending is currently directed to SMEs, in

part because of the considerable funding required by the country’s

very large corporations, busily engaged in the construction and

infrastructure. Banks also find it easier to book a relatively small

number of large assets to known corporate customers rather than

credit assess and monitor a raft of much smaller loans.

In recognition of this, the government two years ago set up an

SME authority to drive the access to funding for such companies,

defined as having annual sales of less than SR30 million ($8

million). Within the authority’s remit is the provision of soft loans,

the encouragement of a reduced dependence on expatriate labour,

the promotion of increased female participation in the workforce

and the fostering of research and development.

Given the clear advantages enjoyed by SMEs and the wide spread

of activities in which they are engaged, it is obvious that the right

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