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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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