Saudi, Gulf states face unemployment dilemma amid slow growth

Saudi Arabia’s labor ministry has recently warned private firms from dismissing Saudi employees using loopholes in a newly passed labor law that allows companies to fire employees as long as they get severance packages, in yet another sign of the government’s determination to force private companies to share the burden of unemployment even as the private sector’s growth slows down.

For years, Gulf states, especially Saudi Arabia, have been pushing with labor reforms to reduce reliance on foreigners and encourage their nationals to find jobs in the private sector. Heavily-reliant on blue and white-collar foreign labor force, private businesses resisted the job nationalization drive and demanded legislations that take into consideration the employers’ interests.

“The costs of the current labor market structure are now becoming more of a concern,” said John Sfakianakis, a senior economist and Middle East director for the Ashmore Group. “Quality improvements to education and training are needed to boost the skills and productivity of workers. Spending is increasing, but academic achievement of students in the GCC lags peer countries.”

With the populations growing at a fast pace and a bloated public sector wage bill, creating jobs for the unemployed youth is a matter of national security, especially in the post 2011 Arab uprisings era. The unemployment rate among Saudis aged 15-25 is about 29.43 percent.

Saudi Arabia, for example, deported over one million foreign workers that held expired work permits in 2013. Unemployment remains around 11.6 percent in the first half of 2015, a 0.1 percent drop from the second half of the previous year.

But as oil prices halved in the past year, the hydrocarbon-dependent Gulf states are urged to reduce spending to narrow projected budget deficits in economies where the private sector’s growth and job generation are driven by state spending.

The recent outcry in the kingdom was prompted by the alleged firing of 34 Saudi engineers by a private company, and 300 Saudis during the training period.

Chevron Corp. reportedly plans to lay off up to 1,000 Saudi employees working in the Saudi-Kuwaiti joint oilfield after a dispute between the two countries halted oil exploration there.

“Economic diversification is the key,” Sfakianakis said. “Liberalizing the domestic mobility of the large foreign workforce could boost productivity by boosting labor market flows, while wage subsidies could help narrow the wage differential between nationals and foreign workers.”