Saudi unemployment rate could exceed 20% by 2030: McKinsey

The unemployment rate for Saudi nationals could exceed 20 percent in the next 15 years, if current trends continue, leading to real average household incomes dipping by about 20 percent, consulting firm McKinsey said in a new report.

McKinsey notes that even if Saudi Arabia considers more private sector jobs for nationals, there would still be a shortfall of 1.5 million jobs by 2030.

“Even assuming that Saudi nationals replaced foreign laborers in more than 800,000 low-paid jobs, we estimate that only about three million jobs would be created for Saudis under this scenario by 2030,” the report said.

Unemployment is seen as the second most critical challenge that will put the kingdom’s oil and financial resources to a test, McKinsey added. At least 4.5 million new working-age Saudis are expected to enter the labor market by 2030, requiring the country to create three times the number of jobs it provided during the 2003-13 oil boom.

“More than half the kingdom’s population is younger than 25, and by 2030 the number of Saudis aged 15 years and over will likely increase by about six million,” the report said.

In addition, the number of elderly who require healthcare and support is also expected to increase over the next 15 years, putting further strain on the country’s finances.

Unemployment, along with pressure from weak oil prices, could lead to the kingdom accumulating a net debt of about 140 percent of GDP in 2030.

“A lack of action could be costly to the economy. For every year of delay, we estimate that the additional cost to the government by 2030 in terms of more expensive operations and lower oil revenues would amount to about SAR 190 billion,” the report said.

The agency warned that the break-even price of oil in 2030 could rise by $18 per barrel.

Earlier this year, the kingdom’s government warned private companies from dismissing Saudi employees using loopholes in a labor law that allows firms to fire employees as long as they get severance packages.

The move was seen as a sign that the government was keen on ensuring more Saudi nationals are employed in the private sector.

McKinsey is among the consultancies hired by Saudi Arabia to advise on economic reforms.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com