2016 April 22 Friday
Saudi Arabia Economy In A Nutshell

Heavily dependent on oil and this is true:

The state still employs two-thirds of Saudi workers, while foreigners account for nearly 80 percent of the private-sector payroll.

Prince Mohammed bin Salman is trying to reform the economy of Saudi Arabia because of the financial crisis caused by cheap oil. The state is bleeding money at a fast rate.

Okay, lets do some math on the Saudi labor market. The third of Saudis who are in the private sector are one fifth of the private sector. The Saudis employed by the state are another two fifths. So we have something like 80:60 ratio of foreigners to Saudis total overall in the Saudi workforce. Is there a viable way to transform this situation into a healthy economy?

It comes down to what the Saudi citizens are willing and able to do in the labor market. If they aren't all that willing or able then what? The government could go with a plan B that, at least in Saudi Arabia, might be viable: import even more workers but of very high skill. Create an economy of foreigners in some portion of the Kingdom that has high earning power and high productivity.

In theory this could be done while still maintaining an overwhelmingly Islamic populace since India has the most Muslims in the world and Saudi Arabia could try to skim the intellectual cream off the top of India, Indonesia, and a few other countries with large Muslim populations.

United Arab Emirates has a largely migrant labor force with natives in government and defense.

In 2013, the UAE had the fifth-largest international migrant stock in the world with 7.8 million migrants (out of a total population of 9.2 million), according to United Nations (UN) estimates.

It is amazing how far the UAE has gone with this strategy. Natives make up only 10-15% of the UAE workforce. The imported labor is overwhelmingly male and so doesn't reproduce much.

To make this sort of situation work you need a ruthless government with natives in the military and police very ready to crack down and do mass deportations of any protesting imported labor. You also need some viable industries that would get staffed by all the imported labor. But I'm not clear how, say, a manufacturing industry with an export focus could do better in Saudi Arabia than competing companies in, say, low labor cost India. How could Saudi Arabia make use of all that imported (and harshly treated) labor in a way that is competitive with companies in other countries producing the same sorts of goods and services?

I think the Saudi government is going to need to lower the living standards of natives because it is not going to find sources of wealth that can replace oil. But disappointments from declining living standards could easily lead to revolution. So can the Saudis maintain political stability over the coming decades?

Share |      By Randall Parker at 2016 April 22 11:48 AM 


Comments
Glengarry said at April 23, 2016 10:54 AM:

Everyone I've ever met who has worked in Saudi absolutely hated it and didn't want to go back. So there's that.

Big Bill said at April 23, 2016 5:30 PM:

Can they maintain stability? No chance. But once they run out of oil, will anyone want to stay? No way. They started out as desert nomad camel jockeys and they will end that way.

maciano said at April 23, 2016 10:16 PM:

I hope they will meltdown. They deserve it. They deserve nothing.

Black Death said at April 25, 2016 8:12 AM:

Here's a short but informative article on Saudi-Iranian relations. Their differences are substantial and long-standing. Saudi Arabia is the guardian of the two holiest Islamic sites, Mecca and Medina. The Saudis see themselves as the leader of the Sunni Moslems. Iran is the only large Shia Islamic nation. The Iranians are the de facto leader of the Shias but would like to be considered as the leader of all Muslims. Each side regards the other as heretical, for reasons that non-Muslims find difficult to understand. The population of Saudia Arabia is about 30 million, Iran, about 80 million. The Iranian economy was heavily damaged by the sanctions, now lifted. Iran, in spite of serious human sights abuses, looks like a Jeffersonian democracy compared to Saudi Arabia. Iran's improving relations with the West, especially the US, are viewed as a mortal threat by the Saudi elite. The early promises of the 1979 Iranian revolution have never been fulfilled - the Shah's tyranny was replaced by the mullah's. Improved relations with the West and the removal of sanctions could lead to a freer, more open and democratic Iran. This might cause the Saudi youth to become restive and demand the same changes that the Iranians have experienced. Aside form proxy wars in Iraq, Syria and Yemen, the two sides are waging an economic war, with oil as the principal weapon. (When the Shah was in power and Iran enjoyed good relations with the US, the Saudis feared that the Iranians, backed by the US, would seize the oil-rich eastern Saudi provinces, home of an oppressed Shia minority. Sounds ridiculous to us, but that's how paranoid everybody in the Middle East is). Hard to see how this one will play out. We don't need their wretched oil anymore, and there probably isn't much of a role to for us to play among these scheming fanatics. Best to let them play by themselves in their giant sandbox.

Rico Zamman said at May 2, 2016 6:20 PM:

If it were its own country, Chester, Pennsylvaniaís per capita income would rank between Turkey and Dominica. On average, its residents are poorer than those of Uruguay, Lebanon, and Antigua and Barbuda. The city has been part of a program for economically distressed communities since 1995. And in 2010, PPL Park, a $117 million soccer stadium, was opened in Chesterís southwest corner, overlooking the Delaware River. With 97 percent of funding coming from the public, thatís $3,334.90 for every man, woman, and child in Chester.


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