Jeddah-born Wael used to own a trading company in his home town and controlled a stock market portfolio that turned over more profit in a day than he now makes in a month.
But after losing his company during a business dispute and enduring massive losses in the stock market crash of 2006, he has been left doing odd jobs, including driving a taxi and running errands for his wealthy compatriots.

�Seventy per cent of Saudis are unhappy now,� says the father of six. �Rent is so expensive.�
Broadening economic opportunities for the fast-growing population of 28m � half of whom are under 25 � is the biggest challenge for the Gulf�s economic superpower in the coming years. But the reforms needed to put the�economy�on a stronger footing will break the longstanding social compact of generous state handouts in return for loyalty to the all-powerful Al-Saud family.


In the wake of the Arab uprisings in 2011 the government of�Saudi Arabia�raised public sector salaries and announced $130bn in state spending in an effort to head off unrest at home. Riyadh has also been spending billions of dollars funding the armed opposition in Syria, and the governments of Egypt, Lebanon, Yemen and Bahrain, partly in an effort to constrain rival Iran.


As state spending has ballooned, Merrill Lynch estimates that the break-even oil price � the level at which the government can balance the budget � has risen to $85 a barrel.

Meanwhile, youth unemployment runs at more than 30 per cent. The overall unemployment rate dropped a notch from 12.2 per cent in 2012 to 11.7 per cent last year, according to official figures. But economists believe that as much as 40 per cent of the working age population does not work.

Approximately 41 per cent of all new jobs created since 2011 are in the public sector, while private sector growth, away from the oil industry, is 5.5 per cent � less than the 6.5 per cent economists believe will be needed to provide enough jobs.

The government is pushing to increase Saudi participation in the private sector, reversing years when three-quarters of all new jobs were going to expatriates. Adel Fakih, the labour minister, told the Global Competitiveness Forum in Riyadh in January that the number of Saudis in the private sector has doubled to 1.5m over the past 30 months. Economists doubt the increase has been this rapid but say increased Saudi participation in the private sector is noticeable, estimated to be up from 11 per cent in 2011 to 16 per cent last year.
Radical new labour reform, known as�nitaqat, has introduced a sliding scale of penalties on companies employing foreign labour and giving incentives to employ more Saudis. The labour ministry is also preparing to raise the minimum wage for Saudis by a third and reward companies that boost wages.


A recent crackdown on illegal workers has also dried up the pool of cheap, undocumented labour, and an estimated 1m of 4m illegal expatriates have returned home while another 3m workers have legalised their presence.

The private sector, which has overturned previous reform attempts, has been complaining about the cost of the new legislation.

Although the construction sector remains the region�s largest, with $61bn worth of contracts awarded last year, and the stock market is booming, up 80 per cent in the past five years, the rapid departure of illegal workers has left construction sites devoid of workers and retailers have struggled to expand because of a shortage of finished premises.

Bankers say the opening of the landmark King Abdullah Financial District, already delayed by a couple of years, has been pushed back until later this year because of labour shortages.


September 9 2013: Many in Saudi Arabia fear a waning of the country�s energy dominance as oil and gas production in North America surges


Companies also complain that slow educational reform means many Saudis lack the skills needed in the private sector and have a sense of entitlement that makes them avoid work they deem below their social position.

�At the beginning there will be issues of productivity, but you need to start somewhere,� says John Sfakianakis, chief investment strategist at Masic, a Riyadh-based asset manager. �The private sector can�t expect the benefits of the past 45 years to continue: cheap labour, energy, land and no taxes � there is no more business as usual.�

The government may finally be grasping the nettle of labour reform, but other changes, such as reducing costly subsidies, will be even harder to implement.
The International Energy Agency, the energy watchdog, estimates that shale production will allow the�US to overtake Saudi Arabia�and Russia as the world�s largest oil producer in 2015.


Meanwhile, subsidised electricity and petrol prices are driving up domestic energy consumption, eating up as much as 24 per cent of the country�s oil production. This could push the kingdom to have to import oil by 2027.

While analysts believe the country will be forced to reform subsidies, western officials say the populist King Abdullah will balk at pushing such a divisive policy on to a population brought up on cheap petrol and air-conditioning.

With the king approaching his early 90s and his half-brother, Crown Prince Prince Salman, also said to be frail, Saudis look with concern at an uncertain succession process set to unfold in the coming years.

Whether the leadership could shift down from the diminishing line of the king�s remaining brothers to the next generation of royals, who may be more amenable to reform, remains unclear.

�Time is running out for reform,� says one western observer. �There is only so much money that can be thrown at these problems.�

By Financial Times�

 

The Iran Project is not responsible for the content of quoted articles.