Saudization as a Solution for Unemployment The Case of Jeddah Western Region Manal Soliman Fakeeh Submitted in fulfillment of the requirements for the degree of Doctorate in Business Administration University of Glasgow Business School Faculty of Law Business and Social Science May 2009 II Dedication To my mother, Khadijah J. Attar My first teacher With love III Abstract Saudi Arabia is a young wealthy nation with multiple social and economic problems. While the country is extremely wealthy, it has a young population, many of whom are unemployed. The country is highly dependent on a single resource (oil), and relies heavily on imported labour to meet the requirements of economic growth and contribute to the development of the country. In recognition of these systemic problems, the Government has developed a policy of ‘Saudization’ as a way of replacing expatriate with Saudi workers as a way of solving the problem of unemployment. This thesis is an attempt to understand the roots of this paradox of high wealth and high unemployment. How did Saudi Arabia arrive at a situation where it became dependent on the labour of expatriates and why did the government not use the countries’ wealth to create a vibrant high-skill economy? What strategies is the government using to deal with alarming rates of high unemployment, and how successful are their endeavours. Is Saudization the answer to the current labour market situation and, if not, what are the shortcomings of the policy? These are questions addressed in this thesis. With Saudi Arabia having developed relatively recently, the thesis begins by providing an historical overview of the establishment of the Kingdom and at the impact of the 1970s oil boom. It focuses on the labour market, the role of religion and on government attempts to stem rising unemployment through the policy of Saudization. The thesis draws on documentary evidence as well as on interviews with representatives of the key stakeholder groups: policy makers, employers and employees. It is argued that the roots of the problem in the Saudi labour market can be traced back to the process of transformation from an agricultural to an industrial society. Reliance on oil wealth and the establishment of a rentier economy led to a situation where citizens had a low level of involvement in the economy or the political process and labour needs were met through the recruitment of expatriate employees rather than through education and training. IV The thesis argues that the policy of Saudization falls short in several key areas. First, Saudization as a policy is targeting the symptom (unemployment) instead of focusing on the problem employability. In many respects, the education system and labour market situations are poorly aligned; strict religious controls over the content of the curriculum and a lack of forward planning means that young Saudis are not being equipped with the hard or soft skills necessary to meet economic demands. Second, the policy is not tuned into the needs of the private sector and has failed to meet the concerns of employers or employees. Third, the policy has failed to respect the varying situations of employers in different sectors of the labour market and should recognise the need to set industry specific targets for Saudization. In sum, the research lends weight to the idea that Saudization is deficient as a policy and that, without targeted logistics and application, provides little more than a short-term solution to unemployment. V Table of contents Dedication ........................................................................................................................ II Abstract ........................................................................................................................... III Table of contents .............................................................................................................. V List of tables ..................................................................................................................... X List of figures ................................................................................................................. XII Acknowledgments ........................................................................................................ XIII Declaration of Originality ............................................................................................. XV Acronyms and Abbreviations ....................................................................................... XVI Chapter One - The Saudi Paradox Introduction ....................................................................................................................... 1 Pre-Industrial Saudi Arabia ............................................................................................... 3 Nation Building ................................................................................................................. 9 State Policies ................................................................................................................... 15 Contrasts with Classical Models of Industrialization: The Case of Britain .................... 20 VI The British Empire and British Agriculture .................................................................... 22 The Role of the State in Britain ..................................................................................... 23 Industrialization Inventiveness and Innovation in Britain. ............................................ 25 Industrialization and the Human Dimension in Britain. ................................................ 28 Saudi and British Social Structure .................................................................................. 28 Liberalism, socialism and imperialism ........................................................................... 29 Conclusion. ..................................................................................................................... 31 Chapter Two - The Labour Market Introduction ..................................................................................................................... 36 The Saudi Context ........................................................................................................... 37 Natural (Physical) Resources ......................................................................................... 38 Human Resources ........................................................................................................... 41 Employment .................................................................................................................... 49 Unemployment ................................................................................................................ 54 Skill and Human Capital ................................................................................................. 59 VII Education ........................................................................................................................ 61 Conclusion ...................................................................................................................... 63 Chapter Three - Methodology Introduction ..................................................................................................................... 66 Methods and Scope ......................................................................................................... 67 Sampling ......................................................................................................................... 68 Interviews Subjects and Schedule ................................................................................... 69 Analysis of Data .............................................................................................................. 73 Ethical Considerations .................................................................................................... 74 Chapter Four Saudization as a Solution for Unemployment: Government Perspective Introduction ..................................................................................................................... 77 Saudization ...................................................................................................................... 78 The Views of Policy Makers ........................................................................................... 87 Governmental Perspective on Outcomes ........................................................................ 91 Conclusion .................................................................................................................... 104 VIII Chapter Five - Saudization as a Solution for Unemployment: The Private Sector Perspective Introduction ................................................................................................................... 106 How is Saudization Viewed by the Private Sector? ...................................................... 107 Private Sector’s View on Saudization Objectives ......................................................... 113 On Saudization Methods ............................................................................................... 117 Barriers to Saudization .................................................................................................. 122 Successful Saudization .................................................................................................. 130