Be not like the hypocrite who, when he talks, tells lies; when he makes a promise, he breaks it; and when he is trusted, he proves dishonest.
—PROPHET MUHAMMAD, SAHIH BUKHARI, VOL. 1, BK. 2, NO. 32
Land at any Saudi airport and proceed to baggage claim. The men offering to handle your luggage are from Bangladesh, India, or Pakistan. Exit the airport for a taxi, and your driver almost surely is Pakistani. Arrive at your hotel, and the guard who performs the obligatory security check on the taxi’s trunk is probably from Yemen. The doorman who greets you is Pakistani, and the smiling men behind the check-in desk are Lebanese. The waiter offering coffee in the lobby is Filipino, as are many of the men who will clean your room. So you have been in Saudi Arabia for more than an hour and, except at passport control, have yet to encounter a Saudi.
One of every three people in Saudi Arabia is a foreigner. Two out of every three people with a job of any sort are foreign. And in Saudi Arabia’s anemic private sector, fully nine out of ten people holding jobs are non-Saudi. To the extent that there is enterprise in the kingdom, it is almost entirely imported.
Visit any middle-class Saudi home, and you are likely to see one or more young men of the family, some educated and some not, hanging around, with little prospect and often little interest in finding a job. Second, you are even more likely to see a number of young women of the family, almost surely better educated and more ambitious, who are unable to enter a workforce that offers them precious few opportunities. Third, the family is likely to employ one or more foreigners to do much of the work within the household and to provide almost every service required in daily life, from a ride in a taxi, to tutoring for children, to shopping at a department store.
Saudi Arabia, in short, is a society in which all too many men do not want to work at jobs for which they are qualified; in which women by and large aren’t allowed to work; and in which, as a result, most of the work is done by foreigners—Pakistanis, Indians, Filipinos, Bangladeshis, and others—who compose the a majority of the labor force. Most of these 8.5 million foreigners are treated as second-class citizens; their lives are controlled by a sponsoring employer, who must give permission for them to change employment. Essentially they are indentured servants for the period of their contracts.
On the surface, the entire kingdom functions like a grand hotel. Saudi citizens check in at birth, remain isolated in their rooms, take little pride in caring for their surroundings, and merely demand the services provided by the hotel’s foreign employees, who are paid pitifully low salaries from the government’s bountiful oil revenue. After all, one in every four barrels of oil sold on the world market comes from Saudi Arabia. In 2011, thanks primarily to huge oil revenues, the kingdom’s GDP totaled $560 billion, ranking Saudi Arabia number twenty-four among world economies. But this is misleading. Try as it might, with multiple five-year plans over the past thirty years, the kingdom has failed to diversify its economy beyond oil, which creates few jobs for the ever-expanding slick of young Saudis. As a result, on a per capita income basis, the country ranks number fifty-five, between the Seychelles and Barbados. So over the past thirty years, the five-star Saudi hotel has deteriorated into something more like Motel 6 for most Saudi citizens, while royals and some elite business families continue to enjoy a penthouse lifestyle.
Looking forward, the single healthy dimension of the Saudi economy—oil—cannot be counted on to fuel economic growth far into the future. Oil will continue to gush for some years to come, of course, but Saudi reserves are steadily being depleted, and no significant new discoveries have been found to replace them. Some energy experts are convinced that current reserves are substantially lower than those officially claimed by the Saudis and that the depletion rate is substantially faster. Beyond that, domestic consumption of oil is rising rapidly, reducing the amount the kingdom will have to export for revenue in future years.
Indeed, declining oil for export and rising domestic spending to maintain political stability mean the kingdom’s expenditures will exceed its oil revenues as soon as 2014, say experts at Jadwa Investment, a large financial institution in Riyadh. “By 2030, foreign assets will be drawn down to minimal levels and debt will be rising rapidly,” these experts predict, unless the kingdom takes decisive steps to reverse the trend of domestic consumption and spending, which are outpacing oil production for export. As a result, the Saudi regime is under ever more pressure to diversify the economy while it still has time and while oil revenues still are there, to invest in other sources of long-term economic growth. The fading of the finite resource has broader implications for Saudi Arabia’s relationship with the United States, as we shall see in chapter 15.
Oil is one Saudi addiction; imported labor is the other. This dependence on foreign workers is the most glaring current symptom of a dysfunctional Saudi economy. The effects are widespread unemployment among young Saudis and all-too-pervasive poverty. Not only is unemployment among young Saudis fully 40 percent, but 40 percent of all Saudi citizens live on less than 3,000 Saudi riyals ($850) a month. Those twin sad statistics, all the more glaring in a society that flaunts so much wealth, are precisely the sort that led to protests and revolutions across much of the Arab world in 2011. In Saudi Arabia, a nervous regime reacted in its usual fashion by doling out hundreds of billions of riyals in new handouts to every sector of society, from the military and religious establishments to students, the unemployed, and the poor. While the king’s new spasm of welfare spending may have bought time, it did nothing to alter the structural causes of unemployment, poverty, and declining standards of living for the Saudi middle class.
Quite the opposite. The king’s decision to institute a minimum wage for government jobs, offer two-month bonuses to government workers, and create an additional 126,000 government jobs (60,000 to beef up security forces and another 66,000 for teachers and health diploma holders) will together give young Saudis even less incentive to prepare and compete for productive jobs in the private sector. With this latest largesse, public expenditures have tripled since 2004, while the private sector’s contribution to non-oil GDP has stagnated. Until productivity increases in the private sector, per capita income in Saudi Arabia will continue to lag, holding down the standard of living for most Saudis. Indeed, adjusted for inflation, real per capita income has been stagnant since the middle of the 1980s at roughly $8,550.
High birthrates, poor education, a male aversion to manual labor or service roles, social strictures against women working, low wages accepted by foreign labor, and deep structural rigidities in the economy, compounded by pervasive corruption, all have led to a decline in living standards and to the toxic and intransigent unemployment problem among young Saudis. Many of these young feel their future is being stolen from them, that their lives will not be as prosperous as those of their parents.
Imported labor in itself is not a sign of economic sickness. A full-employment economy that imports labor to further spur productivity and growth—a Singapore, for example—benefits both its own citizens and the expatriates it employs. In Saudi Arabia, it is the opposite. An unproductive economy with widespread unemployment is importing labor to perform functions that its own citizens are neither educated nor enterprising enough to perform. Even the minister of labor acknowledges that Saudis aren’t qualified for the jobs they want and refuse the jobs for which they are qualified. So while the private sector created some 2.2 million jobs between 2005 and 2009, only 9 percent of those went to Saudis, who prefer the short hours and job security of government employment, which all too often is unproductive and therefore a drag on the economy.
Over the past decade, the government has announced one plan after another to “Saudize” the economy, but to no avail. The foreign workforce grows, and so does unemployment among Saudis. Once again the latest five-year plan calls for reducing unemployment among Saudis to 5.5 percent by 2014, but almost certainly that goal will not be achieved. The previous plan called for slashing unemployment to 2.8 percent only to see it rise to 10.5 percent in 2009, the end of that plan period. Government plans in Saudi are like those in the old Soviet Union, grandiose but unmet. (Also, as in the old Soviet Union, nearly all Saudi official statistics are unreliable, so economists believe the real Saudi unemployment rate is closer to 40 percent.)
The net effect is a society that, however tranquil on the surface, seethes with discontent. The unhappiness is not confined to unemployed young men or to subjugated women but extends broadly across the Saudi middle class who, however divided by region, tribe, or religiosity, share a common frustration with economic stagnation, the declining standard of living, and lack of opportunity for their children. Even traditional Saudis reared in an environment of acquiescence and obedience are increasingly cynical about the pillars of Saudi stability, the Al Saud and its religious establishment. At best they view them as out of touch with the plight of normal people; at worst they see them as self-serving and corrupt.
In any Western democracy, such broad social discontent would be reflected first in public opinion polls showing the leadership with, say, only 30 percent public approval, and then in elections that would result in changes in leadership. In Saudi Arabia, there are no reliable opinion polls, and there is no way of replacing leaders. So society seethes, the Al Saud tinker, and little changes as the one-dimensional Saudi economy continues to stagnate rather than evolve into a more diversified and productive one.
Sadly, it is fair to ask whether this is the way the Al Saud regime prefers it. A modern and diversified economy would have to be accompanied by a much more open, enterprising, and diverse society, one over which the Al Saud and the religious establishment inevitably would have fewer levers of control. Since the days when Abdul Aziz dispensed clothes and food to those who came to his palace, keeping people dependent on the royal family has been a tenet of Al Saud rule. To the ruling family, political control trumps economic competitiveness. But decades of rapid population growth, coupled with the people’s near-total dependence on government largesse, have smothered enterprise and left the Saudi economy unproductive and uncompetitive. Now, as in the days of King Abdul Aziz, the Saudi rulers claim to offer security and prosperity in exchange for political obedience and social conformity. These days, however, both ends of the tether binding Al Saud and Saudis are fraying.
Yes, in recent years the Chinese Communist Party has succeeded in unleashing enormous enterprise and global economic competitiveness while retaining ultimate political control. The Al Saud, however, are neither as confident nor as competent as China’s rulers, and Saudis are not nearly as enterprising as Chinese. While the long-impoverished Chinese people were hungry enough to sacrifice to build a modern economy, the largely government-supported Saudis have been listless enough to expect one to be delivered to them. So, sadly, the more apt comparison is to the old Soviet regime, where decrepit leaders presided over a dysfunctional economy and an increasingly sullen society until the country’s collapse in 1991.
One may well wonder why a country with oil revenues in nominal dollars that ranged from $39 billion in 1978 to $285 billion in 2008 (down to $215.3 billion in 2010, when prices fell from 2008’s historic highs) couldn’t over three decades create an economy that functions at or near full employment. The ironic answer is that oil wealth actually has inhibited economic development. Given its plentiful oil revenues, the kingdom hasn’t, at least until very recently, seriously focused on becoming competitive in any other economic sphere.
Every five-year plan since the first one in 1970 has called for diversifying the economy beyond oil, but oil is still supreme. “At least 85 to 90 percent of treasury still is oil or oil related,” says Khalid al Falih, the Saudi Arabian CEO of Saudi ARAMCO.
Nearly 60 percent of Saudi gross domestic product is generated by a monopolistic public sector that includes government-owned entities such as Saudi ARAMCO, Saudi Arabia Basic Industries Corp. (SABIC), and the Royal Commission at Jubail and Yanbu, which dominate the petrochemical industry. Even today manufacturing accounts for only about 10 percent of Saudi GDP, and 65 percent of that is petrochemicals, which are competitive in world markets thanks largely to cheap Saudi oil and gas feedstocks.
In Western countries, wealth is generated by the private sector and taxed by government. In Saudi Arabia, wealth is generated by government-owned industries (largely Saudi ARAMCO) and flows to the private sector, which depends on government for contracts and subsidies to sustain its production. Because the regime prefers mammoth government projects, private capital can find little in which to invest productively. So while precise numbers are not available, most experts believe a majority of Saudi private investment is parked abroad.
The megaprojects that the government favors and funds almost invariably suffer from long delays and large cost overruns. A 2011 survey of three hundred project managers and supervisors found that 97 percent of government projects are not completed on time, and a staggering 80 percent of them exceed budget. “The most dangerous aspect of the matter is that most of the project supervisors, who are government officials, do not find any fault with the delay and do not have to worry about the immensity of such a national waste,” says Turki al Turki, an expert in development and management of projects, who conducted the survey.
One such project, King Abdullah’s much-ballyhooed (as the world’s largest women’s university) new Princess Nora University near Riyadh, was budgeted at 6 billion Saudi riyals and wound up costing nearly 30 billion, according to a knowledgeable Al Saud prince. Arab News, the kingdom’s major English-language daily, reported that the university was budgeted to cost 15 billion Saudi riyals ($4 billion) when construction began in October 2008, but it actually had cost 20 billion ($5.3 billion) by the time it opened in May 2011, a 33 percent cost overrun in just over two years. Whatever the precise numbers, not surprisingly, Saudi citizens are angered at the enormous scale of such government waste of the public patrimony.
To transform this subsidized economy into a productive one that creates jobs, the government will have to allow a more competitive industrial base to develop that leverages both foreign technology and investment. Despite a lot of rhetoric about developing a “knowledge” economy, little has been achieved. One sad snapshot of Saudi competitiveness: the number of Saudi patents registered in the United States between 1977 and 2010 was a grand total of 382, compared to 84,840 from South Korea and 20,620 from Israel. (But thanks to Saudi ARAMCO, the originator of most of the Saudi patents, the kingdom is far and away the largest patent holder among Arab countries.)
The kingdom now has yet another plan—its ninth formal five-year plan—to diversify beyond oil and boost job creation. The plan is called Vision 2020 and aims to double the size of Saudi Arabia’s manufacturing sector to 20 percent of GDP. “We want to move from inherited wealth—oil—to acquired or created wealth,” says Dr. Khalid al Sulaiman, deputy minister of commerce and industry, who was in charge of the latest plan. (He resigned that post in June 2010 to become vice president for renewable energy at the King Abdullah City for Atomic and Renewable Energy.) The plan acknowledges that the kingdom must make progress on many fronts at once, including reducing government red tape that hinders the start-up or expansion of businesses.
Just lending more money to start new businesses won’t be enough unless the kingdom finds a way to spur innovation and technological competitiveness. While the government in the 1970s was successful in creating giant petrochemical industries because of cheap oil and gas feedstocks and because it could provide the huge capital needed to launch such an industry, what is needed these days is not just capital but technological innovation, entrepreneurial spirit, and creative minds, all three in short supply in Saudi Arabia.
If planning equaled progress, Saudi Arabia would already be an economic dynamo. In addition to the new Industrial Development Strategy, or Vision 2020, it has developed a new five-year National Science and Technology Innovation Plan, backed by $2.2 billion, to encourage innovation. A Higher Education Plan, or Horizons, is working its way through the government approval process to reform university education to produce graduates who are not simply unquestioning robots but rather inquiring and innovative entrepreneurs. The Saudi leaders of these three plans are as impressive and dedicated as any country could muster. All three hold doctorates from U.S. universities and exude commitment to their plans’ goals. But the chasm between planners and people remains deep and wide.
Beyond government plans and projects, Saudi Arabia has a private sector where a handful of big business names like Bin Laden, Olayan, Zamil, Mahfouz, and Al Rajhi dominate the service sector. This sector is led by construction and real estate, both heavily dependent on government spending, which again is dependent on oil revenues. Most of these big-business families, whose fortunes were made largely through connections to the Al Saud, have diversified their holdings beyond the kingdom so their personal wealth is no longer as heavily dependent on government contracts.
If proximity to government—or more crassly, payola to princes—once ensured wealth, scarce managerial talent now determines the fate of large Saudi businesses, which increasingly must compete in a global economy to survive. This puts a premium on hiring and retaining qualified human talent. Indeed, government, once the driver of economic growth, now is seen by most Saudi businessmen as a roadblock to growth because of its glacial decision making and endless red tape.
For at least the past five years, government and business have engaged in a tense tug-of-war over who is to blame for rising youth unemployment. Private-sector businesses employ roughly nine expats for every one Saudi. The government’s mandated “Saudization” of businesses has set annual goals for hiring Saudis in various economic sectors. Because government controls visas, it technically can deny Saudi businesses a new supply of expatriate labor. Yet in 2009 the government issued nearly one million visas, double the number issued in 2005, bowing to business pressure at the expense of Saudi employment. For their part, many businesses complain they can’t invest to grow the economy without qualified labor, and Saudi labor all too often isn’t properly trained or committed to a strong work ethic. Training new hires on the job, businessmen argue, reduces a company’s productivity, raises costs, and thus hampers international competitiveness.
This “Saudization” campaign has become yet another government roadblock that businessmen seek to circumvent by bargaining for expat visas with officials who control visa approval—or simply by buying them from corrupt officials, princes, or other businessmen who acquire visas for ghost workers and sell them to the highest bidder. For instance, a business procures more visas than it needs for a project, then sells the surplus to other businesses in need of quick labor or to individuals who want to bring a relative to the kingdom. Corruption is open to all. Visas can fetch $1,500 or more. Of course, occasionally those who purchase a visa discover it already has been sold and used by someone else, and they are left holding the bag, as they cannot report the crime to authorities without implicating themselves.
A whole new business has developed in recent years, in which the Saudi sponsor of foreign workers allows those workers to run businesses established in his name and pay him a fee from their profits—a complete reversal of the sponsor running a business and paying the workers from its profits. This illegal conduct, especially rampant in the construction industry, allows Saudi businessmen to earn money while doing nothing, but it fails to develop business acumen or to provide jobs for young Saudis. Again, this is just another example of the rampant disregard for rules and regulations by a growing number of Saudis, who seem bent on grabbing whatever they can from their country and justifying their conduct by telling themselves that their royal rulers aren’t fairly sharing the national oil wealth.
This corrupting and corrosive influence on the economy has done nothing to increase Saudi employment. If the private-sector workforce in 2006 totaled 4.8 million foreigners and fewer than one million Saudis, three years later the foreign workforce had increased by 30 percent to 6.2 million, while the Saudi workforce remained largely static. All that has increased is corruption. A survey by the Riyadh Chamber of Commerce in 2005 showed that 77 percent of businessmen felt they had to “bypass” the law to conduct their operations, and businessmen say it has only gotten worse.
A Saudi prince insists that “eighty percent of the corruption is simply because government doesn’t work, so people pay bribes to get services. Government grew too fast, and we didn’t have proper management, but we will change that.” Saudis’ patience with unaccountable government, however, is wearing thin.
Another roadblock to faster economic growth is the social and religious prohibition on employing educated women. Some 60 percent of university graduates each year are women, yet the Saudi labor force is only 12 percent female. Most of those women are employed as teachers or doctors. While some young women are beginning to push into careers in computer technology, interior design, nursing, and cosmetology (as we saw in chapter 5), their numbers remain small because the religious establishment—and therefore many families—remains opposed to the mixing of men and women in the workplace.
More recently, the government has begun talking about allowing women to teach kindergarten-age boys, which undoubtedly would improve the teaching as well as employ qualified women. Enter the religious scholars. Women surely cannot teach in a boys’ school, where they would encounter male teachers. But the religious establishment objects even to little boys attending school with little girls and sharing their female teachers. Thus female teachers for boys are permitted only in private schools. Meanwhile, most Saudi men don’t want to teach school at all, so yet another occupation is filled by foreigners.
Whatever the complex of its causes, high unemployment is producing disillusionment among young Saudis. Government wealth isn’t created by taxing the enterprises and incomes of Saudi citizens but rather comes from oil. In the eyes of most young Saudis, that oil revenue is simply buried treasure, and they expect to get their full share.
Unlike the generations who grew up before the oil boom of the 1970s, this young generation has never known harsh deprivation. As a result, the young feel little if any gratitude to the ruling Al Saud family for providing free education and health care and cheap gasoline, water, and electricity. These they feel they deserve. Instead, they resent what they don’t have, by comparison with the ostentatious opulence that oil has funded for the royal family and some of the privileged private elite. “Ask not what you can do for your country but what your country can do for you” is the mentality of most Saudi youth.
Saudi optimists argue that so long as global oil prices remain anywhere near current levels, the regime can survive all sorts of economic inadequacies and inefficiencies. That proposition, however, now is being tested.
A 2008 color photo of a Saudi Gulf War veteran and his wife and nine children living in a tent in Mecca, the holiest site in Islam, speaks volumes both about poverty and about the failure of government and individual Saudis to live up to the teaching of their religion to care for the poor. Arab News ran the large photo prominently atop page three. The veteran of the war to liberate Kuwait described how he had become destitute when rising inflation made earnings from his taxicab insufficient to cover rent and food. As a result, he gave up his house for a tent. “I pity my children,” he told the newspaper. “Sometimes they faint because of heat and insect bites.” (The following day the newspaper carried another story—the account of an anonymous Saudi donor who had stepped forward to give the veteran a home.)
In addition to government programs for the poor and unemployed, there also are a number of efforts by prominent private citizens to create jobs to lift Saudis out of poverty. Abdul Latif Jameel, a wealthy Jeddah businessman, funds scores of job training centers around Saudi Arabia to teach the poor simple skills like cooking, sewing, and retail sales. But in another Saudi paradox, the primary obstacle to creating jobs is the government itself. The grandiose new programs that the government announces with regularity are largely propaganda and increasingly are seen as such by cynical Saudi citizens. Whenever one grand plan fails, government spinners all too often react by announcing a new one, under a newly designated government agency, with a new acronym, a new headquarters, and of course, a new budget.
Gone is the General Organization for Technical Education and Vocational Training, created in 1980. It has been replaced by the Technical and Vocational Training Corporation (TVTC). But little of substance has changed. The TVTC has sole responsibility for promoting vocational education in the kingdom. The Higher Education Ministry, which runs the kingdom’s twenty-five public universities, and the Ministry of Education, responsible for the 5.5 million Saudi youth in both public and private schools K–12, are the other two major institutions responsible for preparing young Saudis for the world of work. The latest five-year development plan provides for spending a whopping 350 billion Saudi riyals (some $100 billion) on education and training between 2009 and 2014, a sign that the government is eager at least to be seen as reversing its poor record for educating and training youth.
The kingdom’s amply funded training programs don’t work well for many reasons, including a shortage of Arabic-speaking trainers. A visit to the new High Institute for Plastic Education, one of the kingdom’s eighty vocational training centers, some forty-five minutes outside Riyadh, is illustrative. Everything is state of the art, including a new $19 million building equipped with nearly $40 million of the latest plastic fabrication equipment from Germany, but the center is staffed by experts from Japan, the Philippines, Indonesia, and India, none of whom speak Arabic. It is the same at a center that instructs auto mechanics, and at another seeking to train electricians. Even if the trainers could talk to the students, most of the young Saudis appear too sullen and lethargic to want to learn. Many of the trainees appear to be interested only in the government stipend they receive for showing up.
If training Saudi men raises a number of complex issues, training women is even more complicated. For men, at least, statistics are available showing the kingdom’s need for electricians, plumbers, mechanics, and auto repairmen. But no such data exists on requirements for female employees—or even what jobs women will be allowed to hold in five years. Teaching is saturated, and 250,000 women are waiting for available teaching jobs. How many women might be willing to work in gender-sensitive fields like marketing or accounting, where men now dominate, isn’t known; nor is it clear what roles Saudi society might allow women to fill in the future. One sign of how badly women want to work: some 25,000 women applied for 480 places in technical training colleges in Riyadh, Al Hasa, Tabuk, and Buraidah.
It will take more than training to persuade Saudi men to take jobs that involve manual or menial work, even though many unemployed Saudi men are qualified for little else. The majority of the 8 million foreign workers in Saudi Arabia serve as maids, nannies, drivers, sales personnel, cooks, and waiters—all jobs Saudis shun as unsuitable. From Saudi homes to shop counters to factory floors, these foreign workers from India, Pakistan, Bangladesh, and elsewhere keep the wheels of the Saudi economy turning. A much smaller number of skilled technical and managerial talent from Asia and the West do jobs that few Saudis are yet capable of doing. In sum, few of the expats are contributing special skills and expertise to the Saudi economy; almost all are doing less specialized jobs that Saudis would be fully capable of doing themselves. Indeed, the influx of foreign menial and manual workers, rather than contributing to the Saudi economy, winds up being a drain. These workers exist at a subsistence level and remit the bulk of their collective earnings to their families in their homelands rather than use it to fuel the Saudi economy. Remittances from expat workers surged 20.3 percent in 2009 to 94.5 billion Saudi riyals (roughly $25 billion), an 84 percent increase from 2005.
In the dusty expanse of industrial warehouses that stretches many miles between Dammam and Al Khobar, in the kingdom’s Eastern Province, is Zamil Steel, begun as a joint venture in 1977 but now entirely owned by the Zamil family, a band of twelve brothers, all educated in the United States in the 1960s. As the oil boom began, the brothers returned to the kingdom armed with education and a determination to take advantage of government loans to enrich their families and help develop their country.
Yet more than three decades later Zamil Steel’s 6,200 employees are only 25 percent Saudi. That’s because the majority of the work involves hot, grimy manual labor like welding, which Saudi men spurn. To meet government goals of “Saudization,” Zamil Steel pays beginning Saudi welders 2,300 to 3,180 riyals ($620 to $850) a month, plus an additional $135 transportation and housing allowance beyond that paid to foreign laborers.
Zamil Steel builds warehouses and hangars as well as towers for high-voltage lines and cell phones, selling 70 percent of the output inside the kingdom. A tour of the factory floor finds few Saudis on duty—the bulk of the workers are from India and the Philippines. Such foreign laborers generally come on contract for two or three years, work for low wages, live in substandard dormitory housing, and work ample overtime, both to earn more and because there is nothing to do with their off time other than sleep.
Abdulrahman al Zamil, chairman of the Zamil Group, is one of the kingdom’s most colorful and outspoken businessmen. A wiry elderly man with piercing eyes and a white goatee and mustache, Zamil has a no-nonsense, bottom-line view of “Saudization.” “When you build a building you get insurance,” he says. “Saudization is insurance for us. But businessmen are selfish and want to look for a low-cost foreign worker. Without jobs, Saudis will wreck our nation.”
The Zamil Group, established by Abdulrahman’s father as a modest trading company in Bahrain in the 1930s, grew to global scale with sixty sectors of business in some sixty countries employing twelve thousand people, thanks to rapid industrial development and easy government credit in Saudi Arabia in the 1970s. Zamil recalls the family’s first loan from the Saudi Industrial Development Fund, for 1 million Saudi riyals, to launch an air-conditioning business in the Eastern Province. “My brother wanted to see the cash and carry it to Al Khobar so he took it in a bag by airplane. We never thought he might crash and we would lose it all.”
Despite his own difficulty with recruiting Saudi laborers, Zamil keeps trying and pushes his business colleagues to do the same for their own self-interest in Saudi stability. By Zamil’s reckoning, 74 percent of the estimated 8 million foreign laborers (7 million legally and at least 1 million illegally) in the kingdom are engaged in retail and services, so this is the place, he argues, to focus and force “Saudization.” But this idea quickly runs afoul of cultural and religious obstacles. Saudi men do not want service jobs, while women are not permitted to work in most retail shops, where they would come in contact with male sales clerks and customers.
A visit to a large Riyadh department store, Al Haram, underscores this dearth of Saudi employees in the retail industry. The store, a cut above Western megastores like Wal-Mart but still offering moderate prices, has 150 employees, only 25 of whom are Saudi. All the Saudis are either cashiers or managers. The store manager, Ali al Qahtani, a Saudi, insists that even if a Saudi asked to work in sales (and none has, in his five years at the store), he would not permit it. “I would put him at reception or cashier,” he says, “because Saudi society wouldn’t accept a Saudi sales person.” Indeed, a Saudi intellectual who lives in the kingdom but travels often to Europe and the United States recounts his embarrassment at being served by a Saudi waiter in a restaurant. “It is beginning to happen now,” he says of the rare Saudi who takes a menial service job. “But I didn’t know what to do, it was so embarrassing.”
In 2006 the government unveiled a plan to allow Saudi women to work in lingerie shops, where women must buy intimate apparel from foreign males, generally from India, Bangladesh, or the Philippines. This idea quickly ran afoul of the cultural prohibition against mixing genders in the workplace. Women standing behind the counter to sell lingerie would mix with both male sales personnel and with Saudi men who might seek to buy lingerie, or so postulated the religious scholars supported by many conservative Saudis. Thus the plan was abandoned. For inexplicable reasons, Saudi women standing in front of the counter buying lingerie from men is somehow religiously acceptable. (Saudi society sees foreign men more as furnishings than as real men who might tempt Saudi women.)
Six years later, the government finally set a January 2012 deadline banning male salesclerks in lingerie shops. This came only after a royal decree was issued making lingerie shops a women-only working environment, guaranteeing that female and male sales clerks would not be mixing, and after the Ministry of Labor threatened to close lingerie shops employing males. Some 28,000 women quickly applied for these sales jobs according to the Ministry of Labor. Change comes very slowly in Saudi and, as is often the case, only after the king’s involvement.
In 2011 when poor women were hired as cashiers in the large supermarket chain Panda, once again religious opposition surfaced. This time, however, a campaign was launched on Facebook to support Panda’s hiring women. Within months, the grand mufti issued a fatwa banning women cashiers. “It is not permitted for a Muslim woman to work in a mixed environment with men who are not related to them, and women should look for jobs that do not lead to them interacting with men which might cause attraction from both sides,” the fatwa said. The fact that religious police feel free to threaten female workers whose employment is promoted by government policy is clear evidence of the absence of rule of law and of a country at war with itself, in which the Al Saud rulers are too insecure to enforce their own decisions.
If microeconomic change is difficult, implementing grand plans across the broader economy is even harder. For all the good intentions of the often Western-educated economists producing the five-year plans, the economy on paper bears little more resemblance to the real one than did the Gosplans to the old Soviet Union. The real economy is a bewildering (at least to outsiders) combination of a feudal fealty system and a more modern political patronage one. At every level in every sphere of activity, Saudis maneuver through life manipulating individual privileges, favors, obligations, and connections. By the same token, the government bureaucracy is a maze of overlapping or conflicting power centers under the patronage of various royal princes with their own priorities and agendas to pursue and dependents to satisfy.
Almost all economic decisions are made by the regime in Riyadh, including decisions on where to locate megadevelopment projects, hospitals, and universities, regardless of the priorities of local provinces. Because the regime has prevented the emergence of any independent organizations such as labor unions or interest groups of any kind, the regime is able to make these decisions with little input from society, but paradoxically, it is then constrained in its ability to execute them. In the absence of such associations, over the decades informal networks have grown throughout the bureaucracy that prevent efficient execution of decisions. Various princely, bureaucratic, and business interests compete for advantage, sometimes simply by blocking or at least stalling government decisions they can’t change. The state has “fundamentally reoriented Saudi society, making it dependent and at the same time fragmenting it,” writes Steffen Hertog, an expert on Saudi economy at the London School of Economics, explaining this gulf between government pronouncements and actual economic achievements.
The Saudi economy is neither a free market nor an effectively managed one. Most Saudis have no concept of openly competing for education or jobs or, for that matter, marriage partners. Everything is negotiated and arranged. Similarly, most businesses of any size are so dependent on government contracts and on regulated and protected markets that genuine competition is a rarity here too. On the other hand, the layers of bureaucratic control hardly produce an efficient planned economy. Business and government, wealth and power, are inextricably intertwined. The result, however, bears no resemblance to the chaebol system of South Korea, where the intertwining of government and big business has produced focused and dynamic economic growth and the twelfth largest economy in the world.
A rare Saudi with initiative—for example, an educated young man seeking to start a small business—has to complete innumerable applications and documents at multiple layers of multiple ministries, which invariably requires seeking favors from various patronage networks and accumulating obligations along the way, most probably including having to hire less-than-competent dependents of his patrons. Then, for any business of any size, government contracts, not private competition, are the financial lifeblood. So this means more patrons, more favors, and more obligations. Not surprisingly, Saudi businesses that can compete outside the protected Saudi market are few. Similarly, only rare Saudis are willing to leave the protective networks of their homeland to seek competitive careers abroad. (While many attend foreign universities, most return home with their degrees to seek government employment.)
When government programs fail Saudis, their recourse invariably is patronage. For instance, buying a home in the kingdom is virtually impossible, even for upper-middle-class people, given the exorbitant price of land and the dearth of home financing. (Islam forbids charging interest on loans.) To resolve the housing problem for members of the armed forces and the National Guard, on which the royal family depends for its protection, both King Abdullah (who until recently headed the National Guard) and the late Crown Prince Sultan (who also served as minister of defense) both provided heavily subsidized or free housing to the military. It is yet another form of patronage available to some, but not a general solution to the critical housing problem facing most Saudis.
While the government claims that 60 percent of Saudis own a home, informed private estimates put that number at more like 30 percent. The government’s Real Estate Development Fund (REDF) dominates the housing market, providing 81 percent of all loans for housing. But the estimated waiting period to secure an REDF loan is eighteen years, due to pent-up demand. As part of King Abdullah’s effort in 2011 to ensure that regional unrest didn’t engulf Saudi Arabia, the government raised the maximum loan from 300,000 to 500,000 Saudi riyals, but the average price for a small free-standing home in Riyadh is 1.23 million Saudi riyals (about $328,000), leaving a huge gap for the buyer to fund. Since most state and private-sector employees earn less than 8,000 Saudi riyals a month (or $25,000 a year), housing is simply out of their reach. Lower-income Saudis can’t turn to older homes to solve their problem, because almost no secondary market in housing exists in the kingdom. Construction is so shoddy that homes rarely last more than thirty years.
As revolutionary winds swept through the region, King Abdullah announced the government would spend 250 billion Saudi riyals to construct half a million homes for Saudis, and he created a new Ministry of Housing, yet another example of creating new bureaucracies to solve old problems. But the exorbitant cost of land, the low wages, and the difficulty in procuring mortgages almost guarantees continuing housing shortages and rising complaints from middle-class and young Saudis priced out of homeownership.
In sum, the Saudi economy, like Saudi society, is ossified and becoming more so. Its many webs of patronage and multiple layers of bureaucracy evolved over the years to accomplish some purpose or another, but rather than enable, they increasingly disable Saudi citizens in their daily lives. To buy stability, the regime slathers on more money, smothering private initiative and private enterprise, thus further diminishing the living standards of Saudis and increasing their anger, which then necessitates another dose of money. And so the cycle repeats itself. The Saudi system is inflexible and, to many, impenetrable. Saudis spend too much of their lives seeking favors, begging permissions, and facing innumerable frustrations. The arteries of the body politic are clogged, and no one, not even a well-meaning and supposedly absolute monarch, can unclog them.
This Saudi system, where personal loyalties once upon a time lent subtlety and suppleness to everyday life, over the years has become rigid and thus brittle. The old system of loyalties no longer is suited to the demands of a growing population or the requirements of an economy that must expand to create jobs. The new bureaucratic structures superimposed upon the old networks are blocking rather than facilitating progress. Saudis are frustrated and fearful that whatever they get from the various networks of patronage is less valuable than what others are getting. To the extent that information, whether fact or rumor, spreads through the tame press and untamed Internet, more transparency simply produces more envy and anger.
An ossified system can give the appearance of great stability. The Soviet Union in its final decades, for all its shortcomings, was seen as nothing if not stable. The widespread assumption was that its leadership was in firm control. In the end, the system proved to be brittle. The geriatric leadership that commanded communism, for all its purported power, proved incapable of making its own system function. Its leaders could pull the levers of power, but nothing much moved. By the time Mikhail Gorbachev arrived and began trying to salvage the system with some modest reforms, it was too late, and the hollow structure imploded.
The Saudi rulers still have time to unclog the arteries, and they surely have plenty of money for stents and surgeries—but is there a daring doctor among them who can perform the necessary life-saving operations? All indications so far are no. Just as Soviet power passed from an old Brezhnev to an infirm Andropov to a doddering Chernenko, the Saudi royal family continues to pass the crown from one aged son of its founder to the next. The line of succession leads to more old men in their eighties. The youngest of the surviving sons already is in his late sixties, and he is more than a dozen living brothers down the royal line. King Abdullah seems aware of some of the problems facing the kingdom and surely desires to reform the system enough to save Al Saud rule. But even his sincere, albeit far from sweeping, reform efforts of the past decade have brought only limited changes to the economy, the role of women, the control of the religious establishment, and the behavior of his royal relatives—all too many of whom continue to view the country’s land and oil revenue as theirs, not that of Saudi citizens.
The halting progress of King Abdullah’s modest reforms, while impressive by past Saudi standards, is a sobering reminder of how difficult economic and political change in the kingdom will be, even if the royal family can select a ruler with the vision and longevity to launch and sustain a serious reform program. King Abdullah has brought a measure of glasnost, or candor, about social problems, but not yet perestroika, which would require structural economic reform and some opening of the closed political system. Encouraging and educating the population to depend more on its own initiative and less on the government risks unleashing forces that the regime fears it may not be able to contain. Yet if substantive reform might threaten the regime, so surely will the absence of significant reform. The dilemma for the regime, in a nutshell, is picking which poison to swallow.