Saudi Arabia: Finding Stability After the Arab Spring
Written by Jennica Savellano
How long can a country continue to rely on its resources? And how can a country with deeply ingrained religious practices balance development and religion?
Last August 7-8, 2017, John Clements Consultants, together with Union Bank, had the privilege of having one of the most esteemed professors from Harvard Business School, Professor Richard “Dick” Vietor, to discuss geopolitical and economic trends during the second leg of the “Re-imagining Leadership in the Age of Disruption” conference held at the Makati Shangri-La.
Professor Vietor discussed case studies of six countries, one of which was Saudi Arabia’s. The session focused on Saudi Arabia’s history, economic and political performances, unique strategies, and enabling institutions that transformed the country, as well as the challenges it encountered and will face in the future.
Saudi Arabia is the largest nation in the Arab peninsula. Its current population is 29.9 million, with 32.2% Non-Saudis and more than sixty percent under the age of 30 (“youth bulge”).
Predominantly Muslims, Islam plays a central role in their lives. In fact, even their legal system (the Shari-a law), is based on the Quran, their Islamic sacred book. Their government is a monarchy and the king serves as the custodian for both Mecca and Medina, their two holy cities.
With a deeply ingrained religious foundation, the society is highly regulated and media is heavily controlled by the government. Restrictions on activities such as driving and travelling are imposed on women, in particular. The introduction of social media such as Twitter and the like, enabled their citizens and their youth to freely voice out their concerns.
With its strong religious foundation, one of the country’s pressing problems throughout its history is the conflict between the Sunni (the conservative majority) and the Shia (the extremist minority). Additionally, conflicts with countries like Iran (who are composed of the Shia) need to be handled delicately.
In terms of resources, Saudi Arabia is very much dependent on its oil reserves, something which has been hailed as both a blessing and a curse. It is currently the second largest oil exporter (next to the U.S.) and the largest producer, with an oil production of 9.9 million barrels per day, with an excess capacity of 2.7 million barrels. The discovery of oil generated huge amounts of riches for the country that led to the growth of large-scale infrastructure projects, which caused the influx of foreign workers needed to build the country’s workforce.
While the riches would be considered a blessing, the country is now experiencing what is called the “Dutch Disease” and, as a result, is facing its implications. The “Dutch Disease” refers to the negative effect an abundant amount of resource has on the broader economy of the country. In Saudi Arabia’s case, as oil exports go up, the inflow of foreign currency causes Saudi’s currency to appreciate, thus making its other non-oil resources unattractive for export in the world market.
Through the years, since the 2000s, the country had chosen the path of market liberalization. Saudi Arabia opened the country up to privatization and foreign investment by joining WTO in 2005 and creating the Saudi Arabian General Investment Authority to promote investment and encourage the business environment as was the vision of its former leader, King Abdullah.
The country set very strong financial institutions in place — its central bank and the Saudi Arabian Monetary Authority maintained the stability of the country’s currency. Thus, Saudi Arabia experienced strong economic performances, with a GDP of US$2,434.8, an average growth rate of 1.7 percent, and an impressive GDP per capita of US$54,530.
To address the dependency on oil, King Abdullah also ventured into diversification strategies by shifting focus to non-oil resources such as natural gas (where it ranks fifth largest in terms of reserves), nuclear, and renewable energy. To further drive this diversification, the National Industrial Clusters Development Program was created, with the government identifying five important clusters (automotive, minerals and oil, plastic, solar energy, and home appliances) to focus on.
Today, the challenges the country is facing are primarily caused by the “Dutch Disease.” The large number of foreign workers caused the domestic workforce to suffer an unemployment rate of 11.7 percent. In addition, there is a mismatch between the needs of the private sector and the skills of the workforce (with education focusing on humanities and social sciences). Also, people find working for the private sector less attractive since companies in the public sector pay five times more.
To address these labor concerns, the government has put forth an initiative to bring back the work to Saudis through “Saudization” and re-structure the labor market. King Abdullah also envisioned for the country’s knowledge-based transformation to move up the value chain and build “Knowledge Cities.”
While these economic strategies and institutions are strong, the government must accelerate its efforts given the fluctuation of oil prices, the rise of new fuel sources (shale from the U.S.), and the green revolution towards renewable energy.
The current king, King Salman, must also look into balancing development with religion. With the country’s current population experiencing a “youth bulge,” and the youth being heavily exposed to globalization, there is already a widening gap between the youth and previous conservative generations.
Bringing the discussion back to the Philippines, our country can certainly learn much from Saudi Arabia, particularly on its strategies towards opening up to foreign investment, establishing strong financial and economic institutions, and diversification strategies.
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About the author:
Jennica is a business development consultant of Harvard Business Publishing Group, a division of John Clements Consultants. Previously she worked for Globe Telecom as an assistant brand manager under the Tattoo brand. Prior to this, her various work experiences have exposed her to the fields of operations, project management, and marketing, having worked for top companies such as Avon Cosmetics Inc., DB Schenker Inc., Petron Corporation, and Amkor Technologies. Jennica graduated from the University of the Philippines Diliman with a Bachelor of Science degree in Materials Engineering. She earned her MBA from the Ateneo Graduate School of Business.
