Saudi Youth Unemployment to Exceed 42% by 2030

Youth unemployment in Saudi Arabia is expected to increase from 33.5% last year to over 42% in 2030 as the Middle East continues to struggle to create enough jobs for its growing population, according to a new report.

Bank of America Merrill Lynch said the private sector in the Middle East and Africa is still “largely underdeveloped to create sufficient formal jobs”, Arabian Business reported.

The report added that at the same time the region’s public sector, which is the traditional employer of university graduates, is “overcrowded”.

“The region has one of the highest rates of youth unemployment in the world where many young people therefore end up in informal work or inactivity,” the report said.

Conversely, the report also showed that despite the unemployment problem, 55% of Saudi Arabia’s employers feel that domestic graduates are prepared for the job market, amongst the highest in the world.

The study said the Middle East and North Africa region spends $84 billion on education, 9% of total global expenditure, adding that failing to remediate the education deficiencies in low/middle income countries “could pose a serious threat to security in the Middle East”.

According to the UN’s Education Commission, this could increase the potential for intergenerational cycles of poverty to persist and the youth of tomorrow to be left without the skills and knowledge they need to contribute to their societies and economies.

 The Forgotten Generation

Saudi engineering graduate Marwan turned down a job from General Electric to hold out for a better salary. It’s a decision he now regrets. The 24-year-old native of the port city of Jeddah has been applying to jobs for a year with no luck, Bloomberg reported.

As the kingdom grapples with low oil prices, he worries whether he’ll still be employable when the economy recovers. “Will companies hire the new graduates, or us, the forgotten generation?” he said, declining to use his full name.

More Saudis who watched their parents reap the benefits of the oil boom are struggling to find work as the government trims its bloated payroll and businesses reel under a slowing economy. Creating jobs for them is one of the toughest challenges facing Deputy Crown Prince Mohammed bin Salman, who is pushing efforts to end the economy’s addiction to oil. In April, he unveiled a plan that dangles the promise of long-term prosperity if Saudis, like Marwan, can endure the initial pain of austerity.

Nearly half of Saudis are younger than 25, and this bulge could almost double the size of the labor market by 2030, according to a study by the McKinsey Global Institutes.

A quarter of all Saudis under 30 are unemployed, while foreigners are more than half of the labor force. To absorb new job seekers, the kingdom would have to create almost three times as many opportunities for citizens as it did during the oil boom years of 2003-2013, the McKinsey study found.

But an austerity drive to repair public finances, which includes scaling back state largess, has pushed companies to fire, not hire. Unemployment among all Saudis rose to 12.1% in the third quarter, the highest since 2012.

 Hiding Financial Peril

Saudi Arabia’s first-ever foray in international credit markets was undoubtedly a success. There were four times as many buyers as needed for its $17.5 billion bond issue, which surpassed all other benchmarks of previous emerging-market bond offerings.

In truth, the bond sale was a rare bright spot in a series of economic and geopolitical missteps that have not only plunged Saudi Arabia into budgetary chaos but also weakened its grip on global oil markets. The Saudis are well aware of this—witness the firing this week of Finance Minister Ibrahim al-Assaf despite the triumphant bond sale his ministry oversaw.

Riyadh is facing a sandstorm of economic and social challenges. The two-year decline in crude prices has left it with huge budget deficits: $98 billion last year and a projected $87 billion in 2016. This has forced the kingdom to tap into its cash reserves, which have declined from $732 billion at the end of 2014 to $562 billion last month.

Last year, the International Monetary Fund predicted that if Saudi Arabia continued its current fiscal path, it could burn through its entire foreign exchange reserves by 2020.