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Saudi Arabia Pursues Market Reforms

Saudi Arabia sits on one fourth of the world's confirmed oil reserves. But its lavish lifestyle of prosperity is colliding with the reality of the marketplace and a population ill-equipped to deal with it. The government is working on reforms, from writing new investment and insurance laws and selling off more state companies to negotiating entry into the World Trade Organization.

Riyadh's central marketplace is a mix of sights and smells and sounds - the sounds of business being conducted in several languages.

In a way, it highlights one of Saudi Arabia's biggest challenges. For years, the oil-rich country has relied on imported labor to do what needs to be done. Seven out of 10 workers today are non-Saudi.

But a global economic downturn, sliding oil revenues, and a booming population are forcing a major readjustment. More than 60 percent of the population is under the age of 30 and without much prospect of a job. The unemployment rate is in the double digits.

A recent newspaper cartoon depicted a horde of Saudi men chasing after one chair marked "job," which remained out of reach.

Brad Bourland is chief economist at the Saudi American Bank in Riyadh. He says the 2001 terrorist attacks in New York and Washington dampened the urge to invest in the Middle East and Saudi Arabia in particular.

"I think that the trend in all forms of foreign investment into Saudi Arabia has declined over the past few years," he said. "Look, it is a hard sell since September 11. If you have not been in this market before, and are thinking about it, you are probably still thinking about it and want to sit on the fence and think about it further."

The government has been slowly pursuing long-term reforms to adjust to the changing reality, but has been forced to speed up the pace.

The largest chunk of the kingdom's new budget - more than $16 billion - has been earmarked for education and more technical training programs.

The program of "Saudization" of the workforce, which has been dragging, now has been speeded up too.

Mr. Bourland explains the plan requires companies to start replacing their foreign workers with Saudi nationals.

"They push very hard for companies to 'Saudize.' There are some jobs that are earmarked for Saudis only, like security guards," said Brad Bourland. "But generally, they tell a company,'You do it where you need to do it, but you need to increase your percentage of Saudis [workers] by about five percentage points each year.' I think it varies by sector."

That has met with mixed reactions in the marketplace.

Industrial magnate Jamal Abahussein says he is willing to hire a Saudi to sell his medical equipment, but he cannot find one with the skills and the staying power.

"I put in the newspapers several times, in the Internet recruitment sites, I do not find [anyone]," he said. "I need a biomedical engineer. This guy, he came after a long search, worked for one month and then he run away."

Mr. Abahussein says in the past many Saudis were not motivated to find a job, but he believes that is starting to change.

"It really irritates me when I hear that young Saudis have no job," said Jamal Abahussein. "And I go to buy a car and I find the salesperson in a showroom is non-Saudi. What specialty does this guy bring? That irritates me, but that is changing. Now I just bought a car and all the people I dealt with are Saudis."

Mr. Abahussein echoes other business executives who say they are willing to replace cheaper foreign labor with Saudi employees if their competitors do too. Otherwise, they say they will be priced out of the market.

The business community has long insisted that Saudization also depends on the education system better preparing potential workers to match market demands.

Former Deputy Commerce Minister Abdulrahman al Zamil says the focus should be on technology, science, and business training.

"Since 1999 Saudi Arabia has started realizing that more young people [are] coming into the [job] market who cannot meet the market needs," he said. "They are specializing in language or religion and geography where you get [a] 1,000 students in a hall and they get a degree and expect a job. When the government had jobs, it was not a problem. When the private sector faces them they say they are unemployable."

Economist Brad Bourland says the challenge for Saudi Arabia is to match its economic growth with the manpower to sustain it.

"Views and cultural attitudes in general have not mirrored this rapid pace of building physical infrastructure," he said.

Former Commerce Ministry official Abdulrahman al Zamil also sees a need to open the job market to women, who now outnumber men graduating from colleges and universities. But he says it will take time to break down the social barriers.

"What is important here in Saudi Arabia is we should not make noise about what we are doing," he said. "You can push the program you want without making noise."

Mr. Zamil agrees the changes are long overdue, but says they must come at a pace that will not destabilize the market.