Saudis Are Trying to Figure Out How the Post-Oil Era Works
Ali Alireza’s family has been trading in Saudi Arabia before it even existed as the kingdom it is today.
The 55-year-old managing director of Haji Husein Alireza & Co. Ltd., which sells vehicles from dump trucks to Aston Martin cars, has shared in a boom that turned the desert monarchy into one of the world’s richest countries. He’s been through three oil-price collapses, but the latest has brought the kind of trauma that neither he nor his forebears have ever experienced.
This time, the government isn’t waiting for a recovery. Instead, it’s pushing a roadmap that’s shaken the ultra-conservative nation.
“It represents a generational shift, not only in the structure of Saudi Arabia but also in the thinking and culture of the Saudi individual,” Alireza said in his 14th-floor office with panoramic views of Jeddah, the Saudi trade hub on the Red Sea. “It’s something that we have to start teaching at kindergarten level. But it’s almost too good to be true, and that’s the scary part."
Called Vision 2030 and unveiled in April, the grand design is to get rid of a business culture tranquilized by oil wealth and stifled by bureaucracy and replace it with a competitive economy driven by private enterprise. The shock therapy to embrace a Saudi version of western-style capitalism risks coming too late, but on paper it’s tantamount to a revolution.
There are parallels with eastern Europe’s transition out of communism and Britain’s privatization boom in the 1980s, but in reality the change is unique simply because there’s no other society on earth like Saudi Arabia.
It requires a degree of "fundamental adjustment that I can’t find a precedent for," said Simon Williams, HSBC Holdings Plc’s chief economist for central and eastern Europe, the Middle East and North Africa. He has been going to Saudi Arabia since 1994. "You’re talking about changing the basis of the whole economy, not just of the public sector but of the private sector as well and that’s technically very difficult."
The pressure to change is hitting home, just ask Mohammed Dardeer. The 62-year-old executive at the MSD Management Consultancy said it took a month for Vision 2030 to sink in. Then his phone started ringing. The calls were from companies desperate for advice.
For most, sales already were falling and customers disappearing. The government had said little about the payment delays to contractors. Now, Dardeer said, managers wanted to restructure salaries, create performance assessment programs and set up human resources departments. Companies that had grown too fat in the days of high oil prices wanted to downsize.
“People were shocked and now they have to find a way to survive," Dardeer said at his cramped, unassuming office next to computer stores and a wedding hall in the port city. “None of them had a contingency plan. They didn’t care before."
Now they have little choice, he said: “If you can’t keep up, you will be out.”
Survival of Fittest
The modernization is Saudi Arabia’s boldest since the creation of the kingdom in 1932. When Deputy Crown Prince Mohammed bin Salman, the king’s powerful 31-year-old son, announced his plan to address the plunge in oil revenue, he acknowledged it was "ambitious,” though said it was achievable and "there are no excuses for us to stand still or move backwards."
Based on a week of interviews with businesspeople and consultants in Jeddah, one message was clear: things will be done differently from now on.
Companies can no longer depend on government tenders for the bulk of their business. Out are reliance on foreign workers, cushy jobs and state largess; in are metrics and making the numbers add up. As Dardeer put it, those who remain stuck in the past won’t survive.
Critics of the blueprint to transform the world’s largest oil exporter say it still lacks specifics on how to achieve the targets. For example, it includes bringing more women into the workforce, without addressing the constraints on them such as being banned from driving. And while the government is reducing spending to deflate a ballooning budget deficit, non-oil industries, the main engine of job creation, slipped briefly into recession.
Kaswara Alkhatib, 48, chairman and chief executive officer of UTURN, an Arabic entertainment network on YouTube, supports Vision 2030, but the government now needs to communicate the details of how it will work.
“Nobody’s talking now for the past six months about where we’re going,” he said at his office in Jeddah. “You can’t just tease me with a vision and be quiet about it. Keep on feeding us, where do we stand today, take questions, but don’t just tease us and disappear."
The Saudi goal is to increase the contribution of small and medium-sized businesses to 35 percent of the economy from 20 percent and help bring the jobless rate down to 7 percent from almost 12 percent.
It will require weaning companies off more efficient foreign labor and training up locals who ordinarily would seek jobs with the state. The government already raised the cost of visas and residency permits for non-Saudis, who make up about a third of the 32 million population, making it more expensive to hire them.
Some business owners are holding workshops for staff, others are seeking advice from outside consultants. Many are focusing on revamping or starting HR departments. KPIs -- key performance indicators -- have become the new buzzword.
UTURN, the Internet company, hired consultants about a year ago to help create performance appraisals for its staff of 70 so that if they need to get rid of anyone they have KPIs to go by. "We want people who are actually able to create, not sitting and waiting for us to tell them what to do," said Alkhatib, the CEO.
The more immediate issue is the effect of plummeting oil prices on the Saudi economy. Growth is set to slow to 1.4 percent this year, the worst pace since 2009, according to a Bloomberg survey. The government decided to freeze public-sector bonuses for a year and slash allowances for a year to save more money.
Saudis now focus on buying essentials and servicing loans. On a recent Friday evening, there were only four tables occupied at an upscale Japanese restaurant that required booking a few months ago. Some of the city’s residents took the cheaper option of spending the evening on the corniche, which is dotted with play areas, kiosks selling popcorn and soft drinks. There are carpets for prayers and benches to watch the sun set over the Red Sea and the world’s tallest fountain, a Jeddah landmark.
Alireza said the brake on spending was as if “the spigot was almost turned off just like that.” Car sales at his company are down 30 percent this year. Sales of trucks, dumpers, cement mixers, which all depend on a healthy construction industry, sank 55 percent.
"So the private sector is now looking at the same avenues to save and to conserve resources as the public sector," said Alireza. "It’s shrinking or at least not investing and the public sector is decreasing spending. That’s a recipe for disaster for any economy."
Like the bulk of the Saudi population, Siraj Al-Malki, 30, is going through his first oil crash. He’s discovering how tough business can be after four years as an entrepreneur.
He owns five sportswear stores and is chief operating officer at digital marketing company Chess Tag. The dark circles under his eyes betrayed sleepless nights trying to figure out how to manage losses of up to 35 percent since March at both businesses. He needs to make his 40 workers more productive and might have to close one of the stores.
"These are very, very tough times -- it’s a domino effect," Al-Malki said at his office in Jeddah. "I have to lie in bed for two to three hours just to think about how we can survive. I don’t think even next year will be better."
He’s among the Saudis who support Vision 2030, though wants the government to help with the cultural changes to make it happen.
Al-Malki said he’s "not only willing, but wants to hire" and develop Saudis, but the government must ensure a new work ethic is taught in schools and universities. It sometimes takes him up to four months to hire a qualified Saudi. "Let’s say we have interview appointments with 10, two show up," he said. "This mentality needs to change."
One key source of new workers is women. Before his death, King Abdullah opened the labor market up to them, though they still need the permission of a male guardian to travel or marry. They still spend a chunk of their earnings on mainly foreign male chauffeurs, money that leaves the country like a tax on their labor, said Alireza.
The goal of Vision 2030 is to boost female participation in the workforce to 30 percent from 22 percent. That’s created a buzz at another company in Jeddah as colleagues Dalal Fakeih, 35, Amnah Fakieh, 26, and Ghalia Al Attas, 36, discussed the courses they give both men and women on interacting in a mixed gender situation and being assertive. Women also should know how much make-up to wear.
“We’re indirectly teaching them the skills that will help so that when 2030 comes around they’ll have them," said Fakieh, a research assistant manager at the firm, Nawah.
At the Auction House of Fitaihi Holding Group in Jeddah, a company specializing in jewelry, about 20 male and female employees gathered at round tables under a chandelier and surrounded by walls decorated with pieces of diamond trinkets. They listened to a consultant talk about the importance of change, part of a series of five-day courses the company started in October.
Founder and Chairman Ahmed Fitaihi, 77, whose career spanned Saudi Arabia’s seven kings, dropped by during one session for a quick pep talk. He’s in the process of reducing staff by 30 percent, all non-Saudis.
"Change lies within you,” he told them. “Don’t blame others."