"Saudi Arabia's new development plan shows clear commitment to education and the private sector"

Charting a course for government policy over the next five years, the Kingdom’s 10th Development Plan, which runs from 2015 to 2019, places renewed emphasis on education and private sector development as the keys to economic diversification. In this regard, the plan represents the next step towards achieving the government’s long-term vision for the country. As Osama Mansouri, advisor to the minister of economy and planning, told OBG, “The first five years of the 10th Development Plan mark the start of the 15-year transformation of the Saudi economy into a knowledge economy.”

On a macroeconomic level, the government has declared its intention to pursue fiscal and monetary policies that “contribute to fiscal stability, stimulate economic growth and support social welfare”.

In policy terms, this involves improving the efficiency of government expenditure while also increasing the government’s non-oil revenues. On the one hand, the government will encourage the establishment of specialised investment banks and prompt existing banks to expand financing for employment-creating activities. On the other hand, the government plans to restructure subsidy programmes with a view towards greater efficiency and efficacy, though no specific guidance has been given as to which subsidies will be prioritised for restructuring. On the consumer level, the government plans to boost the personal savings rate by creating new channels to attract small-scale savers.

Diversification

As a first step towards greater diversification, the plan envisages raising utilisation rates of mineral resources, diversifying sector activities and developing local processing of mining raw materials. In terms of petrochemicals, this will involve developing upstream and downstream industrial activities that depend on oil and gas. Production capacity in the industrial sector will also be expanded in line with the National Industrial Strategy, with an emphasis on projects related to the diversification of energy sources away from oil. The plan aims to increase the contribution of the services sector to GDP, with an emphasis on financial, tourism, transport, engineering, communications and IT services, according to the Ministry of Economy and Planning (MEP). In order to develop non-oil exports, both in absolute terms and as a proportion of total export value, the plan calls for the encouragement of local and foreign strategic partnerships to implement investment projects, and the establishment of industrial zones and business and technology incubators.

Knowledge Society

Underpinning economic diversification is the transition to a knowledge-based economy and society, which constitutes the third objective of the plan. This encompasses a wide array of changes, ranging from greater utilisation of the results of scientific research in addressing socio-economic issues to raising the knowledge content of goods and services produced in the Kingdom. “Education is key to achieving the goals of the 10th Development Plan, with 50% of the action points in the plan relating to education in one way or another,” Mansouri told OBG.

The government recognises it needs the help of local and international partners to implement these changes, which is why the plan calls for the private sector as well as universities to invest in research, development and innovation. The government has committed to support the efforts by improving what the MEP terms “the management of knowledge generation”, including its financing, transfer, investment and dissemination, particularly within government itself. For example, the government is strengthening enforcement of intellectual property rights laws and improving coordination between the ministries involved in shepherding the Kingdom’s transformation to a knowledge society.

Capital Productivity

In addition to pushing the Saudi economy to become more knowledge-driven, there are other steps the government can take to improve productivity. For instance, in terms of capital productivity, the Kingdom wishes to encourage companies to shift from unskilled labour-intensive business models to those that rely more on capital, advanced technology and skilled labour. To facilitate this, over the course of the plan the government will streamline the procedures for the establishment and market entry of companies, in addition to developing bankruptcy regulations that also safeguard the rights of creditors.

The MEP is targeting productivity gains by encouraging the establishment of companies that can reap the benefits of economies of scale and invest in R&D, and by increasing the efficiency of judicial authorities in order to facilitate faster dispute settlement, and greater enforcement of rulings and adherence to contracts. At the small and medium-sized enterprise (SME) level, firms will be encouraged to merge to boost their efficiency and competitiveness. The plan will also strengthen the oversight of regulators and give them greater autonomy, which is intended to boost productivity by fostering more competition.

Labour

In terms of labour productivity, the plan focuses on the country’s education and training systems as an avenue for fostering a positive work ethic and enabling workers to deal efficiently with technological developments. This will require “developing labour market mechanisms and regulations and wage policies in a way that facilitates movement of labour between companies and establishments, as well as between the public and private sectors”, according to the language of the plan. The MEP has also given notice that expatriate labour recruitment policies are set to be reviewed in the coming years to ensure they support the plan’s objectives. These measures will build on the progress that has already been made in promoting the Saudiisation of the labour force. According to the Ministry of Labour, the private sector’s Saudiisation rate rose from 10.9% in 2011 to 15.2% in 2013. In addition, over the same period the growth in employment of Saudis, which averaged 26.7% per year, surpassed that of foreigners, at 9.4% per year.

Resource Efficiency

For both economic and environmental reasons, the plan makes conservation of oil resources and rationalisation of their use a stated goal. This will be achieved through the promotion of energy efficiency measures and by fast-tracking regulations to spur the use of renewable energy sources for electricity generation and water desalination. Water resources are to be managed according to the National Water Strategy, which anticipates that reclaimed water will increasingly be used for agriculture, while growth in water consumption levels will be contained by reducing the losses in the production, transportation and distribution of water and through stricter enforcement of regulations.

Private Sector

The government has made increasing the contribution and productivity of the private sector one of the principal objectives of the national development plan. While welcoming private sector development in general, details of the plan suggest that the Kingdom is seeking to align support for the private sector more closely with its national development priorities. For example, the plan proposes “establishing joint government and private sector companies in areas of national strategic priority with the aim of diversifying the economic base”, and “linking direct and indirect government support, provided to private sector establishments, with the extent of their realisation of development objectives, particularly those related with employment, diversification and technological content”. New measures to support the private sector include greater flexibility for employers in hiring national workers and removing the constraints that prevent SMEs from investing or participating in public services and the utilities sector. In addition, private sector companies bidding for government contracts are to be more stringently assessed based on the proportion of Saudi nationals that they employ. A national database of investment opportunities across a variety of sectors will additionally be set up to help private companies identify openings more easily.

The government expects these measures to increase the level of local content in goods and services provided to the government by the private sector. This, in turn, should boost the private sector’s role in creating jobs – particularly for Saudi nationals, which is an overarching aim of the government’s medium-term plan.

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The Report

This article is from the Economy chapter of The Report: Saudi Arabia 2015. Explore other chapters from this report.