30: Everything You Thought You Knew About Saudi Arabia Is Wrong

Daniel Moss, Bloomberg News Executive editor for Global Economics. I'm based in New York, but I'm back in d C today, which means i can be in the studio with my co host Tory Stillwell and economics reporter at Bloomberg News. It's great to be back to ya, all under one

root of again. Benchmark has been traveling quite a bit lately, having focused ourselves largely on the US, and the last couple of episodes we've visited India to assess whether the world soon to be most populous country can ever have an economy to match that. We've also talked about China's incredible shrinking labor market, and today we're going to take a trip to Saudi Arabia, where there's more than meets

the eye. What's the disseyse geographic themes? Together? Dan Well India and China are both going through significant economic change, as is Saudi Arabia. It's fascinating. Really. We'll have two guests to help us work through this. Donna Abu Nasa, a Bloomberg colleague with extensive experience in the country, and Monica Malick, chief economist at Abu Dhabi Commercial Bank in the United Arab Earments, which is right next door to

Saudi Arabia. I feel like if we were to play a word association game, like asking people what were some of the first words that came to mind when they thought about Saudi Arabia. I know for me personally, it would be oil, the desert, and women aren't allowed to drive. I mean, the last one is a phrase, not a word. But you know what about religion and strict moral codes? Yeah, yeah,

well we'll get to all that now. Remember but one thing, economic necessity, tends to drive social change, and the country does matter enormously. It's been called the central Bank of oil, like the FED or the e c B of that black liquid stuff that makes the world go round, and

it has so much of it. You know, when you think about a Tory, oil is the juice that's essentially driven the hydrocarbon economy, and that's been the economy in the past century, and beyond economics, it's traditionally been one of the West's main allies in the region. But let's stick with oil now. The country rose from essentially a Bedouin society to fantastic wealth on the back of the product in just the space of a few generations. But sure enough, oil is now making Saudi Arabia poor. Do

you know I just learned the definition of Bedouin? I really yeah, I'm reading a hundred Years of Soliditude, and he uses that word. It means just like of Arab descent, basically like an Arab nomad. I didn't know that. I didn't realize Marquez had as kind of insights, different continent, different cultures. Well, anyways, Saudi Arabia is the largest exporter of oil and accounts for six of the planet's oil reserves.

But as listeners of our show may know, the price of oil has been on a swoon since two thousand fourteen, losing of its value that year and about fifty percent last year. And ironically, many analysts attribute that decline to a price wark that Saudi Arabia itself started and ultimately couldn't stop. While oil has rallied a bit off of that bottom, it's only fetching about forty dollars a barrel right now, down from about ninety dollars a barrel eighteen

months ago. And that is, as you can imagine, quite a hit to national income. And it's ricocheting through Saudi Arabia's entire economy. And that's force the Kingdom's rules, the House of Sound to undertake some quite drastic measures. They're talking about a value added text. There's no income text. By the way, that's been one of the long term benefits of oil. They've also for shadow cuts in spending, reduction in subsidies, and wait for a drum roll, changes

in labor force participation. Joining us right now is Donna Abu Nassa, who covers economics and government for Bloomberg in the Middle East. Donna has reported extensively on Saudi Arabian economics and politics. She's now based in Beirut. But here's an interesting fact. Donna opened the Associated Press Bureau in Saudi Arabia in two thousand and eight. Pretty good, Donna,

it's great to have you. Tell us when were you last in Saudi Arabia And what did you notice when you were there compared with other visits you've made over the years. Well, I was last in December. It was my first time back in about three years. And what I've found is a younger, more vibrant Saudi Arabia. It was apparent the moment Diet I at the airport. There used to be a very drab arrival hall years ago.

It's now bright. You have television showing cartoons, you have young men greeting you, um, older women, women with children where as to sit down while male relatives took care of passports control. So it was a parent from the moment I set foot in Saudi Area. And what about economically, I mean, aside from the fact that it's now crawling with McKinsey consultants. Well, Saudi East have to get used

to a new standard of life. Basically, the new Saudi generation is going to live the kind of life that their parents didn't. Their parents lived through the financial bomb that made saudiast collectively rich. They want and so they're trying to adjust to life, you know, with low oil prices, trying to make priorities, trying to cut some luxuries or maybe take on other jobs. So, I mean, we were thinking about a person's everyday life here, a person living

in Saudi Arabia. Can you think of any examples of how that person's life would be affected, that day to day life would be affected by lower oil prices. Well, I spoke to somebody. He works as a professor at the university, and he, you know, studied in the US. So he said he was going to take advantage of the things that he learned in the US and try to make money out of it, training saudiast on how to market their goods. Basically. Um. He said that at home,

he's teaching his children basically to save power. So he said, he told his children, if you save three years words of electricity amounths, the money will go to you. So yeah, basically they're trying to learn new habits. So is there a sense that your average Saudi Arabian family is recalibrating the way it thinks about its economic life and the way it sets its household budgets and the way it plans for the future. They are. I mean, this guy told me that according I mean, he friends to his

family and so on. They still hadn't afforded what happened, and so he said, he keeps telling them that they have to look at their bills, that they have to make them smaller, basically, that they have to look for other ways to find income. So, yeah, they will have to adjust. Oil has enabled the government to subsidize many

aspects of economic life in Saudia, like types of aspects. Well, my understanding, Donor, is there is no income tax for example, that's true, and what about gas, electricity, fuel, These things are all heavily subsidized as well. They are. And on top of that, you know university students, they who go to government universities, they get about to sixty dollars a month as a monthly stipends from the government. And does the decline in the price of oil mean the state

is less able to pamper its citizens generally? And what impact is that then having One of the things that's been affected is the government funded program that sent tens of thousands of Saudi men and women to the West to study. Now I'm hearing that the government is making it more difficult for students to go. And the general feeling is that the lower oil prices has something to do with it, and it's all of this ultimately forcing or at least enabling a significant degree of social change.

I read a story that you and our colleague Vivian Nerum wrote recently which talked about women entering the workforce at more than twice the rate of men. Talk about that when you have a lot of women coming back home from the West educated women, keep in mind that the women outnumber men when it comes to higher education. So when they come back home, these women want to find jobs. They are looking for jobs, and the government is trying to make it easier for them to basically

find jobs. For instance, when I was in Saudi Radio around two thousand four, I remember walking into a store that says lodgery and I so a woman. She was totally covered in black. Only her eyes were showing, and she was holding up a lazy orange rack and asking the salesman in a whisper if he had her size. Now, I mean, she's covered, he's not supposed to be looking at her, but he was arguing with her about her size.

It was, you know. I spoke to a lot of women and they said it was very embarrassing for them to buy underwear in Saudi Arabia, some of them would go out of the country to buy it, simply because women were not allowed to work in stores, you know, the conservative religious establishment thought that women should not be mixing with men, and if they worked a saleswoman, then this thing would happen. So now ten years later, when I went this time, I found women not only in

lingerie and makeup stores, but even ask a shears. So yeah, it's it's amazing. And there's a sense that this is being fueled by the change in oil prices and the new sort of day life that these people are adjusting. So Done at the beginning of the show is saying how I feel like one of the most common things that people know about Saudi Arabia, if you were to just ask foreigners perhaps, is that women there aren't allowed

to drive. So we've we've got all this change that we just talked about, and yet the unwritten slash written role, I'm not even exactly sure what it is is that women can't drive. So is there any sense that this is going to change and that we'll see women behind the wheel more often? I don't see anything right now, But Saudi is that I used to talk to in in the yards would tell me that Saudi Arabia can afford to stop its women from driving simply because they

are rich and oil has made them rich. So the lower oil prices mean that Saudi women would finally be able to drive. We'll have to wait and see, but it might mean your average Saudi family has difficulty affording drivers, and once that changes, that opens the door to other things. Absolutely, Donna, thank you so much, Thank you for having me. Thank you. Let's dive a little deeper into the data and the

macro economic context in which this is all happening. Helping us is Monica Malick, chief economist at Abu Dhabi Commercial Bank in Abu Dhabi, and she also did her PhD on the Saudi Arabian economy. Monica, it's great you could join us. Thank you very much for having me. So if you look out your office window you can just about see Saudi Arabia to push, but tend to travel there a lot, so I keep in touch that way well, Monica. How significant are the economic challenges the country faces right now?

Is it just oil is down so we have to tighten our belts a little bit for a while, or is something more seminal happening. I think something more seminal is happening. Firstly, I think it's important to note that this is not the first time that Saudi Arabia has entered a low oil price down turn outlook, and in fact, Saudi Arabia is entering the low oil price period in a better position that it's ever been with regards to fiscal buses, and that includes high effects reserves and the

low debt levels. However, Saudi Arabia is also facing a number of economic challenges and social challenges, and this means that it cannot just be a case of Saudi Arabia using its reserves without why the fiscal reforms, and that is what we're seeing this time around. When the budget was announced in December, concurrent with that, there were a number of fiscal reforms, and it's really the first time we're seeing it to this magnitude, not only in Saudi

Arabia but the wider GCC region. So what's changed in the Saudi economy and Saudi society to make a different time, Because as you've mentioned, your oils had its ups and downs. It was around ten dollars a barrel in the late nineties. What's happened between then and now. Well, I think population growth is a significant part of the social change. We've seen sort of strong population growth for the last three decades. Previously, the government was always the employer of last resort and

Saudi Nationals could be absorbed by the public sector. But this is no longer the case, and infrastructure has also not kept up with the population growth. So those for example, shortage of housing for for for Saudi Nationals, there's a need to upgrade utility and infrastructure, their shortages in the summer where demand is higher because of the warmer weather. So to meet these challenges, Saudi Nationals will have to

be absorbed by the private sector. At the same time, the Saudi government, which had very sort of generous subsidy programs and so on, cannot afford to continue with these payments as they had done before. What does what does labor force participation look like in Saudi Arabia? Well, such a very interesting question, and of course it varies greatly

between the female and male population. If we look at unemployment for for men in the Saudi labor force, it's very small, it's about five percent, but for women it's around thirty three percent, So there's a marked difference. And while women's employment has been a key objective of the government and you have seen strong percentage growth, especially in twenty and twenty fourteen, it's from a very low base. And of course there's social and cultural um issues that

sort of make greater participation difficult. All the changes happening slowly when looked at from thirty thousand feet or from say Peoria, Illinois, Why on earth, with this incredible wealth, aren't their jobs for everyone in Saudi society? I mean, why is there even a discussion about the structure of the labor markets. Surely there's enough to go around. I think a lot of the issue is the need for educational reform that has been a key focus of the government.

The focus has been on sort of changing the education system that meets the requirements of the private sector more. And of course, given that it is education, it does take time for the reform to one happen and to to filter into the labor four market. Now, what you are seeing over the last few years, alongside programs such as sauda Ization, which aims to increase with quotas of

Saudi nationals working in companies. They have also been a number of schemes that look at on job training, so where government could give you know, sort of part of the payment of the employee's wages to a company. And these are all methods that they're trying to use to try and narrow the gap between the output of the

education system and the requirements of the private sector. Also, what we've seen is is a need to increase for an investment into Saudi Arabia, and not just in the hydro carbon sector or you know, the capital intensive sector, but the areas that would create jobs growth, And another area of focus is increasing the small to medium size industries and companies could also these are the areas that

can provide new employment opportunities. But I think a lot of the issues is that the oil sector and the hydrocarbon sector dominates the Saudi Arabian economy. This tends to be capital intensive, not labor intensive, and and job creation also needs to go hand in hand with the diversification of the economy. Yeah, it's really interesting because a lot of what you're saying in its own way could apply

to the United States. Right now, we've been hearing a lot about needing to fix the skills gap between what employers want and what people are coming out of college and and high school with, and sort of how to marry that gap, as you eloquently put it, as well as we used to have or not even that long ago, a year ago, maybe a little bit more. We had a booming shale industry that was employing a ton of people, and as we know, those sectors have been laying people off.

Where do they go to find jobs? So I thought it was really interesting that Saudi Arabia and America see you facing somewhat similar issues. Um. One thing that I'm wondering though, is sort of why how this plays into the broader global narrative. You know, why should someone sitting in did you say Prioria, Peoria, Illinois, fated place, let's come to typify Middle America? Okay, Well, that place, I believe, I just can't pronounce it. Why someone sitting there should

care about Saudi Arabia. Well, I think it still plays a leading role in the global hydrocarbon sector. If we look at the strategy that OPEC has implemented over the last two years, it's very much driven by Saudi Arabia,

and it's objective to to maintain market share. The fact that it does have greater busses than it did in previous cycles means that they can have a strategy to keep oil prices lower for a while, although we have seen a shift to look at freezing output with the move down in oil prices in the early part of twenty sixteen. So I think it's role in the oil sector, but also the fact that it's the largest economy in

the region. It's it's got a strong population. It will provide a strong domestic base of growth and consumption if we do see the employment picture improving and and picking up. There's a number of quite exciting programs and projects that are going on and in the Kingdom on the education side and trying to bring research and development into the country,

although these are quite tentative and initial moves. So I think that the fact that you are seeing the social change, the role of Saudi Arabian the region and in the hydrocarbon sector, or you know, important on the global perspective.

We've talked a little about changes in the labor force, and before you're on, our colleague Donna talked a little bit about the evolution of the role of women in the workplace, Monica, what's it like for you when you go to visit clients in Saudi Arabia and compare it with say, your experience it's five, ten, fifteen years ago. Um, you know, I was doing my PhD in Saudi Arabia in the late nineties when oil was at the end of the round eleven dollars a barrel. One thing that

is very notable when I do go in. While there are still a number of cultural restrictions, the ease of getting visas, the ability to travel by myself, the ability to go into offices has changed markedly. I think it's far easier for women to go and conduct business there. But I think the social change has been quite notable, women being able to vote in municipal elections, but also

a more outward looking view and stances also there. So while from the outside it might not seem as significant to a substantial change, but for someone who has been looking at Saudi Arabia for you know, quite a while now, you do not changes and and you know, changing mentalities and attitude. It's a lot to think about that tory it is it is. Thank you so much for joining us, Manica. This was great it's very much a pleasure. Thank you very much, Thank you, and thanks to you all for

listening to Bloomberg Benchmark. We'll be back again next week and until then, you can find us on the Bloomberg terminal, as well as Bloomberg dot com, iTunes, Stitcher, tager casts, and many other places and let us know what you thought of the show. You can talk to and follow us on Twitter at at Tory Stillwell and at Daniel Moss TC. Did you know our producer, Liz came from pure Illinois. Yeah, I just found that out. Shout out to Liz