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Saudi Arabia Economics - 4Q17 labour survey: Half a million expats lost jobs in 2017; nationals’ unemployment remains high

Expat job losses accelerate to 277k in 4Q17…

Saudi Arabia’s labour force survey for 4Q17 showed that Saudisation efforts – whether through nationalisation of jobs in certain sectors or increasing expat levy – are indeed accelerating the pace of job losses for expats. The number of non-Saudi employees shrank by 277k in 4Q17, compared to more than the previous three quarters’ combined job losses of 189k (Fig. 1). This brought total lost expat jobs to 466k in 2018, with the number rising to 575k, when excluding domestic labour, i.e. drivers, helpers, etc, pointing to major job losses in the businesses economy (Fig. 4). Construction continued to lead lost jobs, accounting for 51% of total, followed by trade (26%) and manufacturing (10%). 
…and is set to continue in 2018

The official numbers confirm a number of other anecdotes hinting towards a large number of expats leaving the Kingdom in the past few months. The Passport Control Authority reported that 811k expats had left the Kingdom in the past 18 months; note the labour survey numbers do not include family members. In addition, a recent press report pointed to a large number of expat students in international schools leaving, following end of school season, with one principal describing the number of applicants for transfer of certificates as ‘alarming’. We expect the number of departing expats to increase further in 2018, with 12 new jobs being Saudised by September. 600-800k additional jobs could be lost in 2018, in our view, though the net number will depend on how quickly public investment spending will pick up, as this will clearly require importation of labour.
Inflation remains the biggest risk for a healthy labour market adjustment

Labour numbers still indicate that most expats leaving are low-wage, low-productivity, blue-collar workers who are replaced  gradually by fewer nationals working in larger firms, which are expanding their market shares at the expense of smaller players that are forced out of the market. This should eventually bode well in the long run for the economy’s productivity, though it is clearly resulting in cost inflation, as nationals are still 2x more expensive than expats (Fig. 12), which - so far - most businesses have opted to absorb, but could present inflationary pressure risks, going forward. In the short term though, the economy is likely to see more of the painful side of this adjustment, given the immediate negative impact of job losses of such magnitude on aggregate demand. The adjustment’s rewards will set in gradually as more Saudis are employed, tending to spend more money within the country.
Nationals’ employment gains pace, albeit still not keeping pace with labour force growth

On a positive note, 4Q17 saw major gains in the employment of nationals, whose employed numbers jumped by 100k. Women represented 55% of the newly employed Saudis and were mostly employed in the trade (53%), social services (24%) and financial and business services (12%). Most job gains for men were also in the same sectors, in addition to construction. Nevertheless, unemployment for nationals remained unchanged at 12.8%, as employment growth is still overwhelmed by that of population. 
Macro backdrop remains weak, awaiting public spending kick-off

Weak labour market conditions are unsurprising, given the poor macro backdrop. Fiscal consolidation measures, implemented earlier this year, have weighed on demand, and the government’s promise of an expansionary budget is yet to be realised. Indeed, PMI numbers continue to raise red flags, falling to another record low in April (Fig. 14). Most notably, new orders fell into contraction territory for the first time since the Index started in late 2009 (Fig. 15). While employment gains for nationals is a positive indicator, they are still currently falling short of: i) compensating for a much larger job losses for expats; and ii) keeping up with the pace of population growth; hence, not leading to gains at the unemployment level. 

Mohamed Abu Basha