Tag Archives: Saudi Arabia

The NYT reports that Saudi Arabia is pushing forward with a $500 billion investment to construct six futuristic cities meant to become the country’s 21st century industrial hubs. According to the plan championed by King Abdullah, these steel-and-glass cities currently under construction will emerge as leading manufacturers and exporters of products ranging from plastics to cell phones. The stated purpose is to diversify the Saudi economy away from oil and to combat youth unemployment propelled by the rapid population growth.

Indeed, the Saudi population, now at about 24.5 million, is predicted to reach nearly 40 million by 2025. Creating enough jobs to incorporate all of the new entrants into the labor force is an urgent necessity. But is building new industrial cities really the answer? The Saudi Arabian General Investment Authority estimates that they will add $150 billion to the Saudi GDP by 2020 and create one million new jobs. Yet skepticism toward their ability to address the unemployment crisis is warranted.

First, the continued expansion of the Saudi economy is very much dependent on high prices of oil. They in turn fuel inflation, which reached the highest rate in over a decade (6.5%) last month, making even staple foods such as rice or milk hard to afford for ordinary Saudis. In order to quell growing public discontent, wages are being driven up. Saudi government employees are expected to receive a 30% salary increase and some private companies already declared pay hikes of up to 40% in an attempt to balance the steep rise in consumer prices. This calls the international price competitiveness of the envisioned Saudi industrial expansion into question.

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