Businesses In Saudi Arabia Struggle With Changing Regulations

Photo: Fayez Nureldine /AFP/Getty Images

The Mobile Market center is a popular place in Riyadh for anyone who needs computer accessories or help with their cell phone. The two-story mall, next to a busy thoroughfare in the capital city, has shops selling all kinds of electronic gadgetry. It’s also where the frustrations and challenges of Saudi Arabia’s economic overhaul are being played out.

The owner of one small cell phone accessory shop on the ground floor sits at a desk, enjoying a cup of cardamom-laced Saudi coffee and some dates. The owner, who goes by the name Abu Saud, owns three shops in this mall. He says he was a happy man, and business was good, until the Saudi government told him to replace his foreign workers. For years he hired mostly South Asians who are skilled at fixing cell phones.

But under new economic reforms, telecommunications shops are required to hire only Saudi workers. Abu Said says they don’t last long in his shops.

“I give them very high salary … but the problem is they don’t like (the work)”. He says the Saudis would rather be working in a government office. “Each one he like to have a table, he’s a boss. Even if just to graduate he just want to be a boss, direct,” he says.

Abu Said has to bring in his two sons — both are doctors — to help run his shops. If he wants to use a foreign worker, he has to pay a fee — anywhere from $80 to $107 per month for each foreign employee. Those fees are due to increase over the next two years.

Soon many other types of retail outlets will also be required to only hire Saudi workers. It’s causing a lot of problems for businesses, says a Saudi accountant, who asked that his name not be used so he could speak freely.

“During last year we have seen a lot of small and medium entities going out of business because they cannot afford it.” He agrees Saudi Arabia needs to reform its economy, but the changes should be made slower, more carefully.

“In my office every day I get new regulations either from the Ministry of Commerce or the Minister of Finance or the tax department. Everyone is changing their own regulations and the bylaws,” he says.

The uncertainty over regulations and bylaws is affecting much-needed foreign investment. “Think about the foreign investor who is staying outside and riskin ghis investment, or taking the risk to invest in a new country,” says the accountant, who deals with many foreign clients.

The changes are part of a sweeping plan to wean the kingdom off its dependency on oil revenues and create jobs, especially for young Saudis. About three-fourths of the population is younger than 30.

“This is very welcoming because the old Saudi Arabia to be honest … the system was not viable … the country was going to collapse,” says John Sfakianakis, with the Gulf Research Center in Riyadh.

The reform plan, called Vision 2030, is being driven by the kingdom’s 32-year-old Crown Prince Mohammed bin Salman, who has said he wants to wean Saudi Arabia off what he calls “its dangerous addiction to oil.” Sfakianakis says the crown prince is making bold changes in the kingdom.

“Today you have a very young crown prince who is ambitious who needs to push the envelope … because demand is changing for oil, technology is changing, ” he says Saudi Arabia needs to be part of that change. “And Saudi Arabia doesn’t have time,” he says.

The kingdom is the world’s biggest oil exporter, but a slump in oil prices since 2014, and a rapidly growing population has stretched the kingdom’s budget. Officially unemployment is about 13 percent.

Nadir Mohamed, World Bank Country Director for the region (GCC) urges patience as Saudi Arabia’s government tries to reduce its dependency on crude oil.

“If 90 percent of your GDP, 80 percent of your exports, 60 percent of your fiscal revenues is from one source, it’s going to take you a decade or more to make significant transformation,” he says.

For decades, oil helped Saudis royal family keep a compact with with the population: Saudis would be taken care of — free healthcare and education through college, cheap utilities and gasoline, often a government job, and until recently, no taxes. In return, they did not challenge the royal family’s absolute rule. Bernard Haykel, a Saudi Arabia specialist at Princeton University says now Crown Prince Mohammed wants to change the deal.

“He’s saying that you know we are no longer able to afford this nanny state … and so the terms of the social contract have to be renegotiated,” he says.

The crown prince is sweetening the deal with the population by loosening the ban on cinemas and concerts, allowing women to drive, and go to work. Now you see Saudi women working in malls and at hotel receptions — unheard of until a few months ago.

The crown prince is also pushing some mega-projects, including spending $500 billion to build a futuristic city called NEOM.

To help pay for such projects, the government is planning to sell a 5 percent stake in the giant oil company, Saudi Aramco. It is being touted as one of the world’s biggest initial public offerings. Mohammed Altuwaijri, the minister of Economy and Planning, says that sale will provide a huge injection of cash to the kingdom.

“Aramco is a first class, world class company, great proving track record,” he says. “It’s going to be a very attractive proposition for local and global investors.”

The Crown Prince is also involved in drumming up foreign investment. He was on weeks-long tours to the U.S., the U.K., and France promoting Saudi Arabia as a good place to do business.

In November, the crown prince rounded up a couple hundred of Saudi Arabia’s wealthiest and influential people and brought them to the plush Ritz-Carlton Hotel in Riyadh. Most were detained for three months until they handed over more than a $100 billion.

There were cries that it was an unlawful crackdown on possible rivals, and that it could scare off investors. But Saudi economist Motasher Almurshed says the move was hugely popular with regular Saudis.

“This move is done for the benefit of the Saudi population, for the Saudi economy, and for making the vision possible,” he says.


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