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Oman’s youth unemployment problem is a harbinger for wider Gulf | Business and Economy News

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In late May the Gulf nation of Oman was rocked by demonstrations as young people took to streets in cities across the country to protest a lack of jobs and economic opportunity.

The unrest fell just weeks after the government, led by Oman’s new ruler, Sultan Haitham bin Tariq Al Said, introduced a 5 percent value-added tax (VAT) as part of a long-delayed fiscal reform package that included other cuts to state spending and plans to introduce an income tax.

The austerity measures are designed to rein in Oman’s widening budget deficit and skyrocketing public debt after its public finances – among the region’s worst – were brutalised by last year’s coronavirus pandemic disruptions and oil price crash.

Demonstrations over economic grievances in the Gulf’s most indebted state have occurred sporadically since the 2011 “Arab Spring”. The country’s previous ruler, the late Sultan Qaboos bin Said Al Said, managed to quell protesters by offering them generous state handouts.

The new sultan responded to events in May in a similar fashion, promising nearly 15,000 public-sector jobs and another 15,000 jobs in the private sector to be funded by a $500 government stipend.

But that strategy will likely delay reform designed to trim bloated state budgets and jump-start the country’s private sector to generate more jobs.

“Some of the measures and reforms under the tawazun [or] ‘fiscal balancing’ plan will likely be scaled down, postponed, slowed, or sequenced in a more politically sensitive fashion,” Adel Hamaizia, a Gulf expert at Chatham House, told Al Jazeera.

While Oman has less breathing room than its wealthier neighbours to successfully reform its economy, the delicate balancing act playing out there between reining in state spending and creating economic opportunities for young people lays bare a dilemma facing other Gulf nations.

Sultan Haitham bin Tariq Al Said responded to last month’s protests by promising nearly 15,000 public-sector jobs and another 15,000 jobs in the private sector to be funded by a $500 government stipend [File: Sultan Al Hasani/Reuters]

These states have built their economies on oil and cemented their social contracts and security through state largesse funded by petrodollars. But the global march towards green energy is heralding a not-so-distant future of waning fossil fuel demand just as legions of Gulf youths are entering prime working age.

“A youth bulge is coming into the labour force at a time when the ability of Gulf societies to continue in the traditional pattern of offering public-sector jobs is diminished,” Gerald Feierstein, Senior Vice President of the Middle East Institute, told Al Jazeera.

“In the Gulf, people have a certain level of expectations about what government is going to do for them,” he added.

The clock is ticking

Although petroleum industries accounted for more than 34 percent of the country’s gross domestic product in 2019 and made up nearly 65 percent of its total exports a year earlier, according to the World Bank, Oman’s undersecretary of state for oil and gas said in a 2019 interview that the sector only employed just shy of 15,000 Omanis in 2018.

Muscat is now grappling with the reality that the comfortable state jobs it offered to the fathers and older brothers of young protestors just a few decades ago are no longer an option.

In 2019, the World Bank estimated Oman’s youth unemployment rate at 49 percent. The pandemic has almost surely worsened it. The hope is that by diversifying the country’s economy, the private sector can fill the gap in unemployment that the state can no longer afford and the petroleum industry doesn’t have the capacity to meet.

To accomplish this, Muscat is seeking to improve education and diversify the country’s economy by promoting job growth in sectors like tourism, manufacturing and technology.

Muscat is seeking to improve education and diversify the country’s economy by promoting job growth in sectors like tourism, manufacturing and technology [File: Christopher Pike/Bloomberg]

This is the idea behind the country’s National Program for Enhancing Economic Diversification (Tanfeedh). Although Oman’s finances are less healthy than those of its wealthier neighbours, the central planning proposals and desire to compete globally on sectors besides fossil fuels echo efforts made by other Gulf Cooperation Council members.

“You can say that Oman is in some sense a guinea pig,” Feierstein said, describing how the country’s fragile fiscal state may be indicative of the greater pressure other Gulf economies could find themselves under in the coming years as the global economy transitions away from fossil fuels.

Like Oman, Saudi Arabia faces an acute problem of creating jobs for young people. Half the population is under the age of 25 and nearly 60 percent of unemployed people are under the age of 30. Although youth unemployment has dropped in recent years, it’s still hovering at a blistering 28 percent.

Diversifying the economy and creating private-sector jobs for young people, in a country where two-thirds of nationals are employed by the state, is a central pillar of Vision 2030, the blueprint to transform the kingdom’s economy championed by the country’s de facto leader Crown Prince Mohammed Bin Salman (MBS).

The challenge is playing out in real time. By the end of this decade alone, Saudi Arabia will have to create 4.5 million jobs in order to keep up with the number of young people entering its labour market.

To spur this along, MBS announced in March of this year a programme that plans to invest $3.2 trillion in the Saudi economy by 2030.

“Their ability to make the transition in the time they identified is going to be very tough,” Feierstein said. “It’s not that they are wrong in their analysis of what’s needed, but do they have the capacity to follow through?”

By the end of this decade alone, Saudi Arabia will have to create 4.5 million jobs in order to keep up with young people entering its labour market [File: Tasneem Alsultan/Bloomberg]

Changing the psychology

A primary step in following through is replacing foreign workers who staff the vast amount of jobs in Gulf economies with the respective countries’ own nationals.

Oman is a country of just five million, with expats accounting for more than 38 percent of the population. Filling the roughly 80 percent of jobs held by foreigners in the private sector is critical to the government’s economic transformation plans.

The pandemic helped catalyse that process. According to the World Bank, the number of expat workers in Oman’s private sector decreased by 14 percent between 2020 and 2021 amidst an intensified “Omanisation” push by the government. Muscat has recently passed laws making it more costly to hire foreign workers while also implementing nationwide training programmes to address skills gaps with Omani nationals.

That dynamic is playing out in other Gulf nations.

“Saudisation” is a cornerstone of Riyadh’s Vision 2030. With 75 percent of workers estimated to be foreign, the government has made an aggressive effort to fill positions in sectors ranging from retail and education to the taxi business with Saudi nationals.

Hamaizia says that the process is as much about changing national psychology as it is about creating jobs, “Saudi attitudes to the job market had been previously characterised by Saudis wanting management positions,” he said.

With 75 percent of workers in Saudi Arabia estimated to be foreign, the government has made an aggressive effort to fill positions in sectors ranging from retail and education to the taxi business with Saudi nationals [File: Tasneem Alsultan/Bloomberg]

While younger people are coming around to the idea of taking positions that might lack impressive status titles, “there remains a perennial wage and skills mismatch in many — particularly value-add — areas of employment,” Hamaizia said.

A demographic that has been more willing to take jobs in the private sector, particularly in Saudi Arabia, is young women. “They have shown themselves much more eager and capable of taking on jobs,” Feierstein observes.

For decades, women, legally barred from driving and living under draconian guardianship laws, were prevented from taking part in economic life. Now young Saudi women are the first generation to enter the country’s job market.

According to a study by the Brookings Institution, a Washington-based think-tank, between 2018 and 2020 the share of women in the Saudi labour market increased from 20 percent to 33 percent. But there is still far to go. The youth unemployment rate for Saudi women still stands at around 60 percent, and women continue to face discrimination such as wage differentials.

The challenge of convincing young people to take jobs done by expats highlights how moving economies away from oil and a dependence on public spending will require buy-in not just from governments, but Gulf citizens as well.

“Change is happening faster than anyone anticipated,” Feierstein says of the region’s attempt to move beyond petrodollars. “But the clock is ticking.”

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