In Al-Ula is ancient Hegra, once a prominent trading centre of the Nabateans and now home to a set of 111 tombs intricately carved into the imposing sandstone rock faces lying at the base of the basalt plateau. Rising out of the desert over a thousand kilometres away is Riyadh, Saudi Arabia’s capital and main financial hub. Pre-1938, before oil was first struck in the country, the kingdom was a largely nomadic nation relying on tourism for its income. Its oil and natural gas revenues have turned it into a hugely wealthy country, with a 2017 Forbes profile stating that “its petroleum sector accounts for roughly 87 percent of budget revenues, 42 percent of GDP, and 90 percent of export earnings.”
Its transformation in a relatively short space of time now means that Saudi Arabia has the largest number of millionaires in MENA according to Credit Suisse’s 2022 global wealth report. The stratospheric rise of a nation has come with several consequences. The first and perhaps most important is that there is a huge gap in terms of education, skills and training of Saudi nationals.
Historically the kingdom has relied on foreign workers for skilled and menial labour and the ‘Saudisation’ of the country has been a long-term project going back well over 60 years, with the aim of getting Saudis employed in the private sector. In Madawi Al-Rasheed’s A History of Saudi Arabia, she writes, “A shortage of local candidates for highly skilled jobs together with the reluctance of Saudis to engage in menial work meant that the country remained dependent on Western expertise for specialised industries and Asian labour for construction and other unskilled and menial jobs.”
We don’t need no education
According to McKinsey, the public sector “employs more than two-thirds of all Saudi workers” and these jobs are generally better paid than the private sector. Startlingly, they also don’t seem to involve much work. Civil service minister Khaled Alaraj, speaking at a roundtable in 2015 said: “The amount worked doesn’t even exceed an hour – and that’s based on studies.”
The truth seems to be that the majority of Saudis don’t need to work particularly hard to live well and that is, for many onlookers – especially those in relatively impoverished nations – an enviable position to be in. So what if there is a skills gap? Until now, foreigners have filled that gap and for several decades that arrangement has worked out well for the kingdom (if not always for those it employs).
It seems unrealistic to suggest that in seven years Saudi Arabia will have freed itself from oil dependency entirely
Well, it becomes a problem if the source of the country’s wealth, oil production, suddenly takes a massive, unexpected hit. The pandemic was painful for oil-rich nations. Many will remember the oil industry going into freefall in 2020 as lockdowns came into place and transport effectively ground to a halt. The fallout from this was immediate for the kingdom. In May 2020, Bloomberg reported “a record $27bn monthly drop in the Saudi central bank’s net foreign assets” caused by the oil crash. Saudi Arabia’s finance minister, Mohammed Al-Jadaan, reacted to these events, saying “it’s very important that we take very tough and strong measures, and they might be painful, but they’re necessary.”
Fortunately, the world’s largest oil exporter had sufficient fiscal reserves to weather the Covid storm, and the recovery has been nothing if not stellar, with an IMF report declaring Saudi Arabia “the fastest growing G20 economy in 2022” on the back of oil’s recovery and strong non-oil GDP growth.
Under pressure
There is now another challenge on the horizon that will likely signal the eventual end to the flow of oil and to the flow of wealth that has sustained the steady development of towering desert skyscrapers. And this one might prove a little more difficult to navigate.
The world has woken up to climate change and the global effort needed to counteract it will mean the gradual phasing out of fossil fuels as we transition to more sustainable and green alternatives (see Fig 1).
According to OPEC, Saudi Arabia possesses around 17 percent of the world’s proven petroleum reserves and in a world where these reserves are no longer needed, the kingdom’s current world standing would be severely diminished. How Saudi Arabia manages the transition will determine what happens next. On the face of it, not much has changed. Oil is still running the country.
And that’s a problem. Production in August 2023 was at nine million barrels a day, down from 11 in September 2022, which has driven Brent crude to $95 a barrel. According to a report by the Oxford Institute for Energy Studies, the Saudi economy, “including the non-oil private sector, still relies heavily on government spending that is fueled by oil revenues.” It is something of a paradox. The kingdom needs its oil money to help pay for its net zero pathway. Saudi Arabia’s answer to this wider global shift in energy policy is in its national transformation programme, Vision 2030.
This is split into several different programmes and mega projects aimed at addressing its historical labour issues and to help grow and diversify the Saudi economy, including several green projects. According to the US International Trade Administration “by 2030 Saudi Arabia plans to generate 50 percent of its electricity from renewables and the other half from gas,” and while this is a laudable goal, it seems unrealistic to suggest that in seven years the kingdom will have freed itself from oil dependency entirely.
Only time will tell
But time is the critical factor here. A study by the University of Manchester concluded that high-capacity countries such as Saudi Arabia would need to cut production 43 percent by 2030 and end production by 2039 to remain in line with Paris climate targets.
Saudi Arabia does not need to look far for inspiration. Going back to Hegra, there is plentiful evidence that the Nabateans were a mightily resourceful and innovative people. Dotted around their tombs are the water wells they dug – many of them still in use today. It proves that our histories need not be cautionary tales; they can be monuments to what we leave behind. Civilisations will always rise and fall, but our future prosperity is measured by our actions.
