(MENAFN - Arab News) Gradually reducing energy subsidies, funding large governmental infrastructure projects through capital markets, and strengthening the small and medium enterprise sector to create jobs are key enablers to continuing the Kingdom's economic success story, says Ahmed Al-Khateeb, managing director and CEO of Jadwa Investment.
"A vibrant and competitive private sector will be the driving force of the Saudi economy over the next 20 years," Al-Khateeb told Diana Al-Jassem of Arab News in an exclusive interview in Riyadh.
Commenting on the Hafiz system, Al-Khateeb said: "I don't see this as a silver bullet solution to our country's unemployment challenge. We must improve our education system to ensure our graduates have the right skills for the employment market, including launching vocational training institutes, make smart investments in infrastructure and technology to capture more value add from our petroleum resources, and put in place enablers to grow the SME sector to drive job creation.
What, in your opinion, are changes that would have a major impact on the lives of Saudis within the coming 20 years?
Going back 20 years, the government was trying to recover from the Gulf War, with oil prices around 9 per barrel in 1998. The Kingdom wasn't in a position to make the necessary investments to manage our growing population. Since the beginning of this decade, government revenues rose in line with oil prices. As a result, the government decided to reduce sovereign debt and invest. Our governmental debt has fallen from 110 percent of GDP down to 4 percent over the last decade. In addition, the country's foreign reserves have grown to a record level of above 600 billion. The government has been investing heavily in key sectors like education, health care and infrastructure. I expect the government to continue its ambitious program for the coming few years; we can see this in the recently announced record budget that focuses on building a sound infrastructure for the Kingdom. Building the infrastructure will help Saudi nationals get jobs. For example, expanding the Holy Haram and Jeddah's new airport will help the government to increase the number of pilgrims to five million, creating jobs in the process. Education will help people get jobs as well by preparing them for the workforce. I am optimistic that these investments will translate into increasing standards of living for Saudis over the next 20 years and beyond.
Role of leadership
What do you think of the leadership roles regarding organizations in the Kingdom? What are the factors/reasons for their current state?
The role of leadership is very critical, as leaders define their organizations' missions and translate their visions into a reality. To grow our economy and create jobs, we need to increase leadership " both quantity and quality - in the private sector. We need systems to discover the leaders and give them opportunities to develop their professional skills. Nothing gives me more hope than seeing young leaders in the private sector who are able to create something out of nothing. They contribute to the growth of the economy and promote a culture of professionalism. The government has been making rapid moves and is open to new ideas. The creation of Saudi Arabian General Investment Authority (SAGIA) and opening up of financial and the telecom sectors are examples. The government has the resources to fuel its vision and ideas. We need full commitment to come up with great ideas. I fully trust that the government will make these ideas successful.
What are the most difficult decisions that need to be applied in the Kingdom within the coming 20 years?
Like any growing country, we have our challenges. First, we have to address long term inflation by creating housing stock and finding a way to reduce the impact of imported inflation in our food supply. Second, we need to strengthen our private sector and reform our education system to tackle the high rate of unemployment that we shouldn't have in Saudi Arabia. Job creation and supporting business can help the country's unemployment problem. The third thing is our unsustainably high domestic consumption of energy. We consume more energy per person than almost any other country. The government has to take the initiative to address the problem of high consumption of fuel per person in the Kingdom. We pay very low prices for fuel and energy, which are subsidized by the government. While we all like cheap energy - and water - the government has to revise its system of offering subsidies. An individual, whether Saudi or expatriate, with an income of SR 10,000, should pay the global market price of electricity and fuel; the government's subsidies should not be applicable to them. Applying this strategy is easy and Saudi nationals will accept it if the case is made to them in return they should get better education and health care. Non-Saudis estimated at 7 million are enjoying very low prices of energy. We don't impose any tax on the income of expatriates, so why don't we raise their electricity charges.
What goals would you set for the Kingdom's development? And how would these goals be achievable through your current position?
We work in the private financial sector. The goal of the private financial sector is to create a world-class financial sector led by Saudi Arabian Monetary Agency (SAMA) and the Capital Market Authority (CMA). I would like to see the Kingdom further open up the market and give licenses for foreign commercial banks to open any number of branches they need. Every branch will recruit 5 to 10 Saudi nationals. It will create high-quality jobs and the increased competition will result in a more sophisticated industry and better services to clients. The Kingdom has taken many steps in the past decade to develop the capital markets to contribute to the growth of GDP through the growth of the listed companies. I believe a further step to this end would be to open the market for foreign investors to invest directly in Saudi stocks. I expect to see companies like Jadwa investing in mid-size businesses run by families, to help them institutionalize their business and move to a higher orbit of growth.
Give me an example of the most creative project that you wish to establish in the Kingdom.
In the financial sector, Saudi Arabia should develop a fully functioning fixed income market for both the private sector and the public sector. Malaysia is a great example of using sukuk (Islamic bonds) to fund domestic infrastructure projects. They pay 3 to 5 percent for funding projects that give them 7 to ten percent returns. They fund mega projects like trains, motorways, airlines or such other projects. In Saudi Arabia, we use the government or banks to fund projects, but our view is that is not enough lending capacity to fund the government's ambitious project pipeline over the next decade. By developing the sukuk market, Saudi Arabia could be the global leader in Islamic bonds. For example, we can fund the Makkah-Madinah train project in the private sector for 20 years. It will then start paying back from the project income. Such projects will be very profitable. This is a great way to fund mega projects.
KSA in three words
What three words would you use to describe the Kingdom within the coming 20 years and why (these 3 chosen words)?
Saudi Arabia has to be the leader of Islamic finance. Saudi Arabia is the heart of Islam, so we need Saudi Arabia to capitalize on its advantages. We want to position Saudi Arabia as the Islamic center for Muslim countries through ethical investments. This vision should start from the King Abdullah Financial Center. I believe we could compete with Malaysia to target one billion Muslims. The income of the Muslim nation is improving and we have the advantage that no one else has.
How can we all improve human rights in Saudi Arabia? What are your expectations?
The Saudi government is taking all the necessary initiatives to enhance human rights in KSA, as it sees the importance of human rights in social life. For example, in March 2004, The National Society for Human Rights (NSHR) was founded to ensure the enforcement of rules of the Constitution and the internal regulations of the Kingdom pertaining to human rights. The government has been very successful in fighting corruption and preserving the rights of individuals. NSHR has dealt with more than 6,500 issues so far, and we should all thank them for their hard work.
Education is always a priority of the Saudi government. What changes do you envisage in the education system to fit Saudi youth in a knowledge-based economy?
We live and compete in an increasingly global world today. This will be even truer for our sons and daughters, and it is our duty to prepare them to succeed. This means increasing the quality of educational outcomes for our students today, which will require we increase the quality of teachers and of school-level leadership, and to make sure that our curriculum addresses the needs of the workforce of tomorrow. Key to this is a shift from an emphasis on memorization, to one of critical thinking. Information is no longer a competitive advantage " but what one decides to do with that information is the determinant of success.
What is the biggest challenge facing the Kingdom today?
The very high local consumption of energy. Raising domestic energy prices is the need of the hour. The government must deal with that, even if it is controversial. Half measures won't solve this issue.
There is a huge demand for housing in the Kingdom because of rising young population. The government also has put emphasis on this sector by allocating a big budget for housing. Do you believe housing needs much more attention from the government and private sector?
Demographically, we are a young population where 60 percent of citizens are below 30 years old. These people will need to get married and move into their new homes. Our culture demands we should own houses. The government has announced building 500,000 homes for low income people, which is very decent and nice for Saudi families. The Ministry of Housing is working hard to allocate the land and build homes. The government is facing challenges. They find difficulty in finding land for the right prices, especially in big cities. It is also difficult to find contractors for building low-cost housing. In addition the government is in the final process to organize the mortgage finance. This will encourage banks to expand the Mortgages to the middle segment.
Role of SMEs
There is a need to boost SME sector in the Kingdom as it creates various jobs. What role do you see for SMEs in the Kingdom's economic development?
This sector is extremely critical and important. I like the way Saudi Aramco and other big companies have been supporting SMEs. This sector contributes 70 or 80 percent of the work force in developed countries. In Saudi Arabia, the SME sector contributes less than 20 percent. We need to develop SMEs. In the past, banks were not interested to provide finance for this sector. Banks have to allocate funds to participate in boosting SMEs. I don't want to see fresh graduates looking for jobs in the government sector. SMEs need financing and logistics support, as well as training. They have ideas, but they need a business plan, legal contract, and training on sales, system, and operations. Providing finance alone will not solve the whole problem.
How do you see Saudi women's contribution in the labor, social and political arenas in the next 20 years, and what is required from women to actualize your vision?
Saudi women are now joining the Shoura Council, and are also in the government. We are moving rapidly, and if we continue with development in the same pace, we will join the ranks of the countries that give women opportunities. I am very optimistic of our future. Women need to keep boosting their skills so they can have equal opportunity. I believe that qualified women are getting the same opportunities and same compensations as men. We have many examples of successful women in the private sector. In Jadwa, our head of asset management leads an entity of SR 11 billion with 22 employees. She is a world-class professional and we are very fortunate to have her.
Learning from the past
What are three mistakes that have been repeated in the Kingdom during the past two decades? And how we could we eliminate these mistakes in order to develop the Kingdom?
We need reforms in health care sector. We need to change the lifestyle of Saudi nationals. The government's vision is to double the number of beds by the end of 2014. We have now two beds for 1,000 people, which is not enough. In Japan, they have 14 beds per thousand. We need to expand the use of the private sector and encourage investors to participate in health care. We need to deal with high unemployment and offer good jobs for Saudis. I like some of the initiatives our labor minister has taken like Nitaqat, but I am concerned about the Hafiz program. I believe the focus should be on skilled labor.
Message to youth
Given that the youth make up the majority of the Saudi population, what message would you want conveyed to them? And what else would you say to the rest of the population?
Try your best to capture the opportunity because the government now is offering many opportunities for you. The government offers better education opportunities, and is opening up the market. Come back with good education and skills and you will find a many of job opportunities.
Major change required:
- Reduce dependence on oil
- Reform the education system
- Build solid infrastructure.
Role of leaders:
- Ensure stable business
- Drive mission into reality
- Boost private investment.
Difficult decisions relate to:
- Taxing high-income citizens and expatriates by upwardly revising energy prices
- Address inflation
Major goals to develop the Kingdom:
- Open up the market for foreign commercial banks
- Encourage Saudi families to have their own business
He describes the Kingdom as:
- Islamic world's future financial center
- Employment of Saudi nationals
- Reviewing the education system
- Adjust energy prices
Role of SMEs:
- SMEs will drive the Saudi economy
- More logistic efforts needed for SMEs
- Funding alone is not enough
Three mistakes he listed:
- Being fully dependent on oil
- Hafiz program is not a solution for unemployment
- Working hours should be updated
Message to youth:
- Get the best education to get great jobs
- Build up your own skills
- Saudi Arabia is full of opportunities