Saudi Arabia: Saudi Arabia Suffers Lack of Working Women as Oil Fluctuates

By William Green

June 2 (Bloomberg) -- Deep in the Arabian desert, hundreds of guests celebrate the birth of a city.

The Saudi government has flown them in on chartered planes to the northern city of Hail, then driven them for about half an hour in buses with police escorts to a giant marquee in the sand with a red carpet out front.

Inside, curtains with gold tassels adorn walls decorated with artists’ renditions of Prince Abdulaziz bin Mousaed Economic City, which the government says will be home to 300,000 people when it’s built.

After prayers from the Koran, the ceremony begins with a speech by Amr Al-Dabbagh, head of the ministry that has planned the city, who wears a formal cloak with gold trim. The audience -- all male, except for one woman -- sips tea and plucks chocolates off silver trays.

A film about the city offers a vision of the future: skyscrapers, science labs, kids with laptops in classrooms. As the speeches end, a Muzak version of “Nights in White Satin,” the song by the British group the Moody Blues, wafts from the loudspeakers.

Oil is no longer enough for Saudi Arabia, which is the largest producer in the Organization of Petroleum Exporting Countries.

Population Surge

The country’s population has more than tripled to 25 million people from 7.3 million in 1975 -- and 57 percent of all Saudis are under the age of 25. As the population grows, the kingdom’s riches must be spread among more people: In 2008, per- capita gross domestic product was less than $19,000, versus $47,000 in the U.S. and $103,000 in Qatar.

To create jobs for its growing citizenry, the government wants to build cities and diversify into new industries. “The impetus to change has grown as the population has grown,” says Howard Handy, chief economist at Samba Financial Group, a Riyadh-based bank. “They’re very focused on how to find work for all these young people.”

The proposed economic city -- 720 kilometers (450 miles) north of the capital of Riyadh -- is one of four new metropolises that Saudi Arabia is planning in the hope of creating more than a million new jobs by 2020. “Their dream is to become a major industrial power beyond oil,” says Jean- Francois Seznec, who teaches at the center for contemporary Arab studies at Georgetown University in Washington. The Saudis are mainly looking at energy-hungry industries such as plastics, petrochemicals, aluminum and steel.

Oil, Terrorists

The success -- or failure -- of Saudi Arabia’s plans could affect the stability of the whole region, which supplies the world with much of its oil and has also been a breeding ground for terrorists. “It’s a very big, populous country in a risky neighborhood,” Handy says. “It’s the holder of a tremendous amount of oil resources that are of great importance to the global economy. So everybody has an interest in its political future and the development of its economy.”

Recognizing this strategic significance, U.S. President Barack Obama plans to visit King Abdullah in Riyadh tomorrow to discuss such issues as peace in the Middle East, terrorism and the price of oil. Obama has said he intends to tell the king that “huge spikes” in energy prices would hurt the interests of both the U.S. and Saudi Arabia.

Sitting on nearly a quarter of the world’s known oil reserves, the kingdom can afford lavish dreams. As crude oil surged to a peak of $147 a barrel in July 2008, the state-owned oil and gas company, Saudi Aramco, generated as much as $1 billion a day in revenue.

Foreign Holdings

The Saudi Arabian Monetary Agency -- the nation’s central bank -- built up its holdings of foreign assets such as bonds and currencies to $546 billion in October 2008 from $98 billion in 2003. Saudi Arabia’s total 2008 GDP of $482 billion dwarfed that of every other Middle Eastern nation.

For all of its wealth, Saudi Arabia has felt the effects of the global economic crisis as oil tumbled to $34 a barrel in December before rising to $68 yesterday. The four-city project is a scaled-back version of the original plan for six new urban centers. With banks and investors avoiding risk, more than $60 billion of projects have been canceled or delayed, Handy says.

The decline in oil prices and a 71 percent plunge in the nation’s Tadawul All Share Index since its February 2006 peak have shaken confidence. Handy expects GDP to shrink by 1.8 percent this year after growing 4.2 percent in 2008.

Restrictions on Women

Until recently, most Saudis haven’t needed to hold jobs. The government provides free education and health care and levies no personal income tax. An immigrant population of 6.5 million people performs almost all of the kingdom’s menial tasks. In 2007, just 4 million Saudis worked, according to the Ministry of Economy and Planning.

Only a fraction of the labor force is female, in part because of constraints placed on women by the government’s strict interpretation of Islam. They’re not allowed to mix in public with men who aren’t related to them, for instance, and are prohibited from driving cars.

With the population growing and inflation averaging 9.9 percent last year, there’s an economic need for more women to hold jobs. “Unless you’re very wealthy in Saudi Arabia, you cannot maintain a comfortable standard of living without two incomes,” says John Sfakianakis, chief economist at SABB, a Riyadh-based bank. “That is compelling women to work.”

Opening Up Insurance

Under its octogenarian ruler, Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz al-Saud, the country has been trying to modernize its economy. It wants to attract foreign investment -- including $500 billion for the new cities -- and has opened up industries such as insurance that were previously off-limits to foreign firms.

In its 2009 Ease of Doing Business report, the World Bank ranks Saudi Arabia 16th out of 181 countries, up from 67th in 2004. The kingdom attracted $24.3 billion in foreign direct investment in 2007, according to the latest available figures from the United Nations Conference on Trade and Development, compared with just $183 million in 2000.

Seznec says two big challenges remain: improving the quality of education and advancing the status of women in the workplace. “These are the two lines in the sand where the battle is taking place between the reformists and the religious forces in the kingdom,” he says.

King Abdullah favors change, talking in a 2007 speech of the need to create a “culture of labor,” for example. He also appointed a female deputy minister for girls’ education in February, the highest government rank a Saudi woman has attained.

First Co-Ed School

And he has authorized Saudi Aramco to create the country’s first co-ed school, the King Abdullah University of Science and Technology, which will open in September.

Saudi Arabia isn’t the only country in the region moving to empower women. In May, neighboring Kuwait elected four women to its parliament.

The Saudi king and his ministers are “very logical and reasonable but are moving very slowly,” says Sherifa Zuhur, a Middle East expert at the U.S. Army War College’s Strategic Studies Institute.

“The majority of Saudi people are extremely conservative and not inclined to make any significant change.”

Saudi Arabia needs to prepare its youth for the workplace lest they become restive and more prone to terrorism, SABB’s Sfakianakis says. “These young people need to be empowered,” he says. “They can become untamed and uncontrolled if you fail to provide the right education, skills and jobs.”

Striking Oil

Since 1938, when American drillers in the eastern desert struck oil in a well called Dammam No. 7, Saudi Arabia’s economy has been entwined with those of its allies in the West.

For decades, the kingdom provided plentiful supplies at low prices: Throughout the 1960s, oil fetched less than $3 a barrel. Then in 1973, Saudi Arabia led an Arab embargo on oil sales to the U.S. and other supporters of Israel during the Yom Kippur War. Within months, oil hit $12 a barrel, sending economic shock waves around the world.

The embargo was the start of an oil-fueled boom for Saudi Arabia. As the price soared to $39.50 by 1980, the year that war broke out between Iraq and Iran, newly wealthy Saudis became archetypes of excess, notorious in the West for squandering fortunes on everything from jewels to trophy properties.

In the 1980s, global growth slowed and oil sank to less than $10 a barrel in 1986. Then, in 2003, a new oil boom gathered pace: Prices climbed sevenfold by 2008, with rising consumption in China and India stoking concerns that oil reserves would not keep pace with demand.

Record State Budget

Saudi Arabia is still living on the spoils of that second boom. In December, King Abdullah announced a record $126.7 billion state budget for 2009. The money will pay for 1,500 new schools, 86 hospitals and the world’s largest women-only university.

Saudi Arabia has hundreds of billions of dollars of reserves while its debt amounts to only 15 percent of GDP.

“It’s really well positioned to face the global slowdown,” says Abdelhak Senhadji, the IMF’s mission chief for Saudi Arabia.

Still, the country remains vulnerable to fluctuations in the price of oil, which accounted for half of GDP and 90 percent of government revenue in 2007.

“The major economic challenge is to develop engines of growth that don’t have anything to do with oil and that work through the cycle, whether the price of oil is down or up,” says Brad Bourland, chief economist at Jadwa Investment, a Riyadh- based investment bank.

New Cities

To drive growth, new metropolises such as King Abdullah Economic City, beside the Red Sea, need help from foreign investors.

The city, designed to house 2 million people and employ 1 million, will cost $100 billion to build, says Fahd Al- Rasheed, CEO of Emaar, the Economic City, a Saudi-listed company formed in 2006 to oversee the development.

In addition to a “financial island” with office towers as high as 120 stories, the city would also include what the developers call Plastics Valley. Saudi Arabia can produce plastics cheaply because of its vast supply of petroleum, Al- Rasheed says.

In the desert heat, foreign laborers from countries such as India and Bangladesh toil in constructing the skeleton of King Abdullah city, burying sewage pipes, leveling roads and building the first blocks of offices and apartments.

Thousands of newly planted palm trees flank the road to the city’s main gate, which is decorated with an image of the king. There are no signs yet of the port or the towers.

Private Investors Sought

Al-Rasheed, 31, says the total cost of building the four cities will be about $157 billion. The government expects most of that to come from private investors ranging from plastics producers to mall developers to operators of private schools, which the government hopes to lure in part with tax breaks.

Early investors include the Kuwaiti company Al Mal Investment Co., appointed to develop Prince Abdulaziz bin Mousaed Economic City, and Abu Dhabi-based Rotana Hotel Management Corp., which plans to operate a luxury hotel there.

The government will provide land and fund a few projects such as the city’s train station.

Many other potential investors, strapped by the financial crisis, may not come. “The appetite for such things is really reduced,” Sfakianakis says. “It’s not an opportune time.” With hindsight, the Saudis’ original project now seems too ambitious, he says, evoking the grandiose developments conceived during the boom in Gulf neighbor Dubai.

“There was a little bit of Dubai-ness to it,” he says. “Let’s not build one; let’s build six.”

Demand for Homes

Al-Rasheed disagrees. He says rapid population growth will create demand for millions of new homes.

And the financial crisis has helped the cities because construction costs have tumbled along with the prices of property in the region, he says.

Some foreign companies are hoping to profit from building contracts in the cities. Cisco Systems Inc. is designing the technological infrastructure -- everything from broadband Internet connections to video surveillance systems to traffic control -- for all four of them.

Cisco will invest $250 million in Saudi Arabia during the next five years, says Wim Elfrink, Cisco’s chief globalization officer. Al-Dabbagh, the minister in charge of the cities, has asked Cisco to provide the world’s fastest broadband Internet connections.

“It’s one of these countries where we see a transformation going on,” Elfrink says.

Scottish Widows, KKR

Other investors are moving into the kingdom, too. Edinburgh-based Scottish Widows Investment Partnership Ltd. last year opened an asset management outpost in Riyadh.

“There are very real opportunities here that don’t exist in other parts of the Gulf,” says Peter Dorward, CEO of the company’s Saudi unit. “The Saudi economy is bigger than all of the other Gulf Cooperation Council economies put together.”

Scottish Widows hopes to manage assets for insurers that have been granted licenses to operate there, Dorward says. He’s also looking to create a fund to invest in property as population growth accentuates a shortage of homes, hotels and offices in cities such as Riyadh and Jeddah.

“Real estate has to be an opportunity when you’ve got that sort of demand,” he says.

The housing market should continue to grow in Riyadh as the population of 4.6 million increases by 3 percent a year, says a fourth-quarter review of the city’s property market by the Chicago real estate firm Jones Lang LaSalle.

Another foreign company eying investment opportunities in Saudi Arabia is Kohlberg Kravis Roberts & Co. In May, the leveraged buyout firm named Ford Fraker, the former U.S. ambassador to Saudi Arabia, as a senior adviser.

No Alcohol, No Cinemas

Western executives who venture to Saudi Arabia enter a world bearing little relation to their own. The Saudi government bans alcohol, outlaws cinemas and forbids the public practice of any religion other than Islam.

The government blocks Web sites featuring pornography, gambling or anything else deemed to “violate the tenets of the Islamic religion or societal norms.” Adultery and homosexuality are crimes punishable by death.

Reporters Without Borders ranks the kingdom 161st out of 173 countries in terms of freedom of the press.

Even something as mundane as shopping is tightly regulated.

At the entrance to Riyadh’s Al Faisaliah Mall, a sign warns that Wednesdays, Thursdays and Fridays are for “families only.” On those days, women eat with their husbands and children in the main area of the food court; at other times, when unmarried men might see them, women must sit in a “family section,” cordoned off by a wall.

Women Segregated

As in all public settings, every woman in the mall -- regardless of nationality -- must wear a black, floor-length cloak called an abaya. Saudi women must cover their hair with a hijab, or head scarf, and many cover their faces too.

Security guards keep control, repeatedly stopping and questioning single men. The kingdom also has a religious police force -- the Commission for the Protection of Virtue and the Suppression of Vice -- which patrols the streets to ensure that women cover their hair and don’t meet with men who aren’t related to them.

Such rules make it difficult for Saudi Arabia to attract foreign talent.

“I’ve lived in 11 countries, and this is off the charts,” says a Western banker in Riyadh who asked not to be named. “It’s a dreadfully dreary place.”

After two weeks there, his wife left to live overseas, while he stayed to finish an assignment that fascinates him. He says government ministers and rich Saudi businessmen live by their own rules in their opulent homes, routinely serving guests the finest wines.

‘I Have a Nightmare’

“It’s a badge of distinction to have an open bar,” he says. “It immediately declares he’s above the system.”

For him, the idea of being caught with so much as a bottle of Scotch is terrifying: “I have a nightmare that some day I’ll be driving home and I’ll get stopped by the police and thrown in jail.”

“Saudi Arabia has an advanced social fabric with many expatriates who enjoy the standard and quality of living here,” responds Fahd Hamidaddin, general director of corporate communications at the Saudi Arabian General Investment Authority. “It’s different from other countries and is proud to be so. However, these differences have not been an obstacle to record growth in foreign direct investment flows or the rich trading history we have with Western economies.”

Homemade Wine, Machine Guns

Westerners who land well-paying jobs typically live in gated compounds reserved for foreigners. There, expats drink homemade wine and alcohol smuggled in from countries such as Bahrain, while Western women are free to wear shorts.

At Eid Villas in Riyadh, the amenities include tennis courts, bowling alleys and five swimming pools. With kids biking and rollerblading in the streets, it could easily be an American suburb -- if not for the gun-toting soldiers in bulletproof vests at the front gate or the armored vehicle with a machine gun mounted on its roof.

The soldiers are a legacy of a spate of terrorist attacks from 2002 to 2005, including one in 2003 in which suicide bombers killed more than 20 foreigners at three expatriate compounds.

In October, the government said it had indicted 991 suspected militants it considers responsible for 30 attacks. “There’s been a tremendous change in terms of security,” says economist Sfakianakis, who moved in 2004 to one of the compounds that was bombed the previous year.

Al-Qaeda

“They basically broke the back of al-Qaeda,” says Sir William Patey, Britain’s ambassador to Saudi Arabia. “I’m sure there are still people in the country who are radicalized and extreme, but the security forces are keeping pressure on them. It’s a much more difficult operating environment for terrorists than three or four years ago.”

Even so, the taint of terrorism persists for the country that gave the world Osama bin Laden and 15 of the 19 hijackers who carried out the Sept. 11 attacks.

“We are battling misconceptions,” says Ahmed Abdulkarim, CEO of Cadre Economic Cities Co., a nonprofit that educates and trains Saudi workers for the new cities. “People do not know Saudi Arabia. If they do, they’ll be talking about terrorism and bombing and Osama bin Laden.”

Saudi Arabia isn’t a hotbed of terrorism, Abdulkarim says. “There are people who have done lots of misdeeds, and they have smeared the entire nation,” he says.

Abdulkarim, who worked in Europe for Procter & Gamble, says Saudi Arabia’s image is a recurring obstacle in talks with potential foreign investors.

Resumes from Dubai, London

Lately, hiring has become easier as resumes flow in from humbled cities such as Dubai and London, he says. In the past, foreigners expected hardship money to live in Saudi Arabia. “Now these people are coming with a pay cut,” he says.

Finding good workers domestically is just as difficult, says Mohammed Hafiz, CEO of Al-Sawani Group, a clothing retailer with about 1,500 salesmen. “You face the issue of education and commitment,” he says. “There’s very high turnover.”

Hafiz is sitting one evening at an outdoor restaurant in Jeddah with about a dozen other Saudi businessmen, discussing the biggest issues confronting them. “We always had money,” says Reda Islam, CEO of Future Waves, a Jeddah-based technology consulting firm. “Nobody needed to work. We were spoiled.”

Cadre’s Abdulkarim, whose mandate is to train 200,000 Saudis over 15 years to work at globally competitive levels, says state schools are out of touch with the needs of the marketplace because they emphasize memorization over problem solving.

Islamic Studies Focus

Georgetown’s Seznec says the curriculum focuses so heavily on Islamic studies that it neglects subjects such as math and science, which leaves students with inadequate practical skills.

At advanced levels, Saudi Arabia ranks 86th out of 131 countries in the quality of its math and science education, according to Harvard University’s Institute for Strategy and Competitiveness.

While women account for 57 percent of higher-education graduates, they make up only 15 percent of the workforce. Those that work tend to be limited to a few fields: 86 percent are in education, 6 percent are in health care and 4 percent are in public administration.

Of 5.8 million people working in the private sector, only 51,000 are Saudi women.

Women face tough restrictions in the workplace in addition to having to wear a hijab. “If there is a department which employs a woman who works in a job that does not suit her nature or leads to mixing with men, then this is wrong and should be avoided,” the Saudi Arabian Monetary Agency wrote to banks last year.

‘A Man’s Country’

Working women also say they’re underutilized. “It’s still a man’s country,” says Amal Al Olayan, 34, who studied health sciences at a women’s college in Jeddah. Al Olayan began her career in 1997 as an unpaid employee at a hospital laboratory and now works in human resources for a mall developer.

“I did not do what I really wanted to do, but at least I did something for myself and my kid,” she says.

Al Olayan, who is divorced, says she’d move to England, where she spent much of her childhood, if it didn’t mean leaving her 12-year-old son, who lives with her ex-husband. Under Saudi law, the boy cannot see her without his father’s permission.

Until 2005, a Saudi woman couldn’t start a business without a male manager to handle responsibilities such as signing company checks. Since then, a handful of women have become well- known entrepreneurs, including Nahed Taher, who founded Gulf One Investment Bank in 2006 with $100 million in capital.

Supported by Colleagues

Taher, 40, spent part of her youth in Texas before earning a Ph.D. in economics at Lancaster University in the U.K. In 2002, Taher became a senior economist at National Commercial Bank in Jeddah, where she says she was the first woman in a building with 4,000 employees.

“I’ve honestly been supported all the way through -- by colleagues, by the government, by royals and by investors,” says Taher, who dresses in Western clothes and leaves her head uncovered at work.

Still, the authorities send mixed signals about women’s freedom. The Saudi Arabian General Investment Authority invited female speakers such as Ireland’s former president, Mary Robinson, to a conference in Riyadh in January. But they were required to wear black abayas.

Saudi female audience members at first were segregated by a dividing wall from male attendees and foreign women. By the third day of the conference, though, several Saudi women had moved into the men’s section and were left undisturbed.

Less Insular

Saudis say that by their standards, things are moving rapidly. “We sit in the eye of the storm of change,” says Ammar Alkhudairy, CEO of Riyadh-based private equity firm Amwal AlKhaleej. “Ten years ago, we were much more insular.”

The government no longer decrees which companies can go public, he says. Today, it’s far easier for an entrepreneur to register a business, take it public and even sell stakes to overseas investors.

For the country to meet its economic ambitions, change will have to come faster, Georgetown’s Seznec says. “There’s not enough progress in modernizing education, and they’re not allowing women to develop fast enough in the workplace,” he says. “They’re aware of this, but it’s very, very slow.”

In the long run, the king and modernizing ministers are likely to prevail over the religious conservatives who have dominated areas such as education and the judicial system. “I’m convinced the reformists are winning the battle,” Seznec says. “They’re marginalizing the conservatives.”

Financial Crisis

The financial crisis poses a more immediate threat. Hurt by low prices and a drop in output, the portion of Saudi Arabia’s GDP that comes from selling oil will fall 10.5 percent this year, according to the International Monetary Fund.

At home, people who’ve lost money on stocks and real estate are cutting back on spending and investment. Even the powerful merchant families that dominate the private sector have suffered.

“I have friends who have literally lost hundreds of millions of dollars,” says Loay Nazer, chairman of the Nazer Group, a company in Jeddah with interests ranging from public relations to health care.

Alkhudairy agrees. “Everybody has seen a ghost,” he says. “Nobody is investing; nobody is buying.”

Once this crisis passes, the government expects that its efforts to modernize will drive a boom in foreign investment. “Saudi Arabia is a country that is aggressively changing its economic landscape,” says Hamidaddin of the Saudi Arabian General Investment Authority.

Grass and Flowers

Saudi Arabia is even trying to change its topography. In King Abdullah Economic City on the shores of the Red Sea, laborers are dredging canals in the sand and planting patches of lush grass and flowers.

Guides from Emaar show visitors architects’ models of villas as large as 12,000 square meters (129,167 square feet). Prospective buyers can also tour a show apartment with a trompe l’oeil mural that depicts the view residents could have of a fountain beside the sea.

Though change seems slow to outsiders, Saudis such as Nazer are confident that the modernized society the country is striving for will become a concrete reality. “The mood here is very cautious, not nervous,” he says. “You can’t be nervous when you’re sitting on the largest oil reserves in the world.”