Procurement: Saudis In Search Of Their Lost Work Ethic

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May 4, 2016: Mohammed bin Salman Abdulaziz Al Saud, the 30 year old son of the current king of Saudi Arabia, is seen as one of the brightest (he has a degree in law) of the top Saudi royals. He’s currently the deputy crown prince and, since January 2016, the youngest Minister of Defense ever. Mohammed bin Salman is ambitious and has proved himself capable to handling the Saudi bureaucracy. For the last two years he has been working on a plan to move Saudi Arabia away from dependence on oil income. In April 2016 he announced that his plan has been accepted and he will implement it.

For Saudis getting away from oil dependence is a matter of life or death because it is understood that within 50-90 years the oil will be gone. This has been known since the 1970s and ever since the government has tried several plans to develop the non-oil side of the economy and none have worked. Currently oil income is nearly half the GDP. Take away the oil income and most of the rest of the GDP disappears as well.

There are still elderly Saudis who remembered what life was like before the oil wealth began pouring in during the 1970s. When the kingdom was founded in the 1930s oil was just being discovered there. At that point the economy was described as “subsistence” and per-person GDP was about half the world average. By 1950 per-person GDP was a little above the world average (the U.S. was nearly five times average). After OPEC (the oil cartel) was created in the early 1970s per-person GDP was three times the world average (U.S. was four times). That was the peak (in terms of per-person GDP) for the Saudis because that sparked a population explosion. Saudi per-person GDP shrank to about twice the world average (which had doubled since 1950) in the 1980s (U.S. still four times). By 2013 Saudi per-person GDP was about at the world average and the population was still growing while oil income was not and there was not much growth at all in the non-oil part of the economy. Saudis noted that the U.S. was now nearly five times the world average in per-person GDP. And many countries with no oil, and that were as poor as the Saudis in the 1930s, are doing better than Saudi Arabia.

Mohammed bin Salman is seen as the last, best hope. But when you get into the details you see that known problems pile up faster than workable solutions. For example he wants to have half of Saudi military purchases to be made in Saudi Arabia from Saudi firms. Currently Saudi Arabia has the third largest annual defense budget ($87 billion) and nearly all military equipment is imported. Even before the announcement of the new plan efforts were being made.

For example in March Mohammed bin Salman was present when a munitions factory in Saudi Arabia was opened. The facility was built by South African defense firm (Denel) and it will produce artillery (60mm, 81mm and 120mm mortar and 105mm and 155mm howitzer) shells and aircraft bombs (of up to 909 kg/2,000 pounds). The new plant, financed by the Saudis and jointly run by them and Denel can produce up to 300 artillery and 600 mortar shells a day. Apparently most of the ammo is for the Saudi military although some may be exported. However the Saudis tried this before, in the 1980s. Back then South Asian workers were used and quality control was poor. This was kept quiet until 1990, when during a skirmish with Iraq (on the Kuwaiti border) it was found that the Saudi built ammo was defective (the 90mm shells would not explode). The plant was quietly closed, the ammo produced there was discarded and replaced with ammo purchased from a European manufacturer.

Mohammed bin Salman wants Saudis to work and manage this new non-oil economy. He faces formidable challenges. The official Saudi Arabian unemployment rate is 5.5 percent but the real rate is believed at least twice that. This is many men have “no show” jobs or are unemployed by choice. Saudi men tend to have a very high opinion of themselves, and most jobs available, even to poorly educated young men, do not satisfy. Thus most Saudi prefer a government job where the work is easy, the pay is good, the title is flattering and life is boring. In the non-government sector of the economy, 90 percent of the Saudi jobs are handled by foreigners. These foreigners comprise 27 percent of the Saudi population, mostly to staff all the non-government jobs Saudi men disdain. This means most young Saudi men have few challenges. Past efforts to replace foreign workers with Saudis have failed in practice although were often declared a success because many foreigners were officially replaced with Saudis who were often so ineffective that companies had to find ways to hire foreigners to actually get the work done while Saudis were still on the payroll.

This is all about the absence of a suitable work ethic among Saudis. Many Saudis openly complain about this and often blame the government for creating a culture of dependence to ensure the survival of the monarchy. As a result foreign workers are much more effective, it’s as simple as that. This is in part a self-inflicted problem. Since all of the oil states in Arabia are monarchies, the rulers quickly found that the most effective way to remain in power was to keep their subjects pampered and happy. In other words, spread the oil money around and pay attention to public opinion. Most of the public backs the use of foreigners and the continued use of oil money to make life easy for the locals.

For example, foreign workers are brought in to handle most jobs (like training pilots and maintaining weapons) that require high skill levels, a lot of effort, and lots of experience. This importation of foreign experts for piloting warplanes and maintaining them is very common in the Arab oil nations because the locals tend to avoid heavy physical or mental labor. While many Arab men see being a fighter pilot as glamorous and worthy of some effort, the training required discourages most who attempt it. Some Gulf Arab states insist that Arabs occupy those fighter plane cockpits no matter what so the foreign trainers and maintainers are ordered to do what has to be done to keep the pilots alive and the planes in one piece. Pilot skill and capability has a lower priority. There are some exceptional Arab fighter pilots but “just getting by” is tolerated among the fighter pilot community.

Mohammed bin Salman is probably aware of how neighboring UAE (United Arab Emirates) has gone about establishing military industries. Since the 1990s the UAE has invested heavily in defense manufacturers inside the UAE and the Middle East. One of these firms is Adcom Systems United which has been around since the 1980s and produces a wide range of military equipment. It does this by licensing a lot of technology and forming partnerships with high-tech firms in the West. Adcom has been working on UAVs since 2003 and has delivered several models for both military, police and commercial use.

The UAE has been encouraging local companies to develop weapons for use by local forces and export markets. So far this has resulted in UAE firms manufacturing military trucks, guided missiles, and small arms. Despite this since 2008 UAE has become the third largest importer of weapons in the world and the largest in the Middle East. The other two big spenders worldwide are India and China. In the Middle East the UAE imports 50 percent more weapons than Israel.

Note that the UAE makes this work by doing most of the manufacturing in foreign countries, usually other Arab states that have little or no oil income and a better work ethic. Mohammed bin Salman is going right to the heart of the issue in an effort to see if Saudis can support themselves without the economic crutch oil has provided for the last two generations.

 


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