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Monday 23 May 2022 | 23:31 | SYDNEY

Saudi: The economy that ate itself


Rodger Shanahan


26 July 2011 08:27

Riyadh has an oil problem – it is consuming too much in order to power its electricity grid, reducing Saudi Arabia's capacity for export as worldwide demand for its product increases. 

Saudi Arabia's domestic oil consumption has increased from 3.4 million barrels per day (bpd) throughout most of the 2000s to 8.3 million bpd in 2009. If the trend continues, by 2028 Saudi Arabia will have 30% less oil available for export than it does today. 

Of course, massive population growth allied with chronically inefficient practices bred by decades of reliance on inexhaustible supplies of oil have played a part in this situation. And plans for increasing reliance on gas-powered plants and nuclear energy will forestall the power demand crunch. But Riyadh is acutely aware (even if the population isn't) that consumption practices will need to change.  

But Saudi Arabia's rulers have more to worry about than air conditioners siphoning off oil export income. The labour market in this overwhelmingly youthful country is nearly completely reliant on the government to sustain it. With its huge numbers of South Asian labourers willing to work long hours for low wages, there is little incentive for Saudis to compete. Of the 1.2 million new jobs created between 2004-09, only 280,000 were taken up by Saudis. Eighty percent of the Saudi workforce is in the public sector, whose wage bill accounts for 40% of the national budget. 

The US$130 billion assistance package announced by Riyadh earlier this year has certainly been welcomed by the loyal subjects (3.5 million people registered for the increased unemployment benefits rather than the 500,000 expected) but it is likely only a temporary salve. Without significant changes to labour market policy and consumption practices, the good citizens of Saudi Arabia may end up killing the golden goose well before time.

Photo by Flickr user Leo Reynolds.