Saudi Consumers in 2020 – A Look into the Future

With its huge reserves of oil and natural gas driving economic growth, Saudi consumers enjoy one of the highest standards of living in the Africa and Middle Eastern region. As an extremely conservative society, this growth raises a number of important issues regarding the evolution of Saudi consumption patterns, such as how the increasing demand of women for independence can be accommodated, reform efforts in areas ranging from housing to product and labour markets, and the impact of the internet and such media as cinema and television.


Can replacing expat workers with Saudis reduce youth unemployment?

The unrest that has destabilised a number of Middle Eastern countries has not spread to Saudi Arabia, but it has led the government to pay greater attention to the problem of youth unemployment. According to Euromonitor International data, the official rate of unemployment in the Kingdom stood at 5.4% in 2010, but youth unemployment is up to four times greater in some age brackets than the overall rate, and many consider it to be one of the biggest challenges facing the country.

According to a report issued by Banque Saudi Fransi: “Concern over whether the education system is arming students with relevant technical skills for the workforce is paramount since only one out of every ten employees working for a Saudi private sector company is a Saudi citizen.” The report also calls for educational reforms, pointing to the fact that “In 2009, 36% of job seekers held no more than high school diplomas, while only 7% were university graduates.”

One of the government’s main policy responses to this issue has been “Saudisation,” which involves replacing foreign workers with Saudis. In May 2011, Labour Minister Adel Fakieh announced that companies in the Kingdom were to be divided into different trading sectors and that “Each one will be given a set Saudisation rate that must be complied with, and if they fail to do so they will not be granted services and facilities or license and visa renewals.” He added that “There are eight million foreigners working in the country, causing losses to the economy of more than SAR100 billion (US$27 billion) a year through money transfers going abroad.” However, previous Saudisation efforts have had little practical impact on the country’s labour market.

Home ownership revolution on the cards?

House prices in some parts of Saudi Arabia surged by up to 40% during the second half of 2010, according to a survey of 37 real estate and rental firms conducted by Banque Saudi Fransi (BSF). Much of this increase was driven by a soon-to-be-introduced mortgage law. Usury (lending money at interest) in prohibited by Islam, but this obstacle has been overcome by a variety of financial innovations that have been dubbed “Islamic finance.”

However, BSF warns that the much-anticipated mortgage law is unlikely to revolutionise the property sector immediately, arguing that banks are likely to take a measured approach once the home financing law is finally passed: “While it is hoped the law’s passage will allow much wider access to property ownership, this could take time to achieve,” it argues.

Households by Tenure in Saudi Arabia: 2005-2010

Households (‘000s )

Saudi consumers

Source: Euromonitor International from trade sources/national statistics

The reform will also enable expatriate workers in the Kingdom to become property owners for the first time: Khaldoun Tabari, CEO of construction company Drake & Scull International PJSC, says “Ten years ago, it would not have been possible for an expatriate worker to buy a house in Saudi Arabia. However, things have changed now. The new mortgage laws will fuel more economic growth in the Kingdom, because foreign workers can get loans to buy a house in the country.”

Luxury hotels boom as pilgrimages go upmarket

Pilgrimages to Mecca are one of the oldest forms of tourism in the world, but the industry is now going upmarket. According to Hadi Helal, a marketing agent for Abraj al-Bait, a complex of luxury hotels on the outskirts of Mecca, “As long as you do what you have to do for the hajj, it does not mean you have to eat bread or lobster, or sleep on a bed or the floor. It is not for me to say how people should stay when they get here.” Many of Mecca’s more down-at- heel hotels and dwellings are now being replaced by narrow towers, a feature that is gradually becoming characteristic of Mecca’s skyline.

An estimated 2.5 million Muslims went on the hajj pilgrimage during November 2010. Hadi Helal says “More people will come to the hajj. The demand used to be more than supply, now they are about the same. We will try to increase the supply. The big-name hotels come here because they know there is business here. People will not stop coming to hajj. They cannot do hajj anywhere else.”