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Speaker 1: If you know, why should someone sitting in Did you

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Speaker 1: say Prioria, Peoria, Illinois. It's this fated place that's come

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Speaker 1: to typify Middle America. Why is someone sitting there? Should

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Speaker 1: care about? Saudi Arabia? High and Welcome back to Bloomberg Benchmark,

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Speaker 1: a podcast about the global economy. It's Thursday March. I'm

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Speaker 1: Daniel Moss, Bloomberg News Executive editor for Global Economics. I'm

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Speaker 1: based in New York, but I'm back in d C today,

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Speaker 1: which means i can be in the studio with my

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Speaker 1: co host Tory Stillwell and economics reporter at Bloomberg News.

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Speaker 1: It's great to be back to ya, all under one

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Speaker 1: root of again. Benchmark has been traveling quite a bit lately,

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Speaker 1: having focused ourselves largely on the US, and the last

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Speaker 1: couple of episodes we've visited India to assess whether the

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Speaker 1: world soon to be most populous country can ever have

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Speaker 1: an economy to match that. We've also talked about China's

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Speaker 1: incredible shrinking labor market, and today we're going to take

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Speaker 1: a trip to Saudi Arabia, where there's more than meets

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Speaker 1: the eye. What's the disseyse geographic themes? Together? Dan Well

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Speaker 1: India and China are both going through significant economic change,

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Speaker 1: as is Saudi Arabia. It's fascinating. Really. We'll have two

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Speaker 1: guests to help us work through this. Donna Abu Nasa,

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Speaker 1: a Bloomberg colleague with extensive experience in the country, and

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Speaker 1: Monica Malick, chief economist at Abu Dhabi Commercial Bank in

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Speaker 1: the United Arab Earments, which is right next door to

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Speaker 1: Saudi Arabia. I feel like if we were to play

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Speaker 1: a word association game, like asking people what were some

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Speaker 1: of the first words that came to mind when they

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Speaker 1: thought about Saudi Arabia. I know for me personally, it

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Speaker 1: would be oil, the desert, and women aren't allowed to drive.

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Speaker 1: I mean, the last one is a phrase, not a word.

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Speaker 1: But you know what about religion and strict moral codes? Yeah, yeah,

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Speaker 1: well we'll get to all that now. Remember but one thing,

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Speaker 1: economic necessity, tends to drive social change, and the country

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Speaker 1: does matter enormously. It's been called the central Bank of oil,

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Speaker 1: like the FED or the e c B of that

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Speaker 1: black liquid stuff that makes the world go round, and

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Speaker 1: it has so much of it. You know, when you

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Speaker 1: think about a Tory, oil is the juice that's essentially

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Speaker 1: driven the hydrocarbon economy, and that's been the economy in

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Speaker 1: the past century, and beyond economics, it's traditionally been one

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Speaker 1: of the West's main allies in the region. But let's

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Speaker 1: stick with oil now. The country rose from essentially a

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Speaker 1: Bedouin society to fantastic wealth on the back of the

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Speaker 1: product in just the space of a few generations. But

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Speaker 1: sure enough, oil is now making Saudi Arabia poor. Do

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Speaker 1: you know I just learned the definition of Bedouin? I

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Speaker 1: really yeah, I'm reading a hundred Years of Soliditude, and

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Speaker 1: he uses that word. It means just like of Arab descent,

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Speaker 1: basically like an Arab nomad. I didn't know that. I

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Speaker 1: didn't realize Marquez had as kind of insights, different continent,

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Speaker 1: different cultures. Well, anyways, Saudi Arabia is the largest exporter

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Speaker 1: of oil and accounts for six of the planet's oil reserves.

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Speaker 1: But as listeners of our show may know, the price

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Speaker 1: of oil has been on a swoon since two thousand fourteen,

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Speaker 1: losing of its value that year and about fifty percent

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Speaker 1: last year. And ironically, many analysts attribute that decline to

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Speaker 1: a price wark that Saudi Arabia itself started and ultimately

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Speaker 1: couldn't stop. While oil has rallied a bit off of

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Speaker 1: that bottom, it's only fetching about forty dollars a barrel

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Speaker 1: right now, down from about ninety dollars a barrel eighteen

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Speaker 1: months ago. And that is, as you can imagine, quite

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Speaker 1: a hit to national income. And it's ricocheting through Saudi

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Speaker 1: Arabia's entire economy. And that's force the Kingdom's rules, the

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Speaker 1: House of Sound to undertake some quite drastic measures. They're

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Speaker 1: talking about a value added text. There's no income text.

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Speaker 1: By the way, that's been one of the long term

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Speaker 1: benefits of oil. They've also for shadow cuts in spending,

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Speaker 1: reduction in subsidies, and wait for a drum roll, changes

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Speaker 1: in labor force participation. Joining us right now is Donna

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Speaker 1: Abu Nassa, who covers economics and government for Bloomberg in

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Speaker 1: the Middle East. Donna has reported extensively on Saudi Arabian

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Speaker 1: economics and politics. She's now based in Beirut. But here's

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Speaker 1: an interesting fact. Donna opened the Associated Press Bureau in

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Speaker 1: Saudi Arabia in two thousand and eight. Pretty good, Donna,

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Speaker 1: it's great to have you. Tell us when were you

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Speaker 1: last in Saudi Arabia And what did you notice when

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Speaker 1: you were there compared with other visits you've made over

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Speaker 1: the years. Well, I was last in December. It was

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Speaker 1: my first time back in about three years. And what

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Speaker 1: I've found is a younger, more vibrant Saudi Arabia. It

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Speaker 1: was apparent the moment Diet I at the airport. There

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Speaker 1: used to be a very drab arrival hall years ago.

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Speaker 1: It's now bright. You have television showing cartoons, you have

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Speaker 1: young men greeting you, um, older women, women with children

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Speaker 1: where as to sit down while male relatives took care

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Speaker 1: of passports control. So it was a parent from the

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Speaker 1: moment I set foot in Saudi Area. And what about economically,

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Speaker 1: I mean, aside from the fact that it's now crawling

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Speaker 1: with McKinsey consultants. Well, Saudi East have to get used

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Speaker 1: to a new standard of life. Basically, the new Saudi

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Speaker 1: generation is going to live the kind of life that

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Speaker 1: their parents didn't. Their parents lived through the financial bomb

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Speaker 1: that made saudiast collectively rich. They want and so they're

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Speaker 1: trying to adjust to life, you know, with low oil prices,

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Speaker 1: trying to make priorities, trying to cut some luxuries or

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Speaker 1: maybe take on other jobs. So, I mean, we were

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Speaker 1: thinking about a person's everyday life here, a person living

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Speaker 1: in Saudi Arabia. Can you think of any examples of

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Speaker 1: how that person's life would be affected, that day to

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Speaker 1: day life would be affected by lower oil prices. Well,

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Speaker 1: I spoke to somebody. He works as a professor at

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Speaker 1: the university, and he, you know, studied in the US.

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Speaker 1: So he said he was going to take advantage of

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Speaker 1: the things that he learned in the US and try

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Speaker 1: to make money out of it, training saudiast on how

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Speaker 1: to market their goods. Basically. Um. He said that at home,

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Speaker 1: he's teaching his children basically to save power. So he said,

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Speaker 1: he told his children, if you save three years words

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Speaker 1: of electricity amounths, the money will go to you. So yeah,

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Speaker 1: basically they're trying to learn new habits. So is there

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Speaker 1: a sense that your average Saudi Arabian family is recalibrating

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Speaker 1: the way it thinks about its economic life and the

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Speaker 1: way it sets its household budgets and the way it

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Speaker 1: plans for the future. They are. I mean, this guy

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Speaker 1: told me that according I mean, he friends to his

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Speaker 1: family and so on. They still hadn't afforded what happened,

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Speaker 1: and so he said, he keeps telling them that they

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Speaker 1: have to look at their bills, that they have to

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Speaker 1: make them smaller, basically, that they have to look for

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Speaker 1: other ways to find income. So, yeah, they will have

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Speaker 1: to adjust. Oil has enabled the government to subsidize many

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Speaker 1: aspects of economic life in Saudia, like types of aspects. Well,

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Speaker 1: my understanding, Donor, is there is no income tax for example,

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Speaker 1: that's true, and what about gas, electricity, fuel, These things

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Speaker 1: are all heavily subsidized as well. They are. And on

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Speaker 1: top of that, you know university students, they who go

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Speaker 1: to government universities, they get about to sixty dollars a

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Speaker 1: month as a monthly stipends from the government. And does

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Speaker 1: the decline in the price of oil mean the state

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Speaker 1: is less able to pamper its citizens generally? And what

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Speaker 1: impact is that then having One of the things that's

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Speaker 1: been affected is the government funded program that sent tens

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Speaker 1: of thousands of Saudi men and women to the West

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Speaker 1: to study. Now I'm hearing that the government is making

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Speaker 1: it more difficult for students to go. And the general

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Speaker 1: feeling is that the lower oil prices has something to

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Speaker 1: do with it, and it's all of this ultimately forcing

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Speaker 1: or at least enabling a significant degree of social change.

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Speaker 1: I read a story that you and our colleague Vivian

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Speaker 1: Nerum wrote recently which talked about women entering the workforce

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Speaker 1: at more than twice the rate of men. Talk about

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Speaker 1: that when you have a lot of women coming back

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Speaker 1: home from the West educated women, keep in mind that

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Speaker 1: the women outnumber men when it comes to higher education.

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Speaker 1: So when they come back home, these women want to

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Speaker 1: find jobs. They are looking for jobs, and the government

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Speaker 1: is trying to make it easier for them to basically

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Speaker 1: find jobs. For instance, when I was in Saudi Radio

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Speaker 1: around two thousand four, I remember walking into a store

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Speaker 1: that says lodgery and I so a woman. She was

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Speaker 1: totally covered in black. Only her eyes were showing, and

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Speaker 1: she was holding up a lazy orange rack and asking

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Speaker 1: the salesman in a whisper if he had her size. Now,

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Speaker 1: I mean, she's covered, he's not supposed to be looking

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Speaker 1: at her, but he was arguing with her about her size.

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Speaker 1: It was, you know. I spoke to a lot of

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Speaker 1: women and they said it was very embarrassing for them

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Speaker 1: to buy underwear in Saudi Arabia, some of them would

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Speaker 1: go out of the country to buy it, simply because

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Speaker 1: women were not allowed to work in stores, you know,

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Speaker 1: the conservative religious establishment thought that women should not be

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Speaker 1: mixing with men, and if they worked a saleswoman, then

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Speaker 1: this thing would happen. So now ten years later, when

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Speaker 1: I went this time, I found women not only in

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Speaker 1: lingerie and makeup stores, but even ask a shears. So yeah,

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Speaker 1: it's it's amazing. And there's a sense that this is

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Speaker 1: being fueled by the change in oil prices and the

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Speaker 1: new sort of day life that these people are adjusting.

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Speaker 1: So Done at the beginning of the show is saying

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Speaker 1: how I feel like one of the most common things

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Speaker 1: that people know about Saudi Arabia, if you were to

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Speaker 1: just ask foreigners perhaps, is that women there aren't allowed

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Speaker 1: to drive. So we've we've got all this change that

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Speaker 1: we just talked about, and yet the unwritten slash written role,

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Speaker 1: I'm not even exactly sure what it is is that

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Speaker 1: women can't drive. So is there any sense that this

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Speaker 1: is going to change and that we'll see women behind

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Speaker 1: the wheel more often? I don't see anything right now,

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Speaker 1: But Saudi is that I used to talk to in

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Speaker 1: in the yards would tell me that Saudi Arabia can

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Speaker 1: afford to stop its women from driving simply because they

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Speaker 1: are rich and oil has made them rich. So the

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Speaker 1: lower oil prices mean that Saudi women would finally be

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Speaker 1: able to drive. We'll have to wait and see, but

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Speaker 1: it might mean your average Saudi family has difficulty affording drivers,

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Speaker 1: and once that changes, that opens the door to other things. Absolutely, Donna,

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Speaker 1: thank you so much, Thank you for having me. Thank you.

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Speaker 1: Let's dive a little deeper into the data and the

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Speaker 1: macro economic context in which this is all happening. Helping

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Speaker 1: us is Monica Malick, chief economist at Abu Dhabi Commercial

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Speaker 1: Bank in Abu Dhabi, and she also did her PhD

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Speaker 1: on the Saudi Arabian economy. Monica, it's great you could

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Speaker 1: join us. Thank you very much for having me. So

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Speaker 1: if you look out your office window you can just

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Speaker 1: about see Saudi Arabia to push, but tend to travel

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Speaker 1: there a lot, so I keep in touch that way well, Monica.

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Speaker 1: How significant are the economic challenges the country faces right now?

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Speaker 1: Is it just oil is down so we have to

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Speaker 1: tighten our belts a little bit for a while, or

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Speaker 1: is something more seminal happening. I think something more seminal

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Speaker 1: is happening. Firstly, I think it's important to note that

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Speaker 1: this is not the first time that Saudi Arabia has

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Speaker 1: entered a low oil price down turn outlook, and in fact,

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Speaker 1: Saudi Arabia is entering the low oil price period in

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Speaker 1: a better position that it's ever been with regards to

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Speaker 1: fiscal buses, and that includes high effects reserves and the

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Speaker 1: low debt levels. However, Saudi Arabia is also facing a

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Speaker 1: number of economic challenges and social challenges, and this means

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Speaker 1: that it cannot just be a case of Saudi Arabia

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Speaker 1: using its reserves without why the fiscal reforms, and that

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Speaker 1: is what we're seeing this time around. When the budget

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Speaker 1: was announced in December, concurrent with that, there were a

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Speaker 1: number of fiscal reforms, and it's really the first time

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Speaker 1: we're seeing it to this magnitude, not only in Saudi

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Speaker 1: Arabia but the wider GCC region. So what's changed in

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Speaker 1: the Saudi economy and Saudi society to make a different time,

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Speaker 1: Because as you've mentioned, your oils had its ups and downs.

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Speaker 1: It was around ten dollars a barrel in the late nineties.

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Speaker 1: What's happened between then and now. Well, I think population

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Speaker 1: growth is a significant part of the social change. We've

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Speaker 1: seen sort of strong population growth for the last three decades. Previously,

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Speaker 1: the government was always the employer of last resort and

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Speaker 1: Saudi Nationals could be absorbed by the public sector. But

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Speaker 1: this is no longer the case, and infrastructure has also

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Speaker 1: not kept up with the population growth. So those for example,

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Speaker 1: shortage of housing for for for Saudi Nationals, there's a

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Speaker 1: need to upgrade utility and infrastructure, their shortages in the

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Speaker 1: summer where demand is higher because of the warmer weather.

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Speaker 1: So to meet these challenges, Saudi Nationals will have to

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Speaker 1: be absorbed by the private sector. At the same time,

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Speaker 1: the Saudi government, which had very sort of generous subsidy

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Speaker 1: programs and so on, cannot afford to continue with these

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Speaker 1: payments as they had done before. What does what does

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Speaker 1: labor force participation look like in Saudi Arabia? Well, such

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Speaker 1: a very interesting question, and of course it varies greatly

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Speaker 1: between the female and male population. If we look at

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Speaker 1: unemployment for for men in the Saudi labor force, it's

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Speaker 1: very small, it's about five percent, but for women it's

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Speaker 1: around thirty three percent, So there's a marked difference. And

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Speaker 1: while women's employment has been a key objective of the

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Speaker 1: government and you have seen strong percentage growth, especially in

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Speaker 1: twenty and twenty fourteen, it's from a very low base.

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Speaker 1: And of course there's social and cultural um issues that

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Speaker 1: sort of make greater participation difficult. All the changes happening

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Speaker 1: slowly when looked at from thirty thousand feet or from

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Speaker 1: say Peoria, Illinois, Why on earth, with this incredible wealth,

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Speaker 1: aren't their jobs for everyone in Saudi society? I mean,

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Speaker 1: why is there even a discussion about the structure of

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Speaker 1: the labor markets. Surely there's enough to go around. I

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Speaker 1: think a lot of the issue is the need for

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Speaker 1: educational reform that has been a key focus of the government.

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Speaker 1: The focus has been on sort of changing the education

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Speaker 1: system that meets the requirements of the private sector more.

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Speaker 1: And of course, given that it is education, it does

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Speaker 1: take time for the reform to one happen and to

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Speaker 1: to filter into the labor four market. Now, what you

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Speaker 1: are seeing over the last few years, alongside programs such

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Speaker 1: as sauda Ization, which aims to increase with quotas of

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Speaker 1: Saudi nationals working in companies. They have also been a

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Speaker 1: number of schemes that look at on job training, so

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Speaker 1: where government could give you know, sort of part of

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Speaker 1: the payment of the employee's wages to a company. And

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Speaker 1: these are all methods that they're trying to use to

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Speaker 1: try and narrow the gap between the output of the

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Speaker 1: education system and the requirements of the private sector. Also,

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Speaker 1: what we've seen is is a need to increase for

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Speaker 1: an investment into Saudi Arabia, and not just in the

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Speaker 1: hydro carbon sector or you know, the capital intensive sector,

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Speaker 1: but the areas that would create jobs growth, And another

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Speaker 1: area of focus is increasing the small to medium size

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Speaker 1: industries and companies could also these are the areas that

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Speaker 1: can provide new employment opportunities. But I think a lot

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Speaker 1: of the issues is that the oil sector and the

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Speaker 1: hydrocarbon sector dominates the Saudi Arabian economy. This tends to

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Speaker 1: be capital intensive, not labor intensive, and and job creation

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Speaker 1: also needs to go hand in hand with the diversification

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Speaker 1: of the economy. Yeah, it's really interesting because a lot

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Speaker 1: of what you're saying in its own way could apply

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Speaker 1: to the United States. Right now, we've been hearing a

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Speaker 1: lot about needing to fix the skills gap between what

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Speaker 1: employers want and what people are coming out of college

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Speaker 1: and and high school with, and sort of how to

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Speaker 1: marry that gap, as you eloquently put it, as well

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Speaker 1: as we used to have or not even that long ago,

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Speaker 1: a year ago, maybe a little bit more. We had

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Speaker 1: a booming shale industry that was employing a ton of people,

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Speaker 1: and as we know, those sectors have been laying people off.

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Speaker 1: Where do they go to find jobs? So I thought

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Speaker 1: it was really interesting that Saudi Arabia and America see

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Speaker 1: you facing somewhat similar issues. Um. One thing that I'm

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Speaker 1: wondering though, is sort of why how this plays into

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Speaker 1: the broader global narrative. You know, why should someone sitting

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Speaker 1: in did you say Prioria, Peoria, Illinois, fated place, let's

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Speaker 1: come to typify Middle America? Okay, Well, that place, I believe,

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Speaker 1: I just can't pronounce it. Why someone sitting there should

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Speaker 1: care about Saudi Arabia. Well, I think it still plays

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Speaker 1: a leading role in the global hydrocarbon sector. If we

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Speaker 1: look at the strategy that OPEC has implemented over the

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Speaker 1: last two years, it's very much driven by Saudi Arabia,

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Speaker 1: and it's objective to to maintain market share. The fact

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Speaker 1: that it does have greater busses than it did in

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Speaker 1: previous cycles means that they can have a strategy to

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Speaker 1: keep oil prices lower for a while, although we have

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Speaker 1: seen a shift to look at freezing output with the

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Speaker 1: move down in oil prices in the early part of

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Speaker 1: twenty sixteen. So I think it's role in the oil sector,

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Speaker 1: but also the fact that it's the largest economy in

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Speaker 1: the region. It's it's got a strong population. It will

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Speaker 1: provide a strong domestic base of growth and consumption if

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Speaker 1: we do see the employment picture improving and and picking up.

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Speaker 1: There's a number of quite exciting programs and projects that

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Speaker 1: are going on and in the Kingdom on the education

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Speaker 1: side and trying to bring research and development into the country,

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Speaker 1: although these are quite tentative and initial moves. So I

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Speaker 1: think that the fact that you are seeing the social change,

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Speaker 1: the role of Saudi Arabian the region and in the

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Speaker 1: hydrocarbon sector, or you know, important on the global perspective.

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Speaker 1: We've talked a little about changes in the labor force,

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Speaker 1: and before you're on, our colleague Donna talked a little

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Speaker 1: bit about the evolution of the role of women in

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Speaker 1: the workplace, Monica, what's it like for you when you

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Speaker 1: go to visit clients in Saudi Arabia and compare it

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Speaker 1: with say, your experience it's five, ten, fifteen years ago. Um,

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Speaker 1: you know, I was doing my PhD in Saudi Arabia

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Speaker 1: in the late nineties when oil was at the end

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Speaker 1: of the round eleven dollars a barrel. One thing that

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Speaker 1: is very notable when I do go in. While there

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Speaker 1: are still a number of cultural restrictions, the ease of

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Speaker 1: getting visas, the ability to travel by myself, the ability

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Speaker 1: to go into offices has changed markedly. I think it's

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Speaker 1: far easier for women to go and conduct business there.

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Speaker 1: But I think the social change has been quite notable,

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Speaker 1: women being able to vote in municipal elections, but also

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Speaker 1: a more outward looking view and stances also there. So

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Speaker 1: while from the outside it might not seem as significant

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Speaker 1: to a substantial change, but for someone who has been

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Speaker 1: looking at Saudi Arabia for you know, quite a while now,

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Speaker 1: you do not changes and and you know, changing mentalities

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Speaker 1: and attitude. It's a lot to think about that tory

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Speaker 1: it is it is. Thank you so much for joining us, Manica.

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Speaker 1: This was great it's very much a pleasure. Thank you

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Speaker 1: very much, Thank you, and thanks to you all for

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Speaker 1: listening to Bloomberg Benchmark. We'll be back again next week

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Speaker 1: and until then, you can find us on the Bloomberg terminal,

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Speaker 1: as well as Bloomberg dot com, iTunes, Stitcher, tager casts,

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Speaker 1: and many other places and let us know what you

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Speaker 1: thought of the show. You can talk to and follow

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Speaker 1: us on Twitter at at Tory Stillwell and at Daniel

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Speaker 1: Moss TC. Did you know our producer, Liz came from

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Speaker 1: pure Illinois. Yeah, I just found that out. Shout out

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Speaker 1: to Liz