Failing to build the private sector more quickly is also taking its toll on improvement of real incomes among Saudi citizens and residents. Looking at nominal GDP figures, which fluctuate widely based on oil prices, per-capita GDP figures have shown a distinct improvement in the last decade. Each Saudi resident earned $20,651 in 2011, a surge of 124 percent since 2000.
Yet these data can be viewed unrepresentative; per capita income measured at constant prices tell a very different story.
According to this measure, real per-capita income growth has been stagnant since the early-1980s. Each Saudi resident was earning $9,061 in 2011, virtually on par with the level in 1991 and below a 1980 peak of $14,733.
The reasons behind this sluggish trend in real income have been rapid population growth occurring without a correspondingly large expansion in the economy, particularly the non-oil economy. Compared with countries such as Nigeria, Malaysia, South Africa or Turkey, Saudi Arabia’s population has grown tremendously quickly. Re-based data of the UN Population Division show the Saudi population expanded 179.8 percent between 1981 and 2011. Nigeria, which came closest among the few countries I’ve measured, posted population growth of 128.3 percent over the same period, while Turkey’s population grew 66.2 percent, just above the global average 56 percent.
This apparent discrepancy in Saudi population growth rates translated into much lower growth in GDP per capita vis-à-vis global peers as well.
Compared with Korea, Nigeria, Singapore, South Africa and Turkey, Saudi Arabia has the lowest GDP per capita, based on purchasing-power-parity (PPP), which takes into consideration both nominal GDP growth rates and domestic price growth.
Between 2000 and 2010, IMF data show per-capita income growth based on PPP accelerated 44 percent in Saudi Arabia, compared with 99 percent in Korea, 90 percent in Singapore, 66 percent in South Africa, 77 percent in Turkey and 124 percent in Nigeria.
Regionally, too, Saudi Arabia’s GDP per capita PPP is low, according to the IMF, having grown 39.7 percent from 1980 levels.
This is versus higher growth of just over 42 percent in Kuwait and the UAE, almost 200 percent in Bahrain, and more than 300 percent in each of Egypt, Morocco, Oman and Tunisia.
Relatively low real-income data underpin the importance of raising the wage equilibrium in the coming years, a challenge I have discussed many times previously.
Saudi Arabia’s labor market needs to shift from one relying on cheap labor to one exhibiting high wage equilibrium to encourage Saudi participation and ease unemployment.
This would in turn improve real incomes of citizens and reduce the burden on the state purse.
The government moved a step in this direction by raising the minimum wage last year for civil service employees to SR3,000 per month from SR2,185.
However, private sector employers must be compelled to do the same for the proper incentives to be in place to improve real wages in the sector that employs more than 80 percent of the workforce.
The private sector predominately comprises expatriates, which would shift only once wages become more compelling for citizens.