Saudi Arabia supports start-up culture among young people

The government’s recently defined youth employment targets come at a time when the issue has never been more pressing. According to the General Authority for Statistics, the total employment rate in the Kingdom was 94.2% as of the third quarter of 2017, while the employment rate for Saudis was 87.2%. Worryingly, however, youth unemployment has increased, with 536,000 Saudi job-seekers aged 15-29 as of September 2017. The government’s attempts to reorient the economy towards the private sector will make turning this trend around a challenging prospect: young Saudis have for generations left tertiary education with the expectation of getting a well-paid government job, but with an effective freeze on public sector hiring, this option is no longer a guarantee.

Seeking employment in the private sector might seem like the obvious alternative, but many young Saudis have traditionally shown a reluctance to enter a corporate arena associated with long hours, modest benefits and a perceived lack of job security. It is perhaps for this reason that many Saudis are opting to become their own bosses, which is driving the growth of the Kingdom’s increasingly vibrant start-up scene.

Self-Starters

The government has encouraged this trend in its Vision 2030 strategy and the shorter-term National Transformation Programme (NTP). By 2016 the government had allocated roughly $2bn worth of funds to venture capital (VC) activities, distributed across initiatives such as the VC fund operated by TAQNIA, a government entity owned by the Public Investment Fund that acts as the technological investment arm of the government. TAQNIA’s investment activity seeks to transfer technologies to the Kingdom and support early-stage start-ups, and it has partnered with Riyad Capital to create the SR500m ($133.3m) Riyad Taqnia Fund, which targets promising technology concepts.

The government has also encouraged start-up growth via “techno valleys” in locations such as Dhahran, Riyadh and Makkah, as well as a dedicated national technology innovation programme, Badir, which has opened incubator facilities across the Kingdom. Saudi Arabia was the second-largest source of private equity investment by value in 2016, according to Thomson Reuters and Deloitte. Start-up specialists such as Flat6Labs have been present for years, and angel investors in the Kingdom are using online platforms and networking events to connect with domestic prospects.

Private Placement

Start-ups alone, however, will not solve the youth unemployment challenge. “The Ministry of Labour and Social Development should promote training and internship programmes that instil a solid work ethic and commercial consciousness, in order to better prepare Saudis entering the workplace,” Abdullah Ali Al Zahrani, CEO of Contact Center Company, told OBG. The government is working to upskill young Saudis in a bid to make them more attractive to employers who have hitherto preferred to seek expertise from abroad. The principal tool in this drive is the Hafiz programme, introduced in 2011, which grants unemployed Saudis financial support and specialised training, qualification and employment programmes for up to a year. While the initiative is not youth-specific, soon after its formation it identified unemployment among younger Saudis as a particular concern. In 2016 almost a quarter of Saudis under 30 were unemployed, and with nearly half the population under the age of 25, the labour market could double by 2025 if young workers are successfully engaged.

Non-Profit

Non-profits are also playing a major part in this process. Education for Employment, for example, is a locally affiliated organisation that creates public-private partnerships with employers to train youth in technical and soft skills, thereafter placing them in jobs. Present across the MENA region, the Saudi affiliate launched in 2017, and, with the help of locally derived seed funding, is targeting underprivileged and unemployed young Saudi women and men by offering demand-driven training.