Job Creation Strategies in Times of Hardship

Creating Jobs

 

Job creation presents a serious concern for our beloved country. It is critical for us to create sustainable jobs that will contribute directly for the Saudi economy over the next 5-10 years.  But how do we effectively support these great reform initiatives?

 

To start with, let’s look at how others have done it.  We have taken two examples -Germany and Malaysia- to showcase the key steps that were taken to support the creation of Jobs.

 

Malaysia

Between 2004 and 2014, Malaysia suffered a high rate of unemployment, specifically amongst young and qualified people (15 – 29 years) which accounted for approximately 50 per cent of the total unemployment rate.

 

In the latter stages of the decade, the Malaysian government managed the crisis by generating a considerable number of jobs in both the services and the manufacturing markets and investing in the same. The services sector includes, but is not limited to, the likes of retail, finance, property, utilities and the leisure industry. As a direct result, the percentage of total unemployment had been reduced by 52 per cent in 2008.

 

A total of 99 per cent of the industry in Malaysia is made up of SMEs (Small and Medium Enterprises). These have been so successful in the country mainly because the government introduced loans on soft terms. This made it easier for start-up businesses to flourish and become successful. In addition to this, the Malaysian government has amplified its investment in the physical infrastructure of the country. This focused specifically on modernising the air transport industry in Malaysia, the improvement of Malaysian ports and the development of shipping infrastructure. The emphasis of these improvements was the increase in construction in these areas. The obvious impact of such an increase would be that of indirect increases in the spheres of engineering, finance and tourism.

 

The manufacturing division is one more key employment creating sector. It provides approximately 30 per cent of the entire labour force of Malaysia. The capacity of trade is increasing exponentially in Malaysia currently, which obviously makes for an increase in employment in manufacturing. The main subdivisions within the manufacturing industry which have contributed to large scale employment are the electronics trade and steel manufacturing.

 

In addition to this, Malaysia has invested greatly in what is termed ‘new technology’. The new technology drive focuses on ways of improving the world around us through convenience and ingenuity. Bio-engineering, genetics, communications and technology manufacture have all been heavily invested in by the Malaysian government to improve employment.

 

Germany

Whilst almost a third of the work force in other European countries such as Spain and Greece are without jobs, the likes of Germany are enjoying a huge spurt in employment since the introduction of a series of policies since the 1960s. These policies completely changed the face of employment in Germany, and the results seen today have never been so positive.

 

Germany saw an overhaul in employment policies in the late 1960s with the introduction of active labour market policies (ALMPs). The main vision of the ALMP model is quite a simple premise – to get as many unemployed people into employment as possible.

 

At the time employment between (what was) East and West Germany was in dire straits, so getting people back into employment was a primary goal to improve the economy. The ALMPs have, over time, to be improved in order to further increase employment.

 

One of the major overhauls to the ALMPs included the introduction of job creation schemes (JCS). The JCS’ in Germany were targeted towards those who are long-term unemployed and those who are ‘hard-to-place’. Under the plan that Germany put in place through the JCS’, low-wage earners would receive subsidies for their social security contributions. This kind of contribution would normally have been taken directly from the employees’ salary. At the time these deductions were high in Germany, as were income tax deductions. The direct result of this meant that many people were actually in a better situation if they didn’t have a job than if they did have a job that was low-paid. The indirect result of this was that the job market became stagnant because people weren’t entering into employment. It wasn’t worth it.

 

Prior to the introduction of JCS’ those who were registered as unemployed obtain unemployment benefits and social security payments. In addition to this many were ‘playing the system’ and working alongside receipt of benefit. This is what led to the introduction of the most recent job creation schemes in Germany which have shown a marked improvement in employment since 2003.

 

Since the social incentives were not effective in propelling employment opportunities, the German government decided to enact the “National Action Plan for Employment Policy” in late 2003.

 

The policy addressed many areas such as Vocational training, enhancing the education system, transforming undeclared work in to regular employment, focusing on regional disparities, creating funding options to entrepreneurs and new businesses along with many other initiatives. However, the most effective contributors to the German employment rate were the support of the ‘Mittelstand’ SMEs, funding for start-ups and regulating informal businesses (such as freelance maintenance).

 

The focus on deregulating and incentivizing new entrepreneurs to create and support the labour market enabled the creation of 29,000 new sustainable businesses in less than 3 years.  The policy made it easy for new entrants to establish new businesses to support them through tax incentives and Venture Capital funding as well as ease of business setup. Germany created the ‘KFW’- specialized loans for entrepreneurs and provided further support through the ‘unternchmerkapital’ which is a combination of traditional banking funding and venture capital funding for SMEs.

 

Cutting the red tape bureaucracy for entrepreneurs and semi-professionals (plumbers, electricians and so on) incentivized many Germans to enter the new regulated market.

 

Today, the SMEs employ more than 29.5 million people (around 68%).  It has sustained a major contribution to the economy – 53%. During the 2008-2011 periods, the blue-chip companies in Germany reduced its employment by 2.4% while the Mittelstand increased it by 1.6%.

 

Saudi Arabia

No matter how you look at it, it is clear that supporting SMEs and Semi-professional services through deregulating and incentivizing is the key driver for sustainable growth in the kingdom.

 

So what do we have to do?

We have many initiatives supporting entrepreneurship and SMEs that have to be coordinated under a grander umbrella; a national SME strategy that has job creation as a key objective that focuses on the development of a comprehensive ecosystem addressing policies, financing, technology, market dynamics, human capital and culture to enable prosperity.

 

 

Tariq Linjawi

CEO – Managing Partner

UCG