Saudi Arabia to merge pension and unemployment insurance funds

Government employees worry about jobs amid privatisation push

Saudi Arabia will merge the Public Pension Agency and the General Organization for Social Insurance to create one entity providing a protection umbrella to workers in both the public and private sectors.

The government said the merger process, approved by the cabinet in a meeting chaired by King Salman on Tuesday, would not affect the mechanism and dates of disbursement of insurance benefits to insurance or pensions clients, nor the progress of operations or transactions.

The merger “will ensure covering public and private sector employees under one insurance scheme; achieving high standards in providing social benefits; contributing to eliminating duplication in jurisdictions; utilising resources; increasing operational and financial efficiency; and improving services provided for the contributors,” said Finance Minister Mohammed al-Jadaan, who also serves as chairman of GOSI.

Despite assurances from authorities that this is “an administrative and organisational process” that would have no impact on beneficiaries, the merger is seen as laying the ground for the government to push ahead with plans to privatise major parts of the public sector. This has raised concerns among citizens about the fate of their jobs as the majority of them are employed by the government in its vast bureaucracy.

Okaz columnist Khalid al-Sulaiman echoed that nervousness in a piece published Thursday:

I do not blame anyone. The changes that have been made to the structure of institutions and amendments to regulations and bylaws are many, and one almost needs a guide to learn them accurately. People have the right to understand and absorb the changes and their effects, especially when they relate to their jobs, livelihoods and the future of their retirement. That’s why I think a huge effort must be undertaken to dispel any fears and clarify any questions people have regarding privatisation or the merger of the Public Pension Agency and the Organisation for Social Insurance. The issue is not about restructuring institutions as much as it is about reformulating the relationship between members of society and their jobs as a sources of income and livelihoods! 

Saudi Arabia approved a new privatisation law in March. A few weeks later, the government published the arrangements of how it plans to handle the fate of public sector employees who may find themselves surplus to requirement after their departments are privatised.

The privatisation programme is one of the main elements of Crown Prince Mohammed bin Salman’s economic diversification plan. The government has said it identified 16 sectors for privatisation, including education and healthcare, two of the largest public sector employers of nationals. The programme supporters say it will reduce the burden on the state budget, increase the contribution of the private sector to gross domestic product, improve services and create new job opportunities for citizens.

The conversion of the Ministry of Post, Telegraph and Telephone into the Saudi Telecommunication Company (STC) in 1998 and later opening the market for other operators is often cited as an example of successful privatisation. But the government has struggled to replicate that until earlier this year when it announced completing the privation of state-owned grain mills.

The coverage of the PPA-GOSI merger in the local media has been almost uniformly positive, as expected, with the aforementioned Sulaiman’s column a notable exception. Makkah newspaper used a listicle format with the headline “10 Benefits for Merging PPA and GOSI” (but the actual article listed 9 items only). Financial news site Maaal saw that and raised the stakes, listing 16 benefits of the merger.

Official data suggest that 1.2m government employees will see their social insurance moved to GOSI as a result of the merger. Another interesting aspect of the merger is that both PPA and GOSI own minority stakes in many publicly listed companies in the Saudi stock market. The merged entity would own shares worth more than 100 bn riyals, according to one estimate.

“The decision will have a significant positive impact on the economic and social level in the Kingdom of Saudi Arabia,” Ibrahim al-Omar, a Saudi academic, told Asharq al-Awsat. “One of the immediate fruits of the merger will be building the largest investment portfolio, amounting to SAR 100 billion ($26.6 billion)”.

The finances of PPA have come under scrutiny in recent years, with a former governor of the pension fund warning that it could run out of reserves within two decades. The PPA’s investment strategy also faced criticism, especially after it failed to deliver the King Abdullah Financial District in Riyadh, one of its flagship real estate projects. The ownership of KAFD was eventually moved from the PPA to the finance ministry and the Public Investment Fund.

Observers say GOSI has managed its investment portfolio better than PPA, and they hope that merging the latter into the former would secure the future of the pension fund. “When you combine the two portfolios they will have more power and better focus. There won’t be any competition between these two organisations in the local stock market,” Mohammed al-Suwayed, chief executive of Razeen Capital, told state television al-Ekhbariya.

Al Baik opens in Dubai

Saudi Arabia’s legendary fried chicken chain Al Baik has opened its first branch in the UAE this week. The branch is located in one of Dubai Mall’s food courts where long queues of customers waited to taste the famous crispy chicken meals.

The opening in the UAE is notable because the chain, which launched nearly 50 years ago, has for long been limited to Saudi Arabia’s western region and only began expanding into other cities in the kingdom in the last five years. Al Baik is so massively popular that people used to not only wait in line for hours in the street to try it but some would even buy meals then fly them to Riyadh to sell for double the price.

Al Baik has acquired a cult following thanks to its consistent quality and low prices, with the company focused on profits by selling in large volumes and at quick speed, while eschewing most of traditional advertising and marketing often associated with similar brands.

The fast-food chain was also helped by the fact that many pilgrims from around the world who visit the holy cities of Mecca and Medina would often dine there after performing their rituals, spreading the restaurant’s reputation beyond the kingdom’s borders. When Anthony Bourdain visited Jeddah in 2008, he made a stop at Al Baik.

The company told me in 2013 that they are “committed to serve every city in Saudi Arabia in the near future” and soon after opened in Qassim and Riyadh. Al Baik opened its first branches outside the kingdom in Bahrain last year, and that encouraged the chain to expand into the UAE.