RIYADH, Saudi Arabia — Saudi Arabia, the largest Arab economy, urgently needs to create new jobs in the coming years for the millions of young people expected to enter the kingdom’s workforce, Saudi business leaders and the International Monetary Fund said Tuesday.

The IMF and the government are looking to the private sector rather than the state, which traditionally played a strong role in providing employment, to play a bigger part — despite formidable red tape and other challenges.

The need for jobs is outpacing available work throughout oil-rich Gulf Arab countries, meaning that while the region’s kings and ruling sheiks have so far ridden out the Arab Spring, demographics and time may not be on their side for very long.

Unemployment, which jumped in Saudi Arabia from 10.5 per cent at end of 2009 to 12.1 per cent at end of 2012, could eventually feed greater dissent and challenges to the monarchy’s tight grip on power.

“It’s happening around us and we need to wake up to that reality,” Fatin Bundagji, a Board Member of the Jeddah Chamber of Commerce, said of the protests roiling the Middle East. “There is a need for us to understand that we are measuring the wrong things.”

The kingdom is the world’s largest oil exporter and has foreign reserves in excess of US$717 billion, but she said those figures do not indicate the society’s well-being.

“Are people having access to good education, to health care? Can they afford to buy their homes? Are they happy?” she said. “We can’t afford to continue business as usual.”

She spoke to The Associated Press on the sidelines of an event Tuesday organized by the Council of Saudi Chambers and the IMF about the role of the private sector in job creation. The event, which was attended by Saudi Arabia’s Finance Minister and other top level officials in Riyadh, underscored the government’s acknowledgement of the critical need to address unemployment.

Up to 1.6 million young nationals will enter the workforce in the next five years in the Gulf countries of Saudi Arabia, Bahrain, Oman, Kuwait, Qatar and the United Arab Emirates, according to a new report by the IMF.

But, the body warns that only around 600,000 will find jobs in the private sector by 2018. An expected one million could find themselves without work.

Tim Callen, the IMF’s Mission Chief to Saudi Arabia, said in a statement ahead of the event that as youth approach working-age years in the Middle East, economic growth has not been sufficient to create enough jobs and to meet the aspirations of the people. Women also only comprise 22 per cent of the workforce in the region.

“In addition, businesses, especially in the sector of small-and-medium- enterprises face many obstacles to grow,” he said.

Anas al-Dahlawi, 30, graduated from top universities in the United States thinking he would return to Saudi Arabia, start work immediately and live a comfortable life. But like so many other young Saudis realize soon after graduation, finding a well-paying job in the kingdom is not easy.

He teamed up with 23 year-old Ohoud El-Essawi to create online booking services in the kingdom. They found it difficult to find funding, and so el-Essawi enrolled in a public-private partnership program that helps her with about US$13,000 in seed money and training.

They represent a new generation of Saudis that has access to the world through the Internet and wants a piece of the action.

Al-Dahlawi says that while the government is trying to catch up with the needs of entrepreneurs, he is struggling to find private investors interested in a startup company.

“It’s less about booming the economy and creating jobs,” al-Dahlawi said. “Most of the investors just look for high return.”

While seven million jobs were created across Gulf countries between 2000 and 2010, the IMF says nearly 88 per cent of those jobs were filled by foreign workers.

To offset grumbling and the prospect of protests by youth demanding access to their nations’ wealth, Saudi Arabia and other Gulf monarchies are aggressively backing regulations that open up existing jobs for their own citizens. The kingdom, unlike other Gulf nations, has millions of low-income citizens willing to work the types of jobs that have long been held by Indian, Egyptian, Pakistani and Filipino migrant workers, though perhaps not for the same low wages that can be the equivalent of just several hundred dollars a month.

A nationwide culling of Saudi Arabia’s massive foreign workforce of around 9 million people has already sent hundreds of thousands of migrants home in the past two months. Saudi authorities say the jobs left behind can and should be given to Saudis.

The kingdom has also implemented a so-called “Saudization” program that requires businesses to ensure that Saudi nationals make up at least 50 per cent of the workforce in order for the company to have basics like exit and entry visas for its international staff.

The program has created what Saudis call “tasator” whereby businesses pay salaries to Saudis who do not actually work. Business owners who do this say that many Saudis are not skilled enough for the jobs they want and so find it easier to do this.

Traditionally, Saudis have relied on accessible, stable and well-paying government jobs. The IMF says almost two-thirds of employed Saudis nationals work for the government, but that there is a need to improve education to boost the skills and productivity of workers.

Bundagji of the Jeddah Chamber of Commerce says there needs to be financial inclusion that focuses on Saudis who do not have access to funding.

“You have to reach out to the people and also give them that hope that they can also dream of having a roof over their head,” she said.