61% of Saudi firms lose potential profits due to workforce skills gaps, World Bank study finds

Skills shortages are affecting the profitability and competitiveness of Saudi Arabia’s private sector, with 61% of businesses reporting that gaps in employee capabilities have cost them potential profits, according to a new World Bank study.

The report, titled Upskilling: Required Skills and Workforce Development in Saudi Arabia, found that a similar proportion of establishments struggle to find employees with the capabilities needed to perform at least one of their operational activities.

The findings highlight how workforce skills gaps are affecting business performance beyond recruitment challenges, with companies reporting lost commercial opportunities, difficulties adopting new technologies and declining product and service quality.

According to the study, 55% of establishments said skills shortages had resulted in lost business opportunities, while 48% reported difficulties introducing new technologies or products. Around 48.5% also said the quality of their products and services had been negatively affected.

Prepared by the World Bank at the request of Saudi Arabia’s Ministry of Human Resources and Social Development, the research draws on a survey of 3,016 private-sector establishments across the Kingdom’s 13 regions. Data was collected between May and October 2024.

Saudi Arabia's workforce structure shapes skills demand

The study points to the composition of Saudi Arabia’s private sector as an important factor influencing demand for workforce development.

Retail, hospitality and food services account for 43% of the workforce covered by the survey, followed by construction at 19.7%.

According to the World Bank, the concentration of employment in sectors that rely less heavily on advanced skills could reduce incentives for businesses to invest in employee training and modern technologies, even when qualified workers are available.

This suggests that addressing skills shortages will require more than expanding training programmes. Businesses must also evolve towards higher-productivity activities that make greater use of advanced capabilities and encourage investment in technology.

The report identifies critical thinking, complex problem-solving, digital literacy and adaptability, alongside social and behavioural capabilities, as essential skills for improving productivity and supporting the transition towards higher-value economic activities.

Saudi SMEs report fewer skills shortages than European counterparts

The study also compares skills shortages among Saudi businesses with those in international markets.

Around 35% of small and medium-sized enterprises (SMEs) in Saudi Arabia reported difficulties finding workers with the required skills, compared with an average of 80% among businesses in European Union countries.

However, the World Bank cautions against interpreting the difference as evidence that Saudi Arabia has a stronger skills supply or a more efficient labour market.

Differences in the structure of economic activities, the complexity of jobs, demand for advanced capabilities and survey methodologies could all influence the comparison.

The findings suggest that skills shortages must be understood in the context of the types of jobs businesses create and the capabilities required to perform them, rather than recruitment difficulties alone.

World Bank calls for closer alignment between education and labour market needs

To address the gaps, the World Bank has called for reforms to education and training systems to bring them closer to evolving labour market requirements.

The recommendations include strengthening skills-based recruitment and assessment, encouraging businesses to adopt modern technologies and improve management practices, and redesigning job roles to make better use of available talent.

The study also highlights the importance of developing cognitive, social, behavioural and technical capabilities as businesses respond to technological changes and shifting economic requirements.

For employers, this means moving beyond viewing upskilling as an employee-level responsibility. Organisations must also create roles, management systems and working environments that allow employees to apply newly acquired capabilities and contribute to business performance.

The report concludes that closing Saudi Arabia’s skills gaps will require a combination of workforce development, business transformation and a shift towards more productive, knowledge-driven economic activities.

As the Kingdom continues to diversify its economy, the ability of employers to attract, develop and effectively deploy skilled talent will remain central to improving productivity, innovation and private-sector competitiveness.