Going local: The government is trying new strategies to get more nationals into the workforce

For all its economic success, its public works projects, forests of new economic cities rising from the desert and concerted efforts to infuse new resources into all levels of education, Saudi Arabia has yet to turn the corner on the its long-standing dilemma of how to get greater numbers of nationals into the workforce. For the past decade unemployment among nationals has continued to hover stubbornly in the double digits, in spite of rising GDP and ongoing efforts to create new work opportunities for them.

Dual Economies

Part of the fundamental challenge in addressing chronic unemployment lies in the multifaceted nature of a highly segmented domestic labour market. For instance, there is no shortage of employment opportunities within the thriving private sector as new investments generate thousands of new jobs.

Yet this uptick in jobs has done very little to relieve unemployment among nationals, as more than 90% of the country’s private sector workforce hail from foreign countries. There are numerous reasons for this, financial, cultural and social, but the simplest of these comes down to economics. Mindful of their bottom lines, most private companies seek to hire less expensive workers for many clerical, retail and manual jobs, where expatriates often receive salaries that are less than the state unemployment benefit package of SR2000 ($533) granted Saudi citizens. And with generous compensation packages beckoning in the public sector, it is also difficult for private firms to lure nationals and remain competitive. This trend was only exacerbated after the government increased the minimum wage of public servants to SR3000 ($799.50) in March 2011. No such minimum wage exists for expatriates in the private sector. According to the latest data available from the Ministry of Labour (MoL), monthly wages for workers in the private sector averaged SR1293 ($344.58) in 2010.

Saudiisation

First established in the 1990s, the concept of further integrating nationals into the private sector, or Saudiisation, originally called for a blanket Saudiisation rate of 30% across the board for the private sector. The programme was only marginally successful, however, due to inconsistent implementation.

The government announced a reworked version of the initiative in August 2011 as the Nitaqat programme. Designed to create 1.12m new jobs for Saudi nationals by 2014, the new programme levies penalties on private companies that do not comply with new employment requirements while rewarding those that do. Observance is ensured through a four-tiered system that grades companies according to their level of compliance to the relevant quota. In descending order from most compliant to least, companies are rated platinum, green, yellow or red. Firms given red or yellow status are subject to penalties, while businesses that qualify for platinum or green status are awarded privileges that allow them greater freedom in future hiring.

Whereas previous Saudiisation schemes called for a blanket 30% quota across the private sector, the new system splits businesses into 205 separate categories with tailored requirements. Depending on the category and size of a company, some businesses are able to attain a platinum ranking for achieving as little as a 5% Saudiisation rate. Companies in the construction and transport sectors, for instance, are required to employ one Saudi for every 19 expatriates.

In order to help facilitate Nitaqat goals, the MoL has established a new system, called Hafiz, to match unemployed nationals with employers seeking to hire. Under this system, businesses are obliged to share information on an annual basis regarding job vacancies and the measures they have taken to fill these positions with the Human Resources Development Fund, which is likewise able to nominate qualified candidates.

In addition to Nitaqat, the MoL has also enacted a number of other measures. One of the most controversial was an additional fee for renewing expatriate employees’ work permits for firms that employ more than 50% non-nationals. In effect as of November 2012, the scheme imposes a fee of SR2400 ($639.60) per employee per year for every expatriate employee that exceeds the limit. Operating independently from the Nitaqat system, the new rule affects all businesses equally regardless of whether they employ skilled professionals or manual labourers. Foreigners with Saudi mothers or citizens of other GCC countries are considered Saudi nationals and are thus exempted.

Another MoL proposal, the Wage Protection Programme (WPP), is aimed at increasing transparency within the labour pool. Developed by the MoL and the Saudi Arabian Monetary Agency, the WPP electronically tracks wages in the private sector to verify that salaries are promptly and fully paid. The programme is set to enter service by the end of 2014. Other projects slated for the near future include: the Ajeer system, which is designed to regulate expatriate workers by limiting the trading of visas and attracting more highly-skilled expatriates; the Jahiz system, which is intended to connect Saudi nationals who have graduated from universities overseas with prospective private sector employers; and a new expatriate monitoring system that will employ a categorisation programme to classify workers according to their performance history as a means to prevent job desertion.

Early Returns

Roughly one year into service, the Nitaqat programme has been declared a success, according to statements made to local media in August 2012 by Saudi Minister of Labour Adel Fakieh. By January 2013 an MoL press release put the figure at 380,000, making it more successful in its first 18 months than the previous five years of Saudiisation efforts. Yet despite its successes, some have voiced concerns about the wider effects on the economy as a whole.

As more nationals gain employment and either replace or add to the workforce at higher wages than expatriates earn, increased monetary supply as well as higher costs for business could exert inflationary pressure on the economy. The new fee on expatriate workers in excess of the 1:1 ratio in particular has drawn criticism from the private sector. Faced with laying out an additional $649.6 per employee per year, businesses will have to make a choice between absorbing costs and taking a hit to their bottom line, or passing these costs on to their customers in the form of higher prices for goods and services. If neither choice proves palatable, critics fear firms might look to other locations in the region with more flexible labour regulations.

According to the Consumer Protection Association (CPA), domestic price increases experienced at the end of 2012 and early 2013 were caused in part by the implementation of new fees. “The decision to charge a fee on foreign labour was taken in haste and it will have negative implications for the consumer, as well as psychological, social and economic effects,” Nasser Al Toam, the chairman of the CPA, told local media in December 2012. “Most merchants have already begun to raise prices, while others say they cannot continue to bear the burden themselves. As a result the consumer will no doubt have to pay for this decision.”