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Companies afraid of paying fines for having expats

Expatriate holding the Saudi flag

The new rule is aimed at reducing unemployment of 10.5 percent among Saudi nationals by getting them into jobs now performed by 8 million expatriates in the country.

December 5, 2012 11:02 by

Glancing through the newspapers one morning last month Saudi Arabian businessman Ihsan al-Naeem was stunned by a government announcement that he fears will threaten the survival of his family’s 30-year-old contracting business.

In the latest and most aggressive of a series of labour reforms, the government has started imposing fees on companies that hire more foreign than local workers. The requirement covers everyone from expat professionals to hospital workers and labourers on construction sites and is in addition to quotas already in place to limit foreign staff numbers.

The new rule is aimed at reducing unemployment of 10.5 percent among Saudi nationals by getting them into jobs now performed by 8 million expatriates in the country, a long-term Saudi goal given fresh impetus by the uprisings in Arab countries last year that were partly driven by high unemployment.

Labour Minister Adel al-Fakeih said in January that the largest Arab economy needed to create 3 million jobs for Saudi nationals by 2015 and 6 million by 2030, partly through “Saudi-ising” work now done by foreigners.

However, in an economy in which imported labour fills nine in 10 private sector jobs, according to central bank data, many companies fear the new fees will hit their businesses hard by adding to their costs and shrinking the pool of available workers.

“There are no Saudis who can drill or operate heavy machinery … Where will they work in the construction industry?” said Naeem, who employs more than 1,000 foreign labourers working on 17 government contracts.

As of Nov. 15, Naeem and other private sector employers who hire more foreigners than Saudis must pay a fee of 2,400 riyals ($640) a year for each additional expatriate when they renew an expat’s one-year residency permit.

The rule does not cover foreigners with Saudi mothers or nationals of other Gulf states.

Businessmen protested outside Labour Ministry offices after the decision, threatening to raise their fees to cover the additional labour costs o r terminate existing government contracts.

A Labour Ministry spokesman said there were no plans to reverse or amend the decision.

“The decision is based on detailed studies of the market mechanisms and it will hopefully increase the competitiveness of our local youth in a market that has no mercy, which has eight foreigners in every 10 employees of the private sector, who compete with our youth for their livelihood,” the spokesman, Hattab Alenezi, said.

Businesses say the new system will not address the problem of Saudis unwilling to work in the private sector. Wages are much lower than in government jobs and in many cases people are better off on unemployment benefit, which pays 2,000 riyals a month for up to a year. A security guard in the private sector, for example, earns only around 1,500 riyals a month.

After the 1970s oil boom, which propelled many Saudis into a lifestyle of wealth and luxury, locals viewed jobs requiring manual labour as menial and imported cheap foreign labour to build their cities and service their offices.

Construction labourers from India, Pakistan, Bangladesh and the Philippines form the biggest group of foreign workers.

“I have never come across a Saudi willing to work as a labourer,” Naeem said, estimating his medium-sized company will have to pay around 2.4 million riyals in annual fees.

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