Firms may shut down or face heavy fines with Saudi’s expat worker limits
With a September 7, Saudi's private sector will have to fulfill Saudisation quotas but economist fear the Netaqat programme may have negative effect on economy.
June 1, 2011 2:16 by shafeer
Saudi Arabia’s plan to limit foreign worker visas in an effort to boost local employment will have negative effects on the economy and could lead to higher inflation, according to Citi’s Middle East Chief Economist Farouk Soussa.
Companies in the Kingdom have until September 7 to achieve a prescribed quota of Saudi employees, under a new programme announced by Labour Minister Adel Fakieh on Tuesday.
“It is expected, if the ministry continues in its programme, that we will see more than 210 firms shut down within the next three years,” said Abdulhamid Alamri, a Saudi economist.
Some eight million foreign workers, who remit $27 billion per year, live in the Kingdom, with the majority working in the private sector.
“The larger the company is, the higher the rate of Saudisation is required from it … If companies exerted even the smallest of efforts the unemployment rate would fall significantly,” he said.
Business will be deprived of privileges if they do not comply, the minister said.
“There is the possibility that many private sector companies will be shut down as a result of strict implementation … their possible failure would be likely to have an impact on economic growth, as the private sector goes through an adjustment period,” Farouk Soussa, Citi’s Chief Economist, said in a research note.
In 1994, Saudi Arabia began a “Saudiasation” plan, setting quotas for the number of nationals private firms must hire. Despite that, Saudis account for just 10 per cent of the private sector work force.
Companies tend to hire workers from Asia, who, they say, are prepared to work for long hours on low salaries, or well-paid foreign experts.
The new programme may also lead to higher inflation as businesses try to attract Saudis to jobs which they tend to refuse, by offering them higher wages than they would offer foreigners.
“This will raise the cost base of doing business in Saudi Arabia, eroding local corporate competitiveness and raising domestic inflation,” said Soussa.
Fakieh said on Monday the government would not renew work permits for foreign workers who have spent six years in the country, but did not give details.
“Plans not to renew work permits for foreign workers, who have spent six years in the Kingdom, apply to the companies that fall under the yellow category in the Netaqat programme,” ministry spokesman Hattab al-Anzy was quoted as saying by state news agency SPA earlier on Tuesday.
“Companies that fall under the red category will not have work permits renewed for its foreign workers regardless of the time the workers have spent in the country,” Anzy said.
Unemployment among nationals in the Kingdom, which sits on more than a fifth of global oil reserves, is running at 10.5 per cent, according to the figures this week. Some 28 per cent are women and 40 per cent are high school graduates.
Despite its wealth, unemployment in the Gulf Arab state has risen largely because an outdated school system concentrates on religion and the Arabic language rather than the skills demanded by private firms.
Some Saudis have accepted jobs on production lines but many still refuse to work in low-paying posts or jobs that require workers to stay outdoors for long, leading firms to resort to foreign labour, businessmen said.
“Certain positions, especially in distribution will be difficult to (nationalise). We have tried that and failed because getting Saudis to work in menial jobs is impossible,” said Hassan Alireza, head of Delta Marketing Company. “If they insist it could cause a major headache and possible closure of some firms.”
Netaqat, meaning categories in Arabic, was launched earlier in May and classifies firms by green, yellow and red colours according to how they fulfil “Saudiasation” rules. It also sets penalties for non-compliance.
King Abdullah offered $93 billion in handouts in March to stave off unrest rocking the Arab world, including neighbouring Bahrain, Oman and Yemen. This followed a $37 billion package announced in February, an initial move to ease social tensions. (Reporting by Marwa Rashad in Riyadh and Asma Alsharif in Jeddah; Editing by Amran Abocar, Jason Benham, Elizabeth Piper and Jonathan Lynn)