x Abu Dhabi, UAEWednesday 26 July 2017

Incentives work better for Saudi labour goals

Hiring and promoting citizens in the Gulf are cultural, societal and economic issues. Punishing companies that fail to meet arbitrary numerical goals is not likely to be an effective approach.

You can't blame the government of Saudi Arabia for wanting quick progress towards "Saudisation" of the private sector workforce. About 39 per cent of Saudis aged 20 to 24 are jobless, a lost opportunity at best and a recipe for future problems at worst.

The government's response, the Nitaqat programme that was detailed this week, promises to be as forceful as it is ambitious, which risks creating unwelcome disruption of the labour market.

In a population of only about 22 million nationals, the goal of adding 1.12 million new jobs by 2014 is daunting. To help meet it, the government has combined the carrot and the stick in Nitaqat, which replaces a moribund earlier attempt at Saudisation. The new system classifies the country's 800,000 companies based on the percentage of their employees who are Saudi citizens. The best-performing firms will get speedy visa renewals for expatriates, better hiring access to expatriates already in the kingdom and other advantages. But companies with the smallest proportion of Saudis will not be allowed workers' visa renewals at all.

The plan has alarmed expatriates from across the spectrum. Many countries in the region such as Egypt rely on the kingdom, the world's second largest source of remittances after the United States, for much-needed foreign exchange sent home by overseas workers.

It is true that even without official stimulus, companies in the Gulf have good reasons to hire citizens, who are less likely to leave and who have a bigger stake in society. But social and economic realities can work in the opposite direction.

Nitaqat's primary goal is to put many more Saudis into managerial and technical posts. But the workforce does not, broadly speaking, have the right qualifications yet. The government has been moving ahead to open new technical colleges and otherwise improve skills, but this takes time.

Another problem is that Saudis tend to gravitate to the public sector. So it does not help that the kingdom's minimum civil service salary has recently been raised and now stands barely below the country's average private-sector wage.

Throughout the Gulf, the hiring and promotion of citizens are cultural, societal and economic issues. Punishing companies that fail to meet arbitrary numerical goals is not likely to be an effective approach. Complicated problems are rarely solved by blunt responses.