x Abu Dhabi, UAEWednesday 26 July 2017

Private sector in Saudi Arabia faces punishment for not cutting expat payroll

Companies who fail to hire a sufficiently high proportion of Saudis will not be allowed to renew work permits for any of its foreign workers and will be denied services and licences by the ministry of labour.

Saudi students at King Saud University in Riyadh. The government is stepping up efforts at 'Saudisation' in a country where a third of the workforce is foreign and unemployment among Saudis is running at anywhere between 8 and 12 per cent. Ali Jarekji / Reuters
Saudi students at King Saud University in Riyadh. The government is stepping up efforts at 'Saudisation' in a country where a third of the workforce is foreign and unemployment among Saudis is running at anywhere between 8 and 12 per cent. Ali Jarekji / Reuters

RIYADH // In another bid to beat back one of Saudi Arabia's biggest challenges, youth unemployment, officials have rolled out a new initiative aimed at weaning private sector employers off expatriate labour and coaxing them into hiring more Saudis.

The so-called Nitaqat or Zones programme seeks to change hiring practices in private companies through a system of rewards and punishments, depending on how well the firms meet quotas for having Saudis on their payrolls.

On Saturday, the Ministry of Labour took its first step to implement the initiative by listing on its website how the country's 800,000 registered companies stand on the issue of Saudi employees.

Those fulfilling their quotas were listed in the green zone, which gives them certain privileges, including expedited procedures for getting visas for foreign workers, and the right to hire expatriates working for other companies without first getting their employers' approval.

Firms that fall short of their quotas but were deemed to be making efforts to reach them were placed in the yellow zone. Those that had not made any effort to employ Saudis were listed in the red zone.

Companies in the latter categories face restrictions on their access to foreign labour. A red company, for example, is not allowed to renew work permits for any of its foreign workers and will be denied services and licences by the ministry.

When first unveiled last month, the plan set off alarm among the country's eight million foreign workers, who feared losing their jobs because of a six-year cap on expatriate work permits.

John Leonard Monterona, regional coordinator for Migrante-Middle East, an organisation that promotes the rights of Filipino expatriate workers, said that there was concern about the Nitqat programme's six-year, cap because an estimated 350,000 Filipinos have been working in the kingdom for more than six years.

"Yes, we are worried because we believe the Saudi government is dead serious to implement the Nitaqat system because its own people are demonstrating to demand jobs," Mr Monterona said.

But labour officials later explained that the six-year limit is only for expatriates working at yellow zone companies. And in such cases, those workers will be eligible to be employed by green zone Saudi companies.

Although many firms ended up in the red and yellow zones in the ministry's listings, they have a grace period of six to nine months to adjust their situations.

Meeting businessmen around the country to explain the new system in recent weeks, Labour Minister Adel al Faqieh demonstrated serious resolve to implement the system, something lacking in previous efforts to promote Saudisation.

Mr al Faqieh described the new plan as "a last chance for companies who are lagging behind in Saudisation", according to a report last month in the Saudi Gazette.

Jarmo Kotilaine, chief economist at NCB in Jeddah, said: "The reality is that efforts made over previous several years have not materially changed the situation in the private sector."

What the government is trying to do now, Mr Kotilaine said, is change "entrenched attitudes" among Saudi employers that are used to an abundant supply of cheap foreign labourers. "It's important to recognise that there are no quick fixes."

A new feature of the programme is that the quota for Saudi employees is not the same across the board, but instead varies according to the type of business. For example, construction companies that employ large numbers of manual labourers have a smaller Saudi worker quota (10 per cent) than banks, which must have Saudis in 70 per cent of their job slots.

In another break with the past, the labour ministry is now using the term "nationalisation", instead of "Saudisation"

The initiative is one of several unveiled in recent weeks to alleviate unemployment, especially among young people. Among Saudis aged 15 to 25, unemployment is 39 per cent, according to government statistics.

Overall, unemployment is 6.9 per cent for men and 28.4 per cent for women; 76 per cent of unemployed females are university graduates.

The situation has drawn increased official concern since January, when youth uprisings erupted in other Arab countries, fuelled in part by economic despair.

John Sfakianakis, chief economist at Bank Saudi Fransi in Riyadh, said: "Saudisation is receiving more attention today because the Arab Spring is in the minds of all policymakers, including those in Saudi Arabia."

The Nitaqat system is one of several measures recently announced to put a dent in Saudi youth unemployment. King Abdullah bin Abdul Aziz has ordered 66,000 new jobs created in the public sector for teachers and health professionals. Of the education jobs, 39,000 are reserved for women and 13,000 for men.

He also ordered the implementation of a labour regulation from 2005 that salespersons in lingerie stores should be women, something that women have been demanding for years.

Earlier this year, King Abdullah ordered a new scheme of unemployment benefits for job-seekers willing to undergo training.

Observers said that there are about 448,000 unemployed Saudis and 8 million foreign workers. Even if all those Saudi job-seekers are hired, they said, a large expatriate workforce will still be needed for some time to come.

The Nitaqat system does not extend to domestic workers.

cmurphy@thenational.ae