For decades Saudi Arabia’s rulers spoke of the need to boost the role played by their citizens in the country’s expatriate-dominated private sector. But with a strict employment quota system now in place, the cost of the so-called “Saudisation” of the workforce is beginning to emerge.
The clearest signal yet was disclosed on Saturday when Abdullah Al Khodari Sons, the publicly listed construction contractor, said in its quarterly results that general and administrative costs had risen 55 per cent, in part because of new employment quotas mandating the number of local and foreign citizens it could hire.
The quotas led to a “substantial cost impact over and above the direct manpower budgeted costs”, the company said, after a delay in approvals for visas for foreign workers forced the company to temporarily hire locally at greater cost.
Al Khodari remained profitable in the quarter. But its disclosure hinted at the challenges that lie ahead as Saudi Arabia pushes more of its private sector to cut its reliance on cheap imported labour.
Despite years of growth spurred by heavy government spending on construction projects, job creation for Saudi nationals has remained a challenge in the labour-intensive sector.
The public has accused leading family-owned construction companies of reaping the dividends of the boom while handing jobs to foreigners, not Saudis. Construction executives, however, complain that young Saudis shun harsh manual work and expect office jobs or managerial posts even as entry-level employees.
But as the government enforces a jobs-for-nationals programme to try to stem public anger over rising unemployment, construction companies complain of the higher cost of hiring Saudis and a sense that they alone are bearing the consequences of years of state mismanagement and substandard education.
The traffic-light inspired “Nitaqat” programme, which became effective last September, rewards companies for meeting Saudi citizen employment quotas. Those rated “green” are rewarded with new foreign visas and financial incentives to help train and pay Saudi staff. Companies in the “yellow” category will not be able to extend their foreign employees’ work visas beyond six years, while “red” companies will be barred from renewing their foreign workers’ visas at all.
“Saudisation” programmes date back to the 1990s, when a law was passed mandating that nationals comprise 30 per cent of the workforce of all companies, regardless of their activities.
But enforcement was lax at best, and construction companies were exempted during the boom of the past decade. The new Nitaqat system imposes a 7 per cent Saudi quota on construction companies.
An owner of a leading contracting company says the government has been “schizophrenic” in its approach to Saudisation, and does not meet its end of the bargain.
“On the one hand they want to spend money on projects to make life better for the population and make up for years of lack of development in infrastructure, on the other hand they make laws like Nitaqat that make it impossible for construction companies to execute these projects,” he says
“We hired a lot of Saudis at two or three times the cost of foreign labourers, but at the end we didn’t get the visas we were promised under Nitaqat.”
While some companies have their criticisms of the system, it has been lauded from the top.
In June, King Abdullah praised the labour minister Adel Faqih and Nitaqat, describing the scheme as “successful in creating more jobs for Saudi men and women”. The king added that 250,000 Saudis, including 54,000 women, had found jobs since September – more jobs for Saudis than were created in the previous five years combined.
For the oil-rich kingdom, finding work for young unemployed Saudis is a matter of national security. More than 66 per cent of the population is under 30, and about a third of the Saudi labour force aged 20-29 is jobless.
Although the kingdom was spared the street protests that toppled dictators in Egypt, Tunisia and Libya, it faces similar challenges: a young, unemployed, unskilled population, and a squeezed middle-class.
Construction companies, however, believe the new employment quotas should not be applied to them, because of the nature of the jobs they offer.
Fahd al-Hamadi, the chairman of the National Committee for Contractors, complained last December that the labour ministry ignored the nature of contracting work. With 80 per cent of the workforce consisting of unskilled labour and the rest comprising truck drivers, carpenters and technicians, most Saudis simply would not accept the jobs, he said.
But on the Nitaqat website, the government rebuffs complaints from employers. It notes an unemployment rate of 15 per cent, and says that 2m work visas were issued in the past two years. About 6.5m foreigners work in the private sector, it says, compared with only 700,000 Saudis.