The recent
introduction of the Labor Ministry's Nitaqat system, meant to increase
employment among nationals, has proven beneficial for Saudis, but at the cost
of expatriate jobs, many foreigners in the Kingdom say.
The
government's ambitious goal is to succeed in creating 1.12 million new jobs for
Saudi nationals by 2014, or 92 per cent of all new jobs created, as set out in
the current development plan, Banque Saudi Fransi (BSF) said.
This became
apparent with an announcement by the Labor Ministry stating they would cut the
number of foreign workers from the current 31 percent of the population down to
20 percent over the next few years to “protect Saudi demographics.” The move is
expected to mean that as many as three million foreign workers will have to leave
the country by 2014.
Saudi Arabia's recent indigenization
effort titled "Nitaqat" came into effect on September 10. Saudi firms
have been color coded to four categories - Red, Yellow and Green, and
Blue/VIP. Firms labeled "Red" will not be able to renew their
foreign workers' visas and have until November 26 2011 to improve their status
by hiring more Saudi natives. "Yellow" firms have until
February 23 2012 to improve their status and will not be allowed to extend
their existing foreign employees' work visas beyond six years.
"Green” or “Excellent” firms with high Saudization rates will be allowed
to offer jobs to foreign workers that are employed by firms in the Red and
Yellow categories and transfer their visas. And firms in the highest “VIP”
category will enjoy the ability to hire workers from any part of the world
using a web-based system with minimal clearance.
The percent of natives that Nitaqat requires firms to
employ varies from 6% for construction jobs to 30% for oil and gas extraction,
to over 50% for banks and financial institutions (for firms with under 500
employees). As firms rushed to increase their Saudization rates before
the deadlines, young Saudi workers were suddenly in high
demand. However employers appeared
frustrated in matching potential employees with available jobs at the
prevailing wages.
To make such quotas realistic as well as
practical the ministry segmented the labor market into 41 commercial activities
and further categorized companies into five sizes -- according to work-force
size from very small (0-9 employees) to giant (3,000+ employees). It is worth
noting that very small businesses (0-9 employees) are exempted from the Nitaqat
program so this leaves us with a new 164 different nationalization quotas for
business entities (41 activity x 4 sizes). The program was designed so that 50
percent of the companies in any of the 164 classifications -- i.e. entities
that share similar size and similar type of economic activity -- are in the
Green and Premium zones.
Companies
under the “yellow” category have until February next year to turn “green,”
otherwise the work permits of their foreign workers who have been in the
kingdom for six years would not be renewed. Such workers, however, would be
allowed to stay longer if they transfer to a “green” company.
According
to official data, in 2009 alone almost 674,000 new jobs were created in the
private sector, and another 42,189 in the public sector.
Yet
that year, unemployment among Saudi nationals rose to 10.5 per cent from 9.8
per cent in 2008. The jump in unemployment, which is expected to have been
sustained in 2010, resulted from a particularly sharp increase in the incidence
of joblessness among youth, the study said.
It
showed that in 2009, some 27.4 per cent of Saudis under the age of 30 were
without work, including 39.3 per cent of those aged 20-24.
"Due
to the announcement this year that unemployment benefits will be paid for the first
time, the official unemployment rate could increase this year as more
individuals register their employment status."
The
study said it believes that if the private sector responds dynamically to
Nitaqat, there could be some much needed and "welcome mergers and
acquisitions" that take place in order to enable smaller firms to be
better able to cope with higher wages and training costs.
Official numbers show that Saudi Arabia's unemployment
rate stood at 10.5% at end-2010, with female unemployment at 26.6% and high
school graduate unemployment at 40%. Private-sector employment is dominated by
expatriates, who make up 30% of the population but account for 90% of
private-sector jobs (of 6.89mn private-sector jobs as of 2009, 6.21mn were held
by non-Saudis).
According to other estimates, the unemployment rate for Saudis in the age group
of 20-29 years was 27.1%, which forms 32% of the total workforce. Accounting
for makeshift jobs, Rasmala thinks the actual unemployment rate is much higher.
Overall unemployment in women is much more prevalent at 28.4%, versus men at
6.9%.
Meanwhile, human resource consultant Hay Group notes in its annual survey
published in September that Nitaqat has already had a positive impact on the
Saudi workforce's salaries - may be not so much for private sector employers.
"The report shows that Saudi nationals are paid 13 per cent higher than
the general market average when we look at total cash. Pressures on
organisations to achieve their target quota of Saudi nationals are apparent in
the trends we see in the 2011 report which are part of a wider socio-economic
story."
Jadwa research estimates that the non-oil sector is expected to register a 3.8%
growth this year, lagging far behind the 14% galloping oil GDP.
1.2 million Filipinos affected
“The third
phase of the nitaqat is where our 1.2 million overseas Filipino workers will be
affected as their companies, which either belong to the red or yellow
categories, are required to comply with the nationalization program,”
recruitment expert Emmanuel Geslani said in a statement.
Geslani, who
is a consultant for several Manila-based recruitment agencies, noted that there
had been various estimates as to how many OFWs would be affected by the
nitaqat. One migrant group placed the number at around 300,000, while the
Department of Labor and Employment estimates only around 90,000.
How will Nitaqat affect the lives
of expatriates in the Kingdom?
The Ministry of Labor recognizes and
appreciates the role of guest workers in the development of the Kingdom. We
understand that the new program will have direct and indirect effects not only
on the guest workers inside the Kingdom but also on labor markets of all
countries that send workers to Saudi Arabia.
Nitaqat's noncompliant businesses, i.e. Red
or Yellow private enterprises, are subject to restrictions including the
inability to renew work permits for their workers. This does not mean that
their employees will necessarily have to leave the Kingdom; on the contrary
Nitaqat offers workers at Red and Yellow zone companies' greater job mobility
by allowing them to seek employment with other businesses provided that these
potential employers fall within the Green or Premium zones. In addition job
switching will take place without the consent of their initial
"noncompliant" employer and through a regulated mechanism to
safeguard the rights of workers and owners.
How will Nitaqat work vis-à-vis the rising
recruitment trends?
Nitaqat is not designed to slam shut
recruitment doors but rather to rationalize the issuance of recruitment visas
which has soared in the past years due to robust public sector spending on
infrastructure projects and the subsequent expansion of the private sector. The
ministry believes that there is an oversupply of labor in the market and that
what people have come to term as "loose labor" is living proof that
such rationalization steps should be taken. Nitaqat program encourages internal
recruitment as an alternative, especially since internal recruits usually have
better work experience and more local knowledge compared to fresh recruits.
How will Nitaqat affect the overall Saudi
labor market?
Nitaqat has the potential to introduce
much-needed market adjustments to enhance the efficiency of the private sector.
The program aims to increase the share of national work force in the private
sector and amend the imbalances of the labor market's work force ratio where
national labor constitutes only 10 percent of the private sector's eight
million workers. These levels are unacceptable especially since unemployment is
estimated at 12 percent and tends to exponentially rise due to a young
population and the gradual increase in the number of job seekers. Apart from
increasing the number of national workers to economically sustainable levels,
Nitaqat will have other implications on the local labor market such as accelerate
women's employment, training for job seekers, establishing minimum wage and
creating healthier work environments for employees.
What about organizations that cater to
international clientele or international products where international staffing
is mandatory? How do they fit in with Nitaqat such as international schools?
I'd asked a Nitaqat committee to specifically
look into it. International schools have been given very low Saudization
requirements: 10 percent for small schools (49 employees and below), and 15
percent for bigger schools. These percentages do not necessarily mean teachers!
Schools could choose to have 100 percent expats teachers while hiring Saudis in
other jobs to achieve the required Saudization such as accountants, etc. The
international schools that belong to embassies by definition would need to be
treated differently. The dynamics keep on evolving and changing that's the
promise of Nitaqat.
The beauty of Nitaqat is that it promises to
be realistic, practical and fair. One of the comments shared in all the
presentations I've made to the different chambers of commerce that previously
we had 13 economic activities for which there were only 4 or 5 regulations
governing them. Now currently we've divided the job market into 41 economic
activities, and each activity was divided into 5 categories based on size
leading us to 205 sub segments and for each one of these sub segments we have
now 4 levels of regulations. So we moved from 3-4 to about 750. But that's not
the end of it. Those of you who work in particular industries which let's say
have very special characteristic that makes it very difficult to employ Saudis,
collect your views with other people working in the same category, organize it
through the chambers of commerce and submit it to the Labor Ministry. And we'll
probably create a new sub category for you and make new regulations for you.
