Thursday, January 12, 2012

Nitaqat - Saudi Work Force and its Effect

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.


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