05 June 2011
Creating jobs is central to the new Saudi economic strategy. After unleashing a $130-billion investment programme, the Kingdom has now unveiled its accompanying job creation plan with a renewed push for Saudiization. Can it solve Saudi Arabia's unemployment problems, or hurt the economy and drive talent foreign labor away from the country?

Saudiization has been given a new lease of life. Worried about domestic unrest and the political fallout of unemployed Saudis, the Kingdom has recently made a concerted push to embark on an unusually aggressive drive to encourage companies to recruit Saudis and "compete with one another in employing Saudis in order to qualify for the various incentives offered by Labour ministry," according to the minister Adel Fakieh.

The speed and earnestness with which the Kingdom has moved on "Nitaqat" has taken analysts by surprise.

The Nitaqat reforms package includes limiting expats to six years of residency and build on the existing rules for recruiting nationals in the workforce, especially the private sector. It also means that companies that do not adhere to the new policies may be penalised.

This is a bold move and with no guarantee of success. "The cost of moving aggressively on Saudization of the work force will have ramifications for the economy as a whole on at least four fronts: potential failure of a number of private sector companies, (ii) potential productivity loss, (iii) economic cost of training locals for jobs, and (iv) higher wage bill. Lower competitiveness with pass through to inflation," warns Citibank in a note to clients.

But the bank argues that the Kingdom is faced with a severe demographic and labour imbalance which is compelling the authorities to make the move, despite the potential risks.

The plan envisages companies to be placed in various categories and if they meet their Saudiization targets they will be placed in the green zone, while those that don't will be placed in yellow and red zone and may be subjected to penalties and other punitive action, after a five-month grace period.

"The computer system at the labor offices across the Kingdom would reject any transactions with these firms with regard to renewing their employees' work permit or issuing new labor visas. This would be a serious setback for these firms that might eventually force them to exit the employment market," the minister told the media.

Citibank believes this is an idea whose time has come.

"Serious imbalances have been building in the country over decades and that we believe require urgent attention: only 40% of Saudis of working age are in employment, 43% of 20-24-year-olds are officially unemployed, 51% of Saudis are below the age of 21, expat workers make up 90% of the private sector work force. While the emphasis in the past has been on creating new jobs for Saudis through diversification efforts, we believe it is a constructive step forward to re-emphasize at the same time the back-filling of jobs currently held by expats.