|29 July, 2018

Potential worker shortage may put brakes on Saudi construction - analyst

Taxes on expat workers and families have hit construction harder than other sectors

Image used for illustrative purpose.

Image used for illustrative purpose.

REUTERS/Reuters Staff

Saudi Arabia’s construction sector is facing a looming worker shortage as a result of Saudisation policies, which could put the government’s plan to build several megaprojects under under pressure, according to a new note from BMI Research.

BMI Research – a Fitch Group company - suggested that construction was the industry hit hardest by government policies that require firms who hire more overseas workers than locals to pay a set tax per each additional expat worker employed.

It said that of the roughly 234,000 expat workers who left the country in the first three months of this year, over half (130,000) were construction workers, as it has become increasingly expensive for companies to employ them.

The tax is designed as an incentive to encourage companies to recruit Saudi citizens, as a means of tackling unemployment in the local population, which was said to be at a record level of 12.9 percent as of Q1 2018.

BMI Research emphasised that the policy was bringing about a ‘labour risk’ - one of a number of financial, operational and regulatory risks which have the potential to impede Saudi Arabia’s Vision 2030 infrastructure ambitions. The kingdom has announced a series of megaprojects as part of its plan to diversify resources from oil, including a new, $500 billion city known as NEOM, a major luxury tourism resort area on the Red Sea coast and an entertainment city at Qiddiya, south west of Riyadh, among others.

 “Though we have left our current construction sector growth forecast in place – 4.1 percent in 2018 and an annualised average of 6.13 percent from 2018 to 2022 – we will continue to monitor labour flows in the kingdom, and should the government persist in tightening Saudisation standards, we will consider revising our forecast downward,” the note concluded.

Zawya reported last week that housing rents had dropped by up to 17.9 percent in some areas, which was also attributed to the new labour fees imposed on expat workers, as well as tough economic conditions overall.

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(Writing by Imogen Lillywhite; Editing by Michael Fahy)

(imogen.lillywhite@thomsonreuters.com)

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© ZAWYA 2018

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