Saudisation: A national issue

Saudisation is testing the resolve of the construction industry

ANALYSIS, Business, Saudi Arabia, Saudisation

Saudisation is testing the resolve of the construction industry, with firms looking for solutions that do not restrain projects while meeting national interests. By Hadi Khatib.

Saudi Arabia’s new king, Salman Bin Abdul Aziz Al Saud will, in the coming months, be managing an important political transition.

The new king has already said that jobs and stability are his two top priorities, and with unemployment currently standing at 11.8%, the two issues are linked.

During the reign of King Abdullah bin Abdul Aziz, there was a dramatic shake-up in policy on both local and global levels, which allowed it to thrive.

Saudi Arabia’s adherence to World Trade Organisation agreements in November 2005 helped to integrate the Saudi economy globally, attracting domestic and foreign investment and creating job opportunities for Saudi citizens.

If ever the Kingdom felt ill-advised to increase spending in an environment that was characterised by low income from oil, it didn’t show it.

It forged ahead with generous government spending on massive projects encompassing education, housing, healthcare and transport while also incentivising private sector firms to provide training, education and job opportunities with a view to making the Saudi workforce more competitive.

One of the Kingdom’s main strategies for targeting unemployment is Nitaqat – the Saudisation project launched by the Saudi Ministry of Labour in September 2011.

It classifies private enterprises under different fields – premier, green, yellow and red, which are dependent on the ratio of Saudi employees.

The worst-performing companies, those that find themselves in the red zone, face a series of punitive measures. They will not be allowed to recruit or renew work visas for foreign workers, and will be banned from opening new branches or facilities, among other sanctions, until they employ the required number of local workers.

The government has been keen to ensure that the Saudisation rate for each enterprise is based on actual work performance by Saudis as opposed to putting people on a payroll without requiring them to do anything. The Ministry of Labour has appointed 1,000 inspectors to ensure the rules are properly enforced.

Pierre Abou Naoum, marketing manager at Riyadh-based air conditioning supplier Safid, says: “There’s no escape from Saudisation. It will not stop. With us being manufacturers and suppliers, the rate of Saudisation is high and greater than contracting companies that need unskilled labour (who are usually non-Saudi).”

He adds, however, that it can be difficult to recruit skilled Saudi staff.

“No one denies the existence of a cadre of Saudi graduates in engineering, technology, management and other fields but we’ve only recently begun to see them.”

Construction contractors have complained about the rules, particularly as they have traditionally relied heavily on expat labour, and some have asked for them to be relaxed. A committee of construction companies in Makkah has requested that the government reduce Saudisation from 8.4% to 3% because they are not able to find enough locals to work on the huge projects being undertaken at the area around the Grand Mosque.

According to Arab News, members of the contractors’ committee at Makkah Chamber of Commerce are currently challenging the law. Committee member Saud al-Saadi said the government should be more specific about the sectors where Saudisation applies, arguing that it is not possible to meet the quota in every industry.

Only a small number of Saudi citizens have the necessary training for certain skilled trades, such as plumbing, electrical wiring or carpentry. Moreover, it is estimated that only 2% of construction jobs in administrative departments are valid for Saudi citizens.

Experts say that there is a reluctance by some Saudi citizens to enter the construction sector to work for contractors. Last November, Muammar Al Atwi, head of the contracting committee in at Jeddah Chamber of Commerce and Industry, said the industry had been hit hard by the Nitaqat programme, which requires the application of a Saudisation rate of 8-12%.

“Saudi citizens will not work in low-level jobs in this sector, even if we double their salaries,” said Al Atwi to a Saudi newspaper on the sidelines of a human resources forum in Jeddah.

“The ministry is trying to increase the cost of employing foreigners,” he said. “They believe this will lead to hiring more Saudi citizens. This cannot be applied to this sector. Such measures add more costs on contractors, which will increase prices.”

There have also been a number of reports in other news outlets about companies seeking to achieve Saudisation levels unscrupulously either by forging papers or paying Saudi citizens to say they were employees without actually working within firms.

Ahmed Ashraf Hamed, managing executive at Al-Latifia Trading and Contracting Company, says: “Our numbers are real. We now have 9% Saudisation and we will increase it to 10% this year. We are doing it, but in the field of contracting, 10% is enormous.”

Mansour Al Aamil, business development engineer at Al-Latifia Trading and Contracting Company, added: “As a Saudi citizen, I see that companies have duties towards the Kingdom.”

He said that both expats and international firms working in the Kingdom send money earned overseas ‘by the billions’.

“As such, I believe in giving to the country and its citizens. Yes, there are difficulties employing Saudi citizens, but it’s the result of government employment policies, especially with companies like SABIC and Saudi Aramco.

“They only employ the best of the best in the market, hiring from high school and paying for students’ education in the best foreign universities only for these to return and get the most important jobs in the Kingdom or the region. How can we compete with that?”

Aramco has a Saudisation rate reaching up to 19% in each of its employment categories, including administration, business, technology and others. They are also imposing a levy on contractors working for them within the Kingdom to have a Saudisation rate of at least 20% on any projects it awards.

Some firms have blamed young Saudis themselves for high unemployment rates, arguing that the ministry’s efforts to regulate the market and replace expatriates with Saudis has proven to be ineffective because they are not interested in working.

As such, some business leaders have called upon the Ministry to delay the implementation of the Nitaqat programme’s third phase, which is scheduled to begin in April and to increase the ratio of nationals working within firms.

In a letter to the ministry, the Council of Saudi Chambers argued that Saudisation rates should be “gradually increased over a period of not less than 2-3 years” as opposed to being introduced immediately next month.
It added that in spite of a strong advertising campaign, only 1,409 people turned up at a recent jobs fair organised by Riyadh Chamber of Commerce where 3,000 new roles were on offer. Some of the jobs on offer had a monthly starting salary of SR15,000 ($4,000).

Ashraf Al Ashouri, partner in Al Ashouri Steel, said: “The goal of Saudisation is excellent. But the way it is applied is difficult. Recently, the state announced a hike in Saudisation of an additional 2-3%. This will raise our costs.

“We do not have the sufficient number of competencies in the market. Saudis prefer government jobs from 8am to 2pm, and two-day holidays, but real opportunities for promotions are in the private sector. This year, we are forced to hire seven new Saudis, and we are searching and searching?”

Ali Al Othaim, president of the National Committee of Young Businessmen, said that the Kingdom has the fourth-highest rates of foreigners in its workforce than any country in the world. He said that more than 85% of the country’s workforce is made up of non-Saudi citizens.

While unemployment rates decreased among Saudi citizens from 12.1% in 2012 to 11.7% in 2013 and 2014, the number of private sector companies also dropped by 200,000. Most of those that went out of business are small-sized firms that employ up to 10 people who, by law, are required to employ at least one citizen with a salary of at least SAR3,000 ($800) per month.

The Minister of Labour, Ahmad Al Humaidan, declared that more than 600,000 new jobs have been created for Saudi nationals under the Saudisation initiative. However, he added that he was disappointed with the level of wages being offered to workers, and said the minimum rate of SR3,000 is currently under review, with a view to raising it to SR4,000-5,000 ($1,066-$1,333) per month. He said that this would be discussed with the private sector before any decision is taken.

Mohammed Ali Al-Nasser, a board member at lighting firm Noortek, said: “Saudisation is important, but I think most companies suffer from their inability to hold onto Saudi staff. We don’t have this problem; we have a thriving environment for all nationalities including Saudis who represent more than 10% of our staff.

“We choose to hire Saudi graduates from the University of Petroleum and Minerals. I think the problem that companies face can be linked to a poor environment and also the inability to cater to the needs of a Saudi staff, who undoubtedly would want better positions in order to answer needs related to marriage, housing and other areas which are conditions dissimilar to those of young people from outside the Kingdom.”

Economists say that only 30-40% of Saudi adults participate in the workforce. Most Saudis who do not have jobs are financially dependent on a relative.

“With the entry of 300,000-350,000 Saudis to the labour market each year, the government will find it difficult to reduce unemployment,” the Economist Intelligence Unit said in March 2014.

It added that new measures such as increasing the minimum wage or shortening the working week would inevitably mean overheads will increase.

The Kingdom has to provide more opportunities for nationals as a result of a rapidly-growing population, up from 7.3m in 1975 to almost 30m in 2013. Foreigners represent around 9.7m of these.

“It is important to recognise that one out of every three Saudis under the age of 30 is unemployed, and that the labour market is growing by 3.6% per year,” Neil Crossley, a partner in DLA Piper, said during a recent interview with Dubai Eye.

“There are 70,000 undergraduate Saudi students in US colleges that are part of those who return each year, and there are about 86,000 in technical colleges. So, there is a huge capacity being built in the field of education to be added to the labour market,” he added.

He added that one of the driving forces behind a new social insurance law for the private sector was to provide unemployment benefit to those who lose jobs in a bid to make them more attractive.

Under the scheme, a Saudi citizen pays 1% of earned salary, and the employer 1%, and this ensures that employees can continue to earn up to 60% of their salary for up to a full year after they are made redundant or dismissed from work.

“So this is a measure designed to create some job security in the private sector, while a job in the public sector is seen as a position for a life.”

Mansour Al-Babtain, KSA country manager for Al-Babtain Power and Telecommunication Company, said: “Some companies hire for the sake of hiring, but others work on developing generations of Saudis to lead the future.

“I know that many young Saudis expect everything to be ready for them and that in a short period of time they should get a raise and hold management positions. But this is changing now.

“We took a decision to increase our Saudisation rate from 25% to 33% on the manufacturing side. It will cost us more, but we have enough projects to absorb that and we heard official promises that we would be on the receiving end of privileges for doing just that.”

Learning curve
Many companies in the sector have sought to solve the problem of a lack of trained staff by setting up their own training institutes, with contractors Nesma & Partners and Saudi Oger among these.

US-based building consultancy Aecom has just launched its own academy in the Kingdom with a view to bringing forward a new generation of Saudi architects and engineers, as well as support staff in functions such as human resources and finance.

Around 140 graduates have enrolled in the three-year programme, including 20 female students.

Aecom has been active in the Kingdom for more than 40 years and has set itself a goal to have Saudi nationals making up 50% of its local workforce by 2017.

Aecom Saudi Arabia president, Mazen Matar, said: “We have a strong interest in supporting the skills development of the men and women in the Saudi national workforce. We are proud to fund the Aecom Academy and look forward to seeing the contribution our students make to the Kingdom’s current and future infrastructure projects.”

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