Firms struggle to hit Saudi employment targets

08 October 2009

Even with a relaxation of the rules on employing Saudi nationals, construction and engineering firms in the kingdom are finding it difficult to meet their quotas

Two years after Riyadh eased restrictions on construction firms employing foreign nationals, and one year after it introduced similar changes for engineering firms, businesses operating in the kingdom are still finding it difficult to meet the revised targets.

Contractors have been struggling since 2003 with the quotas, which were set by the government to address the kingdom’s high level of unemployment among males – then 25 per cent. Under the quotas, at least 15 per cent of a company’s workforce had to be Saudi, under a policy known as Saudisation.

Key fact

At least 8 per cent of workers at engineering firms operating in the kingdom must be Saudi nationals

In 2007, the restrictions were relaxed for construction contractors to 5 per cent of the labourers they employ. In early 2008, the quota change was extended to engineering services, covering design and consultancy staff, with a reduction to 8 per cent.

However, both engineering and construction contractors still have to adhere to the 15 per cent rule for the rest of their workforce – for example, administrative staff.

“If they are in admin-istration or accounting, the requirement is still 15 per cent,” says Mazen Fayed, director of corporate communications at local contractor Saudi Oger. “Firms have to abide by this law; if they do not, they will not receive visas.”

Recruitment challenge

The quota reduction is seen by Riyadh as a positive move, a recognition that construction and engineering firms – which can have up to 10,000 labourers on their books – were being disproportionately affected by the laws, owing to the difficulty of recruiting local labour. But how successful have the more relaxed quotas been?

“It is still quite challenging to meet it,” says Samer Arafa, executive vice-president of Riyadh-based Al-Arrab Contracting Company (ACC). “People move quickly; they do not stay long. We seem to be constantly recruiting.”

Persuading Saudis to work on a building site is a tough sell. “It is almost impossible,” says Arafa. “It comes down to the expectations of the local population. All they want to do is work in an office from 8am until 2pm and then go home. That in itself can be difficult to manage when colleagues are working 8am until 6pm. But we insist that they keep the same hours as everyone else.”

The problem is even more pronounced for smaller firms, which find themselves forced to recruit staff they do not even need. One small Jeddah-based contractor admits it rarely meets the quotas. “We do find it difficult,” says a source at the firm. “Even though they have relaxed the quotas, we still cannot meet the regulations.”

Levying fines

A failure to meet the quotas not only brings the risk of a fine, but also other punitive measures such as delay or cancellation of visas, or delayed payment for work. Firms that do not meet the quota but rely solely on government work can also find their contracts are not renewed or are cancelled, according to one Riyadh-based contractor.

In 2008, Saudi Oger established a training facility specifically for locals. Not only did this ensure that it had a steady supply of trained employees to bolster its quota, but it also ensured it was recruiting locals who were willing to work.

Opened at a cost of SR40m ($150m), the facility, which comprises four sections, provides vocational training in hospitality, continuing professional development and technical work. To date 1,500 students, all Saudis, have passed through its doors and have been placed on Saudi Oger projects throughout the kingdom.

“It comes down to the expectations of the local population. All they want to do is work in an office from 8am until 2pm and then go home”

Samer Arafa, executive vice-president, ACC

The facility has been deemed so successful that the contractor is in the process of opening a new one for female students.

“We are working with the Human Resources Development Fund [HRDF],” says Fayed. “We are achieving a quota above 5 per cent, but our hiring strategy has always been to prioritise Saudis.”

The HRDF, backed by the Saudi Industrial Development Fund, was established as an aid to Saudisation following a Council of Ministers resolution in July 2000, with a remit to encourage nationals into work and training, and to increase the employment of Saudis in the private sector.

Offering training

Other major firms have set up their own training facilities in order to comply with the quotas. Construction giant Saudi Binladin Group has initiated its own training facility. Based in Jeddah, the institute covers management training, construction, skilled labour and electro-mechanical work.

Jeddah-based Almabani General Contractors has also been involved in training locals for the past few years. Between 100 and 150 Saudis undergo training at its school every six months.

With private sector contract awards this year far below 2008 levels, companies recognise that they must adhere to Saudisation targets to win now critical government contracts.

“We do find it difficult. Even though they have relaxed the quotas, we still cannot meet the regulations”

Jeddah-based contractor

The government’s spending plans are designed to buoy the economy during the global financial downturn. Riyadh has the biggest public spending plans in the GCC region, having announced an expansionary fiscal policy in late December 2008 that included expenditure of SR475bn ($127bn) for 2009. By comparison, planned expenditure for the 2008 fiscal year was $409bn.

Despite the potential for contract awards from Riyadh, the kingdom’s contractors continue to struggle with the demands placed on them by a government that is desperate for its growing young population to be gainfully employed.

While the relaxed quotas have improved the situation, smaller firms in particular have no means of offering vocational training for locals because of the costs involved.

But the Saudisation quotas remain a burden that the construction and engineering industries will have to live with if they want to share the rewards of Saudi Arabia’s multi-billion-dollar public infrastructure spending programme.

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications