Saudisation: Relaxing the quota rules

27 June 2008
Changes in the government’s Saudisation policy have been welcomed, but many contractors complain that they do not go far enough.

The news that Saudisation laws were to be relaxed at the end of 2007 was particularly welcomed by the kingdom’s construction industry. With the sector already enjoying a boom period, the greater leniency on staff recruitment was a further boost.

With the kingdom’s population close to 25 million - 70 per cent of whom are under the age of 30 and almost 35 per cent under 15 - the government has struggled to ensure there are job opportunities for young people without effectively forcing firms into a straitjacket that inhibits growth.

In 2007, restrictions on foreign workers were relaxed for contractors, with a reduction in the required number of Saudi nationals in the workforce from 15 per cent to 5 per cent. In early 2008, the policy was extended to engineering services, covering design and consultancy staff, with Saudisation quotas reduced to 8 per cent.

Saudisation was introduced in 2003 as a protectionist measure to ensure the kingdom’s growing and young population would not be sidelined by expatriate workers. The policy is, however, viewed with antipathy by many firms, who complain it is effectively a tax and hinders productivity.

Expatriate workforce

From the government’s perspective, mandating local employment quotas on companies is the best way to provide employment for Saudis. In 2007, a quarter of the population - 6 million people - were expatriates. This number is steadily growing as the kingdom’s booming economy requires more skilled and unskilled labour to meet industrial and commercial demands.

But Saudisation is resented by a large number of firms, who claim nationals do not want the jobs. When MEED visited contractors in Riyadh, it came as little surprise to find there was such hostility to the policy.

“We require an army of skilled and unskilled labour,” says Nayef Othman, deputy project manager with Shibh al-Jazira Contracting. “Saudi nationals do not fit these categories. Managerial positions are where they like to work. The labourers are all ex-pats.”

The result is that to fulfil local employment quotas, Saudi staff are paid not to work. “You have to pay and expect nothing,” says one Riyadh-based contractor. “Saudis won’t work on technical or manual roles. They certainly won’t go to a building site. They prefer the office.”

Othman says the policy of Saudisation hurts construction firms far more than other businesses because of the nature of their work, which requires a large workforce of labourers. Although a target of 5 per cent is better than 15 per cent, the benefits are yet to be felt, he says.

“If you take 5 per cent to a company whose workforce is 10,000 people, that is 500 Saudis to fit these categories,” says Othman. “You could put them in administrative positions but you would only need 30 or so. Then what? Of course, if you don’t fulfil the criteria, you lose your registration and cannot renew contracts or receive government work. It hits us more than anyone else.”

Othman says the new policy is still not enough for contractors, with little evidence to suggest things are improving. “It is a relaxation, but we have not felt it yet,” he explains. “Even though it has reduced from 10 per cent to 5 per cent over the past few weeks, it is still very high for a contractor.

Other contractors agree. “From our experience, we cannot get enough qualified locals to work,” says one. “It is very difficult. We want to employ them but we cannot find any. But we have to do it as it is the law.

“Today the market dictates that we need more staff. But getting these resources means looking outside the kingdom and not for locals, which makes it a problem as we are not allowed the visas as we are not a large firm.”

According to Samer Arafa, executive vice-president of the local Al-Arab Contracting Company (ACC), there has also been a relaxation in visa rules, intended to make the immigration of workers easier. However, after several months, little has changed.

The situation is complicated further as the Saudisation policy varies depending on the type of work, says Bilal Ansari, division manager at local construction giant Saudi Oger. “For contractors, it has already been lowered from 15 per cent to 5 per cent,” says Ansari. “Last week, we received a new directive that reduced the requirement for engineering services companies to 7-8 per cent. It is a plus because they are reducing the Saudi percentage. For construction companies, 15 per cent in a company of 1,000 means you have to hire 150 locals, which meant they would all go into administrative work. Now 5 per cent is manageable.”

If companies do not comply with their prescribed quotas, the government can withhold work, refuse to issue visas for labourers, and issue fines.

Rather than simply be handicapped by employing Saudis with no interest or work experience, several companies are opening training colleges to offer locals access to better vocational training, and consequently more fulfilling employment.

Al-Mabani has been training locals for the past two years, and 100-150 Saudis undergo training at the school every six months. Joseph Daher, project manager for the group, admits it is not always easy to recruit workers. “It is up and down,” he says.

Saudi Oger is also launching a training institute, which at a cost of SR150m ($40m) will be the biggest in Saudi Arabia. “We are building the Saudi Oger training institute, mainly to train young Saudis to work on jobs that we need them on,” says Ansari. “Graduate skilled workers, plumbing and so forth. It has a number of schools. One of them is a construction school, one is a technical school and one for computer work. We are working on this heavily to position Saudis in our projects.”

Offering training

The kingdom’s other major contractor, Saudi Binladin Group, is undertaking a similar initiative. Ahmed Anees, business development manager for the group, says it is set to open a training institute in Jeddah. This will cover staff needs, management training, construction, skilled labour and electro-mechanical work. Like Daher, Anees says getting locals to join is difficult. “It is not very easy but we are doing everything we can to encourage them to join.”

Because of its size, he adds, Saudi Binladin has the capital and resources to implement reforms that the smaller companies would struggle with. “For Saudi Binladin Group it is ok, but for smaller firms it is not so easy to implement such initiatives,” he says. “It is costly and timely.”

There are alternative methods. Jeddah-based consultant Zuhair Fayez Partnership has managed to carve a niche in the kingdom with a good reputation, and is consequently able to meet the Saudisation quotas by targeting post-graduates who are keen to enrol on graduate schemes. Currently, 20 per cent of the firm is local, which Mohammed Fayez, senior vice-president, suggests is down to this approach. “Once you start attracting people it gets easier,” he says. “We go to university career days and pick the talent - graduates who will train for two to three years. They may start with a low salary, but they get a career path.”

The government is making attempts to address the educational imbalance. Several tenders have recently been issued that highlight the attempts being made to ensure the next generation can match international skill levels.

But not everyone is convinced that the progress being made is genuine. Some smaller firms are sceptical that larger companies have been meeting targets. “If a firm employs 30,000 people, that means it would need to employ at least 3,000 locals [to meet its Saudisation quota], and there is no way it can get that many,” says one contractor based in the kingdom.

Furthermore, certain nationalities are being discriminated against when it comes to getting visas. According to one Jeddah-based contractor, there have been problems in getting Bangladeshi labourers into the kingdom, and for the past three months the firm has been unable to bring over any further staff.

As the kingdom continues its drive to modernise and diversify its economy, the construction sector will remain at the forefront of the need to source competent and plentiful labour from wherever it can. As Saudisation laws are relaxed, it could well be that long-term social objectives must be sacrificed for short-term material gain.

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