Saudi labor quotas raise hackles from Jedda to Cairo

Plan to hire more nationals could raise costs, force Egyptian expats home; Kingdom's 8 million foreigners power economy.

By DAVID ROSENBERG/THE MEDIA LINE
Grand Mosque in Medina 311 (photo credit: Associated Press)
Grand Mosque in Medina 311
(photo credit: Associated Press)
Saudi Arabia’s latest effort at getting more of its citizens to work is running into opposition everywhere from boardrooms in Jedda to the living rooms in Cairo amid fears that masses of trained and inexpensive expatriate workers will be sent packing and replaced by inexperienced and high-priced locals.
Labor Minster Adel Fakieh reignited the controversy over the weekend when he told business executive in Jedda, the country’s commercial capital, that companies would be able to keep an expatriate employee on their payrolls for no more than six years and that some businesses might lose the right to hire foreigners altogether.
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The comments set off a firestorm of criticism in the press by businessmen, who said they would struggle without their expat employees. In Cairo, Saleh Nasr, an official with the Chamber of Commerce, warned that the rule would increase unemployment if Egyptian guest workers are sent home. The Labor Ministry was forced a day later to “clarify” the minister’s remarks.
The kingdom’s eight million expats – in a population of about 26 million – keep the Saudi economy running. But they also deprive locals of jobs. Even as the economy booms on the back of high oil prices, the official unemployment is 10.5% and will likely grow as waves of university students enter the job market.
“Saudization” of the labor force has been a topic of discussion for a long time, but the campaign has taken on more ramifications because of the Arab Spring. Fearful that unrest may spread to the kingdom, the government has boosted spending and created jobs. In Egypt, expat jobs and the money they send home is an important crutch as the economy slows in the face of domestic political turbulence.
Clearing office cubicles and factory floors to make room for Saudis isn’t as simple as it seems. While there are a half million Saudis looking for work and tends of thousands more graduating from institutions of higher education at home and abroad, there’s a mismatch between their skills and the needs of the economy.
“The poor quality of labor has to be lifted to meet the demand businesses in the private sector,” said Nancy Fahim, an economist at Standard Chartered Bank in the United Arab Emirates. “That’s a long-term challenge. While they are investing in educational systems the fruit will only appear later. It’s about striking a balance between long-term features of labor market and current needs of population.”
Just over two weeks ago, the government and the South Korean company Samsung inaugurated the $100 million Samsung Naffora Techno Valley in Jubail, which will serve as a recruitment, education and training hub for Saudi engineers and includes dormitories, dining facilities and a sports center
Click for full Jpost coverage of turmoil in the Middle East
Click for full Jpost coverage of turmoil in the Middle East
Another problem is cost. Private sector employers don’t offer the same pay and conditions as the public sector, so Saudis naturally gravitate to government jobs. Of the eight million or so expats working in Saudi Arabia, about 6.9 million are employed by private businesses. By comparison only about 680,000 Saudi nationals work in the private sector.
“The public sector provides higher pay and compensation and more comfortable working conditions,” Fahim told The Media Line. “This creates huge distortions between the private and public sector. But the public sector has become saturated with workers, so Saudi nationals have to move into the private sector.”
Businessmen complain that Saudization will boost their costs. The money they have invested in training expat employees will evaporate if they are forced to leave after six years.  Meanwhile, the government made it tougher for businesses this week to close the public-private wage gap after King Abdullah approved increasing the minimum salary of Saudi civil servants to 3,000 riyals a month and ordered a 15 percent inflationary allowance.
The government’s newest effort to addressing problem, unveiled early in May, would rate companies as green, yellow and red, according their level of compliance with Saudi-employment quota. Red companies will be barred from renewing the work visas of their expat workers while green companies will be entitled to take foreigners from the other two categories and transfer their sponsorship without the approval of their current employers.
“Saudization has become a national necessity rather than a choice,” Labor Minster Fakieh told reporters, who estimated as many as 40% of all business would be classified as yellow or red under the so-called nitaqat (Arabic for “limits”) program.
Further details, including incentives to green employers, are to be announced June 11 so that businesses, employees and expats are still unclear about what lies in the future.  It was in this context that Fakieh’s remarks this week set off protests.
In Egypt, Saudization could end up forcing large numbers of the estimated 2.5 million Egyptians working in Saudi Arabia back home to a country of already high unemployment. Nasr of the Chamber of Commerce estimated that 70% of them have worked in Saudi Arabia beyond the six-year maximum.
Egypt’s jobless rate jumped three percentage points in the first quarter of the year to 11.9% as hundreds of thousands of expats fled the fighting in Libya and the tourism industry, a major employers, is in the doldrums. Worse still, the Saudi program might become a role model for other Gulf states, sending more Egyptians packing.