Labour reforms to continue hurting KSA construction market
CEO of Abdullah AM Al-Khodari Sons says that business will improve in H2 of 2014, but recovery will be slow
Fawwaz Al Khodari says the Kingdom’s labour reforms will continue to weigh down the construction industry.
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The CEO of the Saudi Arabian contracting firm, Abdullah AM Al-Khodari Sons, has said that he expects the Kingdom’s controversial labour reforms to continue weighing on his firm’s bottom line for a few more years.
However, Fawwaz Al Khodari pointed out that he was confident that the situation will begin to improve by the second half of 2014, as the construction industry begins to adjust to the changes.
“2014 will have a mix of old and new business, but I think by the second half of this year we will be coming out of the rot and the damage we’ve been having in the last couple of years, and we should be witnessing an improvement reflected on our bottom line,” Al Khodari explained in an interview.
A Reuters report added that after decades of ineffective localisation policies, the Saudi government imposed in late 2011 stricter penalties on companies which failed to meet quotas for hiring Saudi citizens.
A year later, it also introduced a levy of $640 a year for every foreigner which a company employs above the number of its Saudi workers.
Most private-sector jobs in the kingdom are held by roughly 10 million expatriates, who are typically paid less than Saudis, so the tighter labour policies have had a big impact on some firms by pushing up their costs and cutting profits.
In labour-intensive industries such as construction, companies complained the reforms caused bottlenecks in important projects. Telecommunications firms lost business as some foreign workers left the country; even banks were hit as they made bad loan provisions in case the construction firms were forced to delay some loan repayments.
Al-Khodari, which has about 17,000 employees, has been at the centre of the upheaval. The company’s margins were eroded by more than 50 percent as the labour reforms were introduced, with an average annual cost impact of $13.33 million since July 2011, Fawwaz Al-Khodari said in an interview.
The company now includes the cost of the reforms in the new contracts it signs, but it still feels some negative effect as it works through contracts signed before the reforms were introduced. This effect will “drag on for a few more years”, but it is steadily decreasing, the executive said.
The company, which has yet to announce its first-quarter earnings, reported a 69% year-on-year decline in net profit for the fourth quarter of 2013 to $2.26 million. It cited as one reason an increase in manpower costs, which jumped 28%.
