Is labour sharing the answer?

Saudi Arabia’s controversial ‘Nitaqat’ scheme has caused divisions across the labour market in Saudi Arabia and beyond. Gavin Davids investigates the programme to gauge its impact.

Recruitment companies are supplying workers for up to a year to complete projects

Recruitment companies are supplying workers for up to a year to complete projects

Earlier this year, Saudi Arabia announced that it planned to implement a ‘labour sharing’ scheme to resolve a building crisis of its own making. The scheme will see three companies, made up of 13 recruitment firms, hiring out workers on a short term basis to contractors in the Kingdom.

This is the latest attempt by the Kingdom to resolve the chronic unemployment problem that has plagued the country for a number of years and resulted in numerous efforts by the government to implement different ‘Saudisation’ measures.
However, previous attempts have failed to produce the desired results, and so the infamous ‘Nitaqat’ measure was introduced by the Saudi Ministry of Labour in 2011.

This system will have a far reaching effect on expatriates working in the Kingdom, specifically the huge migrant labour force working on numerous construction projects across the country. The scheme will see the labour market divided into 41 activities, with each activity divided in five sizes (Giant, Large, Medium, Small and Very Small), to have a total of 205 categories, explains Hany Kenawi, a consultant with the legal firm Meyer-Reumann & Partners, in a report entitled ‘Nitaqat: the New Localisation System for Jobs in the Kingdom of Saudi Arabia’.

“The performance of the establishment in the localisation of the jobs is to be evaluated compared with the similar establishment’s activity and size in order to have fair standard for the evaluation,” he explains further.

“After the evaluation, Nitaqat classifies these establishments into ranges (Excellent, Green, Yellow and Red) based on the ratio of the citizens working in the establishment. The Excellent and Green range, which are the ranges with the highest localization ratios, will be rewarded, while the system deals firmly with the Red range, which is the range with the lowest localisation ratio and gives more time for the Yellow range to adjust their positions, being the medium range.”

“The motive of applying the Nitaqat system is to make the appointment of Saudi citizens represent a competitive advantage for the establishments in the Kingdom,” Kenawi adds.

The fallout from this has resulted in thousands of workers being returned to their parent nations, which in turn has prompted severe criticism from political parties in those countries. In India, both ruling ministers and opposition party members have united to criticise the measure, warning that the situation could become ‘unmanageable’ due to the number of workers involved and demanding that Saudi Arabia halt its implementation.

At present, some 75,000 Indian workers are set to return home, a report by the Observer Research Foundation in Delhi said, but warned that those numbers could go up rapidly. The deadline for expatriates who are in Saudi Arabia without valid paperwork was July 3, 2013. Once the grace period ends, those workers without valid paperwork will be heavily penalised, or even jailed.
Indian External Affairs Minister, Salman Khurshid, said that “the issue is that we have three months of grace period during which whatever needs to be done has to be done and the numbers are very large.”

A further problem is the rehabilitation of these workers in their home countries, he said, adding that the Indian government was concerned with the pace of Saudi authorities who were issuing 500 exit permits per day. While the Nitaqat law has achieved some success in its early stages, there remains concerns over its ability to generate jobs for the Saudi population in the long term, in addition to a number of other issues.

Local contractors have already blamed the programme for a rise in construction costs, while also pointing out that their wage costs have risen by as much as 15%, a reflection of the high cost of Saudi manpower, as compared to foreign nationals. Contractors have said that they have not submitted bids for new works because of the uncertainty over the legal status of their foreign construction workers.
Abdullah Alwan, CEO of SMT Properties in the Kingdom, said that many companies were afraid their workers would be arrested or deported.

“The problem lies with the sudden manner in which the decision was introduced, not the decision itself,” he explained.
Alwan urged the government to provide incentives for the construction industry, because of the difficulty of finding Saudi construction workers.

Bander Al Twaim, a private company owner, added that a number of projects in the Kingdom have had to be stopped completely because property developers have been employing workers not under their sponsorship, which has caused massive losses and a rise in costs for developers, particularly with projects that are close to completion.

He did concede that it was clear that the government was serious about reforming the country’s labour market, given that no industry had been spared from having to comply with the Nitaqat programme. For better or for worse, the controversial programme looks to be here to stay for Saudi Arabia then, despite the many questions that remain about its validity and effectiveness. While the law may seem to be aggressive and negative by foreign companies who wish to operate in a freer labour market, the need to address the growing unemployment in the Kingdom remains paramount.

It’s still too early to accurately judge the impact of this law on the economy, but it is clear that it is already changing the way companies and business approach operations in KSA.


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