50% small, medium-sized contracting firms shut shop in KSA

New labour laws introduced as workforce shortages continue to hurt contracting firms in the Kingdom

Saudi Arabian contractors have incurred losses due to shortage of labour

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Over 50% of small and medium sized contracting firms have gone out of business in the Saudi Arabian construction market at the end of the country’s legalisation period.

Due to acute labour shortages following the legalisation deadline of November 2013, many contractors were found unable to complete their projects on time, and have therefore requested the Ministry of Labour to grant them exemptions that aid their project completion deadlines.

“The shortage in manpower and ever-increasing wages will remain the biggest challenges facing the contracting sector,” said Fahad Al-Hamadi, head of the National Contractors Committee at the Council of Saudi Chambers (CSC).

“These factors combined have led to the faltering of small and medium-sized enterprises (SMEs) and their exit from the local market after incurring huge losses over the last four months. Some 60% of subcontracting companies implementing mega-projects are SMEs and are no longer capable of finalising such massive-scale projects for these reasons,” he added.

Abdullah Rudwan, head of the Contracting Committee at the Jeddah Chamber of Commerce and Industry (JCCI) said the Ministry had permitted 11 companies to hire labourers and implement projects. “However, these firms could not continue operating on the ground. The Ministry of Labor was supposed to ensure a safety net for such firms before launching legalization campaigns to ensure their survival,” he said.

The Nitaqat program is also being critiqued for its impact on small-scale projects, with Raid Al-Aqaili, member of the Contracting Committee at the JCCI stating it has affected business through the lack of workers in the market. “The Nitaqat nationalization program is difficult to implement on small-scale projects without falling into the yellow and red zones of the system, as these companies are obliged to recruit qualified manpower from abroad,” he said.

“The new regulations did not consider the disparity in income between big and small companies, which forced more than 50% of smaller firms out of the market,” Al-Aqaili added, as per a report by local daily Arab News.

Additionally, the Ministry of Labour has stopped the practice of temporary recruitment, which was followed by 328 recruitment offices in Saudi Arabia. These offices have been instructed to now transfer the sponsorships of their labour working on a rental system, or have them deported permanently before June 2015.

A source at the ministry told Arab News that the recruitment offices have been granted a grace period till May 30 to ‘get rid of expatriate workers who work on a rental system or run the risk of having their licenses suspended’.

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