Nitaqat & Saudization

Saudization : It is a Saudi government national employment scheme also called Nitaqaat (2011) that aims to get more and more Saudi men and women into work. The scheme obliges private sector companies and businesses to employ Saudis by replacing foreign non-Saudi workers who for decades have dominated the market. It is also an important part of the 2016 Saudi Vision 2030 reform program.

Replacing foreign workers with Saudi nationals is being done in stages and it is not without its problems.

These relate to competitiveness, training, salaries and skills development. The job of getting Saudis into employment is being done via obligatory and wholesale

Saudization programs in work areas (listed below) and through a program of incentives and deterrents

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Mobile Phone Shops- 100% Saudization

Sectors for Saudization According to the new Nitaqaat laws, the following areas of work must employ 70%-100% of Saudi nationals. Implementation will be monitored and inspected by the Ministry of Labour and Social Development. (MLSD)

Interestingly, the rate of employment for Saudis in 2016/17 was 11.6% and the goal is to reduce it to 9% by 2020 and beyond. The ratio of Saudi females to men is 23% in 2016/17 and the goal is to increase it to 28% by 2020.

5 Main Areas with Previously Saudized 2011-2013 • Transportation • Construction • Manufacturing • Wholesale & Retail

2017-18 • Car Rental Outlets

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12 Areas of Retail Employment for Continued Saudization Sep 2018 • Cars/Motorbikes • Men’s/Children’s Clothes • Home/Office Furniture • Household Goods

Nov 2018 • Electrical/Electronic • Watches • Eye Glasses • Medical Equipment

Jan 2019 • Building/Construction • Car Spare Parts • Carpets • Patisseries

Areas of Tourism and Hospitality for Saudization 2019-2020 • Tourism and Hospitality Management- 3 * and above • Administration • Directors/Managers • Sales/Marketing • Supervisors • Restaurant/Room Service • Secretaries • Clerks • Malls/Shopping Centers • NGOs • Drivers • Security • Telephone Operators • Front of Office Staff Maintenance • Overseers

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Nitaqat-Corporate Rewards and Punishments

Nitaqat Nitaqat is a series of governmental controls (incentives and restrictions) on private companies in the kingdom that began in 2011 designed to have them employ Saudi workers. The program classifies all private companies into 6 colored categories. • Platinum • Green (High, Medium & Low) • Yellow • Red

A Nitiqaat coloured status is assigned to each company based on three main criteria. These include the company: 1. Type 2. Size 3. Percentage of Saudi Employees

The goal is to have companies with more than 9 employed staff members hire a certain percentage of Saudi nationals.

The classification assigned is based upon the percentage of Saudi employees on the staff team together with the total number of employees in a company. Those small businesses with less than 9 employees are exempt and classified as White. However, in this particular category, only one Saudi must be employed.

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% of Saudi Status Nitaqaat Status Employees White Exempt Exempt

Platinum 40% Compliant

High Green 12% Compliant

Medium Green 12% Compliant

Low Green 12% Compliant

Yellow 7% Non-Compliant

Red 4% Non-Compliant

Benefits Platinum Green Yellow Red

Can Hire Employees Worldwide Yes No No No

Can Issue Visa Rapidly Yes No No No Can Change Profession Restricted to Yes No No No Saudis Can Transfer Visas (No Conditions) Yes No No No

Can Recruit from Yellow and Red Zones Yes Yes No No

Can Apply for new Expatriate Visa Yes Yes No No

Can Renew Residency Permits Earlier Yes Yes No No

Can Renew Work Permit Yes Yes No No

Can Get New Visas Yes Yes No No

Can Transfer Visas Yes Yes No No

Can Change Profession Yes Yes No No

Can Prevent Workers Up Zoning Yes Yes No No

Can Avoid Fines (2,400 SR) Yes Yes No No

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Reason for Saudis Unemployment

For decades since the start of the oil boom in the 1950s, Saudi Arabia has imported foreign expertise and labourers who until today continue to work and enjoy the benefits of an expat lifestyle.

Back then, Saudis had no need to work. They were recipients of a system of royal patronage and the abundance of wealth generated by oil industries, eventually filtered down to the people.

With plenty of money to spend, there was little need to learn, get skilled and to find employment.

However, with falling oil prices 70s-90s, major increases in the cost of living and an exploding population, life began to get tough for the Saudi people and the wealth was no longer available for everyone.

The first steps to Saudization began in the 1980s and further attempts throughout the 90s and 2000s met with limited success.

The fact the expats continue to work in place of Saudis is due in great part to years of opposition from the business and employers who continue to object to hiring local Saudi workers.

They argue that Saudis are: • too costly • almost impossible to fire • lacking proper skills • have no training • have a poor work ethic • In general not interested in low skilled service employment

Hafiz & Jadarah Programs The protests arising out of the Arab Spring uprisings prompted King Abdullah to increased spending in new housing, raise government worker salaries and job creation schemes. The new ‘Hafiz’ program, a system of unemployment benefits of 2,000 SR per month allowance given to job seekers, unemployed men and women, in particular, the youth. Also in 2011, a Saudization program, called the new Nitaqat was launched by the Ministry of Labour and Social Development (MSLD).

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It is a program of obligatory incentives to get Saudis into work and painful disincentives to punish those private companies who fail to comply.

Greater credits are awarded to companies recruiting a higher number of Saudis in place of expat workers, to raising salaries and retention rates. Credits are also added for recruiting Saudi women, students and disabled.

In the Nitaqat program, 1 disabled Saudi employee is counted as 4 able-bodied Saudi employees. Employers have preferred to hire disabled workers since employment costs are greatly reduced.

Additional fines of 2,400 SR or $640 for redundant expats together with restricted benefits are imposed on Yellow and Red Category companies.

Saudization targets are constantly updated and revised.

Also from 2017, greater rights were extended to expat children of Saudi mothers married to non-Saudi fathers.

The same rights have been granted to children of non-Saudi mothers whose fathers are Saudi. They too are allowed to work in jobs limited previously to only Saudis.

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Saudis Are Not Getting Jobs Fast Enough Unemployment for Saudis is Falling but only Slightly Critics of Saudization complain that in spite of the increase in the number of Saudis entering the workforce, the rate of unemployment is slow to fall.

In the first quarter of 2017, the rate was 12.7%. One year later in early 2018, it actually rose to 12.8%. In the third quarter of 2019, it was 12.5%, only a small decrease in two years.

The number of expats in employment in private Saudi companies is falling by about 300,000 every quarter for males only but oddly the rate is increasing for non-Saudi females. Saudization is happening but at a much slower rate than anticipated.

The Problems and Limitations of Saudization and Nitaqat While Nitaqat is providing jobs, critics of the Saudization program complain that the new Saudi employees are low paid, working exhaustingly long hours and in difficult work environments.

For example, newly employed Saudis in the recently Saudized sector of Car Spare Parts complain that they have to work long hours (2 shifts for 9 hours daily) plus weekends for a very low salary of 3,000SR.

They also complain that there is no on the job training, health insurance nor perks. These are normal conditions in the retail trade in the kingdom which for decades expats did not especially like, but were able to accept. Saudized nationals, however, cannot.

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Company bosses justify paying low salaries arguing that the rates are tied to experience and that Saudis entering the job market for the first time do not have enough experience to justify a higher salary.

In spite of a lack of training and below-par salaries, retail salesman/women are expected to meet high sales targets and to make lots of profit for the company, but without any personal benefit.

The solution is for the government to regulate salaries, work hours and weekends and holidays. Without this experienced employees cannot be retained and they become attracted to better job offers with big companies.

Small and medium-sized companies cannot match the salaries offered by larger corporations specifically because they risk losing money and possible liquidation.

Expats Concerned about Saudiization in Saudi Arabia

Rules and Regulations need Updating So far, the Saudization programs and work initiatives have not made a huge dent in unemployment figures.

New government measures and regulations are needed to ensure employment, better training and a salary that match the expectations of Saudi job seekers.

Additionally, new, more effective policies and programs are required to further increase the ratio of Saudi workers in private companies, to provide long term employment, raise salaries and benefits.

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Currently, (2019) Saudis hold 23.1% of jobs in the private sector and expats are about 80%. (General Authority of Statistics 2018) Of all the jobs combined in both the public and private sectors, Saudis are 29% of the total workforce whilst expats hold 71% of all jobs in the kingdom.

So far Ministry of Labour sources report that 2,000,000 expats workers have left the kingdom following the push for Saudization, but the unemployment rate amongst Saudi nationals has altered only slightly.

The Impact of Saudization or the ‘Nitaqat’

1- Expats Out of Retail Market Place Saudization under ‘Nitaqat‘ has meant the slow phasing out of expat workers in ever- increasing employment numbers. Firstly, since Oct 2018, 12 areas of retail (listed above) have been reserved for Saudis only and many expat contracts have ended. Also, all expat contracts with the government are to be terminated in 2021. Private companies visas too for expats are reduced from two years to one.

2- Expat Levy

Expat Dependent Fee per Family Member per Month

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This personal tax is levied at all family member dependents and paid for by foreign employees living and working in the commercial and private companies in the kingdom. The fee has grown incrementally from 2017 until 2020. The personal fees beginning in July are as follows and are payable for each dependent per month. • 2017- 100 SR • 2018 -200 SR • 2019 -300 SR • 2020 -400 SR

This levy was introduced in 2016 by the Saudi Ministry of Economic Planning, the Ministry of Finance, the Cabinet and Council of Ministers with a twofold aim. First, it is to generate much needed non-oil revenue. Second, it aims to deter expats and encourage companies to hire Saudi nationals.

Who is Exempted from the Levy? 1. Wives of Saudi nationals 2. Sons/Daughters of Saudi mothers 3. Widowed wives of Saudi Nationals 4. Divorced wives of Saudi Nationals 5. Abandoned Expat Dependents registered on the “Left and did not return” system. 6. Dependents of foreign workers with the Saudi government ministries and departments. 7. Foreign students sponsored by Saudi universities. 8. Foreign Nationals not travelling outside Saudi Arabia for 40 years or more. 9. Expat Government employees

3- Expat Business Levy Also, starting in January 2017, an additional tax is now levied on companies hiring foreign workers and the amount is for each expat worker in the company.

The table below shows the charges and the higher amount shown are for companies that have more expat workers than Saudis. It is to be paid for by the employee themselves though the company may voluntarily foot the bill.

For companies with expat staff equal to or not exceeding the number of Saudi employees, the lower amount (below) is charged per month. The fee, however, cannot be waived. The company fees beginning in January are as follows. • 2018- 300 SR or 400 SR • 2019 – 500 SR or 600 SR • 2020 – 700 SR or 800 SR

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Saudi Getting Promotions and Awards 4- Incentivizing the Workplace for Saudis In addition to phasing out of a massive number of expatriate workers to be replaced by Saudi nationals, state policies now require that the private sector is increasingly an ‘attractive and rewarding’ prospect for young nationals.

‘Vision 2030’ or the reform master plan launched in 2016 aims to achieve a ‘thriving economy‘ through diversification (non-oil industries) and the creation of knowledge-based industries in the kingdom.

This is to be achieved in the following way. • Investment in Education • Fostering high valued, service orientated industries • Developing Hi-Tech Industries • Targeting IT and Telecommunications as privileged labor centers

5- Expats Returning Home in Droves Many low- income and middle-income foreign workers have been badly hit by the levies and cannot afford to pay. Thousands have sent their families back home and continued working in the kingdom on a bachelor status. The most affected nationals are Asians from India, Pakistan, Sri Lanka, Philippines, Bangladesh and Nepal.

In 2019 more than 800,000 foreign workers per year are returning to their home countries. Ironically, as a result, the employment figure for Saudis has fallen only slightly to 12.5%

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6- Closing Businesses and Companies – Falling Skilled Labour The Jeddah Chamber of Commerce (JCCI) predicts that between 25% to 30% of all private businesses may shut down due to the loss of skilled expat labor.

Currently, 15.6% of business establishments in Jeddah are on the verge of collapse and 11% are facing financial hardships. (MFS)

The departure of foreign workers and their families seems to have negatively impacted the economy. Businesses too are under strain.

7- Depressed High Street and Local Retail Businesses Also, rents in most Saudi towns and cities have plummeted and the streets are full of advertising signs for rent of vacant apartments and shops. Today, this is a very common sight. Private businesses have been forced to close due to higher costs and lower sales. For example, many rent a car company cannot pay the high salaries demanded by Saudis and nor meet the operational costs of running vehicles and so have closed down.

8- Private Schools Closing Down Finally, it is estimated that about 30% of private schools have been affected and that some are set to close down.

Foreign student numbers have fallen since expats have sent their children to their countries of origin to resume studies.

Fewer students, of course, mean fewer fees and in turn caused severe budget restraints. Private schools are beginning to feel the pinch and are beginning to close down.

9- The Future Saudi Arabia is no longer the land of plenty and of great opportunity for expats. Saudization, VAT taxes, a slower than normal economy combined with governmental restrictions and threats of termination means the kingdom is not a favourable destination for foreign workers as it once was.

Nitqaat has resulted in creating more jobs for Saudis, especially women. Yet, in spite of the massive yearly deportation of foreign workers since the program began, unemployment has dropped to only 12.5%. (30.9% for women and 7.6% for males).

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Latest Update As Published in daily news paper Saudi Gazette December 4, 2019

The Minister of Labor and Social Development Eng. Ahmed Bin Sulaiman Al-Rajhi has issued a ministerial decision canceling the yellow zone in the Nitaqat Program, which is meant to stimulate the Saudization of jobs, Saudi Press Agency (SPA) said.

The reasons that led to this decision include what is stipulated by the regulation that “all firms in the yellow zone will be transferred to the Red Zone of the Nitaqat Program and the criteria for the Red Zone mentioned in the Nitaqat Program Guidebook will be implemented on these firms, effective Sunday, Jan. 26, 2020G corresponding to 01/06/1441H.”

This decision aims to stimulate firms in this zone to move to the Green Zone and above, leading to raising their Saudization percentage and providing more job opportunities to Saudi young men and women. This will in turn enable the ministry to provide its services to these firms. It is noteworthy that the yellow and red zones are specified for firms that have failed to achieve the required Saudization percentage. They are also known as the “unsafe Nitaqat” and such firms are denied full access to the ministry’s services.

In other words, the ministry’s services are restricted to firms that are in Green Zone and above and that contribute effectively to employing Saudis. — SG/SPA

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With thanks best regards

Saifuddin Salahuddin Sr. Research & Marketing Manager 105, Legend Tower, Riyadh, Saudi Arabia T. 966 11 273 4496, E. [email protected]

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