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Localization Barriers and the Case of Nitaqat Program in Saudi Arabia

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Localization Barriers and the Case of Nitaqat Program in Saudi Arabia Journal of Economics, Business and Management, Vol. 3, No. 9, September 2015 Localization Barriers and the Case of Nitaqat Program in Saudi Arabia Nawaf Alshanbri, Malik Khalfan, and Tayyab Maqsood increased in 2010 to 10.8%. Moreover, that figure is just Abstract—This article seeks to provide an overview and represent the male citizens only; other estimates for both introduce the concept of localization of employees in Saudi male and female citizens range as high as 30% [3]. The Arabia and also examines the new job localization program Saudization initiative has three main goals, listed by [2] as “Nitaqat” with particular reference to the case of Saudi Arabia, follows: in order to pursuing the strategy of Saudization that been 1) Increasing the percentage of employment among locals. introduced at the late of the 90s. As it mentioned before it considers high as 10.8 % The analysis is based on a number of interviews have been done with HR mangers in different economic activities in the among male citizens. Saudi private sector. The initial findings provide valuable 2) Reducing the over-reliance on foreign workers. The insights into the Nitaqat program, its barriers such as the percentage of foreigners in the Saudi labour force is education system that is not market driven, some cultural estimated at 51%, considered the highest among other practices that concerning women in the workforce and some of countries See Fig. 1 [4]. the local’s habits such as focusing more on prestige than 3) Reducing the remittances that the foreign workers performance. Further, it shows some of HR managers concern about the replacement of their employees. Interview transfer to their home countries. The Migration and respondents advised enhancing the skills of the local workforce Remittances Fact book 2011 [5] showed that Saudi and enhancing the educational system outcomes in the country Arabia is the second country in world with more than US and linked it to the needed jobs in the country. $26 billion in such remittances. See Fig. 2. Index Terms—Localization barriers, Nitaqat, Saudi Arabia, saudization. I. INTRODUCTION Since the middle of the past century and with the discovery of the oil, Saudi Arabia became one of the most desirable countries that attracted millions of foreign labour from all over the world for work on its land. That also caused a huge transformation in the country's demographical, economic, and social structures. At the last 20 years of the past century, the Saudi Arabia’s private sector was dominated by the foreign labour, which led to number of economical and social problems. For instance, the unemployment among the Saudi citizen was one Source: The percentage of foreigners in labour force, OECD, 2011 of the biggest problems that this issue caused, the Fig. 1. Percentage of foreigners in labour force in different countries. over-reliance on foreign labour and the huge amount of remittances that the foreign workers transfer to their home countries each year. This affected both the local economy and the government budget. Recently the Kingdom of Saudi Arabia established a new program “Nitaqat” for supporting the Saudization initiative that has been discussed since the begging of the millennium. Saudization means localizing the jobs by replacing foreign labour in the Kingdom of Saudi Arabia with locals [1]. The aim of this initiative is to ensure that a certain proportion of Saudi Arabia jobs are occupied by locals in order to place limitation on foreign workers. One of Source: World bank migration and remittances fact book 2011 the biggest problems in Saudi Arabia is the unemployment rate for locals. In 2004, according to Looney, the percentage Fig. 2. Top 10 sources of remittance payment (US$ billion), 2009. of non-working Saudis was 8.2% [2]. This percentage Nitaqat is an Arabic word that means “ranges” or “limits”. Manuscript received August 21, 2014; revised October 25, 2014. The primary goal of this program is to assist the The authors are with the School of Property, Construction and Project “Saudization” initiative and to absorb Saudi job seekers. Management, RMIT University, Melbourne, Australia (e-mail: Theoretically, this should reduce the unemployment rate in [email protected], [email protected], [email protected]). the country by forcing companies and firms to hire more DOI: 10.7763/JOEBM.2015.V3.305 898 Journal of Economics, Business and Management, Vol. 3, No. 9, September 2015 Saudis. The Saudi Ministry of Labour announced the activity and the size of enterprise, and that what has already program on June 2011. The program sets penalties for been achieved. Nitaqat system now compares the companies non-compliance with the rules. One of the decisions that with peers companies of the same size and economic activity. accompanied this program was the restriction of foreign The justification that “the different nature of my activity” is workers who had lived in Saudi Arabia for less than 6 years no longer valid , as it is if the other half of the companies in for both red zone companies (companies having less than the same activity and the same size has been able to access a 10% local workers) and yellow zone companies (from certain percentage of Saudization , the other half can access 10-20% local workers). Companies in Saudi Arabia that were the minimum of the range. For the future, we must aim to not employing enough local workers under the new rules make the Saudi labour market system more responsive, were notified they may have their foreign workers taken intelligent, and that can be done through three axes: away through the non-renewal of visas resulting into the 1) Improve recruitment systems. The ministry do not just inability to obtain renewed working visas for existing want companies in the private sector “to achieve the workers. The Saudi Labour Minister mentioned that it was needed proportion of the Saudization's rate” but the the right time to begin to force companies in the Saudi private ministry aims to rise the leadership positions for the sector to hire locals [6]. citizens in companies. So the ministry works on Nitaqat Nitaqat divided the Saudi private sector enterprises to four in order to include and to be focused on the assessing zones, currently some of them are situated in the green and levels of citizens and increase their wages in the total excellent ranges which have achieved reasonable and wage in each company, as a measure of wages which is a acceptable rates of localization. The enterprises that are good indicator for job levels. located in the yellow and red zones, they did not employ 2) Raise the skill level of migrant workers, as Nitaqat can Saudis, or that the Saudization rate is less than acceptable and be used to assess the skills and qualifications of they are given sufficient time to correct their positions in expatriate workforce and upgrade their qualifications order to move to the green and the excellent zones by the level. Saudi ministry of Labour. The aim of the ministry through 3) Continued the development of Nitaqat program to make Nitaqat program is to use Saudization rates as a competitive it a more accurate and focused towards its desired goals, feature among the private sector firms. taking advantage of the experiences of countries such as The firms that engaged with Nitaqat and within the Canada and Australia, and what makes our labor policies excellent and the green zones will be provided with a optimally reach in raising productivity and provide job package of facilities and motivations, making it easier for opportunities for citizens in the most promising areas. dealings with their employees and worker unions and gives The Saudi ministry of Labour take in consideration both of them sufficient flexibility to achieve the levels of growth. the unemployment and the localization from a holistic The program also aims to create a much better balance perspective and believes in combining long-term solutions between the advantages of hiring a foreign worker and the through policies that generate opportunities and align output Saudi worker by raising the cost of maintaining foreign in addition to replacement policies through initiatives and workers in the red and yellow ranges. Also, Nitaqat can be programs that provide short term solutions. Therefore the considered as a monitoring tool for the Saudi labour market ministry focuses on the quality factor in their systems in order that aims to achieve a growth in jobs for local residents in the to achieve the country’s current development plan, which private sector and to move the unemployment rate in the states the need to expedite the growth and development of country to lower levels. Nitaqat, as the Saudi ministry claims, Saudi human resources in both quality and quantity so that came into place to meet the directives of the country with the Saudi's economy at the end will occupy its proper regards to finding opportunities for Saudi Arabia’s citizens, position on the global competitiveness map. and to achieve growth and stability in both social and The Nitaqat localization program that focuses more on the economic areas as it meets the needs of two important number of Saudi employees in each company rather than stakeholders; businessmen with their needs in expanding their their businesses and improving the development of the capabilities, it has forced many companies to hire Saudis just national economy. to stay away from both red and yellow zones and enter into The second stakeholders are the Saudis, in terms of these the green zone in order to get the maximum benefits from the creations of jobs are for them aiming to absorb and integrate Saudi Ministry of Labor.
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