JEDDAH, Saudi Arabia, Dec 5 (Reuters) - Glancing through the
newspapers one morning last month Saudi Arabian businessman
Ihsan al-Naeem was stunned by a government announcement that he
fears will threaten the survival of his family's 30-year-old
In the latest and most aggressive of a series of labour
reforms, the government has started imposing fees on companies
that hire more foreign than local workers. The requirement
covers everyone from expat professionals to hospital workers and
labourers on construction sites and is in addition to quotas
already in place to limit foreign staff numbers.
The new rule is aimed at reducing unemployment of 10.5
percent among Saudi nationals by getting them into jobs now
performed by 8 million expatriates in the country, a long-term
Saudi goal given fresh impetus by the uprisings in Arab
countries last year that were partly driven by high
Labour Minister Adel al-Fakeih said in January that the
largest Arab economy needed to create 3 million jobs for Saudi
nationals by 2015 and 6 million by 2030, partly through
"Saudi-ising" work now done by foreigners.
However, in an economy in which imported labour fills nine
in 10 private sector jobs, according to central bank data, many
companies fear the new fees will hit their businesses hard by
adding to their costs and shrinking the pool of available
"There are no Saudis who can drill or operate heavy
machinery ... Where will they work in the construction
industry?" said Naeem, who employs more than 1,000 foreign
labourers working on 17 government contracts.
As of Nov. 15, Naeem and other private sector employers who
hire more foreigners than Saudis must pay a fee of 2,400 riyals
($640) a year for each additional expatriate when they renew an
expat's one-year residency permit.
The rule does not cover foreigners with Saudi mothers or
nationals of other Gulf states.
Businessmen protested outside Labour Ministry offices after
the decision, threatening to raise their fees to cover the
additional labour costs o r terminate existing government
A Labour Ministry spokesman said there were no plans to
reverse or amend the decision.
"The decision is based on detailed studies of the market
mechanisms and it will hopefully increase the competitiveness of
our local youth in a market that has no mercy, which has eight
foreigners in every 10 employees of the private sector, who
compete with our youth for their livelihood," the spokesman,
Hattab Alenezi, said.
Businesses say the new system will not address the problem
of Saudis unwilling to work in the private sector. Wages are
much lower than in government jobs and in many cases people are
better off on unemployment benefit, which pays 2,000 riyals a
month for up to a year. A security guard in the private sector,
for example, earns only around 1,500 riyals a month.
After the 1970s oil boom, which propelled many Saudis into a
lifestyle of wealth and luxury, locals viewed jobs requiring
manual labour as menial and imported cheap foreign labour to
build their cities and service their offices.
Construction labourers from India, Pakistan, Bangladesh and
the Philippines form the biggest group of foreign workers.
"I have never come across a Saudi willing to work as a
labourer," Naeem said, estimating his medium-sized company will
have to pay around 2.4 million riyals in annual fees.
Businesses complain that the fees on foreign workers were
introduced with immediate effect with no warning or
consultation, and that they appear to contradict other recent
reforms to encourage "Saudi-isation" that take account of
different industries' requirements.
Last year the Labour Ministry overhauled a crude quota
system for Saudi and foreign employees to take account of a
company's size and sector. Those who do not comply with the
quotas, known as Nitaqat, face hiring restrictions.
Before the overhaul the local quota was a flat rate of 30
percent. Now the rate varies depending on what sector a company
is in and what size it is. A small construction company is
allowed more foreigners than a large bank, for instance.
The impact of the Nitaqat reform is not yet clear but some
economists fear the introduction of fees on foreign staff fit an
old pattern of ineffective measures that add costs for
"I think that (the fee) is going to be treated as a tax by
some companies rather than an incentive to employ additional
Saudis. It doesn't really address the supply issue which is that
Saudis need to be incentivised to take private sector jobs,"
s aid James Reeve, a senior economist at Samba Financial Group.
There is no formal minimum wage despite government efforts
to raise pay for Saudis in private companies.
Under Nitaqat rules, construction and transport businesses
only need employ one Saudi for 19 expatriates and fear the new
fees will hit them particularly hard.
"Saudis can work in the administration, but there are only a
few jobs there," said Mahfooz Bin Mahfooz, who owns a transport
company and said he cannot find Saudis to work for him as truck
"I want a job in the field that I studied for. I did not go
to college so I can work as a driver," said a 22-year-old
unemployed Saudi in Jeddah w i th a computer science degree.
Not all businessmen disagree with the fee. Some say it is
important to achieve the kingdom's long-term goal of getting
more Saudis into work.
Mohammed al-Agil, head of the kingdom's largest listed
retailer Jarir Marketing Co, said about 40 percent of
his employees are Saudi although he accepted that it was easier
to find local workers in his sector.
"I think it is a good initiative but I think they should
have given enough notice," he said.
Many newspaper commentators, however, have voiced vehement
"The first to be harmed by it are local business owners, and
secondly consumers who will no doubt bear the brunt of rising
prices," said Essam al-Ghafaily, a columnist in al-Watan daily
Even the price of bread could rise by as much as 7 percent
as bakers expect to transfer the cost of the new fees onto
consumers, said Ali al-Shehri, head of the Jeddah Chamber of
Commerce bakers' committee, in remarks printed by al-Watan
Naeem, the contractor, said he feared missing out on
important tenders because the price of his bids will have to
"Coming from a medium-sized company I'm getting exhausted
... my activities internally may change and I may even look to
shift business a b road," he said.
(Editing by Angus McDowall and Susan Fenton)