Saudi Arabia announced that expatriates will only be allowed to work for up to six years in the kingdom. After the announcement that lacked details, the labour minister said that only private sector companies that fail to employ enough Saudi nationals would face restrictions on the renewal of their expatriate employees' work permits.
The labour ministry later attempted to clarify the new policy, saying there was no blanket policy barring the renewal of work permits for long-term expatriate employees and that the restrictions were targeting companies not complying with regulations requiring at least five to 10 percent of their laborers be of Saudi nationality.
Saudi labour officials are looking to begin implementing a new incentive program for the private sector. Under the program, companies would be divided into four categories: "excellent" and "green" for those that comply with the nationality quotas, and "yellow" and "red" for those that do not.
Under the new program, companies in the yellow category would be given a chance to adjust their labor force demographics and secure the work permits they need, while those in the red category would not have permits renewed for their foreign workers, irrespective of how long those employees have been in the country. The minister said that the government would give companies in violation of the rules three months to correct the labor balance and would face penalties after that period. He added that the new program was "not intended to hurt anyone".
May 27, 2011
Analysis and Forecast: Increasing Risk
The announcement by Saudi Arabia about attempts to impose the quota for a minimum number of Saudis within the private sector carries mixed implications. On the local level, it appears to give an opportunity for locals to find employment in the private sector, and address rapidly rising youth unemployment. However, this policy has been tried in various forms in other GCC states, and its enforceability has been very difficult to gauge.
The Saudi Arabian population first and foremost lacks the necessary capabilities to undertake much of the tasks require of the private sector. What this policy will therefore lead to is forcing companies to employ under-qualified Saudi personnel to show that they comply with the regulations. This will lead to reducing the overall productivity of the workforce, and make the country less attractive to foreign investment.
Whilst the new regulations appear to aim to address the issue of local unemployment, the mechanism of enforcement will likely backfire and lead to economic damage rather than resolve local unemployment.