With Vision 2030, Saudi Arabia has embarked on an exciting program to transform its economy and unlock its economic power as the largest Arab economy. At the heart of this program's success is harnessing the potential of Saudi Arabia's young population. Find out which issues employers in the Kingdom are currently facing and how Saudisation is impacting the private sector.
What issues are employers currently facing ?
Until recently, the Kingdom's economy could be characterised as 'rentier' meaning it had high levels of public sector employment for its national population and a dependency on one national industry; oil. Employers in the private sector were therefore accustomed to recruiting and bringing in large numbers of foreign nationals to work in their establishments, across all levels of the business. As foreign investment has grown and as the current economic liberalisation programs develop, the focus for Saudi workers is shifting to the private sector and the Government has sought to enhance opportunities for nationals in the private sector through a program of Saudisation and more specifically through its Nitiqat program. Nitiqat applies a quota on every employer with a headcount over five employees to employ Saudi nationals. The quota is determined according to the employer's economic activities and headcount.
In addition to ensuring compliance with Nitiqat, employers are operating in an increasingly regulated employment and immigration landscape. The Ministry of Labour and Social Development has over the past two years acted to ensure transparency and clarity on fines, the procedures for inspections and any remedial actions required. It has introduced a process whereby employees can be seconded to other entities (through Ajeer) and acted to license and regulate manpower suppliers. Significantly, the KSA Labour Law was amended in 2015 to remove the right to request reinstatement into employment and to provide for a statutory formula for calculating compensation in the event of unjustified termination. It has more recently launched a freelancer program for Saudi nationals to work independently and effectively on a self employed basis.
Undoubtedly, the biggest issue faced by employers is to secure the right people for the business.
How is Saudisation impacting the private sector?
Employers are grappling with meeting their Nitiqat targets and also ensuring that they have the right people in the business to ensure continuity and growth. It is widely acknowledged that there is a skills gap within the local workforce and it will take time for this gap to be closed. Employers can seek assistance from the Human Resources Development Fund (HRDF) to support their development and training of young Saudi nationals. There are also various HRDF programs to facilitate the employment of disabled Saudi employees and also Saudi women in the private sector which the Ministry of Labour and Social Development has actively encouraged and recently regulated more liberally for certain sectors such as the sale of female clothing, amusements parks and even in general manufacturing and retail.
Alongside Saudisation measures are three levies payable for foreign nationals in the Kingdom. Two levies are payable by employers for every foreign national employed and a third is payable by the employee for each dependant sponsored by him in the Kingdom. All three levies are set to increase incrementally over the next three years.
'Fly-in Fly-out' solution
Given the cost of these levies as well as Nitiqat compliance, many employers are in fact looking at short term options for non-Saudi national employees to be in the Kingdom, through the use of commercial visit visas and temporary work visas. A 'fly-in fly-out' model for resourcing is likely to be an interim short to medium term model, and the long term success for any business is now going to be its ability to attract and retain strong Saudi talent.
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