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Saudi Arabia's Plan for Changing Its Workforce
By Divya Pakkiasamy
Migration Policy Institute
Foreign workers compose a large portion of the Saudi workforce, a reality the Saudi government is seriously addressing. The Saudi Ministry of Labor estimated there were approximately seven million foreigners in the kingdom in 2003, making up a little less than one-third of the kingdom's total population of 23 million. Expatriate labor across all occupations and skills levels constituted around two-thirds of the total workforce and 95 percent of labor in the private sector.
Over the last decade, the government has prioritized "Saudiization," an initiative aiming to increase employment of Saudi nationals across all sectors of the domestic economy, reduce dependence on foreign workers, and recapture and reinvest income that would have otherwise flowed overseas as remittances.
All states of the Gulf Cooperation Council (GCC) - Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and the United
Arab Emirates (UAE) - are addressing the concern of foreign labor dependence. At present, some 10 million foreigners live in GCC states, constituting a significant portion of the region's population. The presence of expatriates in these states range from 25 percent of the population in Oman to 80 percent of the population in the UAE. As the largest state in the GCC with the largest expatriate population, Saudi Arabia's efforts to indigenize its workforce will have the most visible impact on the region's economy and demographics.
While efforts at promoting Saudi workforce participation started as early as 1932, previous attempts at this program were not effectively enforced, and a large foreign worker population was maintained in the kingdom. The recent enforcement of Saudiization legislation across all jobs sectors is a new phenomenon. Much of the Saudi business community has been shifting the composition of their workforces to comply with Saudiization legislation.
More recently, small- and medium-sized business owners, with whom enforcement of Saudiization was not as strictly applied, have started to protest that these measures place unfair pressure on them to hire more expensive local workers. Some expatriate communities have asked the government to recognize the value of their work and to continue to allow them access to the Saudi labor market.
Foreign Workers in Saudi Arabia
While foreign workers have manned the Saudi workforce since the inception of the kingdom's oil industry in the 1930s, it was not until the oil price boom of 1973 that the country started to receive large inflows of workers. New projects to develop physical infrastructure, such as roads and buildings, dramatically increased the demand for labor.
As the local population was not meeting the manpower needs necessary for these projects, employers began to recruit skilled and low-skilled workers from abroad. Many South Asians and Southeast Asians migrated to Saudi Arabia in this period. Migration of Asian workers was especially encouraged as it was thought that, compared to Arab foreign workers, they would be less likely to settle, less likely to organize, and hence more easy to control. Despite the decrease in the pace of construction projects in the 1980s, South Asians and Southeast Asians have continued to constitute the largest portion of the expatriate population in the kingdom, indicating demand for foreign workers has shifted to other sectors of the economy.
Typically, foreign workers enter the kingdom on a service visa sponsored by a Saudi company or individual. The company is responsible for the initial renewal of this visa and the employee's residence permit after two years, and, subsequently, the renewal of the employee's documents every four years.
Only 15 percent of foreign workers in Saudi Arabia are engaged in skilled labor industries (oil, healthcare, finance, and trading), while the majority are employed in industries with a need for low-skilled labor (agriculture, cleaning, and domestic service). Expatriates from Europe and North America dominate high-skilled positions; low-skilled workers originate primarily from South and Southeast Asia.
Recent figures indicate that Saudi Arabia has between 1 and 1.5 million expatriates each from Bangladesh, India, and Pakistan, and around 900,000 workers from the Philippines. Together, these communities account for over half of Saudi Arabia's expatriate population. Migrants from nearby and neighboring countries, especially Yemen and Egypt, also constitute a large part of the kingdom's expatriate community. Western expatriates number around 100,000. According to respective embassy estimates, about 40,000 are from the United States, and about 30,000 are from the United Kingdom.
Western foreign workers are usually employed in skilled labor occupations. The total number of Western expatriates in the kingdom has been decreasing due to increased Saudiization in the oil sector after it was absorbed into the public sector in 1988. Recent terrorist attacks targeting Westerners have also prompted many to leave the country.
Why Saudiization Now?
The drop in world oil prices, which started in the mid 1980s and lasted until the late 1990s, strongly decreased the strength of the Saudi economy. Additionally, Saudi Arabia incurred huge expenses with its participation in the 1991 Gulf War, further aggravating the kingdom's financial situation.
The current average unemployment rate reported by the government stands at 10 percent of the country's workforce, but the unemployment rate for youth stands at around 32 percent. This high rate of youth unemployment could be dangerous for the kingdom, as young people make up the majority of the Saudi population. In 2004, one in every two Saudis was less than 15 years old, and an estimated 60 percent of the population was under the age of 20. The kingdom has also experienced tremendous growth in population size, growing from roughly 6 million in 1970 to 23 million in 2003.
The changing demographics have made generous social programs increasingly expensive and unfeasible. Unrest over the unemployment problem, coupled with terrorism concerns, has highlighted the importance of long-standing social issues. Since the 1990s, the Saudi government has sought to rectify some of these problems by more rigorously enforcing Saudiization measures and other economic reforms.
This latest effort is a large undertaking for the kingdom, as its successful implementation will require more than simply replacing foreigners with Saudi nationals. Many skilled and low-skilled foreign workers are willing to accept much lower salaries, making some employers unwilling to hire Saudi nationals. Furthermore, many Saudi nationals do not find low-skilled occupations attractive.
Recent events have also increased the perception of foreigners as a potential security threat. The government's caution especially increased after the September 11 attacks. This caution has continued because recent terrorist attacks have started targeting Saudi nationals, not just expatriates.
In response to security threats, many expatriates are voluntarily leaving the kingdom. Some companies have increased incentives to keep valuable workers, as there is a shortage of Saudis who are willing or have the professional qualifications to be employed in certain professions.
Another reason that has been suggested for the current enforcement of Saudiization is the substantial financial losses incurred by remittance outflows. Between 1993 and 2002 expatriates remitted 585.4 billion Saudi riyals ($156.1 billion), averaging roughly 60 billion riyals ($15 billion) a year. The estimated gross domestic product reported for Saudi Arabia in 2003 was $287.8 billion.
In 2003 the Saudi Manpower Council mandated that the number of foreign workers and their families should not exceed 20 percent of the total population by 2013, and that the number of persons from any single nationality should not exceed 10 percent of the total expatriate population. There is some doubt over the feasibility of this goal; the kingdom only achieved five percent total Saudiization between 1998 and 2003, whereas meeting the Council's goals will require a five percent increase in Saudiization annually.
Working towards this goal will take a severe toll on the expatriate population. Asians from India, Pakistan, Bangladesh, and the Philippines, as well as Arabs from Egypt, Sudan and Syria, all have populations that make up more than 10 percent of the total expatriate population. Furthermore, if projected population growth statistics hold, more than 3 million expatriates will have to leave Saudi Arabia to achieve 80 percent Saudiization by 2013.
The successful indigenization efforts of the airline, oil and banking sectors - all of which have workforces that are 70 to 100 percent Saudi - show that reforms can be enforced. The notion of being "surplused" - when foreign workers are told their services are no longer needed - is quite familiar within the expatriate community. However, foreign workers who are released due to Saudiization-related business restructuring receive end-of-service benefits from the government.
Past Saudiization measures have included a ban on hiring foreign workers in 22, mostly administrative, professions, and an increase in recruitment fees for employers hiring foreign workers. More recently, the Ministry of Labor has increased pressure on small- and medium-sized businesses to employ more Saudis, a measure that will be especially difficult to enforce as these business are much more difficult to regulate and less able to shoulder the increased expense of employing Saudis.
The government is also involving the efforts of large Saudi corporations. In 2001, the Shoura Council, the 120-member consultative council to the Council of Ministers, began applying Saudiization metrics to those companies directly owned by or implementing projects for the state-owned oil conglomerate, Saudi Aramco.
While the Saudiization program will decrease prospects for foreign workers, the Saudi government recognizes the continued need for foreign labor in particular sectors. For instance, Saudi hospitals need 100,000 nurses, but there are currently only 1,000 Saudi nurses and around 53,000 expatriate nurses recruited from Asia, Africa, and the West. Though there is a pronounced demand for nurses, complete Saudiization of this profession will not be accomplished for many years due to the specialized training it requires. One limitation in indigenizing this field is the necessity for English-speaking candidates, which is now being addressed in targeted training programs for Saudi nurses.
The kingdom has also had difficulty with the travel industry. In a more controversial move, the government raided many travel agencies in early 2004. Several foreign employees from these agencies were taken into police custody and were then held for deportation. They were released after the government suspended the crackdown on travel agencies employing foreigners and issued a grace period for these agencies to bring their workforce into compliance with Saudiization laws. The Ministry of Labor still plans to increase the present level of Saudiization in the travel industry from 18 to 81 percent in three years, with noncompliant agencies facing the more serious threat of closure.
Protection and Rights for Foreign Workers
Saudiization initiatives have also been coupled with reform to better the position of foreign workers in the kingdom. The first piece of legislation to grant rights to expatriates, the Basic Law issued in 1992, included a clause allowing foreigners the right to litigation. More recently, in 2003, the Shoura Council approved the formation of the Saudi Human Rights Committee (recently merged with the Shoura Islamic Affairs Committee) and the National Human Rights Association, an independent human rights monitor.
One function of the Human Rights Commission is to investigate human rights violations against foreign workers. Foreign workers, especially low-skilled foreign workers, are vulnerable to abuse in part due to language and cultural barriers. Many foreign workers have recruitment fees illegally deducted from their salaries.
A particularly notorious practice is the sale of "free" visas. Saudis are allowed to sponsor a certain number of work visas with the intention that they employ the foreigners they sponsor. In some cases, the Saudi will sponsor the foreigner's work visa but leave the foreigner responsible for finding employment once he has entered the kingdom. The original sponsor profits from selling his sponsorship rights to another employer, who also pays him the fees charged for the original visa.
Foreigners who enter the kingdom through this channel usually pay a high recruitment fee to a middleman who is in contact with the Saudi sponsor. Many are unable to find work, and, when found, they are deported to their country of origin without having reduced any of the debt accrued in acquiring their original visas. The Ministry of Labor is currently taking a strong stand against this practice, having already banned the transfer of sponsorships for low-skilled workers.
In another development, the Shoura Council announced that foreigners would be allowed to apply for Saudi citizenship in 2004. This new legislation would allow foreigners meeting strict language and residency requirements to be eligible for Saudi citizenship. These include fluency in written and spoken Arabic, adherence to the Islamic faith, and a residency requirement of 10 years. For foreigners who qualify, the chance to become a naturalized citizen would greatly improve their situation and increase their rights. As foreigners' opportunities for property ownership and investment are limited or non-existent, becoming a naturalized citizen would also give these workers the chance to participate more fully in the Saudi economy.
Despite Saudiization efforts, the country continues to depend on foreign labor to fill both high- and low-skilled jobs. The ambitious goals set in some sectors are unlikely to be met in the short-term. Nonetheless, the government's early initiatives ensure that the indigenization of the workforce will continue, if not on the fast-track schedule envisioned. Such changes in the Saudi economy stand to have a significant impact on labor-exporting countries, especially in Asia, which depend heavily on remittances from Saudi Arabia. It is too early to know, however, what the downstream effects of the Saudiization policy will be on the economies of these countries.
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