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Will nationalization policies in Saudi Arabia impact migrants and remittance flows?

Kirsten Schuettler's picture

Saudi Arabia hosts the largest number of migrants in the Gulf region. The country is the second largest remittance sender after the USA. A new Saudization program since 2011, the so-called “Nitaqat program”, seeks to increase the number of Saudi nationals employed in the private sector. Will this have an impact on migrants and remittance outflows from Saudi Arabia? 

Nationalisation programs in Saudia Arabia have not been very efficient in the past (Hertog 2012 and 2014). But this time some things are different: The quota for Saudi employment varies according to the size of the company and the economic sector and sanctions are combined with incentives. Subsidies for hiring and training Saudi nationals, a certain increase in the job mobility for foreign workers and other measures have been introduced. They aim to narrow the wage gap between migrants and nationals, improve the skill level of nationals and make private sector jobs more attractive for them compared to public sector employment (G20 Employment Plan 2014 Saudi Arabia). The program was also combined with a crackdown on visa irregularities that resulted in a departure of 1.4 million migrant workers from Saudi Arabia since 2013 (EUI 2015).

Following the introduction of the program, the percentage of Saudis employed in the private sector increased from 10 to over 15 percent. But enterprises do not seem to diminish the number of foreign employees to achieve the required quotas (Peck 2014). Furthermore, 25 percent of foreigners work in micro-enterprises, which were exempt from Saudization requirements (Alsheikh 2015). Adding to this another 55 percent of foreigners work in enterprises that comply with the current quotas (green or premium bands).

All in all, foreign employment still continued to grow since 2011, even though at a slower pace than it would have without the program (Peck 2014). While Saudi employment in the private sector grew 26.7 percent on average between 2011 and 2013, growth in foreign employment still averaged 9.4 percent during the same period (Jadwa Investment 2015). In 2014 Saudi Arabia issued around 1.3 million new work visas. Remittances outflows from Saudi Arabia also continued to grow 2011-2014. Besides the continued recruitment of new foreigners, this growth might have also resulted from a perceived risk among migrants, which has led them to remit more.

At least in the short- term I still expect no major impact on the job prospects for migrants in Saudi Arabia. The country will continue to issue a large number of work visas in order to alleviate labor shortages and diminish the negative impacts on businesses. The Nitaqat program has increased costs for firms and doubled the exit rate of firms. The government has just announced to delay the further raise in Saudi employment quotas that was scheduled for April 2015, to give the enterprises more time to adapt. Moreover, companies which comply with the Saudi employment quota are granted more work visas as an incentive.

It will take time to diminish the mismatch between demand and supply regarding skills, capabilities and wages of the local workforce. And the gap between reservation wages and labor rights of foreigners and natives still persists. Even if in the long-run enterprises stop adding Saudis to migrant workers and actually replace foreigners by Saudis, only a small part of foreign workers in certain sectors will likely be displaced.

References
 
Alsheikh, H. 2015. Current Progress in the Nationalization Programmes in Saudi Arabia. Explanatory Note No. 2/2015, GLMM.
EIU. 2015. Country report: Saudi Arabia.
Hertog, S. 2014. Arab Gulf States: an Assessment of Nationalization Policies. Research Paper No. 1/2014, GLMM.  
Hertog, S. 2012. A comparative assessment of labor market nationalization policies in the GCC, In: Hertog, Steffen, (ed.) National Employment, Migration and Education in the GCC. The Gulf Region: Economic Development and Diversification, 4., Berlin, Germany.
Jadwa Investment. 2015. The Saudi Economy in 2015. January.
Peck, J. 2014. Can Hiring Quotas Work? The Effect of the Nitaqat Program on the Saudi Private Sector.

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