Saudi businesses fear impact of new fees for foreign workers

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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 Labor 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, are to 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 companies.

“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,” said 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 drivers.
“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 with 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 opposition.

“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 newspaper.

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 newspaper.

Naeem, the contractor, said he feared missing out on important tenders because the price of his bids will have to rise.

“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.

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