DUBAI Dec 12 Saudi Arabia's efforts to reduce
unemployment by imposing fines on companies that hire more
foreign workers than Saudi nationals will hit construction firms
As part of the government's 'Saudization' plan, the labour
ministry announced last month that companies that employ more
expatriate workers than Saudis will be fined a fee of 2,400
riyals ($640) a year for each excess foreigner.
The policy came into effect at the start of the new Islamic
year on Nov. 15 and the Minister of Labor said more than 40
percent of private sector companies might be shut down if they
fail to meet their Saudization targets, according to local media
Analysts say the construction and real estate sectors are
most likely to suffer from the extra cost as they operate on
tight margins and have the highest ratio of foreigners to local
employees. That is mainly because they employ many unskilled
workers and foreign labourers, mostly from south or southeast
Asia, generally demand lower wages than Saudis.
"If you're adding 2,400 riyals a month, you're increasing
the salary bill by about 20 percent. For companies that are on
tight margins, like in the construction sector, it will probably
push contracts (down) to marginal profits if not a loss," said
Alhassan Goussous, chief executive officer at Bakheet Investment
"Companies like Jabal Omar and Makkah Construction
will see a significant impact."
Analysts are also concerned about a lack of resources to
replace foreign workers with Saudis.
"There is a comfort zone among local companies on profits
-they've been hiring cheap labour for decades and now they have
to jump out of this comfort zone," said Abdullah Alawi,
assistant general manager and head of research at Aljazira
"Saudization will be a challenge in the construction sector
in terms of replacement since Saudis would not be attracted to
blue collar jobs."
But while larger firms should be better placed to handle the
new regulation - many already have close to an equal
Saudi-to-foreign employee ratio - banks could feel an impact if
some of their corporate customers are hit by the higher labour
"The construction sector will be hit hard. Their business
competitiveness would be affected and consequently, it will
affect banks as well," said an analyst at a Saudi bank who asked
not to be identified. "Lending may not be as strong if corporate
clients are not as strong."
Members of the Shoura Council, which drafts and proposes
legislation to the Saudi king, have criticised the new
regulation as bad for business and some corporate executives are
pushing for it to be repealed.
"The question is will it actually stick? - a lot of people
are complaining and there is a chance the ministry of labour
will put it to the Shoura and it will be delayed," said
Some analysts said companies in the consumer sector could
eventually benefit if more Saudis are in jobs as they would
probably spend more in the country than foreign workers.
That benefit will only be seen over the medium term but
would benefit consumer companies such as retailer Fawaz
Abdulaziz Alhokair Co. Companies in the sector should
not be too badly affected by higher labour costs as they tend to
employ mostly Saudis already.
Expatriates account for 8 million of Saudi Arabia's
population of more than 27 million.
Youth unemployment was one of the main drivers of last
year's unrest in much of the Arab world, although it did not
seriously affect Saudi Arabia, where King Abdullah announced a
$110 billion package of benefits to defuse any potential
His decree included increased welfare benefits and a promise
to create more jobs.
In January, Labour Minister Adel Fakeih said the Middle
East's largest economy needed to create 3 million jobs for Saudi
nationals by 2015 and 6 million by 2030, partly through
"Saudi-izing" work now done by foreigners.
"This has to be looked at from an economic perspective. It
will increase national wealth and fix the local unemployment
issue," said Aljazira Capital's Alawi. "You will also have more
income generated in the economy and that will increase local
demand for goods and services and help drive more jobs as a
(Reporting by Nadia Saleem)