Saudi Economy
Term Paper: Saudization
Done By: Mais Atiyeh & Noura Nadir
Saturday, January 6, 2011

Introduction
Saudi Arabia is a wealthy country with a young population structure and a high population growth rate. People under the age of 40 make up 78% of the population of which 32% is under 15 years. This means that the dependency ratio in Saudi Arabia is very high compared to other countries (2.4 times the world average). This also means that there will be a continuous increase in the number of new labor market entrants in the coming years. With high costs of living and a high dependency ratio, there is great pressure on the Saudi individual to find a job and greater pressure on the Saudi government to create more jobs.
Over-saturation of the public sector has created a need for young nationals to look for work inside the expatriate dominated private sector. However with so many expatriates working in the country it is harder for the Saudi national to find a job in the private sector, and thus unemployment has been a serious issue in Saudi Arabia.
In an effort to facilitate the employment of nationals, the Saudi government has instituted a number of policies favoring the Saudi worker in an effort known as Saudization
Saudization is a tool used to combat unemployment and involves replacing foreign workers with Saudi workers. The Saudization plan was imposed by King Fahd bin Abdul Aziz to in order to significantly decrease dependence on cheap foreign labor. Under the plan, 75 percent of the workers should be Saudi, and should receive at least 51 percent of the company’s total salary payment.

Goals of Saudization
The three main goals of this policy are: * Increase employment opportunities for Saudi nationals in the country especially in the private sector: the main aim of Saudization is to reduce unemployment levels and increase the availability of jobs for the nationals across the economy. By replacing Saudi non nationals, the government would be creating more jobs for the Saudi nationals.

* Reduce and reverse the reliance on foreign labor: The Saudi economy is heavily dependent on foreign labor; many hired during the oil boom years (and currently make up about 67 % of the workforce). With Saudi unemployment increasing in the country (reaching 25 % according to CIA World Fact Book)), Saudization aims to reduce the need to hire foreign labor and instead create a Saudi workforce capable of replacing foreign workers.

* Recapture and reinvest money that would have flowed overseas as income from foreign workers to their home countries: another reason that has been suggested for the current enforcement of Saudization is the significant 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.

Obstacles to Saudization
One obstacle to Saudization is that the education and training of Saudi nationals does not meet labor market requirements. The current specialties taught at universities and institutions no longer cater to the demands of the changing job market. ILO studies and the World Bank indicate that the Saudi educational system is still failing to produce enough well educated males and females for the modern Saudi labor requirements. There is also no sufficient technical and vocational training provided to the students and thus Saudi graduates enter the labor market unprepared and struggle to perform as efficiently as expatriates. Young nationals are also considered to be less fluent in English, have poor communication skills and have less IT literacy than foreign employers. Therefore the country remains heavily reliant on imported labor to meet the requirements of economic growth and contribute to the development of the country. The number of foreigners in the kingdom as at 2009 is estimated at between six and seven million, compared to around 17 million Saudis and make up about 67 percent of the workforce.

Another obstacle to Saudization is the fact that Saudi individuals still refuse to work jobs that are considered socially inacceptable such as blue collar jobs (janitorial, construction and cleaning services, etc). They fear that taking up these jobs will distort their social image and status. They prefer to remain unemployed rather than taking up a socially unacceptable job. On the other hand foreigners are not worried about their social image and are more concerned with saving. Therefore, the need for foreign workers to occupy service jobs remains high. Seventy eight percent of the total foreign workforce (4.8 million workers) does not have university degrees and occupy those blue collar jobs that Saudi workers refuse to accept.
Saudis also prefer to work in the public sector that provides them with higher salaries, more benefits and shorter working hours. That’s why the Saudi labor force in the private and public sector are imbalanced and why foreign workers occupy most of the private sector jobs.

Another obstacle to Saudization is that the nationals as less productive and more costly than expatriates. Employers must pay nationals a minimum wage higher than what they could pay expatriates and employers must also make pension contributions to the State for each of their indigenous workers. Saudi graduates also tend to look for jobs in high positions and expect high initial salaries while foreigners don’t mind climbing the ladder gradually. Saudis are even willing to remain voluntarily unemployed rather than accept lower paying jobs. Therefore this is another problem for Saudization.

Expatriates are also easier to control since they can be threatened by deportation. However Saudi nationals have many formal and informal rights which can discourage employers from hiring them

Success of Saudization
Saudization has been discussed for three decades however it was formalized in the years 1995 through 1999.
To some extent, Saudization in the public sector has been more effective than in the private sector. This is mainly because there is more control over hiring in the public sector than in the private sector.
Figures show that since 1992, the numbers of non Saudis working in the public sector have been gradually decreasing.

Year | No. of foreign employees in public sector(males and females) | 1992 | 159612 | 1993 | 144934 | 1994 | 133014 | 1995 | 128698 | 1996 | 109714 | 1997 | 95978 | 1998 | 89008 | 1999 | 82896 | 2000 | 81448 | 2001 | 79835 | 2002 | 75053 | 2003 | 69446 | 2004 | 68771 | 2005 | 70441 | 2006 | 69797 | 2007 | 68990 | 2008 | 71865 |
Source: Ministry of economy and planning

However in the private sector implementing Saudization has not been as effective and since there is currently no government body that monitors the activities of private establishments, the number of foreign workers are still increasing despite Saudization efforts. Statistics released by the Ministry of Labor in 2009 reveal that 10 percent of people employed in the private sector are Saudis. The total number of foreign workers in the private sector is around 6.5 million, which is 90 percent.

Private sector employers who do hire young nationals will at times give them managerial positions with little responsibility in order to fill their quotas

Why Saudization is not successful in the private sector
Since statistics show that 10 percent of people employed in the private sector are Saudis (which is 681,000 out of the 7 million people working in this sector). The total number of foreign workers in the private sector is around 6.5 million, which is 90 percent. It is evident that Saudization is not being implemented well in the private sector, there are many reasons for that, one of which that the private sector strongly believes that Saudization should be through free market forces because that will be the reason for its effectiveness and success rather than it being imposed by the government.
In addition, with the private sector’s own beliefs they had justified the reasons for the lack of success of Saudization. One of them is concerning the labor cost, it is far more cheaper for private sectors to hire non Saudis because of the imported cheap manual labor, hence higher profitability for them. Another reason is Saudis’ social and cultural perceptions, most of them refuse to work in the service sector because of the social status since this is still considered to be an important matter to most Saudis since they believe it affects their chances of getting married and other social relations.
Additionally, for the private sector they find it easier to control foreign workers because they are far more disciplined than Saudis, as well as they hire foreigners because they always have a contract whether a long term or short term, but for Saudis they don’t, so private sectors cannot fire them if they want it is a difficult process compared to the foreigners, so it is easier for them to hire non Saudis.
Moreover, the private sector noticed that Saudis lack adequate qualifications, this is usually concerning the English language, and other similar non technical background. Furthermore, a main negative point that concerns the lack of Saudization in the private sector is the location. Saudis refuse to work in locations that are considered far from where they live, that makes them less mobile than foreigners because non Saudis would not mind going anywhere, and they aren’t reluctant to change job locations.

Impact of Saudization (Negative)
The private sector claims that they don’t have the capacity to deal with the poorly qualified products of the Saudi educational system.
The medical sector repeatedly insists that medical technology and a hospital environment are critical to force any needs other than the lives of patients they care for. Their core business is unlike any other. They deal with human lives, which is nursing and technical work, long shifts, dealing with cranky patients and delicate high-tech equipment. These are qualities not available in Saudis due to their lack of education.

As for the hotel and restaurant industries, they also had their share of wanting freedom. Their field demands courtesy and service-oriented staff, not qualities Saudis are famous for. Hotel chain owners proved the difficulty they encounter to not only design programs to train for this particular aspect of service but to retain the Saudi trainee after such an investment.

''Our last attempt to increase Saudization in our hotel allowed us to fully train ten young men and twenty young women. We managed to retain only twelve of the women and three of the men. I don’t think that is a satisfactory result.” said by a Saudi HR in a four-star hotel, Jeddah.

As mentioned before that the private sector’s view of Saudization is that it represents a handicap to their freedom to practice their choice of employees both in quality, number and gender, which is evident in the examples above.

The private sector seems to understand the economic need to involve Saudis in their economy, but they raise concerns that this objective of Saudization will not necessarily produce large economic benefits for two main reasons. One, in a situation where the Saudi is to be employed instead of an efficient expatriate where he may need to be supported by another Saudi to do the same job, that is an economic loss. Two, although the expatriates transfer most of their earnings abroad, the fact is that their presence in the country enriches Saudi standards of performance and helps the Saudi economy.

This logic is justified with the argument that Saudis who really wish to attain certain types of jobs can still achieve this by getting qualified and demonstrating excellence.

Another underlying argument is the fact that their labor needs tend to be filled with expatriates not only for reasons of cost, an expatriate employee is much cheaper than a national, but also in terms of the quality they bring to the job.

The image of Saudization in the private sector and the society’s eyes is that of the lack of work ethics, lack of strategic planning and vision, the lack of human resources development awareness, the cost factor and, lastly, social considerations. Unfortunately, Saudization has so far done little to increase skills or lower the unemployment rate.

The Future of Saudization (KAUST)
It is believed that the future of Saudization lies in KAUST (King Abdullah University of Science and Technology) because the Saudi government believes quality education can provide more incentive to hire young Saudis over foreigners, and KAUST introduces different aspects to Saudis such as the multicultural environments and nurture skill development through the strengthening of educational and vocational training across the industrial sector.
More education and training in an international environment can ease the integration of young Saudis into the private sector and make them more attractive to potential employers and also greater assets to the public domain.
By investing in education and training the Saudi government is encouraging the availability of more professional jobs and other opportunities for young workers, however a bottom-up approach to entering the workforce is still emphasized when addressing the entitlement mindset of young Saudis. At an event honoring the country's McDonald's workers, Ghazi al-Gosaibi, the labor minister of Saudi Arabia said that "Government jobs won't fall from the sky anytime soon, I am proud of you for not just sitting at home waiting for a government job. For those who are still waiting, you may be waiting forever, so you'd best start somewhere."
Now there is just one question to answer, is Saudization going to work? Of course, this is not going to be an easy or a fast thing to accomplish because of the many serious factors that present challenges for Saudization. But the education sector is booming and even though it is moving slightly at a slow pace, nevertheless, it is a means of preparing Saudis to enter the workforce ready and qualified.

Conclusion
While educational reform is likely to be the most important aspect for successful Saudization, there are changes that also need to occur in the work ethics and mindsets of Saudis.
Nevertheless, Saudization is an excellent initiative in principle and much needed in the Kingdom given the large and increasing number of students who will be graduating and entering the workforce. However it is unrealistic to think that ultimately expat or foreign workers would be replaced since they have helped and contributed much more than the Saudis in profiting the private sectors.
So in conclusion, it is good that Saudi Arabia is taking initiative for educational reform and successful Saudization. But unfortunately there are many factors that need to be taken into consideration for it to be successful since that will take a lot of time and especially changing the mindset for Saudis because success is going to be a real challenge.

References: http://arabnews.com/saudiarabia/article189826.ece http://internationalbusiness.wikia.com/wiki/Saudization_and_the_Entitlement_of_Young_Nationals_in_the_Private_Sector