Saudization: the Employability in Saudi Arabia - Research Paper Example

 Saudization Saundization is a policy by the Saudi Arabia government in an effort to promote the employability of the Saudi citizens by the private sector. For effective implementation of the policy, the ministry of labor developed a program dubbed ‘Nitaqat’ in 2011 and was required to be operational in 2013. It is worth noting that foreign employees from the western countries as well as Asia have dominated Saudi Arabian private sector. This situation aroused the government to enact the policy in an effort to protect its people and the country against the far-reaching dynamics of foreign labor (Kemnitz, 2003). Among these dynamics are the socio-economic effects. Saudi Arabia is one of the oil-rich countries in the world today, despite riches it has remained to more of a producer of crude oil with les activity in processing of crude oil. Foreign companies have capitalized on the opportunity in processing and exporting the crude oil. These companies usually bring their expatriates who take back the money they earn back to their countries. This scenario has influenced to some extent the economic dynamics of the Saudi people, especially considering the fact that unemployment among the youth remains high. Unemployment has direct and indirect economic implications that if not checked can bring a country to an economic instability. Employment equity between the Saudis and the foreigners is a key catalyst in the growth of the country’s economy. The Saudization policy advocates for a balance in the employment between locals and foreigners, it makes a lot of economic sense, especially given the high inequality that appears. A reduction in the number of foreign employees with a subsequent increase in the number of local employees will facilitate the growth of the economy. When majority of the population is employed the consumption rates increases, the dependency ratio declines and ultimately the government is capable of collecting more revenue. The purchasing power rises, an effort that promotes the local companies because of the expanded customer base (Hindriks & Myles, 2004). The extra income generated is channeled to investments resulting into projected economic development and growth. The reduction in the levels of dependency means that the amount of extra income among the populace rises, this creates an opportunity for implementation of economic programs that can help the country. Increased savings in the banks translates to interest rates, a situation that may result in higher income and diversified income generation. The government gets money from both the foreigners and the locals but the effects of locals having income is long lasting and can play a role in supporting the economy. On the other hand, the foreigners are not bound to staying in that country; most of them generate income and go their way to develop their mother countries (Kemnitz, 2003). Approximately seven million foreign workers found in Saudi send an estimated sixty billion to their home countries annually. The money charged to them in terms of work permits and taxes has smaller effect compared to input of the locals. The money lost from the economy therefore dictates of future predicaments if the Saudization policy is not implemented to the letter (Economist, 2013). During the course of employment, individuals gain experience that is very vital in developing their entrepreneurial skills. Initially, the expatriates were highly required for the development of the economy but the systems did not give a chance for locals to learn. The implications of having locals that are not empowered through experience is very dangerous to the economy of the country (Hindriks & Myles, 2004). Saudi Arabia being a major oil producer requires individuals that can venture into the oil industry and provide solutions to the issues in the sector, this cannot be achieved without the input of experienced and skilled personnel. Training and knowledge acquisition is important; a population with individuals having little experience is unable to connect with the practicability of processes. The economic outcome is that the population will be much aware of the changing trends, an aspect that is economically beneficial (Alanezi, 2012). The Saudization policy encourages the involvement of as many locals as possible in the acquisition of relevant working skills. The country’s overdependence on oil revenues seems a strategy that encouraged the foreign companies in the yester years, by 1980 the number of foreign workers had superseded that of the locals (Madhi & Barrientos, 2003). This has left many locals seeking for employment, a factor that strains the economy because the government is prompted to develop empowerment policies for the unemployment crisis in the country. In the long run, the effects of the situation may overflow to uncontainable situations such as violence that may bring down the economy. The effects of the Saudization policy are more pronounced in some goods than others. The local culture and religion has specific trends of consumption that can greatly affect some businesses. Focusing on the effects on club goods, there is a possibility that the recreation industry will have a completely different outlook. The foreigners, some of who uphold different religious and cultural beliefs have developed their own way of spending their spare time in private parks, and cinemas among others. With reduction in the number of foreign employees, these facilities will drastically reduce leading to some revenue reduction (Madhi & Barrientos 2003). However, with the reduction in this sector comes an increment in other sectors that deals with the same type of goods. This will be based on the local consumption that is obviously expected to rise following the rising income. The balance to the economy is created by the local consumption. Another factor that comes into play with Saudization policy is the advancement of the local industries that manufactures local consumables. The effects are far reaching since the government also gets to benefit from the taxes imposed on these goods and services. The locals also get to benefit because increased consumption will facilitate increased production, a factor that promotes competition hence reduction in commodity prices. Vibrant companies play a significant role in fostering the corporate social responsibility that benefits the entire community. The government expenditure can be forced up through the implementation of the policy. Training locals to fit into the positions of the foreigners requires insurmountable input by the private sector. The private sector will be forced to raise their charges on government contracts, an aspect that indirectly results to increased government expenditure. In the short term, the government feels the hitch of the reduced foreign labor but the trend is changed in the long term. Establishing mechanisms to implement the program in itself is a daunting task that requires financial as well as human resource input. This translates to increase in spending. However, an economic focus on the long term reveals that the benefits supersede the shortcomings. A restrictive pool of labor is economically unfriendly because it reduces equal competition, this may result in low productivity and hence reduction in the taxes collected (Madhi & Barrientos, 2003). Saundization policy can play a role in destabilizing the economy. When foreigners are locked out it means some of the companies have no option rather than get back because the skills they require are not available. The government loses income that could otherwise have been generated by the company. Foreign workers in Saudi especially the specialists in defence and the oil industry are western expatriates. They control major industries as well as have some stake in the government, if such are withdrawn the country stands to lose economically and socially (Alanezi, 2012). Some of the workers have established permanent residents in Saudi Arabia, an aspect that would make it very difficult for the government to abolish foreign labor. The ties developed between the government and the organizations also acts as an impediment to the adoption of the policy. If such ties are broken the government can suffer from lack of their input in the economy. The companies have extended their social responsibility to the communities where they have facilitated development of community projects and infrastructure, if such support is withdrawn the government is prompted to take the responsibility on itself. A strict implementation of the policy can result to inflation and negatively affect the economic growth. The period a company requires to adjust to the new workforce can be the beginning to a company’s financial woes. There is a possibility that some private companies can result to closure in respect to inability to handle the dynamics of a new workforce. The fact that the policy lays restrictions to noncompliance, some companies may find their way out of the country. The results will directly affect the government revenue and job loses for the few locals employed in thee companies. High inflation is a likely event, in trying to get the best Saudis for the job, companies may result to paying highly compared to what they give to foreigners. The effects are that the cost of doing business rises resulting in high inflation and subsequent loss of corporate competiveness (Kemnitz, 2003). Most of these companies have capitalized on cheap labor from some of the Asians who work for long periods, this implies that the company’s profit margins will be reduced resulting into subsequent reduction in the taxes paid to the government. The Saudisation policy has an impact on the global relationships of Saudi Arabia with other countries. There is a likelihood of suspicion arising between the affected countries and the Kingdom because of the expatriation of its citizens. It has been reported that India is one of the most affected countries, an aspect that has attracted comments from the country’s leadership. Such a political view can have economic implications on the relationship between the two countries especially in trade (Alanezi, 2012).. If such suspicion comes in, then their governments may advice them to withdrawal from the country. If such happens, some of the sectors of economy will be affected greatly including the government revenue. The global market has tried to adhere to globally acceptable procedures; non-adherence has attracted direct or indirect barriers. These barriers can present challenges to some of the locally produced goods reaching the market simply because the country discriminates against employability of foreigners Direct foreign investments have a likelihood of being affected by the policy. Some of the companies will prefer having their foreign personnel in dealing with the business issues until it stabilizes. This provision is not in the policy. However, the policy requires that the number of locals be based on the total number of employees, usually considering a reducing percentage as the number of workers reduces. The uncertainty by a foreign company that at the initial stages creates a need for the foreigners who have been working with the company elsewhere to be used. The case of Saudi prohibits a company from having all foreigners. Large companies have applauded the move since competition by smaller ones is greatly reduced. However, in an effort to encourage direct foreign investments the government decided to reduce taxes on foreign investments from 45% to 20% (Al-Dosary & Rahman, 2005). Foreign investments play a critical role in the economy especially through the taxes the government is able to collect as well as other economic benefits. Outsourcing of labor from other countries is cheaper to acquire and maintain. Locals demand high pay because of the underlying regulations and requirement that Saudis should always be paid highly while foreigners get lower wages. This presents a situation where private companies can utilize to maximize on their profits. An economic double tragedy occurs at the initial stages where the company will be required to invest in the training of the employees. Considering the situation the policy is trying to address, it is notable that the number of unemployment people is high, thereby posing a challenge for companies in getting the best. Some of the big companies in Saudi Arabia have committed to adherence. General Electric, a United States company based in Saudi confirmed its commitment to the policy. As a result of the localization of labor, the allowances given to foreigners are dramatically reduced leading to a situation where the companies are capable to maximize on their profits. Profit maximization translates to improved economic performance. Coupled with the Iqama regulations, the policy can create a platform for massive foreign withdrawal from the country. The rules adhered to by foreigners are tough, the Iqama provides that the foreigners should have a working contract with a Saudi citizen who acts as their sponsor. In addition, their passport is confiscated and remains with the employer, movement from one district to another is restricted while changing of jobs without the consent of the employer is not possible. Some discrimination in the workplace occurs where Saudis are supposed to be paid higher wages than their colleagues are. Citing all these issues there are chances of withdrawal by foreign expatriates on grounds of biasness and lack of absolute personal freedom (Madhi & Barrientos 2003). Companies that have relied on foreign workers heavily will feel the effects of the Saudisation policy heavily. The turbulent times associated with the change may push them out of market, either through competition or inability to get back to a productive path. According to Oxford Analytica (2013), it is likely that after analyzing the situation, some may decide to go back to their countries. The challenge can further be facilitated by the fact that most of the unemployed youths prefer to work with the public sector because of the many benefits that are derived thereof. Saudi still faces housing problems; the exit of construction companies can greatly affect the housing sector. Having few foreigners and many Saudis that are unwilling to work will result in an employment crisis that will force a rise in the wages (Economist, 2013). Rising wages are an advantage to the Saudi employees but again pushes the cost of doing business up, these scares away small businesses. In addition, high cost may result to inflation or otherwise reduced tax collection. References Alanezi, A. (2012). WORKFORCE LOCALIZATION POLICIES IN SAUDI ARABIA: THE DETERMINANTS OF SUCCESSFUL IMPLEMENTATION IN MULTI-NATIONAL ENTERPRISES. Paper presented at the 747-758. Retrieved on November 26, 2013 from http://search.proquest.com/docview/1350307867?accountid=45049 Al-Dosary, A. S., &Rahman, S. (2005). Saudization (Localization) – A Critical Review, Human Resource Development International, 8(4), 495-502. Retrieved on November 26, 2013 fromhttp://ehis.ebscohost.com/eds/pdfviewer/pdfviewer?sid=f9d76c48-5ddb-4179-9abf-8e157706a417%40sessionmgr4002&vid=2&hid=4210 Go Home, But Who Will Replace You?; Saudi Arabia and its Labourers. (2013, Nov 16). The Economist, 409, 52-n/a. Retrieved on November 26, 2013 from http://search.proquest.com/docview/1459209914?accountid=45049 Hindriks, J.,& Myles, G. D. (2004, June). Intermediate Public Economics. Retrieved on November 26, 2013 from http://czx.xmu.edu.cn/download/20100225113146416.pdf Kemnitz, A. (2003). “Immigration, Unemployment and Pensions.” Scandinavian Journal of Economics 105: 31-47. Madhi, S. T., & Barrientos, A. (2003). Saudisation and employment in saudi arabia. Career Development International, 8(2), 70-77. Retrieved on November 26, 2013 from http://search.proquest.com/docview/219374293?accountid=45049 SAUDI ARABIA: Labour reforms will have limited effect. (2013).Oxford: Oxford Analytica Ltd. Retrieved on November 26, 2013 from http://search.proquest.com/docview/1346846923?accountid=45049 Read More