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By Matthew Kalman
Saudi Arabia’s decision to place a one-year limit on work visas for foreign nationals employed at private enterprises in the kingdom marks another step in its accelerating “Saudization” program, analysts say.
The decree by Ali bin Nassir al-Ghafis, minister of labor and social development, excludes visas issued to government agencies and domestic workers, “consistent with article 11 of the Labor Code, which stipulates that the minister may take measures that will ensure the improvement of the performance of the labor market,” the Saudi Press Agency reported Oct. 23.
The decision comes amid a raft of reforms designed to reduce the number of foreign workers and replace them with Saudi citizens.
“This is very much in line with the Saudi government's ongoing push towards its own business community, which is that 11 million foreigners can no longer be supported in the labor market, and to try to wean them off cheap labor and start thinking of hiring more locals,” said Zahra Babar, associate director for research at the Center for International and Regional Studies at Georgetown University School of Foreign Service in Doha, who studies Gulf migration patterns. “Of course, this is much easier said than actually done.”
The measures aim “to limit the private sector's ability to bring in cheaper foreign labor to meet its needs,” Babar told Bloomberg BNA by email. “With the unemployment rate for Saudi citizens now above 12 percent, the pressure on the government to do more to enhance employment is getting even more critical. Most of the jobs that have been added to the Saudi labor market over the past few years have been taken up by foreigners, while the employment for nationals continues to be problematic.”
The government has stepped up pressure on businesses to hire more citizens by increasing the Nitaqat scale that measures the proportion of non-Saudis in each company and raising fees for foreigners’ work permits and residency permits for their families beginning in January.
Compared to Green Card and similar work visa requirements in other countries, “the ease of employing foreigners in [the Kingdom of Saudi Arabia] is genuinely exceptional,” said Omar Al-Ubaydli, program director for International and Geo-Political Studies at the Bahrain Center for Strategic, International and Energy Studies. “The market wage for foreign workers is likely to increase, bringing supply and demand back into balance.”
The decree clarifies a policy in effect for some time limiting many work visas to one year “to encourage employers to think about succession planning” as the Saudization program intensifies, said Sara Khoja, a partner at Clyde and Co. law firm in Dubai. “It requires employers to actively consider whether there are roles in which foreign employees can be replaced with Saudi employees.”
“All foreign employees must be engaged on fixed term contracts under the law,” Khoja said by email. “The aim is to eventually permit a foreign employee to complete his fixed term, the employer would give notice of non-renewal to the employee, and then a Saudi national would be placed in the role.”
One reason for the decree may be that employers were not using the currently available two-year visas, leading to bureaucratic confusion.
“We understand that a significant percentage of work visas applied for in the last year or two were not ever used, and having such a long validity period adds to the uncertainty of whether the work visa will ever be used or not,” said Sarah Lawrence, an employment law partner in the Dubai office of Squire Patton Boggs. “We don’t envision this change causing any significant issues for businesses operating in the kingdom. Given most of the procedure for completing the work permit process is now done online, I would be inclined to agree with the KSA government that one year is plenty of time for businesses to use the work visas that they have applied for and it provides the government with a greater ability to track the use of work visas.”
Hiring costs for businesses could increase “in the short run as wages for foreign workers rise,” Al-Ubaydli warned. “Since the government is simultaneously trying to roll back red tape, invest in better human capital, and create new investment opportunities, the net effect will be very difficult to tease out.”
“If deregulation is hampered by bureaucracy and entrenched interests, then the reforms will be at risk of becoming unbalanced,” Al-Ubaydli said. “The government must be sure to consult with firms over what easy changes it can do to help businesses.”
The effect on potential foreign workers could be significant, however—in line with the goals of the Saudi government.
“I think it will have a detrimental impact on some categories of foreign workers currently coming in for jobs in the service sector in particular,” said Babar. “It is far less attractive to move for a job overseas for 12 months as opposed to 24—given the cost of the move that most people incur. It might well serve to discourage certain categories of migrants from seeking jobs in Saudi Arabia.”
To contact the reporter on this story: Matthew Kalman in Jerusalem at email@example.com
To contact the editor responsible for this story: Rick Vollmar at firstname.lastname@example.org
For more information on Saudi HR law and regulation, see the Saudi Arabia primer.
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