What is Saudization/Nitaqat?
Saudization refers to the Saudi Nationalisation Program, also known as Nitaqat. This initiative by the Ministry of Labour makes it mandatory for companies to hire Saudi nationals. Saudization is primarily focused on the Private sector and follows a quota system depending on the company's type, industry, and size. Saudization aims to solve several employability challenges for Saudi nationals, yet its challenges will be discussed below.
It is well-known that the Kingdom of Saudi Arabia (KSA) plays a major role in the global economy. After COVID-19, when the world's economy was faced with an economic slump, Saudi Arabia (KSA) implemented a pro-business approach and is now becoming one of the fastest-growing economies in the world. In light of the region's strong economic standing and geographic positioning, the government wants to ensure that all Saudi nationals have access to opportunities to grow professionally, socially, and economically. Thus, companies in Saudi Arabia must fulfill a quota of hiring Saudi Nationals.
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History of Saudization
Saudization first emerged in 1985, when Saudi Arabia was gaining global popularity due to its robust economy due to the region's oil-richness. Moreover, it is also important for the entire Muslim world, and the yearly pilgrimage / Hajj contributes massively to the national income. The region began to attract expatriates from different parts of the world, who brought with them businesses. The government of KSA thought it important to ensure that Saudi nationals have access to these businesses and the associated opportunities.
In 2011, the Ministry of Labor put forward a resolution for all private companies in the country to fulfill a certain quota of hiring Saudi nationals, with a deadline of 2013. In the year 2014, a large number of expatriates left the country, and over 200,000 private firms were closed for failing to meet the rules laid down by Saudization/Nitaqat. Today, two-thirds of the country's population is Saudi nationals, and only one-third comprises expatriates. Certain roles have been reserved for Saudi nationals by the government, and the policies around Saudization keep evolving, depending on the Saudi nation-to-expatriate ratio in different industries.
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Why is Saudization Important?
Saudization is important for Saudi nationals as it ensures that Saudis are not isolated from businesses within their own country. The initiative aims to solve Saudi unemployment and the skill gap, which resulted in an overwhelming increase in the expatriate population. The KSA government aims to capture professional opportunities for Saudi nationals and upskill the locals, maximize their potential, and boost their overall impact on the country's economy and social sustainability.
Moreover, Saudization is very important to the government of KSA and Saudi nationals as the initiative aims to solve the economy's increasing dependency on natural resources such as oil and natural gas. Though oil and gas are incredible resources that can really boost a country's economy, they are bound to deplete at some point. Therefore, Saudization would enable the nationals to acquire the skills needed to diversify the economy.
What are the rules for Saudization/Nitaqat in 2023?
The Saudization/Nitaqat initiative makes it obligatory for all companies to hire Saudi nationals, although the rules vary according to the size and industry. For instance, Saudization classifies all private companies into six different zones, depending on the number of Saudi nationals they hire. The six classifications are:
- High Green
- Mid Green,
- Low Green,
- Yellow and
Platinum Zone is the most prestigious type of private company, as per the rules of Saudization, as it has the maximum number of Saudi employees. The range follows a descending order, with the Red Zone being the lowest on the scale, with few to zero Saudi employees. Although the Nitaqat classification only applies to companies with more than ten employees, companies with fewer than ten still must hire at least one Saudi national employee.
The classification helps the government keep a close check on private companies, ensure all Saudization rules are adhered to, and devise a further action plan. Moreover, the classification also means that companies receive either an incentive or a penalty. Some perks are limited only to companies in the Platinum zone, such as the rapid visa service.
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What are the recruitment challenges of Saudization?
There are several challenges associated with Saudization / Nitaqat despite the government's positive motives. Saudization solves several challenges for the KSA government, such as reducing unemployment amongst Saudi youth, cultivating better professional opportunities, and giving them a chance to indulge in more impactful work. However, private companies, expatriates, and Saudi nationals all faced with different challenges to tackle, which are discussed in further detail below:
Due to the hard rules laid by Saudization / Nitaqat, many private companies, especially the ones smaller in size or profitability, struggle to abide by these rules and regulations. Even the smallest companies, with less than ten employees, are expected to hire at least one Saudi national. Saudi nationals generally expect a higher salary than expatriates. Moreover, the cost of training and upskilling these nationals can be very high, too. This means that small companies struggle to survive, and many expatriate-owned small businesses are forced to shut down.
Another economic challenge of Saudization is that most Saudi nationals require extensive training or upskilling to perform in some of the roles reserved for them by the government. The government wants to ensure that Saudi nationals have meaningful roles; however, finding Saudi nationals with the right profile can be challenging. If a company does find the right Saudi national for a role, it becomes exceedingly challenging to retain that employee. A solid Saudi professional will be approached by many companies aiming to fulfill their own respective Saudization / Nitaqat quotas, hence offering better compensation packages, perks, and benefits to acquire them.
The new rules laid down in the governmental strategy have given companies fresh challenges to tackle, with organizations barred from hiring more expatriates but unable to find the required local talent. A war on talent is seeing well-qualified Saudis moving jobs regularly and increasing salaries, especially in the government sector. Meanwhile, the Human Resources Development Fund (HADAF) has transformed its branches across the Kingdom into employment centers to support Saudi job seekers. Khaled Abalkhail, the fund's spokesman, said that as many as 22 units of HADAF in various cities and regions of the Kingdom have been transformed into specialized centers to support job seekers taking up jobs in the private sector.
The Kingdom of Saudi Arabia has had relatively conservative social norms for women, where the government directs the leverage to drive or dress up a certain way. Therefore, women in professional settings were rare. However, the crown prince, Mohammad Bin Salman, has actively worked towards modernizing the society while simultaneously aiming to boost the nation's socioeconomic development. In the light of the development mission, Vision 2030, the prince has pioneered the alleviation of gender disparity in the professional world. He identified women as crucial assets for achieving the development goals laid out by Vision 2030.
However, society is slowly familiarising itself with the notions of modernity and liberalism, and there is a long way to go until Saudi women can navigate the workforce. Currently, no woman holds a seat in King Salman's cabinet or senior advisory roles, and the advisory Shura Council has only 30 women members out of 150. Although things have been changing slowly yet steadily for women in Saudi, approximately 33% of women in the country now have a professional career, which is twice the percentage of what it was five years ago. However, these professional roles also include women-dominated industries in the country, such as teaching, fashion, lifestyle, and beauty.
Saudization faces several socio-cultural challenges. Resistance to change is prominent, with employers and expatriate workers often reluctant to shift to a predominantly Saudi workforce, due to the lack of skill, knowledge or experience amongst Saudi nationals. Employers, especially expatriates, are accustomed to foreign labor's skills and work ethics. Employers of a specific nationality may prefer hiring people of the same cultural background.
Cultural diversity adds complexity, given Saudi Arabia's diverse population. Managing differing cultural norms, expectations, and communication styles between Saudis and expatriates can lead to cultural clashes. Language barriers also hinder effective communication, as Arabic is the official language, and expatriates may not be fluent. Similarly, Saudi nationals may feel isolated in workforce where their fellow countrymen are very few in number.
The shift towards Saudization can impact employment practices, such as working hours and benefits, leading to resistance or necessitating adjustments. Skill gaps among Saudi nationals require training efforts, and Saudization's aim to reduce unemployment can cause frustration if job opportunities don't keep pace. An expanding Saudi workforce may intensify job competition, potentially leading to tensions among Saudis. Saudization's labor market restrictions could hinder businesses' flexibility, impacting their ability to adapt to economic changes. Lastly, achieving integration and inclusion of Saudi nationals in the workforce requires creating an inclusive and diverse workplace culture.
What does Saudization mean for Expatriates?
Saudization impacts the expatriates in the country or those looking to relocate to the KSA for jobs. When hiring for a role, a Saudi national will always be preferred over an expatriate with the same skills, experience, and education. However, there is still a shortage of skilled and experienced Saudi nationals competing with expatriates for professional jobs. Hence, even though Saudization puts expatriates in a tough spot, it does not mean they do not stand a chance. A well-rounded professional with the right skills and expertise will land a good opportunity, even in KSA.
Impact of Saudization on the Workforce
The Saudi government introduced the Expat Dependent fee in 2017, requiring expatriates employed in the country to pay supplementary charges for their dependents or companions. In addition to the annual or quarterly issuance and renewal fees for the iqama, an additional levy for dependents is imposed.
Future of Saudization
As Saudization/Nitaqat grows in the region, employers in the private sector will be required to plan their workforce strategically, considering the number of roles that Saudi nationals must fill. In doing so, private companies will have to carefully assess which expatriate workforce should remain within the organization to aid continuous business development and train their Saudi national colleagues.
The government of KSA has devised a Vision 2030 plan to foster a robust economy; the Kingdom is determined to diversify its economic landscape and generate dynamic employment opportunities for its citizens. As part of this initiative, the government is prioritizing efforts to boost education, entrepreneurship, and innovation by;
- Broadening the nation's economic base by supporting the privatization of government-owned assets
- Unleashing the potential of underdeveloped sectors such as manufacturing, renewable energy, and tourism.
- Modernizing Saudi educational institutions' curriculum and educational standards, spanning from early childhood education to higher learning. The goal is to have a minimum of five universities ranked among the world's top 200 by 2030.
- Focusing on supporting small and medium-sized enterprises (SMEs) by promoting financial assistance to increase SMEs' contribution to the GDP from 20 percent to 35 percent by 2030.
In light of these efforts, one may argue that Saudi nationals have plenty of opportunities to emerge as globally competitive talent. However, this will only be possible if the expatriate population in KSA helps the Saudi nationals upskill, learn new tools, and fill the existing skills and knowledge gap effectively. The Saudi government is also focusing on filling the skill and knowledge gap by launching a multibillion-dollar scholarship program for young Saudi nationals pursuing international degrees.
Although Saudization /Nitaqat can not diminish the need for expatriates in Saudi Arabia, it is safe to say that the government aims to build a society that thrives on Saudi nationals' skills, knowledge, and experience.