As part of the Kingdom of Saudi Arabia’s Vision 2030 and the continuing goal of the Saudization of the country’s labor market, the Saudi government is implementing new higher local worker hiring levels in order for companies to be eligible for block visas for foreign workers. The new Saudization levels take effect September 3, and Pro-Link GLOBAL offers this review of the changes and some practical recommendations for companies in meeting this latest iteration of the Nitiqat program.
Current Business Climate
The stagnation in Saudi Arabia’s economy since the first quarter (Q1) of 2016 persisted through Q2 of this year, due primarily to the continued low global oil prices and efforts by the Organization of the Petroleum Exporting Countries (OPEC) to cut production. With the oil sector contracting by 2.3 percent in Q1 2017, non-oil sectors are feeling the pinch as well as the Saudi crown has been forced to make deep cuts in the government budget and cancel planned construction projects in an attempt to deal with record budget deficits. Economists revised 2017 GDP growth projections earlier this year to less than one percent.
However, last week the crown announced that the budget-cutting measures along with hikes in government fees (including higher visa fees and the new “expat levy”) have successfully cut the deficit this year by half, news that pleased foreign investors who have predominately financed recent government spending. While GDP growth will continue to fall far below past levels, economists are optimistic that the fiscal measures and gradually increasing oil prices will soon steer Saudi Arabia’s economy back to healthy growth mode.
Throughout these budget-balancing efforts, the crown has endeavored to pursue its ambitious Vision 2030 plan of broad-based reforms designed to develop new business sectors, diversify the economy away from oil dependence, and create more local private sector jobs. The chief architect of Vision 2030, 31-year-old Mohammed bin Salman, was named Crown Prince and the next ruler-apparent in June.
Many analysts are skeptical that the lofty goals of Vision 2030 are achievable, especially as oil’s dominance wains in the global energy scene. On the one hand, while the plan has thus far brought some improved efficiency to government service delivery, it is likely too early to notice any impact on the private sector. On the other hand, in what will be the world’s largest initial public offering (IPO), the planned sale of five percent of state-owned Saudi Aramco will more than erase any deficits and fuel further infrastructure investment. That all being said, foreign investment and talent will still be required to overcome much of the production inefficiency that plagues Saudi businesses.
Background – “Saudization” and the Saudi Labor Market
Clearly one of the country’s greatest needs is more private sector jobs for its citizens. Ninety percent of the private sector jobs in Saudi Arabia are held by foreign nationals, and the local unemployment rate has now risen above 12 percent. The reasons for this are multifaceted: demographics, cultural norms, education and skills mismatches, and the poor working conditions of many private sector jobs compared to the traditional government jobs held by many Saudi citizens. Of the more than 400,000 new jobs added to the Saudi economy each year, the vast majority continue to go to foreign workers. Targets of Vision 2030 call for the reduction of local unemployment to under seven percent by 2030.
Thus, a big part of the Kingdom’s economic plan hinges on motivating companies operating in the country to hire more local workers rather than bringing in foreign workers from abroad. To accomplish this aim, the government in recent years has pursued a policy of Saudization, with a “carrot and stick” approach to encourage companies to increase the number of Saudi citizens they employ. Through the “Nitiqat” system, first introduced in 2011, companies are given privileges, requirements, or limitations in the visa process for their foreign workers based on the percentage of their workforce made up of Saudi nationals. For more details on Nitiqat, see our Global Briefs of September 2 and April 9, 2015. Recent years have also seen increased Labor Market Testing (LMT) requirements in an attempt to employ more local workers; and, most recently, a new “expat levy” placed a per capita monthly fee on all foreign nationals in the country, including both working foreign nationals and their dependent family members. For more details on the increased LMT requirements and the new “expat levy,” see our Global Brief of September 2 and Immigration Dispatches of July 10 and June 19.
In December of last year, a new form of “Balanced Nitiqat” was slated for implementation. This system would have incorporated percentages of local workers along with their wages and longevity into a points-based system to rank companies on compliance levels, with companies at the highest levels being afforded the most access to block visas for foreign workers and preferred application processing. For more details, see our Immigration Dispatch of October 10. However, shortly before “Balanced Nitiqat” was due to be implemented and at the request of business groups, the government announced that it was postponing the program to allow companies more time to revise their HR processes to comply with the more complex requirements. See our Immigration Dispatch of December 19.
Effective September 3, a new iteration of Nitiqat will be implemented by the Saudi Ministry of Labour and Social Development (MLSD) incorporating some of the previously proposed “Balanced Nitiqat,” encompassing more companies under its requirements, setting new higher “Saudization” levels, and reserving the privilege of applying for new block visas only for companies ranked in the Platinum and High Green compliance categories.
Effective September 3, all companies with six or more employees will be subject to the Nitiqat ranking system and Saudization requirements, an increase from the current threshold of ten or more employees.
New Higher Saudization Levels
The new Saudization matrix is complex, with companies ranked into six bands from Premium, High Green, Medium Green, Low Green, Yellow, and Red, and grouped by industry sector and company sizes of Giant, Big, Medium (A, B, or C), and Small. Saudization levels – the percentage of the company’s workforce consisting of local workers – are then set at various levels based on the industry and size of the company.
For example, in the petroleum and natural gas industry sector, a Big company must have 71 percent of its workforce made up of Saudi workers in order to be considered in the High Green band. However, a Small company in the same sector can qualify for the High Green band with just 46 percent of its workforce made up of local workers.
At its most extreme, the new matrix imposes high Saudization levels on the financial institutions sector. A Big banking firm must have 94 percent of its workforce made up of Saudi citizens in order to qualify for the High Green band. On the other end of the spectrum, the construction sector has relatively liberal Saudization levels. A Big construction company can qualify as a High Green company with just 16 percent of its workforce consisting of local workers. On the continuum between those two extremes lie 69 industry sectors with varying levels of local hiring required.
Interestingly, one of Saudi Arabia’s fastest growing sectors, and one in which companies continually decry a skills shortage, Information Technology carries a relatively high Saudization requirement. A Big IT company must have at least 73 percent of its positions held by local Saudi citizens in order to qualify for block visa grants as a High Green company. While the motivation for this is obviously to encourage companies to train more Saudi nationals in technology skills, it will clearly place a strain on other goals of Vision 2030 to diversify the economy by growing a larger tech sector.
New Block Visas Reserved for Platinum and High Green
Most significantly, under the new Nitiqat rules, only companies ranked in the Platinum and High Green bands will be eligible to apply for “block visas.” Companies that fall below these two highest Nitiqat bands will be limited to filling positions with foreign workers already in the country with valid work authorization. The company needing the foreign worker will have no other option but to recruit the foreign worker away from another company and submit a transfer of sponsorship application to have their work authorization transferred.
As the block visa is the principle route for companies to bring needed foreign labor to Saudi Arabia, this will place tremendous pressure on companies to ensure that they maintain the applicable Saudization levels so as to qualify for the Platinum and High Green bands. Currently, all companies in any of the Green bands – High, Medium, or Low – are given access to the block visa scheme. Under the current scheme, companies receive pre-approval through the MLSD for several (a ‘block” of) positions for which they require foreign workers. After approval of the block visa, applications for work visas are submitted to the overseas Saudi consular posts in the foreign national’s home country. However, after the September 3 changes are implemented, many companies that fall in the lower compliances bans will have no access to this scheme.
For a company-specific assessment of current Saudization levels for any Saudi entities, please reach out to your Pro-Link GLOBAL Immigration Specialist.
How These Changes Affect You… and What You Can Do About Them
The new Saudization matrix will place significantly increased burdens on companies that rely on foreign labor for their operations in Saudi Arabia. While the new higher Saudization levels are set to take effect September 3, it appears that in reality these new standards may have already been in use by MLSD authorities in an unofficial capacity, with almost 60 percent of work visa applications having been rejected in 2016.
With these standards now more clearly defined, companies can make the necessary adjustments to their hiring practices in an attempt to achieve the High Green band and have access to block visas for their foreign hiring needs. Companies that are unable to achieve the new High Green level, but nevertheless continue to have unmet needs for foreign talent, should explore the possibility of recruiting foreign nationals already in the Saudi labor market.
Going forward, Pro-Link GLOBAL offers these practical suggestions for companies that desire to remain eligible for block visas:
- Examine the new Saudization matrix to determine the number of Saudi employees that the company must employ to achieve the High Green level for their industry sector and size, and plan workforce strategy accordingly;
- Examine current job positions to ensure that the company is making full use of local labor where possible;
- Review local employee recruitment practices to ensure that every effort is being made to hire local Saudi citizens. If possible, consider extending the Labor Market Testing phase of the block visa process beyond the required 45 days. Post positions on the Taqat national jobs website as early as possible. Utilize additional recruitment means, beyond the Taqat website, to locate the needed talent locally;
- Review current employee retention experience to ensure every effort is being made to retain local Saudi citizens already employed by the company;
- Build internal training programs to develop local employees to meet future hiring needs, considering both advancement and lateral moves; and
- Review longevity and retirement plans of current employees to anticipate and plan for future hiring needs.
For more specific guidance regarding the new Saudization matrix, the Nitiqat program, and/or other requirements involved in employing foreign nationals in Saudi Arabia, please reach out to your Pro-Link GLOBAL Immigration Specialist who can assess your company’s specific corporate immigration needs.
This is provided as informational only and does not substitute for actual legal advice based on the specific circumstances of a matter. We would like to remind you that Immigration laws are fluid and can change at a moment's notice without any warning. Please reach out to your immigration specialist or your client relations manager at Pro-Link GLOBAL should you require any additional clarification. This alert was prepared by your Pro-Link GLOBAL Knowledge Management team. We worked with our PLG | KGNM Saudi Arabia Office “Proven” to provide you this update.
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