Saudi Arabia's plan to limit foreign worker visas in an effort to boost the employment of nationals will have negative effects on the economic growth and inflation rates, according to Citi’s Middle East chief economist.
“There is the possibility that many private sector companies will be shut down as a result of strict implementation ... Their possible failure would be likely to have an impact on economic growth, as the private sector goes through an adjustment period,” Citi’s Farouk Soussa said in a research note.
Companies in Saudi Arabia will have a three-month period to September 7 to achieve a set quota of Saudi employees, Labor Minister Adel Fakieh told Al Arabiya TV on Tuesday.
Business will be deprived of privileges if they do not comply, the minister said.
The new program may also lead to higher inflation as businesses may perhaps try to attract Saudis to jobs by offering them higher wages than they would offer foreign laborers.
“This will raise the cost base of doing business in Saudi Arabia, eroding local corporate competitiveness and raising domestic inflation,” Citi said.
There are currently eight million foreign workers in the Kingdom, of which six million are employed in the private sector, Mr. Fakieh said earlier this week.
Remittances from foreign workers total 100 billion riyals ($27 billion) a year, he added.
Companies across Saudi have targeted workers from Asia, who are allegedly willing to work long hours for low salaries, or have swerved toward well-paid foreign experts.
“The larger the company, the higher rate of Saudization is required from it ... If companies exerted even the smallest of efforts the unemployment rate would fall significantly,” he said Tuesday, outlining the government’s plans.
Unemployment in the Kingdom currently stands at 10.5 percent, the minister said. An estimated 28 percent of the unemployed were women and 40 percent high school graduates, he added.
Saudi Arabia has an estimated population of 25 million, with almost 70 percent under the age of 30.
The Gulf Arab state, the largest economy of the GCC and largest oil exporter in the world, has an annual GDP of $622 billion, and a GDP per capita of $24,200.
Unemployment among Saudi nationals has risen despite the country’s wealth. Analysts say that a dated school system focused on religion and the Arabic language is a factor that has produced graduates who have difficulty finding jobs in the private sector.
Also, a rapidly growing population -- increasing by around 2.4 percent annually – adds to the difficulty for finding jobs.
In 1994 the government began a “Saudization” plan, setting quotas for the number of nationals that private firms must hire, Reuters reported.
But the program failed to achieve a significant increase in the participation of nationals in the private sector, where Saudis still account for only 10 percent of employees.
(Eman El-Shenawi, a writer at Al Arabiya English, can be reached at: firstname.lastname@example.org)