News / Economy

    Saudi Arabia Cushions Labor Reform with New Hours, Subsidies

    FILE - Traders monitor stocks at the Saudi Hollandi Bank in Dammam, 350 km (217 miles) east of Riyadh, March 28, 2011.
    FILE - Traders monitor stocks at the Saudi Hollandi Bank in Dammam, 350 km (217 miles) east of Riyadh, March 28, 2011.
    Reuters

    Saudi Arabia is changing tack in its labor reforms, softening the blow to companies with money for subsidies and training while trying to lure Saudis to the private sector with more attractive working conditions.

    A draft law would limit working hours at companies to entice new employees and adjustments are being made to recent rules. Meanwhile the government is spending billions of riyals to help pay Saudi workers' salaries, and is setting aside more money to smooth the path of the most sweeping economic reforms in decades.

    Authorities launched labor reforms in 2011 after the Arab Spring uprisings to head off political unrest by reducing unemployment. They also want to lower the cost to the economy of Saudis' dependence on comfortable but expensive state jobs.

    The reforms so far have slowed the economy and slashed profits at some firms, interfering with other policy goals such as diversifying the economy beyond oil. They boosted the number of Saudis in the private sector, but many workers have not been effective or only stayed in their jobs for a few weeks.

    So the government is now adjusting its strategy in an effort to improve the system for both companies and employees.

    “Our intention is not to harm business - our intention is to get Saudis hired and reform the market,” Ahmed al-Humaidan, deputy minister for labor policies, told Reuters. “If this involves costs, we are willing to share them.”

    Reforms in the past three years have focused on pressing firms to employ more Saudis, by making it harder and more costly to hire foreign staff.

    Alongside a population of about 20 million Saudi citizens, roughly 10 million foreigners from south Asia and elsewhere work in sectors such as construction, transport and services, receiving salaries that most Saudis would consider too low.

    That arrangement is fine when oil prices are high and the government is flush with money to create state jobs for its citizens. But the uprisings elsewhere in the Arab world underlined how vulnerable the country would become if a sustained drop in oil prices left it unable to employ Saudis.

    The draft law on working hours aims to make private companies more attractive by limiting the working week to 40 hours, down from 48 in many firms, and increasing the weekend to two days from one. State workers have a 35-hour work week plus generous pensions and health benefits.

    Electric shock

    Any reform effort in Saudi Arabia involves overcoming a sluggish, conservative state bureaucracy. So the government's determination to proceed with labor reform has been striking - a sign that it views the issue as one of long-term survival.

    Since 2011 the reforms have been led by Labor Minister Adel Fakieh, a former chairman of private Saudi food maker Savola Co who has a reputation for finding his way around bureaucratic obstacles.

    But prominent Saudi economist Abdulwahab Abu Dahesh said the latest measures marked a recognition among officials that the “electric shock” approach of the initial labor reforms, although effective, needed to be softened.

    “The shocks were too strong for the private sector to cope with,” he said.

    The number of Saudis working in the private sector jumped to 1.5 million people by the end of last year from 681,481 in 2009, according to the latest available data in the ministry's annual report for 2013, published in late July.

    That brought the “Saudisation rate” - the proportion of all private sector jobs held by Saudis - up to 15.2 percent from 9.9 percent over the same period.

    But Fawwaz Al-Khodari, chief executive of major construction firm Abdullah A. M. Al-Khodari Sons, said all contractors were having “a serious battle trying to get those that they hire to actually do anything”.

    He said many Saudis were not willing to work in projects such as city cleaning or at remote sites, making hiring a large number of Saudis in non-administrative jobs a major challenge.

    “By forcing the contracting sector to hire nationals that are neither available in the numbers needed, nor with interest in the sector, we are encouraging unproductive dependency,” Khodari said in an April interview with Reuters.

    The policy adjustments come as the country prepares to open its stock market to direct investment by foreign institutions. Companies depending on large supplies of foreign labor have been hit hard by the reforms. Second-quarter net profit at Khodari Sons tumbled 69 percent from a year ago.

    Abu Dahesh and other economists said some businessmen hired acquaintances purely to meet Saudisation quotas, or paid 1,500 to 2,000 riyals ($400 to $535) a month to university students or stay-home graduates in exchange for their names on a company's employee records.

    The costs of the reforms are slowing the economy moderately; annual gross domestic product growth eased to an annual rate of 4.7 percent in the first quarter of 2014 from 5.0 percent in the previous quarter. Non-oil private sector growth slowed to 4.4 percent, the lowest pace in at least a decade.

    Costs

    Through its Human Resources Development Fund (HRDF), the  government is spending billions of riyals on subsidizing Saudi workers' salaries, paying up to 50 percent of increased payroll costs due to firms hiring more Saudis or raising their wages.

    Additional amounts are spent on sharing the cost of companies' training programs and paying monthly unemployment benefits to job seekers.

    “Reforms started in 2011 and now we are coming to the end of 2014. We are probably spending 20 or 30 times as much as we spent in 2011,” said Ibrahim Al Muaiqil, the HRDF's director.

    In its annual report, the Labor Ministry said it was asking the government to spend 14.9 billion riyals annually on labor market reform.

    The ministry is also adjusting some rules to make them easier for companies to obey, or interpreting them somewhat more benignly. For example, it previously calculated whether a firm was meeting its quota for employing Saudis by looking at data for a 13-week period; from January, it will expand that period to 26 weeks, giving companies more flexibility in complying.

    Another new initiative, which is to be launched in the next few weeks, will see the HRDF contact young Saudis while they are still at school to identify career paths and give them online vocational training.

    Asim Khwaja, professor and researcher at Harvard Kennedy School in the United States, who worked on the Saudi labor reforms, said that after initially focusing on enforcing Saudisation quotas, authorities were now taking action to get companies on their side.

    “You have created big pressure on them, so you have to help them now,” he said.

    The government and many private economists think the labor reforms will boost economic growth in the long term, by ensuring more money stays within the country and is spent on consumption rather than being remitted abroad by foreign workers.

    For now - at least into next year - the labor reforms look set to continue slowing growth and dampening corporate profits. But that is a price which the government is willing to pay.

    Muaiqil said of state spending on the reforms: “Whether it is 15 or 50 billion, the only thing I can assure you is that the government... is determined to fix those issues, because they will shape our future.”   

    You May Like

    Video Democrats Clinton, Kaine Offer 'Very Different Vision' Than Trump

    In a jab at Trump, Clinton says her team wants to 'build bridges, not walls'; Obama Hails Kaine's record; Trump calls Kaine a 'job-killer'

    Turkey Wants Pakistan to Close Down institutions, Businesses Linked to Gulen

    Thousands of Pakistani students are enrolled in Gulen's commercial network of around two dozen institutions operating in Pakistan for over two decades

    AU Passport A Work in Progress

    Who will get the passport and what the benefits are still need to be worked out

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    In State of Emergency, Turkey’s Erdogan Focuses on Spiritual Movementi
    X
    July 22, 2016 11:49 AM
    The state of emergency that Turkish President Recep Tayyip Erdogan has declared is giving him even more power to expand a purge that has seen an estimated 60,000 people either arrested or suspended from their jobs. VOA Europe correspondent Luis Ramirez reports from Istanbul.
    Video

    Video In State of Emergency, Turkey’s Erdogan Focuses on Spiritual Movement

    The state of emergency that Turkish President Recep Tayyip Erdogan has declared is giving him even more power to expand a purge that has seen an estimated 60,000 people either arrested or suspended from their jobs. VOA Europe correspondent Luis Ramirez reports from Istanbul.
    Video

    Video Scientists in Poland Race to Save Honeybees

    Honeybees are in danger worldwide. Causes of what's known as colony collapse disorder range from pesticides and loss of habitat to infections. But scientists in Poland say they are on track to finding a cure for one of the diseases. VOA’s George Putic reports.
    Video

    Video Wall Already Runs Along Parts of US-Mexico Border

    The Republican Party’s presidential nominee, Donald Trump, gained the support of many voters by saying he would build a wall to keep undocumented immigrants and drugs from coming across the border from Mexico. Critics have called his idea impractical and offensive to Mexico, while supporters say such a bold approach is needed to control the border. VOA’s Greg Flakus has more from the border town of Nogales, Arizona.
    Video

    Video New HIV Tests Emphasize Rapid Results

    As the global fight against AIDS intensifies, activists have placed increasing importance on getting people to know their HIV status. Some companies are developing new HIV testing methods designed to be quick, easy and accurate. Thuso Khumalo looks at the latest methods, presented at the International AIDS conference in Durban, South Africa.
    Video

    Video African Youth with HIV Urge More Support

    HIV, the virus that causes AIDS, is the top killer of teens in sub-Saharan Africa. But many youths say their experience with the virus is unique and needs to be addressed differently than the adult epidemic. VOA South African Correspondent Anita Powell reports.
    Video

    Video Poor Residents in Cleveland Not Feeling High Hopes of Republican Convention

    With the Republican Party's National Convention underway in Cleveland, Ohio, delegates and visitors are gathered in the host city's downtown - waiting to hear from the party's presidential candidate, Donald Trump. But a few kilometers from the convention's venue, Cleveland's poorest residents are not convinced Trump or his policies will make a difference in their lives. VOA's Ramon Taylor spoke with some of these residents as well as some of the Republican delegates and filed this report.
    Video

    Video Pop-Up Art Comes to Your Living Room, Backyard and Elsewhere

    Around the world, independent artists and musicians wrestle with a common problem: where to exhibit or perform? Traditional spaces such as museums and galleries are reserved for bigger names, and renting a space is not feasible for many. Enter ArtsUp, which connects artists with venue owners. Whether it’s a living room, restaurant, office or even a boat, pop-up events are bringing music and art to unexpected places. Tina Trinh has more.
    Video

    Video With Yosemite as Backdrop, Obama Praises National Parks

    Last month, President Barack Obama and his family visited some of the most beautiful national parks in the U.S. Using the majestic backdrop of a towering waterfall in California's Yosemite National Park, Obama praised the national park system which celebrates its 100th anniversary this year. He talked about the importance of America’s “national treasures” and the need to protect them from climate change and other threats. VOA’s Julie Taboh reports.
    Video

    Video Counter-Islamic State Coalition Plots Next Steps

    As momentum shifts against Islamic State in Iraq, discussions are taking place about the next steps for driving the terrorist group from its final strongholds. Secretary of State John Kerry is hosting a counter-IS meeting at the State Department, a day after defense ministers from more than 30 countries reviewed and agreed upon a course of action. VOA Pentagon correspondent Carla Babb reports.
    Video

    Video Russia's Participation at Brazil Olympic Games Still In Question

    The International Olympic Committee has delayed a decision on whether to ban all Russian teams from competing in next month's Olympic Games in Brazil over allegations of an elaborate doping scheme. The World Anti-Doping Agency recently released an independent report alleging widespread doping by Russian athletes at the 2014 Winter Olympics in Sochi. So far, only Russian track and field athletes have been barred from the Summer Games in Brazil. VOA's Zlatica Hoke has more.
    Video

    Video Scotland’s Booming Whisky Industry Fears Brexit Hangover

    After Britain’s vote to leave the European Union, Scotland’s government wants to break away from the United Kingdom – fearing the nation’s exports are at risk. Among the biggest of these is whisky. Henry Ridgwell reports on a time of turmoil for those involved in the ancient art of distilling Scotland’s most famous product.
    Video

    Video Millennials Could Determine Who Wins Race to White House

    With only four months to go until Americans elect a new president, one group of voters is getting a lot more attention these days: those ages 18 to 35, a generation known as millennials. It’s a demographic that some analysts say could have the power to decide the 2016 election. But a lot depends on whether they actually turn out to vote. VOA’s Alexa Lamanna reports.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.9079
    JPY
    USD
    106.10
    GBP
    USD
    0.7636
    CAD
    USD
    1.3106
    INR
    USD
    67.076

    Rates may not be current.