News / Economy

Saudi Crackdown on Illegal Firms Threatens Thousands

Saudi authorities say
Saudi authorities say "cover-up" firms perpetuate unemployment for many, such as these laborers in Riyadh, June 18, 2013.
Reuters
Saudi Arabia's years of economic growth have been good to Abu Ahmad, an Egyptian ceramics worker in the city of Medina, who since 1997 has run his own business installing tiles and marble floors in new villas.
 
But after spending 16 years building up his company, the father of four now fears he might lose everything, not for lack of market demand in an economy where high oil revenue is fueling a construction boom, but because he is a foreigner.
 
Around the country, the government is cracking down on illegal "cover-up" businesses which are nominally registered to Saudi Arabian owners but in practice, owned and operated by foreigners.
 
The crackdown has forced some foreigners to leave the country and if it continues, could potentially result in the departure of tens of thousands more, according to businessmen, economists and government officials.
 
"If I can't adjust my status and work for a decent income, I will preferably leave and go back to my country. I know many of my friends who had to leave," said Abu Ahmad, identifying himself by a nickname since he was worried about being targeted by authorities.
 
Regulations

Under Saudi regulations, foreign-owned businesses face a complex licensing process and are tightly controlled. Over the decades, this system has not satisfied the demand for new businesses in a rapidly growing economy.
 
So many of the roughly nine million expatriates in the Saudi Arabia, who account for nearly a third of the population, have gone into business themselves. They enter the country on workers' visas, then set up companies and illegally pay fees to Saudi citizens who act as front men for them.
 
Such firms tend to be small and require little capital, but they are part of the sinews of the economy in many areas, ranging from mechanics' shops to plumbing businesses, restaurants and market stalls.
 
Abu Ahmad said he had used four illegal sponsors during his time in Saudi Arabia, and paid his current sponsor in Riyadh 5,000 riyals [$1,335] every year.
 
Abdulwahab Abu Dahesh, a prominent Saudi economist, said there was no official data on the size of the illegal business sector but he believed cover-up businesses and other unregulated activities might be worth 700 billion riyals a year — or about a quarter of recorded gross domestic product.
 
In the last several months, however, authorities have begun to act against illegal firms as part of a wide crackdown on illicit economic activity by foreigners, which has seen tens of thousands of illegal foreign workers deported so far in 2013.
 
Many Saudis argue the cover-up firms make the economy inefficient, take commercial opportunities from local citizens and effectively deprive them of jobs, since the firms tend to hire lower-cost foreign workers. Unemployment among Saudi citizens last year was 12 percent, according to official data.
 
"Most of the grocery stores and mini-markets we see in Riyadh are formed under cover-up practices. This harms the economy as it employs more than the needed staff — instead of employing two or three you employ six or seven," said Dahesh.
 
"It also leads to crimes and the emergence of customs and traditions that do not match those of our society."
 
Some of the profits of cover-up businesses are sent back to the foreign owners' home countries — a drain which Saudi Arabia can easily afford at a time of high oil prices, but which will become a burden if oil prices fall sharply. Workers' remittances abroad, which include some of these flows, rose 3.7 percent to 107.3 billion riyals last year, central bank data shows.
 
Under a law issued in 2004 but until now not strictly enforced, Saudis and foreigners involved in cover-up businesses face up to two years in jail, a fine of up to 1 million riyals or both. The business is liquidated and the foreign owner is deported after any jail term.
 
Impact

Officials at the ministry of commerce and industry, which is responsible for dealing with cover-up businesses, were not available to comment, and authorities have not revealed how many firms have been closed. Because it can be hard to prove that a nominal Saudi owner is in fact only a front man, it is unlikely that the practice can be entirely stamped out any time soon.
 
So far there is no clear sign that the crackdown is hurting the overall economy, and Labor Minister Adel Fakieh told Reuters last month that he was "not worried at all" by that possibility.
 
If all the cover-up companies reformed themselves to become legal and employed at least one full-time Saudi citizen, that would generate about 350,000 new job opportunities for local people, he estimated.
 
The alternative is for many of the companies to close down and if they do, that will provide opportunities for Saudi entrepreneurs to set up new businesses, he added.
 
Abdullah bin Mahfouz, board member at the Jeddah Chamber of Commerce and Industry, a Saudi businessmen's association, agreed that cover-up companies hurt the economy but suggested that to minimize any dislocation, they be given time to legalize themselves.
 
One option would be to allow the companies to register as legal foreign-owned enterprises within a certain time, he said. Alternatively, the nominal Saudi owners of businesses could be obliged to invest in and run them.
 
Abu Ahmad does not at present see either outcome as a possibility for him, however, so he worries about his future.
 
"The decisions prohibit working for yourself, and if anything happens, it is I who will be fined and jailed — foreigners are always the ones to blame," he said.

You May Like

Republican Majority in Congress Off to Rough Start

Standoff over Homeland Security funding exposes philosophical, tactical problems within party More

Pakistan Blocks Baloch Activist from US Trip

Human Rights Commission of Pakistan slams Islamabad officials for stopping people from leaving country to attend human rights conference More

Video Muslims Long Thrived in North Carolina Before Students Killed

Idyll shattered February 10, when three Muslim university students living in Chapel Hill were gunned down by a neighbor More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Muslims Long Thrived in N Carolina Before Slaying of 3 Studentsi
X
Jerome Socolovsky
March 05, 2015 9:04 PM
The killings of three Muslim students in North Carolina early last month came as Muslims across the United States have felt under siege, partly as a result of terrorist attacks being committed internationally in the name of their faith. But Muslims have long thrived in university cities in this part of the American South. VOA's Jerome Socolovsky reports.
Video

Video Muslims Long Thrived in N Carolina Before Slaying of 3 Students

The killings of three Muslim students in North Carolina early last month came as Muslims across the United States have felt under siege, partly as a result of terrorist attacks being committed internationally in the name of their faith. But Muslims have long thrived in university cities in this part of the American South. VOA's Jerome Socolovsky reports.
Video

Video Fuel Shortages in Nigeria Threaten Election Campaigns

Nigeria is suffering a gas shortage as the falling oil price has affected the country’s ability to import and distribute refined fuels. Coming just weeks before scheduled March 28 elections, the shortage could have a big impact on the campaign, as Henry Ridgwell reports for VOA.
Video

Video Report: Human Rights in Annexed Crimea Deteriorating

A new report by Freedom House and the Atlantic Council of the United States says the human rights situation in Crimea has deteriorated since the peninsula was annexed by Russia in March of last year. The report says the new authorities in Crimea are discriminating against minorities, suppressing freedom of expression, and forcing residents to assume Russian citizenship or leave. Zlatica Hoke has more.
Video

Video 50 Years Later African-Americans See New Voting Rights Battles Ahead

Thousands of people will gather to mark the 50th anniversary of a historic civil rights march on March 7th in Selma, Alabama. In 1965, dozens of people were seriously injured during the event known as “Bloody Sunday,” after police attacked African-American demonstrators demanding voting rights. VOA’s Chris Simkins introduces us to some civil rights pioneers who are still fighting for voting rights in Alabama more than 50 years later.
Video

Video Craft Brewers Taking Hold in US Beer Market

Since the 1950’s, the U.S. beer industry has been dominated by a handful of huge breweries. But in recent years, the rapid rise of small craft breweries has changed the American market and, arguably, the way people drink beer. VOA’s Jeff Custer reports.
Video

Video Video Claims to Show Shia Forces in Iraq Executing Sunni Boy

A graphic mobile phone video is spreading on the Internet, claiming to show Iraqi forces or Shia militia executing a handcuffed Sunni boy. Experts have yet to verify the video, but already Islamic State followers are publicizing it across social media, playing on deep-rooted sectarian fears. VOA’s Jeff Seldin reports.
Video

Video Ukrainian Authorities Struggle to Secure a Divided Mariupol

Since last month's cease-fire went into effect, shelling around the port city of Mariupol has decreased, but it is thought pro-Russian separatists remain poised to attack. For the city’s authorities, a major challenge is gaining the trust of residents, while at the same time rooting out informants who are passing sensitive information to the rebels. Patrick Wells reports for VOA.
Video

Video Volunteer Gauge-Watchers Help Fine-Tune Weather Science

An observation system called CoCoRaHS is working to improve weather science, thanks to thousands of volunteers across the country who measure precipitation in their own backyards, then share their data through the Internet. VOA's Shelley Schlender reports.
Video

Video NASA Spacecraft Approaches a Dwarf Planet

NASA’s Dawn spacecraft will make history on Friday, March 6, when it becomes the first man-made object to orbit a dwarf planet named Ceres. It is located in the asteroid belt between Mars and Jupiter, almost 500 million kilometers from Earth. Among other objectives, Dawn will try to examine two mysterious bright white spots detected on the planet’s surface. VOA’s George Putic has more.
Video

Video Young Muslims Radicalized Online

Young Muslims are being radicalized ‘in their bedrooms’ through direct contact with Islamic State or ISIL fighters via the Internet, according to terror experts. There are growing concerns that authorities and Internet providers are not doing enough to counter online extremism - which analysts say is spread by a prolific network of online supporters around the world. Henry Ridgwell reports from London.
Video

Video Positive Messaging Transforms Ethiopia's Image

Ethiopia was once known for famine and droughts. Now, headlines more often point to its fast-growing economy and its emergence as a regional peacemaker. How has Addis Ababa changed the narrative? VOA's Marthe van der Wolf reports.
Video

Video Answers Elude Families of MH370 Passengers

For the families on board Malaysia Airlines flight MH370, an airline official’s statement nearly one year ago that the plane had lost contact with air traffic control at 2:40 AM is the only thing that remains confirmed. William Ide reports.

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

World Currencies

EUR
USD
0.9034
JPY
USD
120.24
GBP
USD
0.6550
CAD
USD
1.2440
INR
USD
62.254

Rates may not be current.