News / Economy

    Saudi Crackdown on Illegal Firms Threatens Thousands

    Saudi authorities say "cover-up" firms perpetuate unemployment for many, such as these laborers in Riyadh, June 18, 2013.
    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

    New EU Asylum Rules Could Boost Rightists

    New regulations will seek to correct EU failures in dealing with migrant crisis, most notably inability to get member states to absorb a total of 160,000 refugees

    More Political Turmoil Likely in Iraq as Iran Waits in the Wings

    Analysts warn that Tehran, even though it may not be engineering the Sadrist protests in Baghdad, is seeking to leverage its influence on its neighbor

    Goodbye Ketchup, Hello Sriracha!

    How immigrants are triggering a great transformation in American cuisine

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Tensions Rising Ahead of South China Sea Rulingi
    X
    May 03, 2016 5:16 PM
    As the Philippines awaits an international arbitration ruling on a challenge to China's claims to nearly all of the South China Sea, it is already becoming clear that regardless of which way the decision goes, the dispute is intensifying. VOA’s Bill Ide has more from Beijing.
    Video

    Video Tensions Rising Ahead of South China Sea Ruling

    As the Philippines awaits an international arbitration ruling on a challenge to China's claims to nearly all of the South China Sea, it is already becoming clear that regardless of which way the decision goes, the dispute is intensifying. VOA’s Bill Ide has more from Beijing.
    Video

    Video Painting Captures President Lincoln Assassination Aftermath

    A newly restored painting captures the moments following President Abraham Lincoln’s assassination in 1865. It was recently unveiled at Ford’s Theatre in Washington, where America’s 16th president was shot. It is the only known painting by an eyewitness that captures the horror of that fateful night. VOA’s Julie Taboh tells us more about the painting and what it took to restore it to its original condition.
    Video

    Video Elephant Summit Results in $5M in Pledges, Presidential Support

    Attended and supported by three African presidents, a three-day anti-poaching summit has concluded in Kenya, resulting in $5 million in pledges and a united message to the world that elephants are worth more alive than dead. The summit culminated at the Nairobi National Park with the largest ivory burn in history. VOA’s Jill Craig attended the summit and has this report about the outcomes.
    Video

    Video Displaced By War, Syrian Artist Finds Inspiration Abroad

    Saudi-born Syrian painter Mohammad Zaza is among the millions who fled their home for an uncertain future after Syria's civil war broke out. Since fleeing Syria, Zaza has lived in Lebanon, Egypt, Jordan and now Turkey where his latest exhibition, “Earth is Blue like an Orange,” opened in Istanbul. He spoke with VOA about how being displaced by the Syrian civil war has affected the country's artists.
    Video

    Video Ethiopia’s Drought Takes Toll on Children

    Ethiopia is dealing with its worst drought in decades, thanks to El Nino weather patterns. An estimated 10 million people urgently need food aid. Six million of them are children, whose development may be compromised without sufficient help, Marthe van der Wolf reports for VOA from the Metahara district.
    Video

    Video Little Havana - a Slice of Cuban Culture in Florida

    Hispanic culture permeates everything in Miami’s Little Havana area: elderly men playing dominoes as they discuss politics, cigar rollers deep at work, or Cuban exiles talking with presidential candidates at a Cuban coffee window. With the recent rapprochement between Cuba and United States, one can only expect stronger ties between South Florida and Cuba.
    Video

    Video California Republicans Weigh Presidential Choices Amid Protests

    Republican presidential candidates have been wooing local party leaders in California, a state that could be decisive in selecting the party's nominee for U.S. president. VOA's Mike O’Sullivan reports delegates to the California party convention have been evaluating choices, while front-runner Donald Trump drew hundreds of raucous protesters Friday.
    Video

    Video Kurdish Football Team Helps War-Torn City Cope

    With the conflict still raging across much of Turkey’s predominantly Kurdish southeast, between the rebel PKK and the Turkish state, many Kurds are trying to escape the turmoil by focusing on the success of their football team Amedspor in Diyarbakir. The club is increasingly becoming a symbol for Kurds, not only in Diyarbakir but beyond. Dorian Jones reports from southeast Turkey.
    Video

    Video ‘The Lights of Africa’ - Through the Eyes of 54 Artists

    An exhibition bringing together the work of 54 African artists, one from each country, is touring the continent after debuting at COP21 in Paris. Called "Lumières d'Afrique," the show centers on access to electricity and, more figuratively, ideas that enlighten. Emilie Iob reports from Abidjan, the exhibition's first stop.
    Video

    Video Florida’s Weeki Wachee ‘Mermaids’ Make a Splash

    Since 1947, ‘mermaids’ have fascinated tourists at central Florida’s Weeki Wachee Springs State Park with their fluid movements and synchronized ballet. Performing underwater has its challenges, including cold temperatures and a steady current, as VOA’s Lin Yang and Joseph Mok report.
    Video

    Video Somali, African Union Forces Face Resurgent Al-Shabab

    The Islamic State terror group claimed its first attack in Somalia earlier this week, though the claim has not been verified by forces on the ground. Meanwhile, al-Shabab militants have stepped up their attacks as Somalia prepares for elections later this year. Henry Ridgwell reports there are growing frustrations among Somalia’s Western backers over the country’s slow progress in forming its own armed forces to establish security after 25 years of chaos.
    Video

    Video Nigerians Feel Bite of Buhari Economic Policy

    Despite the global drop in the price of oil, Nigerian President Muhammadu Buhari has refused to allow the country's currency to devalue, leading to a shortage of foreign exchange. Chris Stein reports from Lagos businessmen and consumers are feeling the impact as the country deals with a severe fuel shortage.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.8643
    JPY
    USD
    105.91
    GBP
    USD
    0.6837
    CAD
    USD
    1.2584
    INR
    USD
    66.395

    Rates may not be current.