International Finance

Challenges of Saudisation

To meet demand from industries, the Saudi government is opening colleges and universities to foster skill development among its youth

Suparna Goswami Bhattacharya

July 13, 2015: For decades now, Saudi Arabia has managed to attract talented expats from around the world. The region, in fact, became a favourite destination for those looking to work outside their country. The expatriate workforce accounts for a third of Saudi Arabia’s 29 million population. Market reports suggest that the majority of the expat population within Saudi Arabia is mostly employed by Saudi Aramco, foreign military or companies engaged in infrastructure and construction projects within the Kingdom.

This, coupled with the country’s inadequate education system, has resulted in high level of youth unemployment, which has become a big social challenge. According to the CIA’s World Factbook, Saudi Arabia’s youth population “lacks the education and technical skills the private sector needs”. The unemployment rate for Saudis between ages 16 and 29 is 29 percent. According to Woodrow Wilson International Center for Scholars in Washington, DC, two-thirds of the nation’s population under the age of 30, which means a significant number of Saudis, will enter the workforce over the next decade.

“Though the country’s economy has experienced consistent high growth over the past decade, it still faces challenges in high unemployment and low labour market participation under nationals,” says Safiyah Alli, Regional Operations Director, Manpower, a leading company in workforce solutions. This, according to Alli, is largely driven by a low rate of female participation in the labour market, high youth unemployment and the competitive imbalance of expatriate workers and Saudi nationals in the private sector.

Looking at this the Saudi government embarked on a national plan to increase employment among nationals and decrease dependency on the expatriate workforce. It launched Saudisation (or Saudization)programme — replacement of foreign workers with Saudi nationals in the private sector — in 2006.

However, the move has thrown fresh challenges at companies who find themselves in a spot over not being able to hire the required talent. “Although the efforts made by the government are laudable, companies are now having difficulty finding the right local talent,” says Richard Foulkes, Client Partner, Middle East & Africa, Pedersen & Partners, an executive recruitment firm. “The situation has mostly arisen due to the lack of a strong talent pipeline, which is currently being addressed. There is a high demand for industry-ready Saudi professionals, which unfortunately outstrips supply.”

Says a recruitment manager of a local firm: “I understand that we need to employ more local talent, but the way the government is approaching the problem is not helping us. What they are doing has only led to ballooning of salaries as talent is scarce”.

The oil &gas industry in particular is facing a talent crunch.This is mainly due to a combination of an aging workforce and the lack of flexibility to replace them quickly. A lot of time is required in upskilling new employees. Training and development is adding to the cost of talent acquisition.

This has resulted in negative outcomes for companies.

In a few cases, companies employ Saudi nationals only on paper and get the actual work done by an expat who is based abroad. “We are forced to play around the rules. In the process, we end up paying two people —a Saudi national (who is actually not working) and an expat,” says a recruitment manager.

Despite enhancements to the Saudisation programme, unemployment levels have remained almost stagnant.“The Saudi labour force is growing by a rate equivalent to the rate of employment amongst nationals. Hence, unemployment rates are stagnant,” remarks Alli.

Having realised that the programme alone will not solve the unemployment problem, the government has now decided to concentrate on reforming the education system. Earlier this year, the Saudi budget increased the spending on education by 3 percent.

“The government is emphasising the need to foster skill development early on, and has asked colleges and universities to focus on these areas. There are also examples of funds being set up to invest in SMEs, which in turn will help to increase employment levels among Saudis. The government must be appreciated for these efforts,” says Foulkes.

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