Introduction
Saudi Arabia has been dependent on foreign workers to support its economy, however, with more than half of its population under 35, the government is keen to create more opportunities for its young citizens. Saudization, also known as the Saudi Nationalization Scheme or Nitaqat, is a policy based on a quota system that varies among sectors, it is implemented by the Saudi Arabian government to ensure more jobs are filled by Saudi nationals with an aim to reduce unemployment, increase their living standards and develop its human capital. Nitaqat policy was introduced in 2011 and since then, various guidelines have been rolled out to support businesses in making this transition. Under it, foreign companies in Saudi Arabia are required to employ a certain number of Saudi nationals, with the specific quotas varying from one business to another. Though it has been a critical aspect of doing business in Saudi Arabia, yet many companies find it challenging to navigate the complexities of Saudization and ensure compliance. It is necessary to understand that failing to meet the requirements of the Nitaqat program can lead to serious consequences, such as restrictions on obtaining new visas for Saudi workers, losing out on government contracts and financial penalties.
Objectives of Saudization
The Saudization program is designed with several key objectives that resonate with the broader ambitions of the country:
Increasing Local Employment:
At its core, Saudization is about creating more job opportunities for Saudi citizens. By prioritizing locals in the workforce, the program aims to lower unemployment rates and ensure that more people can find fulfilling work.
Empowering Skilled Workforce:
Saudization focuses on developing the skills and talents of Saudi nationals. By investing in training and education, the program equips the workforce to thrive in a modern, diversified economy, empowering individuals to reach their full potential.
Minimizing Reliance on Expatriates:
This initiative encourages companies to hire locally, which helps decrease the kingdom’s reliance on foreign labor. By fostering a more inclusive job market, Saudization supports the idea that Saudi citizens can play a vital role in the economy.
Supporting Economic Growth:
Integrating more Saudis into the workforce contributes to the kingdom’s overall economic stability and growth. As more locals participate in the private sector, it helps build a robust economy that benefits everyone and paves the way for a prosperous future.
Saudization Requirements for Private Sector Businesses
Saudization requirements for private sector businesses are shaped by three key factors that help determine how many Saudi employees a company needs to have:
- Saudization Percentage: This reflects the current proportion of Saudi nationals in the company’s workforce. It’s a way to measure progress and ensure that more locals are being hired.
- Entity Size: The total number of employees in a company plays a crucial role. Larger companies have different responsibilities compared to smaller ones, as their capacity to hire locals varies.
- Entity Classification: The type of business and the sector it operates in also affect the requirements. Different industries have unique needs and challenges, and the Saudization policy takes these into account.
It is vital to point out that the Nitaqat Program also has specific positions for Saudi nationals. For example, international firms are required to hire a Saudi national as their second employee after the General Manager. In smaller companies with up to five employees, at least one must be a Saudi national. A minimum Saudization rate of 30% is required for larger companies with more than 100 workers, though this can vary depending on the industry or kind of license.
Saudization Certificate and Bifurcation of Categories
The Saudization certificate, also known as the Nitaqat certificate, is an important recognition for companies that meet the Saudization requirements. This certificate categorizes businesses into different color zones based on their level of compliance, creating a clear visual representation of their commitment to hiring Saudi nationals:
Red Zone:
Companies with a Saudization rate between 0% and 16.21%. This indicates a significant need for improvement in local hiring.
Low Green Zone:
Companies with a Saudization rate from 16.22% to 19.25%. While better, there’s still work to be done to increase local employment.
Medium Green Zone:
This category covers companies with a Saudization rate between 19.26% and 23.11%, showing a more solid commitment to hiring Saudis.
High Green Zone:
Companies in this zone have a Saudization rate of 23.12% to 26.51%, reflecting a strong effort in integrating Saudi nationals into their workforce.
Platinum Zone:
This is the highest level, with companies achieving a Saudization rate from 26.52% to 100%. It represents a top commitment to local employment.
Holding a Saudization certificate is crucial for companies operating in Saudi Arabia, as it influences their ability to bid on government contracts, access certain privileges and avoid fines.
Other Important Features:
- Companies that fail to meet the Saudization ratios and other requirements cannot obtain the necessary Saudization certificate, which is essential for bidding on Etimad and other public sector projects. This certification underscores the importance of local employment in accessing government contracts.
- Interestingly, there are no gender differences in the quotas, ensuring that both men and women have equal opportunities to contribute to the workforce. However, it’s worth noting that a Saudi employee earning less than SAR 4,000 is counted as only 0.5 towards the Saudization quota, reflecting the need for fair compensation.
- In a move to promote inclusivity, employing one person with a disability counts as four towards the Saudization quota, recognizing their value in the workforce. Additionally, all GCC nationals are considered as Saudi nationals for quota purposes, further supporting regional integration.
- For employees registered under two companies, only the first company is credited with that individual towards its quota. The Saudization program, known as Nitaqat, assigns each organization a specific Nitaqat status based on their compliance.
- Certain roles are exclusively reserved for Saudi nationals, such as Senior HR Manager, Personnel Specialist, Recruitment Clerk, and Government Relations Officer, among others. This focus not only strengthens the local job market but also ensures that key positions are filled by those who understand the culture and needs of the nation.
Strategies for Saudization
To effectively navigate the Saudization program, businesses can adopt several key strategies-
Start planning your workforce needs and Saudization targets well in advance to avoid last-minute adjustments and ensure smooth transitions.
Implement comprehensive training programs to upskill your Saudi employees, making them more valuable and productive members of your team.
Take advantage of government-sponsored training and development programs that support Saudization efforts and help build a skilled workforce.
Partner with local universities and vocational training centers to create pipelines of talented Saudi graduates ready to enter the workforce.
Regularly review your company’s compliance with Saudization requirements and make necessary adjustments to stay aligned with the program’s goals.
Plan your recruitment needs for the next 1-3 years to support business growth while remaining compliant. It is essential to strategically plan your workforce to meet the designated quota of Saudi nationals, while also ensuring that expatriate employees play an active role in training and upskilling their Saudi colleagues.
To develop a strategy for meeting Saudization goals, think carefully about your number of job openings Consider the skills, knowledge, and experience that your organisation requires, and how to target recruitment strategically at the segments of the Saudi workforce most likely to possess these skills.
Once you have met your quota, your priority should be to keep your Saudi employees in the fold. This involves fostering an engaging work culture that respects the cultural preferences of Saudi nationals, while also offering professional development opportunities, competitive salaries, and comprehensive employee benefits.
Challenges of Saudization
The Nitaqat laws bring several challenges for companies navigating the Saudization landscape:
Economic Challenges:
Smaller companies often find it difficult to meet the higher salary expectations for Saudi nationals and to invest in their training and upskilling. This financial strain can make it tough for these businesses to survive, leading some expatriate-owned small enterprises to close their doors.
Compliance Challenges:
Keeping up with changing quotas and maintaining accurate records can be a daunting task. The time and complexity involved in ensuring compliance can be overwhelming and failing to meet these requirements can result in significant penalties, threatening a company’s smooth operation within the Kingdom.
Social and Cultural Challenges:
Hiring and training Saudi nationals requires a deep understanding of cultural nuances. This sensitivity is crucial but can also make the recruitment process longer and more challenging than companies might be accustomed to.
Operational Challenges:
Managing a workforce of Saudi nationals means understanding local payroll regulations and adapting to a new HR framework. This adjustment can stretch a foreign company’s internal resources thin, diverting attention from core business activities.
High Costs of Saudization:
Implementing Saudization can come with significant expenses, from training programs to salary adjustments, which can be daunting for businesses trying to balance budgets.
Lack of Qualified Saudi Workers:
Finding qualified Saudi nationals to fill roles can be challenging. There may not always be enough candidates with the right skills and experience, making recruitment a complex process.
Recent Developments in the Nitaqat System
Since its launch in 1985, the Saudization program has undergone numerous changes. The most recent are as follows:-
- Foreign investor classification: On April 11 2024, The Saudi Ministry of Human Resources and Social Development recently updated the Nitaqat program, making a significant change giving benefit to the foreign investors. Now, these investors who own private businesses in Saudi Arabia will be considered as Saudi nationals when it comes to meeting Saudization quotas.
- Remote worker classification: The program now acknowledges Saudi citizens who work remotely as regular employees for Nitaqat purposes.
- Partial credit for specific nationalities: The Nitaqat program now offers partial credit for Palestinians with Egyptian passports. Individuals of Baloch ethnicity are now considered one-fourth of a foreign worker when calculating quotas. To Put it succinctly, hiring four of these individuals would be considered as hiring one foreign worker when calculating obligation with respect to Nitaqat Program.
- Removal of the ‘Yellow’ Category: Ministry of Human Resources and Social Development (MHRSD) made a notable change by issuing Ministerial Resolution number 63717 on November 27, 2019, which eliminated the Yellow category in the Nitaqat system and it added pressure on employers to meet their Saudization quotas to qualify for the Green category, ultimately creating more job opportunities for Saudi nationals.
- Increase of the minimum wage for Saudization: MHRSD also introduced Ministerial Resolution number 51848 and raised the minimum wage for Saudi workers included in an employer’s Saudization calculations from SAR 3,000 to SAR 4,000. This increase not only aimed to provide better financial stability for Saudi employees but also encouraged employers to prioritize hiring and retaining local talent.
Conclusion
Saudization is crucial to Saudi Arabia’s Vision 2030, driving the kingdom towards a more inclusive and diversified economy. By understanding the goals, benefits and challenges of Saudization, businesses can play a significant role in contributing to the nation’s progress. By taking a proactive approach to planning and investing in talent development, companies can successfully adapt Saudization while nurturing a skilled local workforce. Building strategic partnerships will not only enhance the capabilities of employees but also contribute to the overall growth of the Kingdom’s economy.
Disclaimer
The information provided in this article is intended for general informational purposes only and should not be construed as legal advice. The content of this article is not intended to create and receipt of it does not constitute any relationship. Readers should not act upon this information without seeking professional legal counsel.
