Why Nitaqat is Needed?
Saudi Arabia efforts to increase employment have focused on three areas. One is Nitaqat based nationalization policies with the aim to increase the share of private sector jobs held by nationals. The other is diversification to gear up public spending toward boosting the non- oil GDP and creating new industries.
The third area is investing in education programs in Saudi Arabia is a high priority. Roughly 24% of total government expenditure in 2011, the level of public spending on education is among the highest in the world. However, more concentrated efforts are needed to increase competencies and productivity levels through education & training initiatives.
Unemployment has become a serious issue with diverse negative implications that could affect the Country’s socio-economic stability. Reducing unemployment depends on increasing the employment of nationals in the private sector.
In accordance with the Central Department of Statistics and Information (Ministry of Economy and Planning) the unemployment rate for 2012 stood at 12.1% an increase of 1.6% since 2009. Figure 1 & 2 shows that while total unemployment is 12.1% which translates to around 602,853 Saudi Nationals who are unemployed, female unemployment increased from 28% in 2009 to 35% in 2012. Unemployment rate for Saudi women with a college degree stood at 73.3%. The 25-29 age groups had the highest unemployment rate at 37.6%. However, the unemployment rates for Saudi males have slightly decreased from 6.9% in 2009 to 6.3% in 2012.
What is Nitagat?
Definition: The name Nitaqat means Ranges/Zones in Arabic.
Nitaqat is a new Saudi localization program, introduced by the Saudi Ministry of Labor in August 2011. The program evaluates private sector entities based on their nationalization performance, which is measured by calculating the percentage of Saudi employees out of the total employees working for an entity. The Ministry of Labor classifies entities into Nitaqat that reflects their nationalization performance relative to their business activity & company size.
Businesses are divided into 41 activities/sectors and companies are categorized into five (5) sizes according to workforce size. Companies are then classified into a range (Excellent, Green, Yellow and Red) based on the ratio of the Saudi Nationals working in the company. The excellent & green ranges are the highest localization ratios and yellow & red are the lowest localization ratios.
Depending on the range classified, a company will either receive incentives, in the form of services and facilities, or be subject to suspending some of the services provided by the Ministry of Labor and face corrective measures.
Saudi Arabia Labor Law Amendments
The Saudi Council of Ministries approved 38 amendments to the Labor Law (Resolution 258) aimed at supporting the Localization of the workforce.
The changes would come into effect six months after they are published in the official government newspaper expected in October 2015. The most significant amendments are as follows:
Once the amendments to the labor laws come into force, employers in Saudi Arabia will need to undertake a review of their internal policies and contracts in order to bring them into line with the new requirements. Failure to adhere to the law may expose companies to fines of up to SR. 100,000 and closure for 30 days.
Saudi Arabia Unemployment from 2011 to 2015
The Saudi Ministry of Labor (MOL) effort in recent years to support job creation and reduce Saudi unemployment has had a slight impact on the overall unemployment.
In accordance with the General Authority of Statistics (Labor Force Survey 2015), the unemployment rate among Saudis nationals for the 1st half of 2015 stood at 11.6% with unemployed nationals reaching to 646,854 and the 2nd half of 2015 at 11.5% with 647,010 unemployed.
Figure 1 shows Saudi women unemployment rate is 33.8% with 416,432 unemployed. Saudi male unemployment rate is 5.3% with 230,578 unemployed. Table 1 shows a slight decrease in the unemployment rates with an average of 11.8% unemployment rate from 2011 until 2015. Saudi women high unemployment rates will continue to pose a long-term challenge in the coming years.
Saudi Arabia has consistently recorded a high unemployment rate in recent years, with unemployment remaining above 11% between 2011 and 2015. However, although there has been a small increment in the total number of unemployed persons, the unemployment rate has reduced as the overall size of the labor force has increased at a higher rate.
The Saudi government approach to job creation requires smart investments in the right sectors that will generate growth and jobs. Most importantly they should look at ways to streamline the current educational system to a knowledge & skill base to cater for a competitive & productive national workforce in the public & private sectors.
The human capital development will play a major role in the Saudi Vision 2030. The Saudi labor force will reach an estimate of 8.6 million by 2030 with a 44% participation rate.
Saudi Employee Turnover Cost
Employee voluntary turnover means significant costs for employers in Saudi Arabia. Some of the turnover costs to replace an employee includes a drop in productivity during training, the costs of hiring a new employee, and the slower productivity until the new employee gets up to speed in their new job and drop of work while a position is vacant.
Staff retention is not as simply as you think. Simply put “Find ‘em and Keep em”. Maintaining a stable workforce by reducing employee turnover through flexible workplace policies and employee retention programs also makes good business sense, as it can result in significant cost savings to employers.
Employee Turnover Cost
Employee voluntary turnover for lower-paying jobs (under SR. 54,000 a year - clerical jobs) are slightly less expensive to replace, around 12 percent of annual salary, but that still adds up quickly. For example, 20 staff of a hyper-supermarket employees voluntarily quit a job in 2017. That represents a major expense of SR. 129,600 to a business.
So, in the above example, choosing to not give an average performer a raise may net a temporary cost savings, but if she/he voluntary quits you'll be out 12 percent of her/his salary. Losing an executive/senior management can reach up to 35%+ of the employee’s annual salary.
While there is no perfect package solution that will stop employees from voluntary leaving a job, companies should take turnover costs into account.
Our survey of 30 companies in the Riyadh area from various sectors ranging from retail, contracting, trading and manufacturing demonstrated that it costs businesses on average 19% of an annual salary to replace an employee. For businesses that experience high levels of voluntary turnover, this can add up to represent significant costs.
Jobs that are complex and require high level of education and specialized training incline to have higher turnover costs. As per the below Figure 1, we reported the “typical” cost of voluntary turnover using the median among all jobs.
Direct Cost Factors
The first type of cost is direct costs. This category includes:
Indirect Cost Factors
The second category of turnover costs is indirect costs. This category includes but not limited to:
Disclaimer: The views set out in this article do not constitute legal advice and readers are urged to seek specific advice in relation to any particular issues from this article.