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Saudi Arabia Human Resources Challenges
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By Mansour Baker, SHRM-CP
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Posted 01 March 2013
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Revised 27 March 2020
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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 Dilemma
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.
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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.
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Flexible work policy in the workplace
Organizations in Saudi Arabia should give preference to hire qualified Saudi ladies and develop talent strategies to attract, retain, and engage with them to drive higher productivity and self-satisfaction. At the same, personal development is an important factor of the employee’s career development.
Flexible work strategy will be designed to enable Saudi ladies, to attend to their personal and social obligations while employed at an organization and provided with a proportionate of their full-time salary and associated benefits comparable to the hours worked. Some of the benefits companies will experience with a flexible work strategy are as follows:
The reduced working hours for full time equivalent (FTE) Saudi female employees will specify the reduced weekly work hours and the proportionate basic salary payable to the employee. For example, Sarah a full time equivalent employee decided to join the flexible employment program at her company to spend more quality time with her daughter. Sarah chose the 50% or 20 hours per week; her normal salary was SR. 10,000 and after the reduction she will receive SR. 5,000.
The associated guaranteed allowances related to the flexible employment program will be in proportionate to the reduced work week percentage.
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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.
A flexible retirement age should be explored, the normal retirement age is currently 60 years old. For example, a flexible retirement age of 55 years old may correspond to 75% of the entitled pension. This will create more openings/jobs for the younger generation and may act as a catalyst to mitigate risks surrounding the pension fund.
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Saudi Vision 2030 Human Capital Challenges
The Saudi Council of Ministers approved an ambitious new vision for the Kingdom of Saudi Arabia. The Saudi Vision 2030 is built on three themes as follows:
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. An average of 203 thousand jobs will need to be created each year for Saudis entering the labor market. The Saudi Vision 2030 seeks to reduce the overall unemployment rate from 11.6% to 7%, overhaul the education system and increase the female participation rate from 22% of the labor force to 30%. What are the challenges? Reform in those areas will prove to be a key factor in whether Saudi Arabia can achieve its long-term economic goals. Education is the starting point. While Saudi Arabia has consistently invested in its education system, money does not necessarily buy quality. Critical and innovative thinking, as well as societal expectations for individuals to work hard in return for their grades and wages, are not yet widely taught in schools or universities. In addition, Saudi Arabia’s education system relies overwhelmingly on teachers from other Arab countries whose training reflects educational values of their countries during the 1970's and 1980's. Human resource management in the private sector is another variable. And it’s a variable that is new and largely unknown in Saudi Arabia’s job markets, where seniority is typically a function of age, longevity of service, and other sources of influence, particularly in the public sector, where most Saudis work. Once in a managerial position, individuals often cannot be criticized or even advised, which is a problem particularly in institutions where young employees are increasingly more qualified than their managers. Today many Saudi women are highly trained and motivated more than many men, one could argue but their access remains constrained by the rigid division of genders. This division entails major costs for institutions, from separate educational and training institutions to separate offices and entrance halls. That not only affects which jobs women would be able to do, obviously, but it also takes valuable attention away from topics like labor laws, ways of creating vibrant work spaces, and policies for getting more out of Saudi Arabia’s bright youth. Over 50% of Saudis are under the age of 25, having grown up during a period of perceived plenty, the windfall of the 2000’s, when rising world oil prices provided record revenue year after another. Raised between the materialism of local youth culture and the expectations of entitlement passed down by previous generations of Saudis who benefited from their country’s oil wealth, this young generation has high expectations. To meet them, they will need jobs, ideally high-paying ones, since blue-collar jobs are socially inferior to white-collar office jobs. Labor-intensive sectors in Saudi Arabia, such as construction, manufacturing, and hospitality services, are almost exclusively staffed with foreigners. Although the current time of tighter government budgets, after two years of lower oil prices, is what has created the urgency for change, it may well hinder the change itself. The public sector faces all the talent challenges faced by the private sector. |
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Saudi Arabia Employee Turnover Cost
Introduction
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.
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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:
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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.