Saudi Arabia’s dependence on foreigners to do the work hits the wall

Saudi Arabia can’t afford all the foreigners it has hired to do the work Saudis refuse to, or can’t, do.  But it is discovering that replacing them with subjects of the king is difficult, or even impossible.  Last April, Saudi Arabia’s Deputy Crown Prince Muhammad Bin Salman announced that the kingdom would implement a permanent residency program for expatriate workers similar to the U.S. Green Card system.  In the era of low oil prices, the benefit to the kingdom would be increased revenue from fees charged to process applications, penalties levied against companies which exceed foreign worker quotas, and monies from permanent foreign residents (potentially numbering in the millions) eligible to pay taxes.

I surmised that the unstated motive was simply acknowledging the harsh realities of trying to wean generations of non-working Saudis from the life of Riley into gaining and maintaining meaningful employment.  Expats – roughly one third of the population – currently run the show in many critical industries and service activities.  If untrained and unmotivated Saudis were thrust into the workplace simply to meet a quota without a proper transition and handover from foreign workers, then a production or service gap would result.  This is exactly what has happened in the kingdom’s telecom sector.

The Saudi Gazette reports that the Saudization of the kingdom’s telecom sector has:

… not been as successful as expected because authorities did not make the necessary studies before implementing the plan and did not give Saudis proper training to take over the huge market, according to experts.

This is all true, but the Gazette and the government can’t resist blaming the foreigners who continue to conduct business to meet the needs of the customers, who include Saudis by the way.  The expats in the telecom sector are now considered to be conducting sales and maintenance activities illegally, while Saudis have asked the Commerce Ministry to keep an eye out for foreign traders.

The sticker shock of running a business has also been a wake-up call to Saudi shop owners.

“Rise in rent is another major issue that has affected Saudi entrepreneurs.  Some realtors charge SR150,000 (40,000USD) per year,” said Hatim Al-Sulaimani, who has opened a new mobile shop in the market.  “I never expected such a high rent…  It’s not easy for new Saudi traders to pay this exorbitant rent.  Shop owners have to meet many other expenses such as license fees and huge electricity bills,” said Al-Sulaimani.

Economist Mansour Al-Ghamdi hit the nail on the head when he said the Saudization program in the mobile phone market should have been given an adequate transition phase.

“It was impossible to replace expats with Saudis all of a sudden.  We should have allowed Saudis to work with expats for some time to get the necessary experience and overcome difficulties.  The program was a failure in terms of training as well as financial and salary support,” he said.

The real problem is that the king can’t wave a magic wand and expect generations of pampered Saudis to enter into the workforce regardless of the length of the transition period.  Equally important is that generations of foreigners have established networks and supply chains within their chosen fields and will not relinquish them as long as the customer base exists.  The Saudis, of course, will blame the expats for their failures, just as they did for the telecom fiasco.  So now the conflict is set: forced Saudization versus permanent residency for foreigners.  This will not end well.

Saudi Arabia can’t afford all the foreigners it has hired to do the work Saudis refuse to, or can’t, do.  But it is discovering that replacing them with subjects of the king is difficult, or even impossible.  Last April, Saudi Arabia’s Deputy Crown Prince Muhammad Bin Salman announced that the kingdom would implement a permanent residency program for expatriate workers similar to the U.S. Green Card system.  In the era of low oil prices, the benefit to the kingdom would be increased revenue from fees charged to process applications, penalties levied against companies which exceed foreign worker quotas, and monies from permanent foreign residents (potentially numbering in the millions) eligible to pay taxes.

I surmised that the unstated motive was simply acknowledging the harsh realities of trying to wean generations of non-working Saudis from the life of Riley into gaining and maintaining meaningful employment.  Expats – roughly one third of the population – currently run the show in many critical industries and service activities.  If untrained and unmotivated Saudis were thrust into the workplace simply to meet a quota without a proper transition and handover from foreign workers, then a production or service gap would result.  This is exactly what has happened in the kingdom’s telecom sector.

The Saudi Gazette reports that the Saudization of the kingdom’s telecom sector has:

… not been as successful as expected because authorities did not make the necessary studies before implementing the plan and did not give Saudis proper training to take over the huge market, according to experts.

This is all true, but the Gazette and the government can’t resist blaming the foreigners who continue to conduct business to meet the needs of the customers, who include Saudis by the way.  The expats in the telecom sector are now considered to be conducting sales and maintenance activities illegally, while Saudis have asked the Commerce Ministry to keep an eye out for foreign traders.

The sticker shock of running a business has also been a wake-up call to Saudi shop owners.

“Rise in rent is another major issue that has affected Saudi entrepreneurs.  Some realtors charge SR150,000 (40,000USD) per year,” said Hatim Al-Sulaimani, who has opened a new mobile shop in the market.  “I never expected such a high rent…  It’s not easy for new Saudi traders to pay this exorbitant rent.  Shop owners have to meet many other expenses such as license fees and huge electricity bills,” said Al-Sulaimani.

Economist Mansour Al-Ghamdi hit the nail on the head when he said the Saudization program in the mobile phone market should have been given an adequate transition phase.

“It was impossible to replace expats with Saudis all of a sudden.  We should have allowed Saudis to work with expats for some time to get the necessary experience and overcome difficulties.  The program was a failure in terms of training as well as financial and salary support,” he said.

The real problem is that the king can’t wave a magic wand and expect generations of pampered Saudis to enter into the workforce regardless of the length of the transition period.  Equally important is that generations of foreigners have established networks and supply chains within their chosen fields and will not relinquish them as long as the customer base exists.  The Saudis, of course, will blame the expats for their failures, just as they did for the telecom fiasco.  So now the conflict is set: forced Saudization versus permanent residency for foreigners.  This will not end well.

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