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Cost of Saudi Labor Reform: $4 Billion A Year

When Saudi Arabia started to seriously tackle its labor market problems a few years ago, it had to take decisions that made it quite unpopular with both businesses and the general public.

The government argued that some tough measures must be taken even if they are painful. After decades of depending on low-paid foreign workers, it was clear that fixing the labor market would be difficult and costly.


The Ministry of Labor this week released its annual report for 2013 where it said that the government will need to spend up to $4 billion annually to implement its “Saudi Employment Strategy.”

The goals of this strategy, the ministry said, are “full employment of the workforce, a sustainable increase in human resources contribution and increase the productivity of the national workers,” according to the report.

The ministry said it is necessary to provide the funds to implement the strategy and urged the Cabinet to study it quickly as “as any halt or slowdown would translate into an increase in the number of unemployed and a decrease in productivity, which would have a direct negative impact on the national economy.”

As the previous “Saudization” policy could not limit the increasing unemployment rate among Saudis, the government began in 2011 to take stronger measures to replace foreign workers with citizens in the private sector.

The ministry said in its report that there are already signs that the reforms are working: the number of Saudi nationals working in the private sector increased from 681,481 in 2011 to about 1.5 million at the end of 2013. The unemployment rate, meanwhile, fell from 12.4% to 11.7%.

The reform policies include quotas for companies to hire locals and imposing fines on businesses that employ large numbers of foreigners as well as starting new training programs. The government also started paying unemployment benefits to citizens and cracked down on visa violations by foreign workers, prompting many of them to leave the country.

Saudi analyst Jamal Khashoggi last year criticized what he called the country’s addiction to cheap foreign labor.

“It is good that the government is finally convinced that it cannot move forward with its reform projects as long as the elephant is still in the room,” he wrote in Al Hayat daily. “The elephant precisely consists of a few millions cheap workers who made the Saudi manufacturing sector and economy be addicted to them.”

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(via WSJ Blogs)