A Saudi decree barring foreign workers from 12 retail job roles could see tens of thousands of expats lose their jobs this year, according to a report by Bank of America Merrill Lynch (BofAML).
The decision, announced last month, will affect shops selling watches, eyewear, medical equipment and devices, electrical and electronic appliances, auto parts, building materials, carpets, cars and motorcycles, home and office furniture, children’s clothing and men’s accessories, home kitchenware, confectioneries and pastries.
Firms have until September 2018 to ensure they are compliant, with a fully Saudi workforce.
The Saudi section (titled ‘consumer respite buys time for reforms’) of BofAML’s weekly emerging markets report by Middle East and North Africa economist Jean-Michel Saliba indicated there were 304,865 expat sales workers in the kingdom out of 2.055 million working in trade.
“This may suggest that there are tens of thousands of expatriate jobs that stand to be nationalised by September 2018,” the bank said highlighting there was no specific breakdown of affected workers.
At the same time companies may need to hire an additional 250,000 Saudi nationals to maintain compliance levels following the introduction of the balanced Nitaqat Saudisation scheme in mid-December.
However, these and other Saudisation efforts including the barring of foreigners from car rental offices and gold and jewellery stores are not expected to lead to an exodus of foreign workers or declining economic consumption.
The report indicated the new higher-paid Saudi workforce in these roles would increase costs and reduce margins for companies but could eventually support consumption.
This is because lower-paid expat workers save and remit most of their earnings where as their replacements would spend their wages inside the kingdom.
Foreign remittances out of Saudi Arabia dropped 6.74 per cent last year to $37.7bn, according to local reports.
“Despite the introduction of expatriate dependent fees and expatriate levies, expatriates will likely still be better off financially in Saudi Arabia than in their home countries,” BofAML indicated.
“For corporates, there is still not enough of an incentive to switch to employing nationals at the low skills level end of the spectrum.”
Nevertheless, the bank warned that Saudisaiton had to be carried out carefully by authorities as it could prolong “labour scarcity” in some sectors “given the skills mismatch and nationals’ reluctance or reservation wages”.
For Saudi citizens, fiscal reforms introduced this year including a 5 per cent value added tax and increases to utility and fuel prices are expected to have little impact on spending thanks to government payments, it estimated.
A newly introduced citizen’s account programme and monthly payment of SAR1,000 ($267) to government workers should see Saudi households earn an average of SAR239 ($64) a month, or 1.5 per cent, more than they did previously, BofAML said.
In contrast, expats will bear the full cost of the reforms, estimated to average 20 per cent of wages, but as Saudi households represent 75 per cent of total consumption the impact is expected to be minimal.
“In the hypothetical scenario where all white-collar and blue-collar expatriate households face the full cost of reforms, average Saudi and non-Saudi earnings would decline by 3.3 per cent,” according to the report.