Saudi Arabia Postpones Third Phase Of Nitaqat Over Private Sector Backlash

The latest phase requires a large increase in local employee quotas in the private sector, which could lead to a negative impact on the economy.



Saudi Arabia has announced the postponement of the third phase of the localisation initiative Nitaqat, the Kingdom’s Minister of Labour Adel Fakeih said.

The third stage of Nitaqat was supposed to begin on April 20 but Fakeih said that the programme will be delayed to help the private sector adjust to the changes brought about by the recent labour reforms.

The delay also comes after the private sector urged the government to rethink the latest labour caps, saying that it would drastically impact the country’s financial, retail, manufacturing and construction sectors.

The latest phase would bring in increased quotas for Saudis working in the private sector, implement new methods of calculation to assess the number of locals employed in private companies and change the incentives for workers.

As per the third stage, retail and wholesale firms are required to increase localisation quotas from 29 per cent to 44 per cent while other major commercial firms are required to increase the limits from 29 per cent to 66 per cent.

However, business lobby groups such as the Council of Saudi Chambers said that such a step could be counter productive to the market as companies will not be able to meet those quotas.

The Nitaqat system, a scheme that penalises companies based on the percentage of its expatriate employees, was primarily put in place to increase localisation in the Kingdom, which is heavily dependent on expat labour.

Despite the less favourable response to the scheme-mainly by the private sector- Fakeih said that the programme has helped increase the number of Saudi citizens in non-government jobs.

The initiative was able to help raise the proportion of Saudis employed in the private sector from seven per cent to 15 per cent, the labour minister said.

“The number of Saudis in the private sector crossed 1.6 million thanks to Nitaqat. The percentage of Saudis who receive salaries less than SAR3, 000 before Nitaqat was 49, and now it has dropped by four per cent with the beginning of the current Hijri year 1436,” he was quoted as saying in Saudi Gazette.

Saudi Arabia has been aggressively implementing labour reforms as it looks to diversify its economy and reduce the local unemployment rate, which has been hovering between 11 and 12 per cent.

But stringent quotas have previously hit profits at private firms in sectors like construction that rely on skilled and blue collar jobs- positions that affluent Saudis are reluctant to take up, experts say.

Saudi builder Al Khodari said earlier that its profits declined more than 50 per cent in the first quarter of 2014 after being hit by the reforms. But the firm, which returned to profits in Q4, was able to withstand the effect of the regulations.