Saudi’s Labour Reforms Push 50% Of Contractors Out Of Business

More than 50 per cent of contracting firms in Saudi Arabia have gone out of business as a result of legalisation measures enforced last year, local media has reported.

A drastic shortage of labour has caused wages to surge, which has led to a majority of contractors exiting the market.

Owing to high labour costs, reported to have risen to SAR200 per day, contractors have requested the ministry to grant them temporary visas to complete projects on time, according to media reports.

“The shortage in manpower and ever-increasing wages will remain the biggest challenges facing the contracting sector,” Fahad Al-Hamadi, head of the National Contractors Committee at the Council of Saudi Chambers (CSC,) was quoted as saying in Arab News.

“These factors combined have led to the faltering of small and medium-sized enterprises (SMEs) and their exit from the local market after incurring huge losses over the last four months.

“Some 60 per cent of subcontracting companies implementing mega-projects are SMEs and are no longer capable of finalising such massive-scale projects for these reasons.”

Industry stakeholders have said that contractors have been facing a major crisis since the Kingdom began its crackdown on illegal workers and its legalisation campaign.

“The Nitaqat nationalisation program is difficult to implement on small-scale projects without falling into the yellow and red zones of the system, as these companies are obliged to recruit qualified manpower from abroad,” said Raid Al-Aqaili, a member of the contracting committee at the Jeddah Chamber of Commerce and Industry.

“The new regulations did not consider the disparity in income between big and small companies, which forced more than 50 per cent of smaller firms out of the market.”

In addition, Saudi’s ministry of labour has also stopped private recruitment offices from supplying labour. Officials have said that services renting out labour will resume once they establish larger recruitment companies to replace private firms.

Nearly one million foreign workers are estimated to have left the Kingdom between March and November 2013 as authorities tightened work permit rules.

The large exodus of labour from the country hit sectors such as construction and retail hardest.