The real impact of Saudization on the Kingdom's economy
The Saudi government has put a comprehensive Saudization policy in place to increase the number of nationals in the workforce. Forming part of the Vision 2030 scheme, this policy, which has evolved over the years, sees the government wanting to reduce unemployment from its 12.9% peak in 2018 to 7% by 2030. Adopting a phased approach, the policy will be a critical tool in shaping the future of the Kingdom.
Originally, Saudization was implemented through a comprehensive and strictly enforced industry and firm-specific quota system known as Nitaqat, launched in 2011. At the time, the country had its private sector consisting of more than 80% foreign nationals, and the policy focused on labour-intensive sectors such as construction and retail. Now, the policy focuses on high-skill sectors, such as finance, IT and government-related consultancies. This initiated the first phase of localisation for consulting firms in 2023.
These firms were exempt from the Saudization requirements applied to other sectors. However, they now needed to have Saudi nationals occupy 35% of consulting positions. In March, these targets were increased to 40% for professions that include financial consulting specialists, business consulting specialists, cybersecurity consulting specialists, project management directors, engineers and specialists. These changes are critical given how they promote the participation of Saudi nationals in sectors that are vital to the Kingdom's economic diversification goals of the Vision 2030 initiative.
Impact
The impact of Saudization on employment was most significant between 2018 and 2020. In 2018, the Saudi labour force consisted of only 20% of Saudi nationals; by 2020, this increased to 33%, with women mostly taking up the portion of the growth. The Saudi healthcare, tourism, and technology sectors faced an influx of Saudi workers.
In the tourism sector, women now account for 22% of the workforce, an area previously dominated by expatriates. Red Sea Global has played an important role in this regard by offering vocational training and job placements specifically for Saudi women. Women now own 40% of small and medium-sized businesses (SMEs) in Saudi Arabia. The efforts to integrate women into the workforce align with the government's broader objectives of driving innovation and fostering economic growth.
Challenges faced
Given the historical preference given to foreign nationals, many Saudis lack the necessary skills for roles designated by the policy. This is especially the case when it comes to technical and engineering positions. Companies are therefore finding it difficult to adhere to the strict targets for local talent put in place by the policy.
Other obstacles, especially in sectors such as construction and retail, have seen companies finding it difficult to find Saudi nationals to take on these roles. This resulted in several companies trying to abuse the system by hiring disabled workers who counted as multiple employees under the Saudization framework.
Another concern is the wage inequality between Saudi nationals and expatriates. Under the Nitaqat system, Saudi nationals have a higher minimum wage than expatriates, which means that employers' costs have increased to comply with the Saudization regulations.
Female workers
Another achievement due to Saudization is the increased participation of women in the workforce. The lift of the driving ban and easing of guardianship laws have led to women participating in the labour market. Another thing that has greatly contributed to encouraging this is the Qurrah programme, which is a program that offers childcare services to working mothers. Because of this, women have started becoming prominent roles in traditionally male-dominated sectors such as technology, finance and healthcare. Moreover, another program, the Monshaat programme, encourages female entrepreneurship since it provides regulatory support and loan guarantees to small- and medium-sized enterprises (SMEs) that are owned by female Saudi nationals.
Long-term Success
Since its implementation, the Saudization policy has evolved significantly and has become a comprehensive workplace development strategy. To ensure this continues, it is crucial to address the ongoing challenges of Saudization's implementation to ensure its long-term success. A key enabler for this is widening the range of vocational training opportunities for Saudi nationals. This will be most helpful to high-demand fields like artificial intelligence, cybersecurity, and renewable energy. Another enabler for long-term success is to bridge the skills gap and enhance leadership skills by creating mentorship programs that connect Saudi employees with experienced professionals.
The Saudization policy has overall transformed the country's economic landscape. While the country works towards diminishing its challenges, the progress made has been promising. With continued support, it is safe to say that the Saudization policy will continue to be a key player in shaping the future of Saudi Arabia.
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