Business Setup

What is Saudization? Guide to Saudization and its impact to workforce

What is Saudization? Guide to Saudization and its impact to workforce

In recent months, the KSA Ministry of Human Resources and Social Development (MHRSD) has continued to push the government’s Vision 2030 plan, this plan aims to create more jobs for Saudi nationals in the private sector by focusing on certain roles, professions, and parts of the economy.

Both foreign and local companies have had to adjust their workforces to meet these new labor rules, which emphasize hiring more Saudi nationals. In this article, we will look at some of the recent changes in Saudization and how they have affected employers.

What is Nitaqat, or Saudization?

The term “Saudization” refers to the Nitaqat or Saudi Nationalisation Program, employing Saudi citizens is now required of businesses thanks to a Ministry of Labour initiative. 

Saudization is mostly concentrated in the private sector and is based on a quota system that varies according to the size, kind, and industry of the enterprise.

 The goal of Saudization is to address many issues related to Saudi citizens’ employability, these issues will be covered in more detail below.

The Kingdom of Saudi Arabia (KSA) is widely seen as having a significant impact on the world economy. 

Saudi Arabia (KSA) adopted a pro-business stance following COVID-19 when the global economy was experiencing a downturn.

As a result, the KSA’s economy is currently among the fastest-growing in the world, given the good economic conditions and strategic location of the region, the government wishes to guarantee that every Saudi national has access to opportunities for professional, social, and economic advancement. 

As a result, employers in Saudi Arabia are required to hire a certain number of Saudi nationals.

The History of Saudization

In 1985, as Saudi Arabia was becoming more well-known throughout the world for its healthy economy brought about by the region’s abundance of oil, Saudization initially took shape. 

Furthermore, it is significant for all Muslims worldwide, and the annual Hajj trip makes a significant financial contribution to the country, expats from all over the world started to settle in the area, bringing their enterprises with them. 

The KSA government believed it was crucial to guarantee Saudi citizens access to these companies and the opportunities they offered.

With a deadline of 2013, the Ministry of Labour proposed a resolution in 2011 requiring all private enterprises operating in the nation to meet a specific hiring quota of Saudi citizens. 

2014 saw a significant exodus of foreigners and the closure of over 200,000 private businesses due to noncompliance with Saudization/Nitaqat regulations. 

Saudi citizens make up two-thirds of the population today, with foreigners making up the remaining one-third. 

The government has set aside some positions for Saudi nationals, and the Saudization policies are subject to change based on the proportion of Saudi nationals to foreign workers in various sectors of the economy. 

Why is Saudization Important?

Saudization is crucial since it guarantees that they have access to domestic commercial opportunities, For Saudi citizens.

The project seeks to address the talent gap and unemployment in Saudi Arabia, which have led to a sharp rise in the country’s expat community.

The KSA government wants to upskill the populace, take advantage of professional opportunities for Saudi nationals, help them reach their full potential, and increase their overall influence on the nation’s economy and social sustainability. 

Also, the project known as “Saudization” holds great significance for the government of the Kingdom of Saudi Arabia and its citizens, as it seeks to address the growing reliance of the economy on natural resources like gas and oil.

Even while petrol and oil are fantastic resources that can significantly strengthen a nation’s economy, their supply will eventually run out. 

Saudization would therefore make it possible for the people to develop the skills required to diversify the economy.

You May also Read: How to Choose Top Corporate Lawyers in Saudi Arabia?

What Saudization/Nitaqat regulations in 2024?

The Saudization/Nitaqat program requires all companies to hire Saudi workers. The rules are different depending on the company’s size and industry. 

Private companies are divided into six categories based on how many Saudis they employ:

  • Platinum
  • High Green
  • Mid Green
  • Low Green
  • Yellow
  • Red

The Platinum category is for companies with the most Saudi employees and is considered the best. The categories go down from there, with the Red category being for companies with the fewest or no Saudi employees. 

This classification only applies to companies with more than ten employees, but even smaller companies must hire at least one Saudi worker.

This system helps the government monitor companies to ensure they follow the Saudization rules and plan future actions. Companies in higher categories, like Platinum, get special benefits, such as faster visa services. Companies may also receive rewards or penalties based on their category. 

Recent Developments

The Ministry of Human Resources and Social Development (MHRSD) has recently made changes to the Nitaqat system and extended Saudization to certain jobs and sectors to attract more Saudi workers. Here are the details:

Changes to the Nitaqat System

The MHRSD has made two main changes:

a) Removal of the ‘Yellow’ Category

On 27 November 2019, the MHRSD decided to remove the Yellow category from the Nitaqat system starting from 26 January 2020. This change pushed employers to meet their Saudization quotas to move into the Green category, which increased job opportunities for Saudi nationals. Employers who were in the Yellow category were automatically moved to the Red category and faced several restrictions:

  • They could not apply for new visas or work permits.
  • They could not renew work permits for their current expat employees.
  • They could not change the job titles on the work permits of expat employees.
  • They could not hire expats by transferring sponsorship from another employer in Saudi Arabia.

b) Increase of the Minimum Wage for Saudization

On 18 November 2020, the MHRSD increased the minimum wage for a Saudi worker to be counted in the Nitaqat system from SAR 3,000 to SAR 4,000.

A Saudi worker earning at least SAR 4,000 per month will count as one worker in the Nitaqat system.

A Saudi worker earning between SAR 3,000 and SAR 4,000 per month will count as half a worker for Saudization purposes.

These changes will take effect on 18 April 2021.

You May Also Read: Is Saudi Arabia Good for Business? A Comprehensive Guide

Saudization of Professions and Sectors

The Ministry of Human Resources and Social Development (MHRSD) has focused on several professions to increase the employment of Saudi nationals. Here are the recent measures:

Dentistry Roles

The MHRSD issued a rule on 25 November 2019, requiring employers with three or more dentists to meet Saudization requirements in two phases:

  • Phase 1 (from 26 March 2020): 25% of dentist roles must be Saudi.
  • Phase 2 (from 15 March 2021): 30% of dentist roles must be Saudi.

Pharmacist Roles

The MHRSD issued a rule on 2 February 2020, requiring employers with five or more pharmacists to meet Saudization requirements in two phases:

  • Phase 1 (from 22 July 2020): 20% of pharmacist roles must be Saudi.
  • Phase 2 (from 11 July 2021): 30% of pharmacist roles must be Saudi.

This applies to medical facilities, insurance companies, pharmacies, and other related businesses.

Engineering Roles

The MHRSD issued a rule on 20 August 2020, requiring employers with five or more engineers to have 20% of their engineering roles filled by Saudis. This rule took effect on 14 January 2021. Saudi engineers must earn at least SAR 7,000 and be professionally accredited by the Saudi Council of Engineers.

ICT Roles

The MHRSD issued a rule on 5 October 2020, requiring employers with five or more workers to Saudize 25% of ICT roles (like IT engineers, programmers, and tech support) by 27 June 2021. Saudi workers in specialized ICT roles must earn at least SAR 7,000, and those in technical roles must earn at least SAR 5,000.

Accounting and Finance Roles

The MHRSD issued a rule on 23 December 2020, requiring employers with five or more accounting professionals to Saudize 30% of these roles by 11 June 2021. Saudi accountants must earn at least SAR 6,000 if they have a bachelor’s degree and SAR 4,500 if they have a diploma. They must also be accredited by the Saudi Organization for Certified Public Accountants.

Remote Customer Service Roles

The MHRSD issued a rule on 1 February 2021, requiring that remote customer service roles (handled through phone, email, online chat, and social media) be based in Saudi Arabia and filled by Saudis. This rule takes effect on 31 July 2021.

Educational Roles

The MHRSD issued a rule on 6 May 2021, requiring private and international schools to Saudize certain educational roles over three years, starting on 29 August 2021. Saudi educators must earn at least SAR 5,000 if they have a bachelor’s degree.

Retail Sector

The MHRSD issued a rule on 5 March 2020, requiring certain retail roles to be filled by Saudis. This rule took effect on 20 August 2020 and applies to businesses selling items like books, toys, food, beverages, gifts, and more. These businesses must ensure that at least 70% of their workers are Saudis.

Penalties for Non-Compliance

Employers who do not follow these Saudization rules may face penalties, including:

Suspension of MHRSD services (like issuing visas, transferring sponsorships, and changing job titles for expats).

Fines for not meeting Saudization requirements.

Impact of Saudization on the Workforce

In 2017, the Saudi government implemented the Expat Dependent fee, which mandates that foreign workers employed in the nation pay additional fees for their spouses or dependents. There is an extra charge for dependents in addition to the iqama’s annual or quarterly issuance and renewal expenses.

How is the government helping locals for Saudization?

The government has set aside 72 jobs that only Saudi Nationals can do. Many of these jobs are entry-level positions, but there are also roles in human resources, labour affairs, some sales jobs, and finance.

The country needs more skilled workers for technical jobs like engineers, architects, IT specialists, and healthcare workers. To address this, the Saudi Arabian government has added new requirements to its large scholarship program for young Saudis who want to study at universities abroad.

If you’re offered a job that might be for Saudi Nationals only, it’s best to ask the employer if they have a visa (Iqama) for a non-Saudi.

Are all industries affected by the change? which ones are key and why?

Not all industries are affected, The government has nationalized 4 out of 12 areas in the retail and wholesale sectors, These include:

  • Car and motorbike showrooms
  • Shops selling ready-made clothes for men and children
  • Home and office furniture shops
  • Shops selling home appliances

These steps help ensure these businesses hire more Saudi workers.

What impact does this legislation have on business owners?

The new rules from the government have created challenges for businesses. Companies can’t hire more expats and often struggle to find enough qualified local workers. This has led to a “war on talent,” where skilled Saudis switch jobs frequently, pushing up salaries, especially in the government sector.

In 2017, the number of Saudi women in government jobs increased by about 0.4%, reaching 476,347. At the same time, the number of men in public sector jobs slightly decreased by 0.95%, to 697,000. Businesses must ensure that 70% of their workforce is Saudi, and there is a push to encourage more Saudi women to work, which we expect to reflect in the 2018 figures.

The Human Resources Development Fund (HADAF) has turned its branches across the Kingdom into employment centers to help Saudi job seekers. Khaled Abalkhail, the fund’s spokesman, said that 22 branches of HADAF have been transformed into specialized centers to support job seekers in the private sector.

How will this affect an expat currently living and working in Saudi?

The Saudi government introduced the Expat Dependent Fee in 2017. This fee requires working expats to pay extra for each dependent they have in the country. Currently, the fee is 100 SAR per month for each dependent, including themselves. This fee will increase each year until it reaches 400 SAR per month per person in 2020.

As a result, over 800,000 expats have left Saudi Arabia in the past two years, reducing the expat population to 7.7 million from 8.5 million in early 2016.

Is it all bad news for expats in Saudi?

Not at all. While the number of jobs for expats has decreased, many professional service companies, private family businesses, and government roles still issue visas (Iqama) for expats where there is a skill shortage.

Many expats enjoy working in Saudi Arabia, bringing their experience and mentoring Saudi professionals. We hear many positive stories of expats appreciating the warm and friendly Saudi culture. Although Saudization aims to reduce reliance on expat workers, there will still be many rewarding roles as the country works towards its 2030 goals.

As more young Saudis get educational qualifications and work experience, the Ministry of Human Resources and Social Development (MHRSD) has been focusing on Saudizing more sectors and jobs, especially those needing higher qualifications. This trend will likely continue to expand into more professions and industries.

Employers need to plan their future workforces by ensuring they meet the required number of Saudi nationals in specific roles. They should also think strategically about which foreign workers are necessary to keep for the sake of continuity and to help train and share their experience with Saudi colleagues.

Related Articles

Subscribe to our newsletter

Enter your email to receive our monthly newsletter

Popular Articles