What Will “Saudization” Mean for Foreign Workers in the Kingdom?

The relentless downward pressure on oil prices has compelled Saudi Arabia, an oil-dependent economy that hosts and employs a large body of migrant workers, to formulate a new economic strategy in order to avert expected budget deficits. Much attention has been focused on efforts to diversify the economy and usher more native citizens into the employed workforce. But what implications does Saudi Arabia’s new direction have for the 10.1 million foreign workers residing there?

Today, Riyadh must confront the problem of widespread unemployment among its youth. Given that declining oil prices have slumped the economy and elicited austerity measures from the government (including welfare retrenchment), Saudi Arabia’s local population will find itself leaning more heavily on income from employment. Consider that just 41 percent of the country’s working-age population is employed in an economy with a stagnant public sector that displays slower hiring rates and a vibrant private sector that mostly runs on skilled and unskilled expatriate labor. To transform the status quo, Riyadh is ramping up its Saudization campaign, an initiative that seeks to inject more locals into the private workforce by increasing job reservations. While the local population prefers to work in the public sector that commands higher wages, Riyadh wants to direct more of it into a private sector that evinces higher rates of growth, embodies a more diverse portfolio, and remains resilient in the face of an oil crisis.

Low oil revenues, stalled economic growth, changing policies has resulted in an environment of layoffs and job insecurity among a migrant population comprised of 2.8 million Indians, 1.5 million Pakistanis, 500,000 Bangladeshis, and 500,000 Nepalis, among other foreign workers. Most severely affected are those occupied in the construction business, a sector known for employing a large share of Saudi’s foreign workforce. As one report notes: “While in Jan-March (2015) around 434,124 Indians visited Saudi, the number fell to 401,034 in April-May (2015). The next two quarters saw a further decline to 370,282 and 378,881, respectively. This fall is largely attributed to fall in oil prices and job cuts.” Subtracting migrants from the workforce has also slashed remittances to India (projected to have crossed $10 billion per year). While in some sectors the fall in oil revenue may be a bigger driver of layoffs than the Saudization campaign, new rules intended to boost employment of native citizens will have a direct impact on migrant workers. For example, a ban on foreign workers selling mobile phones will directly impact 20,000 migrants.

The displacement of foreign workers from the private sector is aimed at creating room for local workers to move in. With labor substitution being a stated goal of Saudization, it remains to be seen how much this “guided localization” policy will boost participation of native citizens in the private sector workforce. It partly depends on the labor ministry’s efficacy at matching local talent to opportunities opening up in the private sector job market. It also depends on how locals react to vacancies in the less skill-intensive arenas, such as construction, street cleaning, or household help. Despite an era of dwindling job openings for migrant workers, the Saudization program may open up the possibility of formalizing and improving job quality in sectors like construction, if Saudi Arabia’s government fears a backlash from native citizens unwilling to accept the poor working conditions of today.