Expatriate Workers in Saudi Arabia: Benefits and Risks
Middle Eastern countries have developed significantly due to expatriate labor flows that were created based on petrodollars earned. However, nowadays, countries such as Saudi Arabia experience controversial issues related to foreign labor mobility. This paper will discuss the advantages and disadvantages associated with the dependence on foreign workers in Saudi Arabia, and whether the country should include or exclude workforce mobility in future free trade agreements. Furthermore, the implications of the Saudi Vision 2030 for labor mobility will be discussed.
The Benefits and Risks Associated with Expatriate Workers
Dependence on a large number of expatriate workers brings significant advantages and drawbacks to any state. There are countries, such as the United Arab Emirates or Saudi Arabia, where local employees hiring can cost an employer more than attracting foreign employees. Nevertheless, workers’ immigration in the country may result both in short- and long-term benefits and risks that can adversely disrupt the labor force situation in the country.
The benefits of hiring an expatriate can be various; in Saudi Arabia, there are unique issues that relate to foreign workers. First, an international workforce is cheaper than domestic employees. The immediate need for income makes overseas employees an attractive option offered at a lower price, but, at the same time, they may be more talented and hard-working (Carbaugh, 2019). Second, some Saudi citizens do not want to get jobs that do not correspond to their social status. Thus, unwanted local work positions are closed by hiring low-paid expatriates.
Companies and countries need to run operations every day, and if unskilled positions are not filled, business activities may stop working. Therefore, the attraction of unskilled foreign labor force can support the balance within a country that needs to develop specific industries. Third, connections and skills expats have can contribute to the development of international relations and the country’s GDP due to the indirect boost that foreign workers create.
The drawbacks of hiring expatriate workers can offset the benefits depending on the specific industry companies operate in. First, the costs of hiring a skilled and talented person can be high because of the expenses and allowances that expats need to relocate successfully (Gholipoor & Rashidinejad, 2015). Second, it is suggested by Brauw (2017), that immigration of workers harms wages and hiring of domestic employees. Finally, due to the high unemployment and participation rates of local people in Saudi Arabia, foreigners occupy job positions at a lower wage and prevent Saudis from getting the necessary skills, which results in productivity decrease (Syed, 2014). There are lots more advantages and disadvantages associated with expatriate workers; thus, employers in Saudi Arabia must be aware of it.
Free Trade Agreement and Labor Mobility in Saudi Arabia
Free trade agreements provide specific incentives for expatriate specialists to move to Saudi Arabia. Free movement, tax preferences, and higher than average salaries for foreigners attracted the attention of a large number of foreign workers. Nevertheless, there are changes in the economy, social, and business structures that suggest the necessity to change the rules of the game for labor mobility. As a result of the collapse in oil prices, there is now a sharp decline in foreign investment and a high level of capital outflows in Saudi Arabia (McKinsey, 2015). Prince Mohammad, as the leader of the country, is trying to concentrate power in his hands and create a new economic course. The uncertainty caused by unrealistic plans to modernize the economy is exacerbated by the hectic distribution of vacancies in the private sector. Since the end of 2016, 800,000 people have left Saudi Arabia (Carey, 2018). In this situation, free trade agreements can support the replacement of workers that left the country.
One might claim that Saudi Arabia should not exclude labor mobility in future regional trade agreements. There are several reasons for this statement: first, despite restrictions that might be introduced, labor mobility may continue to work as previously, but will go to the grey shadow, risking being arrested. Second, the exclusion of a large number of expatriate workers can lead to a slowdown in economic activity; thus, the changes in free trade agreements may worsen the present situation.
In 2016 the Saudi Arabian authorities established a domestic labor policy named “Saudization,” which is designed to force employers to hire Saudi nationals. However, the implementation of this policy showed that free trade agreements could not restrict labor mobility. Big companies in Saudi Arabia find that it is not easy to search workers among the locals that accustomed to easy jobs in the public sector. Many Saudis refuse to work if the job position seems to be low-paid. In May 2019, more than 5,000 fines were issued for violating the “Saudization” requirements (“Why has Saudization,” 2018). It becomes evident that expatriate workers are needed, and free trade agreements should not limit labor mobility significantly.
Implications of Saudi Vision 2030 on Labor Flow
Saudi Vision 2030 that was introduced in April 2016, suggested a new policy for issuing permits for foreign workers, as well as other incentives to manage the expatriate labor force. Saudi Vision 2030 is aimed to create a diversified economy and support the policy of “Saudization.” Saudi Arabian government wants to achieve 50% of private-sector employment to be filled with Saudi nationals (“Why has Saudization,” 2018). Companies need to advertise job positions on the government’s website and consider locals for the job vacancy before searching for an expatriate worker.
The implications of Saudi Vision 2030 can be diverse, but at the same time, can bring a new flow of educated and skilled local people who want to work in different industries. If executed properly, Vision 2030 can create a whole new system of managing expatriate workers. This system can improve the quality of life for foreigners and ensure that they will stay for an extended time to contribute to the development of the business.
The first results of the policy are already presented to the public. Over the past 30 months, almost 2 million foreign workers have left Saudi Arabia, whose places will be taken by local natives (“Nearly 2 million,” 2019). Taxes are increased for companies employing non-Saudi citizens; foreigners are required to pay contributions for family members, and the number of sectors in which they can work is limited. These rules led to the change in expat workforce flow: expats depart, and there is a marked decline in the rental market and empty shopping centers.
The desire to get rid of expatriate workers may not be as needed as the Saudi Arabian government might think. However, labor changes might be required in long-term planning. Today the situation with foreign labor mobility might be unstable, but the aim to increase the presence of local employees within the market, especially women, is noble. Therefore, the country and workers should go through these harsh changes.
To conclude, one might state that the issue of managing labor mobility and expatriate workers’ flow is far from being simple in Saudi Arabia. Nevertheless, the necessity to address the problem and find ways to balance between foreign and local employees is evident and inevitable. The Saudi Arabian authorities should consider the establishment of rules and policies that will support the development of local employees and equalize foreign and domestic employees’ salaries. These policies should help the Saudi Arabian economy grow further and thrive.
- Brauw, A. (2017). Does Immigration Reduce Wages? Cato Journal, 37(3), Quarterly Journal of Economics, 118(4), 473-480.
- Carbaugh, R. J. (2019). International economics, 17th Edition. Boston, United States: Cengage Learning.
- Carey, A. (2018). 800,000 expats have left Saudi Arabia, creating a hiring crisis: ‘Employers say young Saudi men and women are lazy and are not interested in working’. Business Insider. Web.
- Gholipoor, M., & Rashidinejad S. (2015). Advantages and disadvantages of using foreign managers in Iran oil international projects. International Research Journal of Engineering and Technology, 2(5), 923-935.
- McKinsey. (2015). Saudi Arabia beyond oil: the investment and productivity transformation. Web.
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- Why has Saudization failed in some parts of the private sector? (2018). Saudi Gazette. Web.