In the last few years, the recruiting industry has witnessed big changes as the economy and technological advances have altered the way many companies hire. Of course, there are always challenges to be overcome, in this article we will discuss the Saudi labor market and the most common challenges faced in the recruitment process in Saudi Arabia, and how these challenges are linked with Saudization and Nitaqat initiative.
Saudi labor market
The Saudi labor market can be described as highly dependent on foreign labor, especially in the private sector; There are many reasons for this, the large demand for workers in the oil industry is one, another is that Saudi Arabia is a large country and has mega-infrastructure projects that require temporary labor only for the duration of the projects and therefore do not provide secure jobs for Saudis. Having this much foreign workers means that Saudi Arabia has two distinct labor markets, one for Saudis and one for foreigners. They have very different characteristics.
Data released by the Central Department of Statistics and Information (CDSI) showed that the overall unemployment rate (for both Saudis and non-Saudis) in Saudi Arabia was healthy by international standards at 5.7% during 2015. However, the challenge to the Saudi labor market is rooted in the over-reliance on non-Saudis occupying private sector jobs. This has meant a structurally high unemployment rate for Saudis, which stood at 11.6% in 2015.
This implies that there may be a mismatch between private sector requirements and the supply of Saudi labor.
Education outcomes and private sector needs
Graduate profiles of Saudis indicate that there is a mismatch between private sector requirements and the supply of Saudi labor with the relevant skills. According to data from the Ministry of Education, out of a total of 129,000 Saudi tertiary graduates in 2014, 65.3% came from social sciences and humanities background, and 16.8% of graduates came from engineering and science fields, two fields which are associated with high-skilled sectors.
According to data from CDSI, the private sectors with the highest labor concentration are wholesale and retail, followed by construction, and manufacturing. In 2015, Saudization rates in such sectors were significantly lower than in higher-skilled/lower labor intensity sectors. For example, Saudization rates in the construction sector stood at just 15.8%, compared to 49.5% in information technology.
The lower number of Saudis employed in labor-intensive sectors is due to a disconnection between these sectors needs and education/training outcomes of Saudi labor. It could also be partially related to the relatively higher work hours in labor-intensive sectors, which further discourages Saudis.
One way to overcome this disconnect is by further promoting vocational and training programs to Saudis. This initiative has been pursued for several years now, but has yet to result in a notable change.
Next, we will discuss the main challenges that organizations within the Saudi labor face during the process of recruiting employees.
Main Challenges faced in the recruitment process
1. Ineffective communication
Typically, assumptions and expectations between hiring managers and recruiters are set without understanding. Hiring managers don’t get useful guidance from recruiters and therefore they do not provide useful feedback on why they are rejecting candidates at CV or interview stage.
2. Organization structures
Companies in KSA have an inherent hierarchical view on organizational leadership; many organizations have top Executives whose areas of responsibility cross over.
3. Poor Job Analysis
Most companies have different Job Analysis formats internally; which affects the thinking process, which a hiring manager must go through to ensure there is an accurate reflection of the need and purpose.
4. Saudi Government’s Saudization quotas
A recent study of 2015 conducted by “Informa Middle East” highlights the Human Resource (HR) function’s response to challenges faced by organizations as they strive to meet the Saudi Government’s Saudization quotas, while still remaining competitive!
What does Saudization mean?
Saudization is the replacement of foreign workers with Saudi nationals in the private sector. Since it is largely dominated by foreign expatriate workers; there are not enough jobs for the growing number of Saudi youth. The Saudi Government took the decision to reduce unemployment among native Saudis
Thus, Ministry of Labor required all the companies in the Saudi market to achieve 5% of Saudization every year to reach 30%.
There are several factors that have adversely affected the nationalization of employment such as lack of qualified local workers, lack of skills and willingness of local workers to take certain job offers, reluctance of private sector to recruit local workers, preference of hiring foreigners because of better qualification etc. Later, in 2011, to reduce unemployment among Saudis, the ministry has announced an initiative called Nitaqat.
Nitaqat (“ranges” or “zones”) is a Saudization program introduced by the Saudi Ministry of Labor in June 2011, which aimed to reduce unemployment among Saudis.
The program classifies the country’s private firms into four categories: Premium, Green, Yellow and Red. Premium and Green categories include the companies with high Saudization rates, while Yellow and Red include the ones with low rates. The classification of other companies is based on the Saudization percentage (% of Saudi employees) and the total number of employees. The companies with less than 10 employees are exempt from the program, but still need to employ at least one Saudi citizen.
Areas where Saudization can be a challenge
1. Quality of Candidates
Companies have expressed concern about the quality of available candidates, and their readiness to enter the workforce a tidal wave of inexperienced university graduates has pushed their way into the economy. Also employers frequently complain that university graduates with just a few years of work experience often have unreasonable expectations of compensation and job responsibilities.
2. The outlook for remuneration
As organizations strive to reach their Saudization quotas, they are employing and training entry-level employees. Anecdotal evidence suggests that this is putting pressure on salaries as firms offer more pay to encourage the employees that they have trained to stay with them.
3. Employees engagement
HR professionals consider that Saudi Nationals frequently move from company to company in search of increased remuneration, indicating that they are not ‘engaged’ with the organizations they are working in but are, rather, engaged with the idea of the financial rewards .
There are some consequences from incentives created by the particular structure of Nitaqat. The extent to which firms are able to game the system may account for the less than full-compliance rates.
Temporary Saudi Hiring
One way where firms try to cheat the system, and avoid hiring restrictions on expatriate workers is to temporarily improve their color band assignment, by hiring a large number of Saudi workers when they need to hire more expatriate workers or renew existing work visas. The program rules try to prevent this by assigning color bands based on the 12-week moving average of Saudi employees. Nonetheless, there are occasionally reports of firms hiring large numbers of low-wage Saudi workers for short periods.
Downsizing to Avoid Quotas
Another way that firms may avoid penalties is by reducing their size below” the ten-employee cutoff for inclusion” in the Nitaqat program.
Companies in Saudi Arabia need to find ways to continue to attract senior, experienced, expatriate as well as qualified Saudi talents to ensure that they remain successful, they also need to ensure that their expatriate employees are engaged and stay for longer time, which means they need to design working environments and cultures where employees want to stay. The overall employment package, including reward management, career development, organizational culture, and meaningful work.
Bakkah team for training and consulting