Saudi Arabia Stuck in a Logjam

06/24/2013 7:00 am EST

Focus: GLOBAL

It isn't everyday that a major part of a trillion-dollar economy just shuts down, but that's exactly what stands to happen in the construction sector of this Gulf kingdom, writes Lucy Barnard of The National.

As many as 80% of construction projects in Saudi Arabia could suffer delays because of the introduction of a labor law restricting foreign employment, contractors warned yesterday.

A backlog of about 450,000 foreign construction workers were still waiting for the correct paperwork, said Raed Al Aqeeli, the vice chairman of the contractors' committee in the Jeddah Chamber of Commerce and Industry, although the new laws are set to come into full force on July 3.

"We still can't see the government apparatus gearing up to accommodate and clear the large numbers of paperwork and transactions, which are estimated at 450,000," he told the Saudi newspaper Arab News.

"The time period is just not enough considering the fact that the sector was totally dependent on illegal laborers and part-time workers, as well as small enterprises. Under the circumstances, it would be difficult for companies to manage the worker shortage issue," he added.

Under Saudi Arabia's recently introduced "Nitaqat" program, companies are required to hire one Saudi national for every ten migrant workers. Any workers left without a job or a sponsor must leave the country. After a grace period that ends July 3, any expatriates found in the country without the correct visas face prison and heavy fines.

The rules, aimed at providing 1.12 million new jobs for Saudi nationals by next year, stipulate that firms failing to employ a sufficient number of nationals face heavy fines.

The rules cause particular difficulty for construction companies that rely on employing large teams of unskilled foreign workers. Contractors estimate Saudi nationals comprise less than 10% of their workforces, while for white-collar industries such as banking, the figure is estimated at about 60%.

A significant number of the contractors operating in Saudi Arabia are companies based in Abu Dhabi, Dubai, and other Gulf emirates that have been attracted to the lucrative Saudi market in growing numbers since the global financial crisis hit.

Dubai-based Drake & Scull International, one of the largest contractors in Saudi Arabia with 10,000 people employed in the kingdom, said that only about 700 of its workforce were Saudi nationals. It hoped to increase the number "in line with local laws." The Saudi market accounted for 45.8% of DSI's work last year.

"Drake & Scull is one of the top ten companies in Saudi Arabia today," said Khaldoun Tabari, DSI's chief executive. "In Saudi Arabia, is there enough talent to do all the work they have? Probably not. But there are management positions. Right now in our projects, we have hired around 450 Saudi workers. We are doing our bit."

"You have to be part of the society you are living in. That's why yesterday we were issued 3,900 more visas. Why? We are proactive with the labor office there in hiring local people.

"Are they all 100% productive? Maybe not. So eventually they will be. What else can you do?"

Read more from The National here...

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