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It is too early to fully gauge how effective the scheme has been in boosting the percentage of Saudis in employment, replacing some of the 8 million expatriate workers in the kingdom and tackling the 40 per cent unemployment rate for those aged 20-24, but early indications suggest a mixed picture.
The programme can be costly. Some companies have made stock market disclosures that suggest the increased training requirements of hiring new staff are hitting their bottom line. One large, Jeddah-based firm estimates the cost of implementing Nitaqat over the next 10 years at about SR1bn ($267m). The scheme applies to public sector firms too.
According to the Ministry of Labour, 195,000 Saudi men and 51,000 women had found jobs by July. There is a widespread acknowledgement that the demographics of the local workforce are unsustainable and that, at some point, nationals need to start entering the private sector.
Although the construction industry only has to reach a 31 per cent Saudisation target to achieve an 'excellent' rating, it has become tougher to bring in large numbers of foreign workers, making projects harder to implement.
From the start, one of the biggest challenges with Nitaqat has been the Saudi salary structure. Saudis will quickly change to new jobs with marginally higher salaries rather than stay for the good of their careers. Rising salary expectations remain a big concern. Saudi nationals are in higher demand than they were five years ago, making the kingdom an employees' market, especially for those with good qualifications and experience. A report by UK-based consultant Hay Group found that in 2011, salaries rose 4.4 per cent on average and are likely to increase by a similar amount in 2012.
A year after Nitaqat was introduced, firms in the kingdom are devising strategies to deal with it. Some are building training provisions into their contracts. By offering to train Saudis who then take up jobs, companies can obtain funding from the state-backed Human Resources Development Fund, which will pay half the salaries of Saudi employees. This also has the benefit of putting more Saudi names on the payroll.
The difficulties faced by firms regarding Saudisation may prove beneficial if the long-term gain - a stronger economy in which better-educated Saudis play a significant role - is realised.
How Nitaqat works
There are four colour-coded classifications, ranked by success in meeting Saudisation targets: Excellent, Green, Yellow and Red.
To make employee quotas realistic and practical, the Ministry of Labour has divided the labour market into 41 economic activities and five sizes.
Excellent and Green companies have fees waived and are given grace periods for paperwork, while Yellow and Red businesses are punished with operational restrictions.
This article is part of MEED magazine's Doing Business in Saudi Arabia Guide, for more information please visit MEED.com
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