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Can the Saudi G-20 be the final nail in the coffin for kingdom’s kafala system?

Saudi Arabia, which is chairing the Group of 20 major economies (G20) this November 21-22 could use the event to promote a more reformed image to the world by announcing labor reforms

Saudi foreign employees will no longer require their work sponsor’s permission to change jobs, travel abroad, or leave the country Qatar introduced significant labor reform measures on September 8, 2020 Over 90% of private-sector workers in the UAE and Qatar are foreigners and 80% or higher in Saudi and Kuwait

Saudi Arabia is chairing the Group of 20 major economies (G20) this November 21-22 and part of its many aims is to boost the private sector, attract foreign talent and diversify its oil-based economy and could use the event to promote a more reformed image to the world.

The sponsorship system is widespread in the Gulf region but Qatar has announced it will end kafala by 2022 while Bahrain is also reportedly planning on reforming employment procedures.

The birth of the Kafala system

The Kafala (Sponsorship) System emerged in the 1950s to regulate the relationship between employers and migrant workers in many countries in West Asia. It remains the routine practice in the GCC but also Jordan and Lebanon. The sponsorship system’s economic objective was to provide temporary, rotating labor that could be rapidly brought into the country in an economic boom and expelled during less affluent periods.

Read: More retailers empowering Saudi nationals, integrating women into the workforce

Saudi’s labor reform plans   

Saudi is set to announce major labor reforms that could effectively end its kafala system for foreign workers, the online Maaal (Money) newspaper reported.

Foreign employees will no longer require their work sponsor’s permission to change jobs, travel abroad, or leave the country permanently, the medium said. The new rules are scheduled to be unveiled as early as next week and will come into effect from the first half of 2021 and will impact more than 10 million foreign residents.

The kingdom’s Ministry of Human Resources and Social Development tweeted it was “working on a number of initiatives to organize and develop the labor market” and will outline reforms to increase the competitiveness, attractiveness, and flexibility of the Saudi labor market in accordance with international standards.  

Under the existing system, foreign workers in Saudi Arabia must be tied to a sponsor whose permission they need to change jobs, open a bank account, leave the country on vacation, or even to replace a lost ID.  

Roughly a third of the kingdom’s population is foreign, and with citizen unemployment a persistent problem, some Saudis on social media argue that expatriates are pushing them out of the labor market and others are saying it would give foreigners too much power.

Qatar’s kafala reforms 

Qatar introduced significant labor reform measures on September 8, 2020, that will make it the first country in the Arab Gulf region to allow migrant workers to change jobs without employer permission and the second country after Kuwait to set a higher minimum wage for all workers, regardless of nationality.

Over the past 10 years, Human Rights Watch, other human rights, and migrant rights organizations, United Nations experts, trade unions, and media organizations have documented how the kafala system across the region trapped workers in employment situations where their rights to fair wages, overtime pay, adequate housing, freedom of movement, and access to justice were at risk. 

Read: How is the UAE honouring its migrant population?

Kafala in the UAE

With about 90% of the UAE’s over 9-million-strong population consisting of foreign nationals, most of whom are low-wage and semi-skilled laborers, the country’s economy is heavily dependent on migrant workers. 

Like most of its neighbors, the UAE has engaged in a range of labor reforms over the last decade to enhance labor mobility and rights compliance for migrant workers.  

These initiatives include efforts to regularize the migrant labor recruitment market and to improve the skills-matching and training of prospective migrant worker employees seeking to enter the UAE job market. 

Successive labor reforms over the past five years have included removing the requirement of seeking an employer’s permission to change jobs or leave the country and increasing worker access to grievance remedy and labor dispute resolution mechanisms.

Still, virtually all foreign workers must have an employer sponsor who is a citizen or resident of the UAE. In most circumstances, the sponsor must be the majority owner of the enterprise.  

Economic impact of foreign workers 

COVID-19’s economic crisis will devastate millions dependent on remittances

Remittances from the GCC were $120 billion, topped by the UAE ($40 bn), Saudi ($39 bn), and Kuwait ($15 bn). The World Bank forecasts a 20 percent drop in remittances to low-and middle-income countries, from 2019’s $714 bn (the highest ever) to $572 bn in 2020, exceeding the 5% dip after the 2008 crisis. 

Over 90% of private-sector workers in the UAE and Qatar are foreigners and 80% or higher in Saudi and Kuwait. 

Foreign workers generate economic demand, especially for staples and essential services. Large departures of higher wage expatriates would cripple the high-end, high-tech economies sought by these countries while significantly impacting demand for high-end goods and services.