Can Saudi’s mega projects be put on hold, not for lack of funding as oil prices rise again, but for lack of manpower to build them?
The Saudi construction sector has been the worst hit due to the exodus of expat workers during the first three months of 2018, according to a new labor market report released this month, the Saudi Gazette (SG) published recently.
“Between Q4 2017 and Q1 2018, about 221,000 foreign workers left the labor market. All sectors saw a drop in the number of foreign workers, with construction losing the biggest number, at about 126,000 foreigners, with 18,000 Saudis leaving the sector in Q1 2018,” said Jadwa Investment’s latest update on the Saudi labor market.
Trade, which includes wholesale and retail activities, came second, losing around 53,000 foreign workers.
Graphs below courtesy of Saudi Gazette
Citing wage data from the General Organization for Social Insurance (GOSI), the Jadwa update said most of the foreign workers who left the market in Q1 2018 were receiving less than SR1,500 ($408)a month on average. These workers were employed in the construction, trade, education, and agriculture sectors.
“Therefore, we can say that the first wave of foreigners leaving the market has been unskilled, low-wage labor, who have been made redundant by their employer due to rising labor costs through the first round of expat levies,” said the Jadwa report.
The total number of foreigners in the Saudi labor market declined by around 796,000 since the start of 2017, with about 221,000 leaving the market during Q1 2018.
New expat visas down
The number of new expat visas issued for the private sector has significantly declined in recent years, falling from 2 million new visas issued during 2015 down to 718,000 in 2017, the SG said.
During Q1 2018, the Ministry of Labor and Social Development announced a new wave of Saudization by enforcing 100% Saudi employment in 12 retail sectors by September 2018.
However, the ministry recently published a guide titled “Nationalizing retail jobs in 12 sectors”, proposing the reduction of Saudization from 100% to 70%, indicating that the original enforcement decision is under review.
During Q1 2018, the labor market saw the implementation of expat levies, which raised expat labor costs, six months after the implementation of expat dependent fees.
The government started imposing a 100 riyals ($26.70) a month on expat dependents in July 2017. The fee is set to reach 400 riyals ($109) a month in July 2020.
There are about 120,000 contracting companies across the Kingdom with a total investment of SR300 billion ($81.7bn). They employ more than 4 million workers including Saudis.
Big project labor crisis
The number of registered construction project contracts in the Kingdom was 250,000 before the first grace period to legalize expatriate workers ended in late 2017.
However, 90,000 of these registered contracts belonging to small contracting companies have since been canceled, according to Raed Aqeili, a member of the National Committee in Saudi Chambers, Arab News wrote.
“Most big projects were affected by this decision because they relied on small companies for employment.”
During the grace period many of the contractors moved their employees to other sectors, while some individual workers returned to practice professions stated in their iqamas, or residency permits, Aqeili added.
Some contracting companies have the professional skills, but they need to exert more effort in executing their businesses. After laborers left these companies, their projects were temporarily affected. Aqeili feared the problem might escalate in the coming months.
Aqeili said contracting companies need to hire professional laborers who can carry out contracting work from rental companies.
The cost of the current five-year plan for projects — which started in 2009 and will finish in 2014 — is SR400 billion ($109bn).
But most of the projects have not been completed.
Aqeili hoped labor crisis would be resolved. He said speedy solutions need to be reached to guarantee the existence of sufficient labor in the contracting markets to avoid further crises.
The Kingdom is preparing for labor courts early in 2019, according to Arab News
The Ministry of Justice said its plans for the soon-to-be-launched courts are all on track.
Judges are being trained, staff is getting proper induction and court buildings are being prepared and connected digitally.
Saudi Arabia has been working hard to push through initiatives that will organize the labor market and help it reach its highest potential, which will eventually boost investment in the Kingdom and drive the economy toward development and achievement of the Vision 2030 objectives, said Arab News.
According to the latest statistics revealed in Q1 2018; there are around 13 million workers in Saudi Arabia (10 million foreign and 3 million locals).
“These numbers are expected to increase with the ongoing mega projects across the Kingdom and the increasing demand for the labor force,” said Arab News.
The Labor court role will be a major drive toward creating ease and efficiency in conducting projects and ensuring those workers are working within a well-defined system that protects them.