Saudization, also known as the Saudi nationalisation scheme or Nitaqat, is a policy implemented by the Saudi Arabian government to ensure more jobs are filled by Saudi nationals. The policy is based on a quota system that varies among sectors.
It is a critical aspect of doing business in Saudi Arabia, yet many companies struggle to understand and remain compliant with the Saudization policy.
Falling foul of the Nitaqat program can have severe consequences for businesses operating in Saudi Arabia. These range from restrictions on getting new Saudi visas or taking government contracts all the way to fines and financial penalties.
Let’s explore the details of how it works.
What is Saudization?
Saudi Arabia has historically relied heavily on foreign workers to fill its workforce. However, with over half of the Saudi population under 35, the Saudi government aims to increase the number of nationals in the workforce.
As part of the ambitious Vision 2030 scheme, the Saudi government is targeting a reduction in domestic unemployment from its 2018 peak of 12.9% to 7% by the start of the next decade.
Saudization is a protectionist measure intended to buoy Saudi nationals’ living standards and reduce unemployment. By increasing the share of income generated by Saudi nationals and mandate their inclusion in high-value industries, the state seeks to develop its human capital.
Foreign companies in Saudi Arabia are expected to employ a specified quota of Saudi nationals. This can vary significantly from business to business.
Saudization requirements for private sector businesses
The rate of Saudi employees a company must maintain is determined by three factors:
- Saudization Percentage: The current percentage of Saudi employees in the company’s workforce.
- Entity Size: The total number of employees in the company.
- Entity Classification: The type of business activity or sector of the company.
The Nitaqat Program also reserves specific positions for Saudi nationals. For example:
- For international companies, the second employee hired after the General Manager must be a Saudi national.
- In companies with up to 5 employees, at least one must be a Saudi national.
- Companies with over 100 employees must have a Saudization rate of at least 30%, though this can vary by sector or license type
Reserved positions for Saudi nationals
Certain job roles are exclusively reserved for Saudi nationals, including:
- Air Controller
- Co-pilot
- Dispatcher
- Meteorologist
- Call Center Clerk
- Customer Data Clerk
- Customer Service Center Inquiries Clerk
- Query Clerk
- Tourist Information Clerk
- Cashier
- Complaint Clerk
- Booking Clerk
- Customs Clearance Clerk
- Director of Personnel Relations
- Director of Labour Affairs (responsible for overseeing job roles reserved for Saudi nationals)
- Reservation Agent
- Tourist Program Designer
- Duty Clerk
- Employment Clerk
- Executive HR Manager
- Female Sales Specialist for Ladies Shop
- Head of Personnel Department
- HR Manager
- Senior HR Coordinator
- Payroll Officer
- Sales Position
Saudization Certificate and Categories
The Saudization certificate, or Nitaqat certificate, is issued to companies that comply with Saudization policies. This certificate categorizes companies into different colour zones based on their compliance level: red, low green, medium green, high green, and platinum.
- Red Zone: 0% to 16.21% Saudization
- Low Green Zone: 16.22% to 19.25% Saudization
- Medium Green Zone: 19.26% to 23.11% Saudization
- High Green Zone: 23.12% to 26.51% Saudization
- Platinum Zone: 26.52% to 100% Saudization
The Saudization certificate is paramount for companies operating in Saudi Arabia. It can impact their eligibility to bid on government contracts, access certain privileges, and avoid fines.
How to remain compliant with Saudization
Nitaqat compliance requires employers to understand industry-specific and company-size-specific requirements.
Strategies include:
1. Forecasting employees and company needs
Plan your recruitment needs for the next 1-3 years to support business growth while remaining compliant. It is crucial to plan your workforce with your specific quota of Saudi nationals and ensure that expatriate workers do their bit to train and upskill their Saudi colleagues.
2. Saudi workforce gap analysis
To develop a strategy for meeting Saudization goals, think carefully about your number of job openings Consider the skills, knowledge, and experience that your organisation requires, and how to target recruitment strategically at the segments of the Saudi workforce most likely to possess these skills.
3. Developing Saudi workforce retention initiatives
Once you have met your quota, your priority should be to keep your Saudi employees in the fold. This means creating an engaging work culture responsive to Saudi nationals’ cultural preferences, while providing professional development opportunities, competitive salaries, and employee benefits.
Challenges of Saudization
Nitiqat laws present a host of challenges for companies :
1. Economic challenges
Smaller companies may struggle with higher salary expectations for Saudi nationals and the cost of training and upskilling them. This means that small companies struggle to survive, and many expatriate-owned small businesses are forced to shut down.
2. Compliance challenges
Keeping up with evolving quotas and maintaining detailed records and reports can be time-consuming and complex. Failure to comply with these measures can lead to significant penalties, jeopardising a company’s ability to operate smoothly and efficiently within the Kingdom.
3. Social/cultural challenges
Respecting cultural nuances in hiring and training Saudi nationals requires sensitivity and understanding. This can sometimes make the recruitment process longer and more fraught than companies will be used to .
4. Operational challenges
To manage Saudi workers, you’ll need to understand local payroll regulations. Adapting to a new HR regime can strain foreign company’s internal resources and distract from core business activities.
Updates for Saudization in 2024
Since its inception in 1985, the Saudization program has seen many changes. These are the most recent:
- Foreign investor classification: On April 11 2024, the Saudi Ministry of Human Resources and Social Development changed the Nitaqat program and announced that foreign investors who own private establishments in Saudi Arabia are now counted as Saudi nationals when calculating Saudization quotas.
- Remote worker classification: The program now recognizes Saudi citizens working remotely as regular employees for Nitaqat purposes. This offers more flexibility for both businesses and Saudi workers.
- Partial credit for specific nationalities: The Nitaqat program now offers partial credit for Palestinians with Egyptian passports. People of Baloch ethnicity also now count as one-fourth of a foreign worker for quota purposes. In simpler terms, hiring four of these individuals will be equivalent to hiring one foreign worker when calculating your Nitaqat compliance.
- The Saudi Arabian government is implementing new eligibility requirements and investing in upskilling the local population, particularly in technical roles, as part of Vision 2030.
How to avoid Saudization altogether
For companies who do not feel they are able to access the talent they need to fill their quota, the easiest way to secure a Nitaqat exemption is to set up a Regional Headquarters (RHQ) in Saudi Arabia.
The RHQ scheme is designed to convince foreign multinationals to make Saudi Arabia the nerve centre of their operations in the Middle East and North Africa. One of the key incentives is a ten-year long exemption from Saudization requirements, plus unlimited work visas for foreign workers.
Simplify your Saudization compliance
At Centuro Global, we help companies adapt to local law and thrive in the Saudi market. We tailor market entry strategies to your company’s needs, ensuring compliance and positioning you for success. Contact us to make your expansion into Saudi Arabia smooth and successful.
