Saudi Arabia is very quickly becoming a popular place for foreign investment, with many exciting international corporations, and promising start-ups taking advantage and reaping the benefits of operating in the Middle East’s most lucrative commercial hub.
Encouraged by consistent economic growth and the Saudi Government's 'Vision 2030' objectives, businesses have begun to recognize that now is the best time to make a name for themselves in Saudi Arabia and consequently the Middle East as a whole.
If you are considering opening your business in Saudi Arabia, there are a few things you need to know, one of which is the government mandate called Saudization.
Saudization: Helping Create a Dynamic and Competitive Workforce
Saudization is a policy move by the country’s Ministry of Labour that aims to put the interests of Saudi citizens first in the form of more employment prospects. It is planned that through Saudization the nations unemployment level will decrease from 12% to 7% over the coming years
So, What Is Saudization?
It is an essential part of operating your Saudi business as it forms part of the core ‘process’ that all Saudi businesses, both foreign and local must follow.
Historically, Saudi firms would bring in labour from other countries and prioritize those people rather than acquire employees from the Saudi talent pool. The point of Saudization is to balance the workforce and increase Saudi Arabia’s employment rates.
Part of the Vision 2030 reforms that were announced in 2016, Saudization places an obligation on private corporations and enterprises to fill up their workforces with Saudi citizens up to a certain quota. This quota varies depending on a company’s size and its industry.
Saudization Quotas—The 'Nitaqat Quota Threshold'
Saudization uses a rating system called Nitaqat that classifies companies into four different categories:
- Green (Light, Medium, and Dark)
‘Compliant’ zones (companies with enough Saudi employees) are banded in platinum and green. Whereas ‘non-compliant’ ones (companies without enough Saudi employees) are banded in yellow and red.
Compliant platinum and green-zoned companies obtain several benefits that non-complaint yellow and red-zoned companies do not.
Some of these benefits include being able to obtain expedited work permits and visas for foreign employees, being able to change their foreign employees’ professions, and being able to poach employees from red and yellow-zoned companies the need for permission from previous employers.
In contrast, yellow and red-zoned companies face many restrictions and cannot issue any Saudization certificates, an essential part of the process that is required to be compliant with Saudi laws.
Yellow-zoned companies, for example, cannot renew work visas for employees who have remained in Saudi Arabia for more than two years. They also cannot issue new work permits or visas. Red-zoned companies cannot hire any expats as employees, open new businesses or branches in Saudi Arabia, and cannot renew work permits.
How Many Saudi Employees is 'Enough'?
As we mentioned earlier, that depends on your company’s size and its industry. Saudi authorities have defined company sizes as follows:
- Small A: 0 – 5 employees
- Small B: 6 – 49 employees
- Medium A: 50 – 99 employees
- Medium B: 100 – 199 employees
- Medium C: 200 – 499 employees
- Large: 500 – 2,999 employees
- Giant: 3,000+ employees
The percentage of these employees that must be Saudi nationals varies from industry to industry, and the Saudi Government has defined over 70 different types of industry for the purpose of Saudization rules.
In the IT sector, for example, small companies must have a 56% Saudi workforce to be considered a Platinum company whereas medium-sized companies must have a 64% Saudi workforce to also be in the Platinum band. The bare minimum Saudi workforce, however, to avoid the dreaded Yellow zone for small and medium-sized IT companies is 20% and 29% respectively.
Saudization is a Key Consideration for You
If you are considering moving your company to Saudi Arabia, you should hopefully now have a basic understanding of the Saudization process—it is a major part of operating here and you must meet your obligations to extract maximum benefit from your Saudi enterprise.