14 July 2011
This is a text of a Q&A on the Saudi Nationalization Policy or Saudization prepared by the Department of Labor and Employment.
What is Saudization?
“Saudization,” officially known as the Saudi nationalization scheme, or the Nitaqat system in Arabic, is the newest policy of the Kingdom of Saudi Arabia’s (KSA) Ministry of Labor, whereby Saudi companies and enterprises are required to populate a larger portion of their workforce with Saudi nationals. It calls for an increase in the share of Saudi manpower to total employment and for expanding work opportunities for Saudi women and youth.
Why is the KSA implementing Saudization?
The Saudization scheme is the Saudi government’s response to improve the participation of Saudi nationals in employment in the private sector and ultimately address the Kingdom’s unemployment problem.
How is the Saudization scheme implemented?
To carry out the scheme, the Ministry of Labor is coming up with 41 classifications of its employment sectors. It will also classify Saudi companies into five categories according to the number of their workers. Lastly, it will also categorize companies into four zones or bands—Nitaqat—according to compliance or non-compliance with Saudization requirements.
What are the five company classifications?
No. of Employees -Classification - Required/Nationalization
1–10 employees - None - Exempted
10–49 employees – Small - 5-24%
50–499 employees – Medium - 6-27 %
500–2,999 employees – Large - 7-30%
3,000 or more employees – Big - 8-30%
What are the categories or zones of companies according to compliance or non-compliance with Saudization?
These categories or zones are Blue (VIP category), Green (excellent category), Yellow (poor compliance), and Red (non-compliant). Blue and Green companies are more or less already compliant, while Yellow and Red companies are not.
When did the Saudization scheme take effect?
June 11, 2011. From this date, all Saudi companies, estimated to number around 300,000, are required to “nationalize” or populate their workforce with Saudis (for those who have not done so) or speed up their hiring of Saudis (for those who are slow to comply or are not complying). Yellow category companies have nine months (June 11, 2011 to March 11, 2012) to improve their compliance, while Red category companies have six months (June 11 to December 11, 2011) to comply with Saudization.
Has the categorization of companies according to compliance or non-compliance been completed?
The categorization would be completed on August 30, 2011.
What will happen after August 30, 2011?
Starting September 11, 2011, the Ministry of Labor will provide incentives for compliant companies and will impose restrictions to those that are not.
What are the privileges of compliant companies?
Companies categorized as Blue (VIP) will enjoy a number of privileges. They will be allowed to:
- Hire anybody from anywhere in the world;
- Apply for new visas for foreign workers with open professions through e-services, provided they remain in the blue category after issuance of new visas;
- Change the professions of their foreign workers to other professions, including those restricted to Saudi nationals, but except those which have been identified by the Saudi Council of Ministers;
- Hire foreign workers from Yellow and Red categories without the permission of their employers;
- Renew work permits of their foreign workers irrespective of their period of stay in the Kingdom; and
- Apply for replacement visas.
- Companies categorized as Green (Excellent) may
- Apply for new foreign workers’ visas not more than once every two months;
- Obtain one replacement visa for every two transactions for exit-only visas;
- Change the professions of their foreign workers to other professions, except those which are restricted to Saudi nationals;
- Renew work permits of its foreign workers regardless of their period of stay in the Kingdom; and
- Hire foreign workers from companies in the Red and Yellow categories without the permission of their employers.
What are the restrictions for companies under the Yellow and Red categories?
Yellow category establishments will NOT be able to:
- Apply for new visas;
- Hire or transfer foreign workers from any of the categories; and
- Change the profession of its foreign workers.
- They will also lose control over their foreign workers because they will be free to sign contracts with new employers in the Blue and Green categories.
- However, they would still be able to:
- Obtain one replacement visa for every two workers who have left the KSA for good;
- Renew the work permits of its foreign workers regardless of their stay, provided the remaining period in their foreign workers’ residence permits is at least three months on the date of renewal; and
- Renew the work permits of its foreign workers, provided these workers have not spent a total of more than six years with their employers.
- Red category companies will NOT be able to:
- Apply for new, replacement, or seasonal visa;
- Change their foreign workers’ professions;
- Hire or transfer foreign workers from any category;
- File application for opening new enterprises (whether they are branches or entities).
They will also lose control over their foreign workers because they will be free to sign contracts with new employers in the Blue and Green categories. They will also be barred from renewing the work visas of their entire foreign staff.
Will Saudization affect the employment of OFWs in Saudi Arabia and up to what extent?
Yes, if the Saudi government pushes through with a sustained implementation of the policy.
However, there will be no massive, short-term displacements of OFWs as feared by some sectors, based on the foregoing incentives for compliant companies and restrictions for noncompliant companies.
For example, semiskilled, low-skilled, or unskilled OFWs in Yellow and Red companies who will be most likely affected (particularly if their lengths of stay in Saudi have exceeded six years and, therefore, whose work permits could not be renewed), could still transfer their services or be hired by Blue and Green category companies. This can be done without the permission of their employers.
On the other hand, OFWs in the Blue category companies, who may still face the risk of being displaced, may change their professions to other professions, even to professions restricted for Saudi nationals, except those identified by the Saudi Council of Ministers exclusively for nationals. Those in Green category companies may change their professions to other professions, except to those restricted for Saudi nationals.
Companies in the Blue and Green professions may also renew the work permits of these OFWs regardless of the length of their stay in the Kingdom.
Due to this complex process, it is not possible at this time to provide an accurate number of OFWs who might be affected, pending the completion of the categorization of companies by the Saudi Ministry of Labor set on August 30, 2011.
The categorization could change the current classification of companies and their status may also change after the grace periods of nine months and six months, respectively, given to companies in the Yellow and Red categories to improve their compliance.
Will household service workers be affected?
No. Household service workers (HSWs) are not included in the Saudization requirements. The announced ban for new-hire HSWs was brought about by the Note Verbale sent by the Saudi Ministry of Foreign Affairs on March 12 to the Philippine Department of Foreign Affairs asking the Philippine government to stop the verification of contracts for new-hire HSWs.
What will the government do to assist OFWs who might be affected by Saudization?
The Department of Labor and Employment is taking three immediate steps:
- Deployment of an online registration system to capture accurate data and information on OFWs affected by the Saudi nationalization scheme.
- On-site re-employment assistance to facilitate the transfer of the services or hiring of affected OFWs from Yellow and Red category companies to Blue and Green category companies.
- Reintegration assistance for returning OFWs with final exit visas for local employment or for re-deployment to other foreign markets, or for self-employment through entrepreneurship and livelihood undertakings.