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Issue No: 19 -October – December 2005
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The Saudi community is experiencing an era of scarce job opportunities in a congested labor market. This issue of job unavailability has fostered great concerns among policymakers and the general populace. The problem is very complicated and widespread, often being confusingly called Saudization.
Unemployment, as defined by the International Labor Organization, is the state or condition which prevents persons of employment age to obtain employment in spite of their best efforts. Thus, unemployment is deemed an issue of paramount importance, which many international communities encounter as a major economic challenge and which contributes considerably to the growth of many social problems.
The main causes of the non-availability of job opportunities and the growth of unemployment problems among communities are: |
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Economic crises which have lately worsened and the absence of growth-oriented policies directed toward academic specialties, in addition to the non-crystallization and formation of growth targets. |
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Failure to plan, thus leading to persistently substandard educational qualifications, and failing to create a data base to organize and publicize the jobs required. |
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Continued reluctance on the part of the new generation of Saudi nationals to participate in vocational occupations the market needs. |
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Lack of planning and labor market coordination leading to imbalance in the Saudi workforce, as a direct result of redundant specialized manpower in one field and noticeable shortage in another area, leading to considerable reliance and dependence on foreign manpower and imported technology. |
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| Due to the seriousness of the issue of unemployment, there are considerable national and international efforts intended to limit its negative effects on individuals and the society. The most important suggestions are: |
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Making staff leaders available in a way to have them work most efficiently in companies to foster employee development. |
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Defining the relationship between the unemployment rate and the levels of formal education to train workers as well as coordinating university education with the current needs of the labor market. |
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Giving the private sector a bigger role to employ larger numbers of workers and promote various companies to carry out many of the urgent service projects and encourage business leaders to make permanent job opportunities a reality. |
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Promoting a real partnership between the private and public sectors to hire and train workers. |
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As we review the issue of the lack of job opportunities for Saudi youth, we encounter regional disruptions caused by the first Gulf war which lasted for almost eight years and adversely affected the resources of the Gulf countries, and the second Gulf war which has denied the Gulf states a chance to recover, thus widening the financial deficits of the Gulf states and Saudi Arabia.
Additionally, there have been immense internal changes taking place in diverse cultural, social and demographic aspects in the Kingdom. Saudi society has shifted to urbanization, preceded by the huge increase in the number of population and concentration of the populace in urban centers. This shift has led to higher spending rates and the cost of living, not to mention more university graduates competing for jobs. Further, more foreign worker have arrived in the Kingdom looking for work, creating more competition with Saudi nationals, particularly younger workers with less job experience.
The Kingdom’s new market economy policy in this age of globalization has led to the stimulation of a private sector which complements and sometime overrides the government sector. Many multinational companies have prospered due to this private sector, and they emphasize competition in assessing job performance. Furthermore, due to the economic freedom which such companies enjoy, they willingly employ relatively low-paid qualified expatriates as opposed to Saudis nationals. Moreover, our society has disapproved of Saudis engaging in certain trades and vocations, so many young Saudis have been reluctant to seek jobs in such occupations.
In an effort to promote job opportunities among Saudi youth, the Ministry of Labor has promulgated several rules and regulations to ensure that all public companies welcome the assimilation and absorption of Saudi youth, according to a specified scheduled time limit by filling many jobs with Saudi nationals and by imposing on private companies certain conditions and penalties if they fail to adhere to such rules and regulations.
In short, there exist a number of national and international challenges inherent in dealing with unemployment among Saudi youth, such as: |
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The effect of globalization on employment competitio |
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The continued spread of economic internationalism on the Kingdom. |
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How to achieve the necessary economic growth rates in order to generate jobs for unemployed Saudi youth. |
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| To meet these challenges, the following steps are proposed: |
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Adoption of important and necessary economic plans and arrangements by the Saudi government to reduce dependency on oil proceeds and foster other and more diverse sources of income and revenues. |
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Creation of programs to make products produced in the Kingdom competitive in the international market. |
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Promotion of cutting-edge technology transfers and their application to foster business competition. |
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| The main point essentially is to focus on the re-arrangement of governmental priorities, according to the essential requirements and the national resources available, coupled with the reformulation of all the administrative and economic mechanisms, which shall undoubtedly contribute to generating significant solutions to this problem. |
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A consequence of Saudi Arabia’s imminent membership in the WTO is the conversion of family establishments to joint stock companies. Almost 98% of all companies in the Kingdom are establishments that were founded and are owned by members of the same family. Some of these family establishments were formed over 50 years ago before the country’s economic boom caused by the discovery of oil. Although 70% of these companies are still run by first generation owners, as these companies pass from one generation to the next, more of them go out of business. It is estimated that only one-third of them successfully pass to the second generation and a mere 15% to the third generation.
Many companies have found it difficult to finance their projects and expand their businesses. As a result, family establishments are deciding to sell stock in their companies to investors outside of the family. As of last June, at least 56 family businesses have applied to the Saudi Ministry of Commerce and Industry to change their status to joint stock companies.
As the government has opened the door to foreign businesses, it has become more difficult for traditional Saudi family-owned companies to compete. Further, many Saudi companies have realized that they need professional management in place to effectively compete with non-family-owned concerns. This trend necessarily moves a company away from the traditional model where control and decisions are solely exercised by family members.
The new Saudi investment laws permit any large company to enter the Kingdom and establish its business without a Saudi partner. Even in the distribution area where a sponsor still exists, many agreements are being made to alter the form of company ownership.
If a Saudi family establishment decides to convert to a joint stock company in order to attract other investors and raise working capital, it forces the owners to begin to organize the business. These steps usually include hiring a full-fledged professional management team, creating audited financial reports and ongoing accounting functions, engaging in strategic planning, and developing orderly procedures for transferring shares among stockholders.
Although most Saudi companies are run in a very patriarchal manner, families are now questioning if every family member should join the business regardless of his interest and qualifications. As companies move away from family establishments, family members will be free to decide whether they have the desire and aptitude to be involved in the business. If a business does decide to reorganize as a joint stock company, the employees have an opportunity to become part-owners which increases their loyalty and motivation to ensure its success.
When one concentrates on purchasing power and market barriers, Saudi Arabia certainly is one of the few countries in the world that is completely open to business. The Kingdom has virtually no quotas for any products. Anyone who has good products and is competitive can succeed in the country. Although the general perception in the West is that Saudi Arabia is a backward country, the truth is that recent legal and commercial reforms have made the Kingdom as competitive internationally as any other nation on the globe. |
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The Saudi Capital Market Authority (CMA) recently has taken steps to crack down on firms falsely claiming to be legitimate investment advisors and stockbrokers. For example, in late July, the Saudi Arabian Monetary Agency (SAMA) froze the bank accounts of a Saudi company representing a U.S. stock brokerage concern for failing to be licensed and claiming to offer investors a 64% return on their investments. Both CMA and SAMA have acted to restore investor confidence in a system too susceptible to scam artists offering bogus investment returns.
The CMA has published warnings in local newspapers to protect Saudi investors. Currently, only Saudi banks can trade in shares, but over 80 local and international companies have applied for brokerage licenses to do business on Tadawul.
Some of the requirements for setting up brokerage houses include that market traders be based in Saudi Arabia, that they be affiliated with a local company or a licensed foreign institution, and that they maintain a paid-up capital of at least SR50 million ($13.3 million U.S.). Investors will be able to call a toll-free number to check on whether a firm is actually licensed by the CMA before investing.
It is estimated that as many as 250 individuals and businesses are conducting illegal investment activity in the Kingdom. The Capital Market Authority intends to punish those individuals and firms that are promoting stocks, bonds and other securities and providing financial consulting services without a license. |
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| Disclaimer |
| Material contained in this newsletter is for general information only and should not be interpreted as legal advice on any particular matter. Readers are advised to consult their legal advisor directly on any issues discussed herein. Transmission of this document does not create any attorney-client relationship. Although considerable care has been taken to ensure the accuracy of the material in Legal Update, the Law Firm of Dr. Khalid Alnowaiser is not responsible for any errors contained herein. |
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