Saudi Arabia ban on foreign workers may anger businesses, consumers

Al-Ubaydli: Saudi Arabia has always been able to attract highly skilled foreign workers, because it can offer high wages, good benefits and minimal taxes.

Moreover, the kafala system of worker sponsorship was designed to make the paperwork for hiring foreigners very straightforward and cheap. It involves foreign workers being sponsored by domestic individuals or corporations, meaning that their presence is tied to their job.

This system gives the sponsor great flexibility in hiring and firing foreign workers. By contrast, the United States’ H-1B foreign worker visa requires fulfilling a byzantine set of requirements to demonstrate that the local labor pool is unable to satisfy the employer’s needs.

Despite this advantage compared to other labor-importing countries in the world, Saudi Arabia has in the past been at a disadvantage relative to some other Gulf countries due to its cultural climate: separation of the sexes, restrictions on attire, and a lack of alcohol, cinemas and other entertainment facilities. These lifestyle factors forced it to pay a premium for migrant workers, but that is slowly changing due to social reforms that are improving the quality of life for Saudi nationals and foreigners alike. These include loosening restrictions on cinemas and concerts and permitting women to drive.

Moreover, ongoing difficulties in the global economy mean that there continues to be a large supply of high-quality workers willing to work in Saudi Arabia. Many OECD economies, especially in Europe, have yet to mount a sustained recovery to the 2008 financial crisis, with stagnating wage growth and persistent unemployment. Working in Saudi Arabia for a few years may look attractive, as a result.

The challenge for the Saudi government is designing systems that maximize the rate of knowledge transfer from migrant to domestic members of the workforce, to assist in diversifying the economy.

In the past, much of the expertise possessed by foreign workers has departed Saudi Arabia when the workers themselves fulfill their contracts, which limits the long-term benefits to the economy. Today, there is a much greater emphasis on using foreign workers for capacity-building, to limit the economy’s long-term dependence on foreign workers. But it will take many years before the fruits of this effort can be realized.