Enforce better treatment of expat workers, says report

Saudi authorities should enforce better treatment of foreign workers to attract much-needed expatriate labour, says a report by JP Morgan. The issue – which has been well publicised but has yet to be properly addressed – is likely to divert labour away from the Kingdom, says the study. Although Saudi Arabia has access to an abundant pool of labour in South Asia and the Middle East and North Africa, the boom in the Indian economy and elsewhere in the GCC and the weak dollar are expected to slow the flow of workers. Surveys show that Saudi employers have had to offer Indian professionals in particular substantial pay hikes to compete with 15 per cent annual salary increases in India. The policy of Saudisation – a law that requires five to 20 per cent of a company's work force to consist of Saudi nationals – is creating further pressure because of skill shortages among nationals. "Saudisation is adding to the bargaining power of the skilled national labour force and is leading to shortages in the private sector," says the report. The government recently cut the quota for Saudi nationals among construction workers from 10 to five per cent due to severe shortages, but the lack of qualified labour remains a problem. The government has increased public sector wages by only around five per cent per annum while private sector wages have been rising by between 25 per cent and as much as 50 per cent for certain jobs in the construction sector. "Authorities should focus more on improving the skills set and reducing expectations rather than forcing companies to hire locals that are either unqualified or unwilling to work in particular sectors," adds JP Morgan. UN estimates show that expatriate workers constitute around 30 per cent of Saudi Arabia's population, 70 per cent of the labour force, and around 95 per cent of private sector employment. Twenty per cent of the expat community are from India and around 15 per cent each come from Pakistan, Bangladesh and Yemen. According to a GulfTalent.com survey around 75 per cent of expats in Saudi Arabia save to send money home. Much has been made of the way the weak dollar has shrunk the value of Gulf salaries in foreign currency terms, especially following protests in Dubai and strikes in Bahrain by expatriate workers. It is argued that companies have to offer higher packages than before to retain expatriate staff. However, while the Indian rupee has strengthened 11 per cent against the dollar since the beginning of 2006, the Pakistani rupee has weakened 5.3 per cent, the Bangladeshi taka 3.4 per cent and the Yemeni rial 2.1 per cent over the same period. Indians in Saudi Arabia may therefore be suffering from an effective fall in the value of pay they send home but expats from Pakistan, Bangladesh and Yemen are enjoying an effective rise. It is not clear whether a reduction in effective pay will lead to upward pressure on inflation through higher wage demands as Indians face this problem in the GCC region as a whole, the JP Morgan report says. "The lower wages that Indians earn in rupee terms may cause them to reduce their spending in Saudi Arabia in order to maintain the effective value of their remittances to India," it said.