How does the localization policy of the Kingdom affect the construction sector?

The government of Saudi Arabia is determined to pursue the path of holistic development for its citizens. To implement it in letter and spirit, the government began a localization initiative to empower Saudi citizens by enabling them to take ownership of their country. 

What is the purpose of localization?

Launched as part of Vision 2030, the core purpose of the initiative is to preserve and enhance the capabilities of public sector institutions in particular and the economy in general by employing the capabilities of local human resources through:

  • Creating jobs by increasing employment rates in the targeted professions.
  • Enabling qualified national cadres to work in specialized sectors to achieve sustainable economic development.
  • Increasing the percentage of the gross domestic product.
  • Reducing illegal practices in business sectors and eliminating commercial concealment.

Is there a difference between ‘Localisation’ and ‘Saudization’? Or are they two sides of the same coin?

Many often confuse the terms ‘Saudization’ and ‘Localization.’ They are two fundamentally different sets of policy initiatives.

The principle of localization is based on the full and optimal use of the national workforce because it concerns the quality and position of specific job titles with a requisite academic degree and a set minimum wage.

Whereas ‘Saudization’, an initiative that began in 1975, was a check and balance mechanism deployed to limit the control of expatriates over the various business sectors in the Kingdom.

Saudization was implemented by maintaining a certain employment quota for Saudi nationals in local businesses, regardless of their skillset or academic qualification.

How the Localisation Initiative Impacts the Kingdom’s Construction sector?

The construction sector is the second largest non-oil sector in terms of revenues and the highest in terms of people employed in the Kingdom. The sector faces great challenges, despite the initiatives launched supporting localization.

Several top government agencies, including the Saudi Contractors Authority, the Ministry of Labor and Social Development, the Ministry of Housing, the Human Resources Development Fund (Hadaf), and the Council of Saudi Chambers, have joined forces to promote sustainable localization in the construction sector. 

Localization of technical and leadership positions is spearheaded by attracting qualified national cadres to work in the construction business. The government has also offered to reduce the financial burden of contracting companies as an inducement for the first two years.

The initiative adopts a precise mechanism to reach its objects through:

  • Bolster the coordination amongst authorities to enable the localization of the real estate and contracting sectors.
  • Issuing legislation and regulations to support goals and increase employment rates.
  • Following up and monitoring the impact of localization on the real estate sector.
  • Enabling the private real estate sector through the use of mechanisms available to the Ministry of Housing.
  • Providing facilitation and bridging programs and employment support for the targeted professions in the sector.
  • Designing and implementing plans for preparing graduates in the sector’s major specializations.

How does the initiative support employers/businesses?

The initiative provides full support represented by:

  • Providing all employment services to the job seeker with the cancellation of recruitment costs.
  • Rehabilitation of the beneficiaries professionally following the needs of the employer/facility.
  • Holding training courses covering the theoretical and practical aspects of the targeted jobs.
  • Providing financial support through the localization Growth Support Program adopted by the Human Resources Development Fund (Hadaf), which contributes by paying a percentage of the monthly social insurance subscription share on behalf of the business that achieves growth in the number of Saudi employees.

As for the workforce, the initiative supports it through the following:

  • Raising workers’ skills in the sector by providing practical and theoretical training courses specialized in contracting.
  • Employing those who passed training courses in the same field in which they were trained, in cooperation with the Ministry of Human Development.
  • All training courses are fully supported by (Hadaf).
  • Obtaining an accredited certificate from the Technical and Vocational Training Corporation.
  • These courses are held with the full support of the Human Resources Development Fund provided to the Saudi Contractors Authority by covering 35% of the training costs after completing the training course and 65% upon employment of the beneficiary and his stability in work for three months.
  • To view all the training courses offered to contractors, log on to the Muqawil platform – Training Programs.

However, despite the array of initiatives to support the localization of the sector, it was difficult to reach the desired percentages of employment. It uncovered challenges facing the localization of the construction sector in the Kingdom, which was divided into:

  1. Obstacles related to human resources:
  • It was not possible to localize all jobs in the sector due to the lack of qualified national cadres, poor wages, and long working hours.
  • Work in the contracting sector is seasonal, which causes an imbalance in the job stability of workers and employees.
  • Most of the jobs in the sector are related to low-skilled workers, or the workers are not properly trained.
  • Lack of interest by some young people to join the real estate sector and contracting sector, made it hard to find human resources that encouraged localization.

2. Obstacles related to the owners of establishments in the private sector:

The success of localization depends on the belief of the owners of private sector businesses in its desired goals, as it:

  • Is not related to increasing the number of Saudi employees without considering their interest in the business. Or their commitment to replacing expatriate workers with the Saudi workforce and the requirement to comply with the mandatory percentages of entry into the labour force green zone to ensure access to all facilities.
  • Alleviating concerns about the impact of localization’s cost on their business’s productivity and profitability.

Here is a quick overview of the Localisation rate in the Kingdom based on the colors and what they symbolize:

  • Platinum: symbolizes the businesses distinguished in localization and deserve to be included in its scope.
  • High green: indicates the businesses where the average localization rates fall within the upper third, according to the required localization percentage for the green range.
  • Medium green: indicates businesses where the average localization rates fall within the middle third, according to the required localization percentage for the green range.
  • Low green: indicates businesses where the average localization rates fall within the low third, according to the required localization percentage for the green range.
  • Red: includes the lowest businesses that did not fully adhere to the localization ratios.

To obtain the query service and calculate the localization percentage coefficient for all business entities, one must visit the Human Resources and Social Development website or the (Qiwa) platform using the interactive ranges calculator.

How can construction businesses address their inability to localize the sector?

There are several ways construction businesses can find a solution to address this issue:

Adopt Technological Advancement

There is a direct relationship between the need to adopt modern construction techniques and the increase in the workforce in the sector at all stages of work, starting from the design stage through manufacturing and ending with on-site assembly.

These technologies require new technical skills with a higher level of complexity. They are less manual than traditional construction techniques, attracting well-educated Saudi employees and thus improving the chances of localization in the sector.

A Win-Win Policy

The private sector business owners’ perception regarding the negative effects of localization needs to be assuaged. They must be convinced that employing local workers is in their best interest. And this can only be done if the private sector readily finds a competitive local workforce equally efficient and at the right price.

Efficient and eager workers are ready to be hired, and businesses have a pool of local workers to choose from at competitive rates. Only a win-win situation for workers and businesses can help intensify the localization initiative in the Kingdom.

The Aramco Initiative As a Model for Localisation

There is no better example of localization than the Saudi Aramco initiative, which launched the (ektefa) program to enhance its supply sector. It aimed to regulate the practice of self-employment in the Kingdom and create distinguished job opportunities for Saudi citizens by granting the self-employment document that Provides unique and supportive services.

The program created a supportive business model that consolidated partnerships between local business sectors and major international companies. It also facilitates the recruitment and training of Saudi nationals and prepares them to occupy key positions in the industry.

As for the localization of the contracting sector, Aramco was able to train 400 Saudi youth in Jizan in the construction sector in the fields of plastering, carpentry, and blacksmithing. To implement the plan across the Kingdom’s various regions and develop a Saudi workforce for the construction sector.

As the Aramco use case shows, the success of the sector’s localization initiative depends on the concerted efforts of both business owners and Saudi citizens since it is a joint responsibility, especially when the government has spared no effort to make it a success. 

Co-Founder & CEO at Splyd

Soltan Alabed
A serial entrepreneur who writes on the impact of disruptive technologies in legacy B2B industries across Saudi Arabia.

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