Nitaqat, the New Localization System for Jobs in the Kingdom of Saudi Arabia

Guiding Principle

In order to reduce the unemployment rate among the Saudi citizens, the Saudi government issued a new system for the localization of jobs in Saudi Arabia under the name of “Nitaqat”. The new system replaces the system applied since 1994 under the name of “The Saudization”. Nitaqat adopts several principles, which will have impacts on non-Saudis working in the Kingdom.

A. Introduction

The economy in Saudi Arabia – as it is the case in other states of the Gulf Cooperation Council (GCC) – depends largely on the existence of a large proportion of expatriates1 working for various establishments in the private and public sector. However, unlike the other states of the GCC, Saudi Arabia has large number of unemployed citizens2, which creates a state of resentment among those citizens.

B. The Saudization

In an attempt to reduce the unemployment rate among the citizens, the Saudi government applied a system in 1994 for the localization of jobs under the name of “The Saudization“. The basic principal of the system was the requirement to appoint certain percentage of the total workforce of all the establishments existing in the Kingdom from the Saudi citizens. This percentage varies in accordance to the activity of the establishment. Generally the percentage was fixed by 30%.

However, due to several reasons, the system did not achieve the desired objectives and mostly the 30% has not been reached. Now, more than 6.5 million non-Saudi are working in the private sector of the Kingdom compared to 700 thousand Saudis. In addition, more than 2 million work visas were issued during the preceding two (2) years.

C. Nitaqat

Therefore, the Saudi government has endeavoured to find other solutions to eliminate the phenomenon of unemployment among Saudi nationals. The efforts of the government resulted in the implementation of several strategies. The most important of these strategies was the issuance of a new system under the name “Nitaqat” for localizing the jobs in the Kingdom to replace the system of Saudization.

The name Nitaqat means Ranges in Arabic, which actually represents the main idea of the new system as the main obstacles faced the previous system that it was not practical to apply one fixed percentage, regardless of the particular circumstances of each activity, such as the availability of the qualified manpower for certain activities.

Nitaqat divides the labour market into 41 activities and each activity into 5 sizes (Giant, Large, Medium, Small and Very Small) to have in total 205 categories. The performance of the establishment in the localization of the jobs is to be evaluated compared with the similar establishment’s activity and size in order to have fair standard for the evaluation

After the evaluation, Nitaqat classifies these establishments into ranges (Excellent, Green, Yellow and Red) based on the ratio of the citizens working in the establishment. The Excellent and Green range, which are the ranges with the highest localization ratios, will be rewarded, while the system deals firmly with the Red range, which is the range with the lowest localization ratio and gives more time for the Yellow range to adjust their positions, being the medium range.

The motive of applying the Nitaqat system is to make the appointment of Saudi citizens represent a competitive advantage for the establishments in the Kingdom.

D. The Rewards to the Excellent and Green Ranges and the Disadvantages of the Red and Yellow Ranges.

The MoL has granted the establishments located in the Excellent or in the Green Ranges several advantages by giving the establishments the eligibility to issue work visas for the development of new business. Furthermore the MoL will give them the ability to contract with non-Saudi workers from the establishments of the Red and the Yellow ranges in the Saudi market, which allows such establishments to benefit from their experience and presence. This will result in granting the establishments that have achieved high rates of localization the opportunity to appoint non-Saudi workers with no need to issue new work visas, which helps to rationalization the recruitment and employment of additional non-Saudi labor.

In contrast, the establishments located in the Red or in the Yellow range will be forced to speed the localization of the jobs within the establishments to upgrade their range to the Green or the Excellent range to maintain the expats they have. Otherwise, the establishments located in these ranges – Red and Yellow ranges – will be denied from obtaining new or alternative visas, lose control over the non-Saudi workers in the establishment as they will have the freedom of contract with a new employer and will not be allowed to obtain new work visas to appoint new-non-Saudis workers or to set up a new subsidiary or branch.

July, 2011 Hany Kenawi
Meyer-Reumann & Partners – Riyadh