Saudi Arabia Tackles Illegal Labor in Job-Creation Push

Saudi Arabia, the Arab world’s biggest economy, is cracking down on illegal workers, part of a push to create more jobs for its citizens and stave off unrest.

Inspectors have fanned out across the country, raiding places where they suspect illegal workers are employed, Labor Ministry spokesman Hattab al-Enazi said in an interview. Bader al-Malik, spokesman for the General Department of Passports in Riyadh, has told Saudi newspapers nearly 800,000 illegal workers have been deported in the past 15 months.

The kingdom is “enforcing already existing labor laws,” al-Enazi said yesterday. “The Saudi market has a lot of foreign workers and a lot of them are illegals.”

He didn’t provide a figure on the number of illegal workers in Saudi Arabia.

Saudi Arabia made job creation a priority after popular unrest toppled leaders across the Middle East starting in 2011. King Abdullah, who turns 89 this year, unveiled a $130 billion stimulus plan in 2011 to create jobs and tightened rules on the expatriate workers most businesses depend on.

The aim was to ensure that the world’s biggest oil exporter remains unscathed by the unrest that has swept other Arab countries with high unemployment. With about a quarter of Saudis aged 20 to 30 out of work, the government in 2011 curbed the number of work permits issued to foreigners, linking them to the number of Saudis a company employees.

Labor Reforms

In addition, deportations began. Al-Malik, the passports department official, told the Al-Riyadh newspaper in February that 575,000 illegal workers were deported in 2012. He told the al-Hayat newspaper on April 1 that 200,000 were expelled in the first three months of this year.

Paul Gamble, an analyst at Fitch Ratings in London, said he doesn’t expect the expulsion of low-wage workers to hurt the economy.

“The government is introducing the labor market reforms at the time of economic strength, so the economy will be able to absorb any impact comfortably and growth is unlikely to be affected,” Gamble said.

Greater employment of nationals “is beneficial for the economy over the long-term,” he said.

Saudi Arabia’s $657 billion economy expanded 6.8 percent last year as the government started implementing a $500 billion plan to build industrial cities in the desert, airports and universities. While growth may slow to 4.2 percent in 2013, it will be outpaced only by Qatar in the six-nation Gulf Cooperation Council, according to the International Monetary Fund.

Diminished Remittances

The clampdown could hurt countries from Egypt to the Philippines that rely on Gulf economies to prop up their own with money sent from abroad. Neighboring Yemen, whose economy is significantly bolstered by remittances, has already warned the measures could destabilize its fragile government.

In March, the government announced that expatriates can work only for their Saudi sponsors, the official Saudi Press Agency reported, citing a Cabinet statement. The Labor Ministry will inspect facilities and report violations to the Interior Ministry, which will arrest, deport and fine violators, the news service said.

“We take the necessary action to enforce the law,” al- Enazi said.

Shops Shuttered

After the government started conducting inspections, some shops and schools around Riyadh shut down as people tried to avoid sanctions.

“Most of the impact will be on the retail sector, where it is easy to inspect,” Fahad Al-Turki, senior economist at Jadwa Investment Co., said by phone. “We have heard of shops closing either because of enforcement or fear of being caught by inspectors.”

Saudi Arabia has about 9.4 million foreign workers, mainly from Egypt, Yemen, the Philippines, Indian and Pakistan, out of a total population of 29.2 million, according to the Central Department of Statistics. They drive taxis, work in shops, clean streets and build homes.

While details aren’t disclosed, foreign nationals often enter the kingdom under the sponsorship of one person then change jobs to work for another, using the same visa. A Saudi national could sponsor multiple visas for taxi drivers, and hire them out to other companies for commission.

Enforcing Law

The government is trying to “organize the current mess in the labor force,” Al-Turki said.

Saudi Arabia is the third-biggest global provider of worker remittances after the U.S. and Switzerland, sending $28.5 billion in 2011, according to World Bank data. Egypt, the Arab world’s most populous country, received $14.3 billion in remittances in 2011, representing 6.2 percent of its GDP, according to the World Bank. For the Philippines, it’s 10.3 percent. Yemen, pushed close to civil war in 2011, is another large recipient, with remittances accounting for 4.2 percent.

Between 500,000 and 800,000 Yemeni workers in Saudi Arabia could be hurt by the restrictions, Rajeh Badi, an adviser to Yemen’s Prime Minister Mohamed Salem Basindwah, said in an interview. A Yemeni delegation will visit Saudi Arabia to discuss the crackdown, the Saba news agency said March 30.

Yemen, bordering Saudi Arabia and Oman at the southern tip of the Arabian Peninsula, has struggled to recover from protests in 2011 that weakened the central government’s authority. Yemen’s President Abdurabu Mansur Hadi started national reconciliation talks last month.

“Yemen’s economy is facing serious difficulties and this would worsen the situation,” Badi said. “We hope Saudi Arabia will realize that the economic situation will have a direct impact on the political process.”

To contact the reporter on this story: Glen Carey in Riyadh at gcarey8@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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