Saudi Slice of Asia at Risk as King Aims Jobs at Locals: Economy

Photographer: Waseem Obaidi/Bloomberg

The kingdom’s $657 billion economy grew 6.8 percent in 2012 and will expand 4.4 percent this year, according to the International Monetary Fund. Close

The kingdom’s $657 billion economy grew 6.8 percent in 2012 and will expand 4.4 percent... Read More

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Photographer: Waseem Obaidi/Bloomberg

The kingdom’s $657 billion economy grew 6.8 percent in 2012 and will expand 4.4 percent this year, according to the International Monetary Fund.

In the Battah district in the heart of Riyadh, immigrants have recreated a slice of home, buying and selling clothes, food and movies from a dozen mostly Asian countries. It’s a way of life that may be under threat.

King Abdullah’s drive to replace foreign workers with Saudis has begun to transform the Arab world’s biggest economy. Since its oil industry took off in the 1970s, Saudi Arabia has relied on migrants for tasks from building pipelines to fixing cars and packing grocery bags. They make up more than half the 11.3 million workforce, and now many are being urged to leave.

“I can’t give you a percentage but I can tell you that business is down,” said Mohammed Fahem, manager of the New Sri Lankan Restaurant in Battah, as he stood behind the cashbox watching a depleted clientele enjoy chili crab and dhal. “Many people have left the country.’

The king made reducing unemployment in the world’s top oil exporter a priority after the popular unrest that began in 2011 toppled or threatened leaders across the Middle East. He unveiled a $130 billion social-spending plan, and this year the government is taking steps to ensure the jobs it creates go to Saudis. It has tightened labor regulations on expatriates while offering an amnesty that allows the millions working here illegally to formalize their status or go home.

King Abdullah today extended the three-month grace period, announced in April, for foreign workers to rectify their residency status, the official Saudi Press Agency said. They have until the end of the Islamic year, at the beginning of November, it said. The previous deadline was tomorrow.

Government ‘Serious’

‘‘The government is serious about getting Saudis into the workplace,” John Sfakianakis, chief investment strategist at MASIC, a Riyadh-based investment company, said in a phone interview. “There are real structural changes happening in the labor market.”

Foreigners often entered the kingdom under the sponsorship of one person or company then changed jobs without official approval. Many were stranded in the country, unable to leave without the consent of their original employer, who often retained their passports. Foreign workers without legal visas may represent 30 percent of the total, Cairo-based investment bank EFG Hermes Holding SAE said in May.

The jobless rate for Saudi workers is about 12 percent, according to official figures.

The government said in March it would penalize Saudis who allowed employees to work for someone else. Weeks later, Abdullah ordered a three-month grace period so migrants could correct their status or leave the country without any restrictions. About 1.6 million people applied under the plan as the July 3 deadline approached, according to the Saudi Press Agency.

Period Extended

The clampdown could hurt countries from Egypt to the Philippines that rely on Saudi Arabia’s economy 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.

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 percent of its gross domestic product, according to the World Bank. For the Philippines, it’s 10 percent. In Yemen, pushed to the brink of a civil war in 2011, remittances account for 4 percent.

Filipino Fish

In Battah, Filipinos sell fish in narrow back-streets next to Yemeni-run fruit stalls, while Indians and Bangladeshis sell garments and buy the latest sub-continental movies.

On Olaya Street, in another part of the capital, many of the Asian men who once hawked pirated computer software are gone. Jashim Uddin, a 31 year-old Bangladeshi, is still there, working in a shop selling computer parts. He says he still hasn’t resolved his working status

“Twenty or 30 guys have already left,” he said. “They didn’t have their work permits. I expect more will go.”

Meanwhile, young Saudis -- women as well as men -- are increasingly visible in jobs that used to be the preserve of migrants. At the Lulu supermarket chain in Riyadh, Saudi men bag groceries and scan items. Women work at checkout counters in family only sections at branches of Carrefour SA (CA), the French retail chain.

With the cost of living rising, many families need to have more than one person earning a salary, Sfakianakis said. Women “need to contribute to a family’s income far more today than a decade ago,” he said. Also, under the government’s jobs-for-locals drive, “retail chains are being compelled to hire more Saudis with higher salaries than before.”

Long-Term Trouble

The kingdom’s $657 billion economy grew 6.8 percent in 2012 and will expand 4.4 percent this year, according to the International Monetary Fund. Inflation is forecast to average 4.2 percent this year in a Bloomberg survey.

It’s important for Saudi Arabia’s public finances that as the local workforce expands, private companies take a growing share of it, said Fahad al-Turki, head of research at Jadwa Investment Co. This year’s budget provides for a record $219 billion in spending, including on new state jobs.

“The government can afford the wage bill in the short- to medium-term,” al-Turki said in a phone interview. “But in the long term it will be difficult.”

Preparing Saudis for private-sector jobs is one of the tasks of the Technical and Vocational Training Corp., which teaches 110,000 Saudis a year. It has “gotten a lot of requests from different companies,” spokesman Fahad Alotaibi said in a phone interview. “There is a need in the market for our graduates.”

Consulate Riot

This month, Al-Hidada, a construction company, hired 500 graduates from the program, and the local BMW distributor, Mohammed Yousuf Naghi Motors, took 200 for its car workshops, Alotaibi said.

As such jobs go to Saudis, crowds are gathering outside embassies and consulates as foreign nationals line up for the paperwork required to leave the country.

The wait erupted into a riot at the Indonesian consulate in Jeddah on June 9, leaving one woman dead. The Indian Embassy in Riyadh has “urged our community to avail the concessions announced by the Saudi authorities” and is working on a “24/7 basis” to process them, said spokesman Surinder Bhagat in an e-mailed response to questions.

There are still jobs for foreigners, and not all the Indians will have to leave. For Mohammed al-Dowsari, a Saudi camel farmer, it’s a good time to hire cheap labor and the embassy is a good place to find it.

“I need two or three workers,” he called out to the hundreds of Indians waiting outside. “I can provide them with their work permits.”

Others have already made the decision not to stay, including Saleem Amid, 38. Waiting in the sun for hours, he’s trying to get a one-way ticket to New Delhi from the embassy, after working illegally in Saudi Arabia for years.

“I’m going home and will start over,” he said.

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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