Saudi Arabia to remove curbs on foreign workers to attract overseas talent

Saudi Arabia will remove several controversial restrictions on foreign workers in a labor policy overhaul that officials hope will attract overseas talent and reduce citizen unemployment.

Non-Saudis will no longer need their employer’s permission to change jobs, travel abroad or leave the country permanently, according to Sattam Alharbi, a deputy minister at the Ministry of Human Resources and Social Development.

“Runaway” reports that employers can file against foreign workers who stop showing up to their jobs -- effectively rendering them fugitives -- will be abolished and replaced with a procedure for ending their contract, Alharbi said in an interview Wednesday.

The new rules will come into effect on March 14 and apply to all foreign workers in the private sector, regardless of salary, he said.

The changes could have a dramatic impact on Saudi Arabia’s labor market and the lives of the 10.5 million foreign workers who make up about a third of the kingdom’s population.

The current “kafala” or “sponsorship” system -- used for expatriates in Gulf Arab countries for decades -- has been criticized by human rights groups as a form of indentured servitude. Economists say it also entrenches a practice of companies hiring cheaper and more easily-exploitable foreign workers, even as Saudi unemployment rises.

“These changes are not small changes -- it’s huge,” Alharbi said, explaining the government had worked on the overhaul for two years. “We aim to achieve more inclusion for Saudis, attract talent, improve the working conditions, make Saudi Arabia’s labor market more dynamic and productive.”

Most Saudi employees work for the government, which tends to pay more and offer greater benefits than private companies.

Foreign workers who dominate the private sector are tied to an employment sponsor whose permission they need to move to another job, leave the country on vacation or even to replace a lost ID.

Under the new rules, they will still be required to pay for an “exit and re-entry visa” to travel abroad, but will be able to request it on their own through the government’s “Absher” system, without their employer’s consent. They will also be able to use Absher to request a transfer of sponsorship to another employer.

By increasing labor mobility, the changes will force companies to raise wages and improve working conditions in order to retain and compete for staff, said Farouk Soussa, an economist at Goldman Sachs Group Inc.

“While initially this will mean greater costs for employers, the ultimate outcome will be increased productivity and a greater willingness on the part of Saudis to work in the private sector,” Soussa said.

The new policies will in turn make Saudis more attractive to private employers who would rather hire foreigners over whom they currently have greater control, Alharbi said.

That’s particularly urgent after the economic turmoil brought on by the pandemic pushed citizen unemployment to 15.4% in the second quarter, the highest on record.

“Reducing labor market rigidities will likely prove useful as the economy recovers from the dual shock of low oil prices and Covid-19,” said Carla Slim, an economist at Standard Chartered Bank.

The impact of the new rules will depend on how they’re implemented, though, and several neighboring countries have taken steps to reform kafala without fully ending it. The changes announced on Wednesday won’t apply to Saudi Arabia’s 3.7 million domestic workers, for example -- a category of foreigners among the most vulnerable to abuse.

The separate regulations that govern domestic workers are also under review, Alharbi said.

The overall revamp could give Saudi Arabia a public relations boost as it prepares to host this month’s summit of the Group of 20 industrialized economies. It could also aid Crown Prince Mohammed bin Salman’s efforts to make the kingdom more attractive to the highly-skilled foreigners who flock to places like Singapore and Dubai -- part of his “Vision 2030” economic transformation program.

However the vast majority of foreign residents fill blue collar jobs: building homes, cleaning streets, pumping gasoline and waiting tables. Millions come from countries including Pakistan, India and Egypt to earn more than they can back home, making the kingdom the world’s third-largest source of remittances.

Improving their conditions is a politically sensitive topic as nationalism and xenophobia rise, and some Saudis argue that expatriates are pushing them out of the labor market.

Human rights groups said the changes announced on Wednesday were significant, while calling for further reforms.

Employers will still have power over workers due to their ability to issue and renew residency permits, according to Rothna Begum, a senior women’s rights researcher at Human Rights Watch.

“This is not full abolition of the system,” she said.