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Saudi’s Nitaqat Law: Trouble for Indian Expats?

Saudi Arabia’s enforcement of labor localization rules has sent many Indian workers hurrying home. How severe will the impact be?

By Sudha Ramachandran for

Saudi Arabia’s Nitaqat law, designed to localize labor, could cost hundreds of thousands of expatriates their jobs. The prospect of unemployment and even deportation has triggered a wave of anxiety among Indian expatriates in the desert kingdom.

Last month, airports in the southern Indian state of Kerala – the majority of the Indian workforce in Saudi Arabia is from this state – saw hundreds of downcast Indians returning home with their personal belongings.

Among them was Ashraf Ubaidullah (name changed on request), who was running a small grocery shop in Jizan that is “sponsored” by a Saudi. “I was unable to implement the Nitaqat law as I could not afford to hire Saudi workers,” he told The Diplomat on his return to India. A Saudi laborer expects wages that are at least three times higher than those paid to an expatriate worker.

Following the Saudi police crackdown on business establishments late last month, Ubaidullah decided to leave the country, “rather than face deportation.” “There are many more Indians like me in Saudi Arabia,” he said, warning of “an exodus” from there in the coming months.

Enacted in 2011, the Nitaqat law makes it mandatory for all businesses in the private sector to reserve at least 10 percent of jobs for Saudi nationals. Based on their level of compliance, establishments are categorized into Blue, Green, Yellow and Red groups – with Blue and Green businesses having the highest localization ratios, Yellow falling in the intermediate range and Red the least compliant. While Blue and Green establishments are being rewarded and Yellow given more time to implement the changes, companies in the Red zone are under pressure.

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According to unnamed official sources cited in the Saudi media, “there are 340,000 businesses in the market with zero Saudization.”

Alwyn Didar Singh, secretary-general of the Federation of Indian Chambers of Commerce and Industry pointed out recently that if each of the 340,000 businesses were to hire an average of two or three Saudis it could result in “displacing some half to one million expatriates, if more jobs are not simultaneously created.” 

Many of those “displaced” by the Saudization could be Indians, who constitute the largest group among the expats in Saudi Arabia.

Saudi Arabia has depended on foreign labor for decades. This has left a large number of its own nationals unemployed. The private sector in particular has preferred to hire foreigners. According to figures provided by the Saudi Ministry of Labor, the kingdom’s private sector provides employment for 6.5 million expatriates, compared with 700,000 Saudis.

It is to tackle unemployment by forcing the private sector to hire locals that the government enacted the Nitaqat law three years ago, and is now acting to enforce it.

Indians, who constitute 20 percent of the 7 million-strong expatriate population in Saudi Arabia, are understandably worried about the impact this law will have on their lives. Many have been working here for years and support large families back home.

It was in the wake of the oil boom of the 1970s that Indians, especially from the state of Kerala, headed to the Gulf in search of better economic prospects. The majority headed to UAE and Saudi Arabia. According to India’s Ministry of Overseas Indian Affairs (MOIA), the numbers in Saudi Arabia swelled from 15,000 in 1975 to 650,000 in 1990. The Gulf War of 1991 opened up more opportunities. The mass exodus of Yemeni workers from Saudi Arabia prompted Saudi employers to hire Indians to replace them. By the close of the century, there were 1.4 million Indians in the kingdom. The figure stands at over 2 million today.

Roughly 10 percent of Indians working in Saudi Arabia are professionals, including doctors and engineers, another 10 percent are non-professionals in white collar jobs, while the remainder consists of workers such as technicians, maintenance personnel, maids, drivers, and farm laborers. “There are also some illegal Indian migrants,” the MOIA website says.

So who among the Indian expatriates will be impacted by the localization of labor in Saudi Arabia? And how serious will this impact be?

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Sections of the media in Kerala have whipped up panic by predicting a “reverse exodus.” Not surprisingly, for families living here whose survival depends on money sent home from Saudi Arabia, the possibility of unemployment of the breadwinner is deeply worrying.

The Indian government has sought to calm fears. Minister of External Affairs Salman Khursheed said that legal immigrants will not be affected by the Nitaqat law.

Indian migration experts are of the view that the Nitaqat law’s impact will be minimal as it will not displace either the highly skilled or unskilled worker. Irudaya Rajan, migration expert and professor at the Centre for Development Studies in Thiruvananthapuram in Kerala argues that the law will have “no impact on Indian laborers.”

Localization of labor has existed in Saudi Arabia and other Gulf countries for over two decades, he points out. “Just as these policies had no impact for the last twenty years, I expect there will be no impact this time too.”

Indeed, this isn’t the first time Saudi Arabia has attempted to localize labor recruitment. A Saudization scheme introduced in 1994, for instance, required businesses to set aside 30 percent of jobs for locals. It did not work.

Ravi Nair, an engineer working in a Saudi oil company for over 20 years, points out that  Saudization of labor schemes do not work as Saudi nationals lack the expertise of the highly skilled expatriate and are unwilling to do the menial work that the unskilled expatriate does. “The Saudi economy will grind to a halt without expatriates,” he observes, adding that the government is “well aware of this.”

In the past month, many foreigners have stayed away from work, fearing they will be deported if found by the police. Schools in Riyadh and other cities have been forced to shut down as teachers, largely expatriates, have not turned up for work. Construction activity, too, has slowed.

Nair says that in a few weeks, the zeal of Saudi authorities will wind down and their raids to identify Nitaqat defaulters will cease. “It will be business as usual” in Saudi Arabia, Rajan observes.

Ubaidullah disagrees. Unlike the previous scheme, which required 30% of jobs to be reserved for Saudis, the Nitaqat law is “more realistic and calls for a more achievable target.”  Especially in the context of growing unrest in the Middle East, “Saudi authorities want to be seen doing something to remove mass discontent,” he points out, adding that “that something is Saudization of labor, which is popular among the Saudi masses.”

Kerala government officials say that even if 100,000 to 150,000 expatriates return home, the fact that most of those working in Saudi Arabia are from a single district in Kerala – Malapuram – means that its impact will be concentrated and felt strongly in only a small geographic area.

Also of concern is the likely dip in foreign exchange remittances. Twenty-seven percent of the U.S. $70 billion that India received in the form of remittances in 2012 came from Gulf countries, with “major source countries being the UAE and Saudi Arabia,” a Reserve Bank of India (RBI) document notes. There is concern in Kerala that remittances from Saudi could shrink this year.

"This is the beginning of the end of Kerala's El Dorado,” P.T. Kunju Muhammed, filmmaker and president of the Kerala Pravasi Sangh was quoted by India Today as saying.

However, not everyone believes that it is the end of the road for Kerala’s migrants to the Gulf. If the Nitaqat law forces them to return to India, they will find a way out, Nair argues, drawing attention to the “enterprising and hard working nature of Keralites.”

Rajan points out that during the global economic crisis, Indian emigrants returned from Dubai “but left to another country in the Gulf within a few months.” Being sent back from Saudi “will not deter Indians from seeking jobs elsewhere in the Gulf in the near future,” he argues.

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The deadline for implementation of the Nitaqat law was March 29. The Saudi government has extended the deadline by another three months. Kerala Chief Minister Oommen Chandy has dashed off letters to the Indian government asking it to prevail on the Saudis not to deport Indians as it would adversely affect the chances of their re-employment and entry to other Gulf countries.

In Malapuram, the mood may be somber, but people like Ubaidullah have not given up on their Gulf dreams. “I have already contacted agents for a job in the UAE or Bahrain,” he says. Over three weeks after his return to India, he has “not unpacked fully,” he points out, adding that he is ready to leave again for the Gulf.

All his travails in the desert kingdom notwithstanding, Ubaidullah’s El Dorado still lies in the Gulf.