Saudi Arabia: Labor market challenges and opportunities

thumb_bzi_cho_glb_ho_2342_resize_1024_0 (2)The IMF recent report about Saudi Arabia’s economy sheds some light on the challenges that Saudi Arabia will face because of the falling oil price and its impact on its fiscal revenue and increasing fiscal deficit. It is important to note that one of the recommended IMF measures to improve fiscal consolidation is by lowering the government’s wage bill, which is considered high in comparison to other oil producing countries, through the identification of the non-essential positions and putting a cap on government employment and wage increases. This action will allow the private sector to share the responsibility of employing more Saudis and to compete better as the wage gap is narrowed between the private and public sector.

However, Saudi Arabia is facing many labor market challenges today. Even though employment rate grew by 3.2% in 2014, the unemployment rate of nationals remained high at 11.7%.The female unemployment rate is almost 33% at the end of 2014 and the youth unemployment rate stands at 40%. Given that 35% of the population is under 19 years old, and in few years, this segment will enter the labor market, the pressure on the private sector to hire and retain nationals is mounting. To remedy this expected increase in Saudis entering the labor market, the Ministry of Labor (MoL) has been implementing a labor market reform strategy that requires private sector companies to have a minimum number of Saudis employed. It also embarked on a major reform to build technical and vocational education and training (TVET), and it increased its spending on training and education of Saudis to develop the skills required by the private sector. In an effort to encourage Saudis to work for the private sector and to encourage more females to enter the labor market, the MoL, required private sector companies to reduce working hours. Further, it required companies to have a minimum wage for Saudis and it subsidizes some of that increase in cost through Hadaf program.

Still, the main issue that many private sector companies are facing today is the high turnover rate of Saudi employees. According to a report from the Ministry of Economy and Planning, in 2014, more than 237,000 people entered the workforce, while about 99,000 exited the same year. As a result, many companies are putting in place integrated talent management programs that aim to:

1. Develop, engage and retain its national workforce
2. Improve the compliance with the required Saudization quota
3. Reduce high costs associated with attrition.

The Integrated Talent Program comprehensively and holistically looks at the employment lifecycle so that employers and employees stand to benefit from this mutual relationship. However, if the underlying root causes of voluntary turnover are not addressed, talent programs will have limited benefits.

A case in point, the health sector in KSA has a significant shortage of doctors and nurses, yet it has a high turnover rate of young Saudi physicians and nurses, especially women. This is partially due to the long and inflexible working hours in private hospitals as well as the lack of daycare facilities provided. Further, the millennial generation (31 and younger) prefers better work-life balance even if it means less pay. Millennials also want to grow in their careers, so offering them more opportunities to participate in international conferences to keep them abreast of changes in their field is important. Moreover, they expect the more senior physicians to be accountable for their development by mentoring and coaching them.

Creating the right formula to engage and retain the predominantly young Saudi employees requires both the government and private sector to work in harmony to meet the challenges facing the workforce of Saudi Arabia. It means taking an honest look at the current workforce and what the government and companies want it to become to fulfill their vision. It means acknowledging some difficult truths and making internal changes by getting to the root causes of turnover, which are vital to any effort towards improving the employment rate of young Saudis.

by: Elham Barghouty, Manager, Human Capital, Consulting, Deloitte Middle East

The views and opinions expressed herein do not represent nor reflect those of Deloitte. Deloitte shall endeavor, as reasonably as possible, to screen such information which is obtained, to the best of Deloitte’s knowledge, from reliable source. As such, Deloitte cannot guarantee the accuracy of the information featured nor the validity of the opinions and/or analysis and interpretation expressed herein. Opinions, conclusions and other information in this interview/article which have not been delivered by way of the business of Deloitte are neither given nor endorsed by it.

This article contains general information only, and neither DTME, DTME affiliates nor any of Deloitte Touche Tohmatsu Limited member firms are, by means of this article, rendering any accounting, business, financial, investment, legal, tax, or other professional advice or services of any nature whatsoever. Information included in the article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. None of Deloitte Touche Tohmatsu Limited, its member firms, or its respective affiliates shall be responsible for any loss or damages whatsoever sustained by any person who relies on this publication.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s