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Abu Dhabi, UAETuesday 13 November 2018

Saudi Arabia's new retail rules to boost employment for nationals

Kingdom's decision to restrict four of 12 types of retail jobs to Saudis came into effect on Tuesday
Saudi Arabia aims to boost the employment rate among nationals by restricting certain retail roles to Saudis only. Bloomberg

Saudi Arabia's decision to restrict certain retail jobs to nationals, combined with a levy on hiring expatriates, will help to reduce unemployment among Saudis, despite some initial costs to retailers, as the government forges ahead with economic reforms.

The move to restrict four types of retail roles to Saudis, which came into effect on Tuesday, could unlock 180,000 to 200,000 jobs for nationals, according to KPMG.

Retailers operating in the kingdom say they are expecting high demand from Saudi jobseekers for the roles.

"You'd be surprised, when it comes to the garments industry, there's considerable appetite," Walid Chahine, chief operating officer of Azadea Group, a retailer that operates 50 international franchises, told The National. "It's fashionable, the millenials, the youngsters, identify themselves with internationally renowned brands."

A total of 43 professions in the retail sector will be restricted to nationals.

Retail performance and outlook in Saudi Arabia

Under the new rules, announced in January by the Ministry of Labour, employment in 12 retail sub-sectors will be available to Saudi nationals only over three phases, in September, November and January. In the first phase that was enforced on September 11, four types of retail jobs in areas such as cars, ready-made garments, furniture and kitchenware, will be off-limits to foreigners.

Saudi Arabia is targeting the retail sector to cut unemployment, which is approaching 13 per cent. The decision highlights the challenge of creating jobs as the kingdom's economy recovers from the slowdown brought on by falling oil prices.

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"As part of Saudisation, where the government aims to improve the employment levels for the Saudi nationals, jobs in the retail sector are suitable to fill a sizeable number of positions with low to medium skills level requirements," said Rabia Yasmeen, retail analyst at Euromonitor.

The government's ongoing Saudisation efforts are aimed at increasing nationals' participation in the workforce, particularly in the private sector, to reduce unemployment rates among Saudis.

"The existing nationalisation policies, including the implementation of an expat levy introduced earlier this year, are likely to result in a re-balancing of the labour market by affording more opportunities to Saudi nationals," said Murtaza Khan, partner at immigration consultancy firm Fragomen Worldwide.

Abdullah Al Fozan, chairman of KPMG Mesa and KPMG KSA, estimates the new rules pertaining to nationalisation of certain retail jobs will open up to 200,000 jobs for Saudis and believes more sectors could potentially be opened up to nationals.

"Education should be a target for this, because we have very well educated Saudis who have studied abroad and they’re back. The financial sector would see a high percentage of Saudisation, he said. "Health care is also another area. It’s growing."

Retailers say there will be an initial increase in costs to train Saudi nationals in the retail roles but that it was comparable to the higher cost of hiring expats after fees were introduced by the government.

"The wage of a Saudi is higher than an expat, this might eventually contribute to a certain incremental cost. But [there are also] hidden costs when it comes to expats: the visas, the new fees to hire expats," said Mr Chahine.

"If we take these elements, it becomes a similar cost to hire, difference isn’t material."

In terms of the shopping experience, having Saudi sales people serving Saudi customers is a benefit in itself, he said.

"It will definitely have a positive impact on customer experience and, as well, giving back to this economy.

"At the end of the day our customers are mainly Saudis, so having a national, there's that relationship and the trust; the experience can only take a positive direction," Mr Chahine said.

Retail sectors affected by the recent ruling include:

From 11 September 2018 onward:

· Automobile and motorbike showrooms;

· Shops selling ready-to-wear apparel, children and men’s clothing;

· Shops selling home and office furniture; and

· Shops selling household goods and utensils.

From 9 November 2018 onward:

· Electrical appliances and electronics shops;

· Shops selling watches; and

· Shops selling optical instruments.

From 7 January 2019 onward:

· Medical appliances and equipment shops;

· Shops selling building and construction materials;

· Shops selling vehicle spare parts;

· Shops selling carpets; and

· Confectionary shops.