Plugging gaps in the Emiratisation programme

This article appeared originally in Gulf News: link to original article

An international company recently approached my Emirati friend for an entry level position in its regional hub in Dubai. If he was ultimately offered the job — which he wasn’t until time of writing and if he accepts — he will be the first Emirati on that company’s payroll, ever.

That same company operates in Saudi Arabia, except that it established facilities to train Saudis towards acquiring the skills needed to run the company’s operations. Subsequently, the company retains today an adequate percentage of Saudis, including in senior management posts. So, what refrains a company from hiring Emiratis in its regional hub whilst being very keen on recruiting and training Saudis next door?

The UAE and Saudi Arabia have both developed and launched their job nationalisation programmes to reduce unemployment among their own citizens, named “Emiratisation” and “Saudization”, respectively. Each of the two programmes adopted distinct approaches towards reducing unemployment among Emiratis and Saudis.

While Emiratisation is heavily reliant on a fixed quota system with no significant consequences for lack of compliance, Saudization uses adjustable, increasing quotas that are strictly applied, with severe penalties for noncompliance. An example here is the SR20,000 penalty if an expat is recruited to do a job restricted for a Saudi. Additionally, and starting in 2018, companies will pay a monthly SR400 expatriate levy if they hire more expats than Saudis.

In this article, I conduct a basic comparative analysis between Emiratisation and Saudization, highlighting key strengths in the latter that could be beneficial in any future redesign of Emiratisation as a policy and its implementation as a programme. I hereby explore its effectiveness through compliance and career progression.

Disclaimer: I am generally against job nationalisation programmes and setting quotas for certain industries to abide with, except in two cases. Pre-recruitment; the programme being introduced to ensure equal employment opportunities for a country’s citizens when skills mismatch is not an issue, and their training when it is.

Post-recruitment; the programme minimises attrition through the continuous development of its native employees and fostering their career progression.

As for Emiratisation, many companies recruit Emiratis under the “management trainee” label for a period of 18 months, after which the trainee’s grade and pay are adjusted upwards. The desired result of the programme is to add one more Emirati to the company’s payroll and to approach the required quota in the company’s industry, which nevertheless is non-mandatory.

As a result, strict compliance is not necessarily the norm except that achieving or exceeding it could win the company a pat on the back.

Furthermore, the quota required under Emiratisation does not take into account career progression, and so can be satisfied with an increasing number of Emiratis entering the job market through those management trainee positions before being stuck in entry level jobs for years. This is where Saudization is more effective, which I explain in more detail as I sum up three key issues in Emiratisation’s design and implementation.

The first key issue with Emiratisation is that it adopts a fixed quota system for very specific industries, with disregard to recruitment level and to trends in higher education graduates. On its website, the UAE’s Ministry of Human Resources and Emiratisation (MOHRE) cites three Emiratisation-related resolutions (41, 42, 43) from 2005.

The resolutions set quotas for firms engaged in trade, insurance and banking, which are required to hire Emiratis at annual rates of 2-, 5- and 4 per cent, respectively. My understanding of the resolutions’ language is that the quota applies to the total number of employees on a company’s payroll, with acknowledgement of Emiratisation subject to maintaining the quota at all times.

Unless a company expands its operations notably, the above quotas should be easy to achieve.

In contrast, Saudization’s quota ranges from a minimum of 5 per cent to a maximum of 30 per cent, depending on the size of the company. One could argue that this is because of a much larger population than that of Emiratis. Yet, a fixed quota system in Emiratisation does not take into account the increasing numbers of higher education graduates.

Fixed quotas in such a case will help stabilise job creation, but will not match the job creation rate with the numbers of Emiratis entering the job market.

The second key issue with Emiratisation is the lack of appropriate monitoring and enforcement of compliance. The number of recruited Emiratis are self-reported by companies, with no mechanism in place to ensure quotas are met. Not only that, but since the quota system is based on incentives if the quota is met and hurdles if it isn’t, companies are not encouraged to hire more Emiratis knowing that terminating their contracts, due to poor performance, will be problematic.

According to an HR and tax alert, issued by Ernst and Young (EY) in August 2017, Saudization classifies companies into six categories, or “Nitaqat” as the categorisation system is referred to: Red, Yellow, Green (High, Medium, Low), and Platinum — companies with 40 per cent minimum Saudization rate.

Privileges as well as restrictions are attached to each, encouraging companies to meet their Saudization quota and move up the categories to enjoy a wider set of benefits and have limitations removed. Such benefits, for instance, include shorter visa processing time for employees recruited from anywhere in the world.

Additionally, Saudization’s most recent development requires private entities with 25 per cent employees to offer internship opportunities to Saudi nationals, under an initiative titled “Saifi”.

The third key issue with Emiratisation is that quotas are not broken down hierarchically or at an organisational level. Because of that, quotas are easily met by rigorously recruiting Emiratis into management trainee programmes, then keeping them employed in entry level jobs, or in junior positions.

With quotas satisfied whether Emiratis were in entry level jobs or any other, companies are not necessarily motivated to invest in the training of those Emiratis to support their professional development hence spur their career growth.

Saudization implements an interesting way to overcome the above third issue with Emiratisation. When classifying companies into the above-mentioned categories, the “Nitaqat” system uses “the percentage of Saudi nationals with high salaries” as one of six variables (EY, 2017) in calculating each company’s score.

By doing so, companies will need to ensure that Saudi nationals would continue to grow their careers and move into more senior positions over the years, or otherwise risk losing Saudization points. This is exactly why the international company mentioned in the introduction went out of its way to establish training facilities in Saudi Arabia, but not in the UAE.

The inclusion of this very specific variable single-handedly shifted the onus of training and upgrading Saudis’ skills to private companies, warranting longevity and sustainability.

In conclusion, Emiratisation cannot fix the skill mismatch problem in the job market. It does however assist in creating equal employment opportunities for Emiratis when competition for the same job is not based on merit.

Emiratisation is not effective because of a quota system that is not adaptable to an increasing number of Emiratis entering the job market, neither takes into account their career progression once recruited and retained. Added to that is the lack of thorough monitoring and strict enforcement, which gives companies further leeway to get away with fixed quotas that companies could restrict to entry level jobs.

The last thought that I want to leave you with: what if corporate taxes were imposed on private companies that do not retain required Emiratisation and Saudization rates, while significant corporate tax breaks are offered to companies that accomplish and exceed those rates?