The viability of Indigenisation

According to the article ‘the Expatriate Workforce: Boon or Bane?’ published on the Maldives Monetary Authority (MMA) website, the number of expatriate workers in the Maldives had a huge boom in recent years, increasing 188% between 2000 and 2011. Statistics from the National Bureau of Statistics (NBS) also show that in 2019 there was a staggering 157,560 documented expatriate workers in the Maldives.

Although this large influx to the population contributes to economic growth by boosting consumer demand and by providing human capital to meet shortfalls in local (available and willing) labour, problems such as increased pressure on the already strained foreign exchange market and detrimental effects on local employment are of concern. 

In order to address such circumstances, nation states have often resorted to indigenization, a policy often known as localisation of the workforce. This is particularly evident in the Gulf region, as members of the Gulf Cooperation Council (GCC) has implemented this strategy.

What is indigenisation?

United Nations Conference on Trade and Development (UNCTAD) defines this concept as the recruitment and development of local employee skills and capabilities and the delegation of decisions to them, with the final objective to replace foreign workers with local employees. Governments rationalize localisation to mainly address local unemployment rates and the desire to lessen the socio-economic effect of over-dependence on foreign workers. 

Why localise?

While there may be country specific reasons, some common reasons for indigenization include;

  1. Assisting in the development of private industries  
  2. Retaining foreign currency 
  3. Creating more employment opportunities for locals 
  4. Leading to self-reliance of the country and more participation of the people in running businesses
  5. Ensuring products and services become affordable though lower cost of manpower as it becomes cheaper to recruit locals 

The flip side

As with any other strategy, indigenisation of workforce has its own drawbacks such as; 

  1. Discouragement of foreign investments 
  2. Products and services sometimes become more expensive due to high manpower cost fuelled by an investment in training and development   
  3. Challenges in finding the right talent for the right position, leading to a skill gap
  4. Inexperienced or incompetent employees being recruited for compliance which brings considerable challenges to the operations of businesses 
  5. The negative impacts due to a diminished diversified workforce 

Case 1: Saudization

Principally owing to rising unemployment among Saudi nationals, the Kingdom of Saudi Arabia (KSA) instituted Saudization - officially known as the Saudi Nationalisation Scheme or Nitaqat. Implemented by the Ministry of Labour, this policy strives to induce the employment of more Saudi nationals in the private sector. Although this policy has been ongoing since 1985, it is only in the past 5 years that the Saudi government has made certain roles exclusive for Saudi nationals. 

How is it done? 

  1. Investing in education and training of Saudis: with the identification of skill shortages in technical roles such as engineers and architects, the Saudi Arabian government implemented new eligibility requirements on its multibillion-dollar scholarship program for young Saudis who want to study for university degrees abroad and accelerated its local training programmes for filling skill gaps and upskilling. 
  2. Restricting work to Saudis - according to a 2018 Saudi Gazette publication, the Ministry of Labor and Social Development set this for 12 activities and occupations. 
  3. Monitoring for compliance: the Labour Ministry had deployed 200 inspectors in all regions to inspect for compliancy. Non-compliance results in severe financial penalties and threat of closure. 
  4. Indirect polices to discourage expatriate workers: For example, in 2017 the Saudi Government imposed additional fees for dependents of expat workers, which was to raise each year until 2020 to a total of SAR400 each month. Records have shown that due to such measures, in quarter 1 of 2016, the expat population stood at 7.7 million, down from 8.5 million.

What has been the impact? 

  1. Job Creation: overall, the economy has seen growth in the creation of jobs. Even during the pandemic, on 5 August 2021, the Saudi Gazette reported that the Saudization move in malls will create 15,000 jobs for Saudi men and women. 
  2. High employment trajectory: on 8 July 2021, Arab News reported that the Kingdom is on the right track. New Saudi employees entering the private sector reached 121,000 in the first quarter of 2021, according to a report issued by the Human Resources Development Fund.
  3. Quality of Candidates: companies have expressed concerns about the quality of available candidates, and their readiness to enter the workforce as a tidal wave of inexperienced university graduates have pushed their way into the economy. Furthermore, employers frequently complain that, even with low work experience, Saudis often have unreasonable expectations of compensation and job responsibilities.
  4. Remuneration: there is a recorded increase in training of entry-level employees. Anecdotal evidence suggests that this is putting pressure on salaries as firms offer more pay to encourage the employees that they have trained, to stay with them.
  5. Cheating the system: records show that firms resort to hiring large numbers of low-wage Saudi workers for short periods than for full time employment. Another way that firms avoid this policy is by reducing their size below ‘the ten-employee cutoff for inclusion’ in the Nitaqat program.

Case 2: Emiratization

Similar to the Saudization programme, the United Arab Emirates (UAE) Government launched the Emiratization (Tawteen in Arabic) campaign in 2006 which mandates the inclusion of Emiratis in jobs, particularly in the private sector. Emiratization aims to increase the number of Emiratis in the job market and their contribution to the economy. Mirroring the Saudization programme, Tawteen was also initiated to overcome the structural division in the labour market due to high numbers of expatriates and low employment of Emiratis. 

How is it implemented? 

  1. Policies: there have been various multi agency development-oriented policies that support productive activities with a focus on decent job creation
  2. Investing in education and training: specifically, in technical and vocational skills of locals 
  3. Establishment of a special department: Article 10 in the Federal Law No. 8 of 1980 (the Labour Law) was amended to mandate that the Ministry of Human Resources and Emiratization (MoHRE) will have a special department dedicated to find adequate job opportunities for nationals. The department must assist employers in fulfilling their need of national workers whenever needed
  4. Quotas and incentives: MoHRE Ministerial Orders 41, 42 and 43 of 2005 impose on private sector employers a quota system, whereby every company with more than 100 employees is obliged to recruit (and retain on the payroll) the stipulated number of UAE nationals to ensure the minimum percentage of participation of Emiratis in the workforce.
  5. Motivation: Tawteen Emiratization Award is an annual award given by MoHRE to support and honor the pioneers of localization in the private sector 
  6. Bridging jobs with Emiratis: With the involvement of various government agencies such as the Human Recourses Authority and the National Human Resource Development and Employment Authority (Tanmia), they serve as recruitment agencies offering a channel for the UAE nationals and employers to reach out to each other.

What has been the impact? 

  1. Workforce participation rate: while the progress is slow, records show a rise in the participation rates among Emiratis. On 4 September 2019, The Arabian Business reported that there had been a rise in Emirati employment within the banking and energy industries, large MNCs within the FMCG [fast moving consumer goods] sector
  2. Job preferences: a major barrier has been the negative attitude of locals to physically demanding work which were traditionally performed by migrant workers  
  3. Lack of interest: it is also reported that Emiratis prefer public sector jobs over private sector due to reasons surrounding private sector work days and working hours
  4. Challenges with local workforce: according to a publication by the Economist, top challenges faced by private-sector companies in hiring locals include lack of experience, training or skills, low motivation, challenges with English language and low communication and interpersonal skills. 
  5. Rise in female employment: traditionally, cultural attitudes have discouraged women in the workforce. However, 2011 saw a 1.5 percent rise in female employment, which has been on a rising trajectory since. 
  6. Unexpected negative outcomes: generous state employment and unemployment benefits have been a counter measure to the proposed policy 

At a time when there is a large echo of concerns surrounding the challenges Maldivians have in securing skilled work, particularly in the tourism industry, a focused indigenization policy well implemented may be a solution. Afterall, NBS statistics show that 16 percent of expatriates in the Maldives currently work in the tourism industry. However, concurrently, the contribution of expatriate workers towards the GDP and development of the nation must also be considered.

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