84% of SMEs could exit market

84% of SMEs could exit market
Updated 15 March 2013

84% of SMEs could exit market

84% of SMEs could exit market

Nearly 84 percent of small-scale firms, or 677,000 of private sector companies, are threatened with closure as the Ministry of Labor prepares to implement a plan to employ Saudis in these firms, local media reported, quoting economists.
According to a recent study, most of the small enterprises in the Kingdom employ fewer than five workers. Their activities are generally limited to retail and wholesale trade and car maintenance.
This week, the Ministry of Labor ordered owners of small-scale firms, which employ 10 or fewer workers, to employ at least one Saudi to evade falling into the “red” zone in the nationalization scheme. Companies that plunge into the red zone lose many of the ministry’s benefits, most notably suffering in the issuing and renewing of work permits, transfer of sponsorship, issuing new visas and changing the professions of their expatriate employees.
According to Mansour Al-Shathri, member of the Riyadh Chamber of Commerce and Industry (RCCI) and chairman of the Riyadh Center for the Development of Small and Medium Enterprises (SMEs), the decision was taken to eliminate a large number of business cover-ups taking place in the sector.
During the last few years, expatriate workers have dominated this sector and profited from running stores and workshops, thereby impeding Saudi youth from entering this sector, he added.
He predicted that a fewer number of firms, especially high profit-earning companies, will tend to resort to “placebo employment” to evade the Saudization ratio ordered by the Ministry of Labor.
For his part, economist Mohammed Al-Omran said there are more than 700,000 small-scale firms operating in the Kingdom. Foreign workers who have been covertly conducting business activities have adversely impacted the national economy and have taken over most of the employment opportunities that could have been occupied by Saudis, he said.
Al-Omean said this step is important and requires strict implementation by the creation of certain mechanisms that will eradicate the illegal hiring of foreigners.
If the decision is strictly applied, some of these firms would exit the market and the process of national employment in these firms would be corrected, he noted.
Meanwhile, an owner of a supermarket and fuel station said he was currently employing six foreign workers but could not find a Saudi employee, which consequently could threaten to put his firm in the red zone. The owner has promised to award a salary of SR 4,000 per month to any Saudi who agrees to work in his company.
Despite the Labor Ministry’s intensive campaign to nationalize jobs in the private sector, 48 percent of private sector companies in the Kingdom, which amounts to 120,599 out of a total of 248,828 business enterprises, still remain in the red zone of the Nitaqat system.
“The red category firms include 19 major companies,” said an informed source at the ministry who requested anonymity, adding that a total of 80,347 firms were categorized in the green zone in 2012.
The Ministry of Labor’s Nitaqat program has categorized Saudi companies into four color coded groupings — red, yellow, green and blue — to ascertain the percentage of Saudi workers employed in these companies.