Economists say that commercial concealment is rampant in the Kingdom and it is depleting the most important pillars of the national economy: Capital and labor.
“The volume of commercial concealment, or non-formal trade, amounts to billions of riyals,” Talat Hafiz, secretary general of the Media and Banking Awareness Committee of Saudi Banks was quoted saying to a local newspaper. He added that such activities take place mainly in the retail sector, which attracts more than 2.4 million foreign laborers to the Kingdom.
In reaction to the negative effects of this underground economy on the legitimate national economy, the government has introduced a number of programs to improve the work environment and attract national labor. These programs include Nitaqat, Taqat, and Hafez programs, in addition to the Labor Ministry’s decision concerning the minimum wage system. “It is expected that such measures will yield positive results on the GDP of the country,” Hafiz said.
Commercial concealment, as defined by Salem Baajajah, an accounting professor at Taif University, is empowering foreign labor to illegally invest and become involved in business activities and the economy at large without being subject to taxes or other related fees. “A citizen will be considered a partner in the crime if he grants his name, license or his commercial registration to a foreign labor for the sake of running a commercial activity without formal authorization,” he said.
He explained that commercial concealment is bound to increase commercial cheating, unfair competition, illegal commercial activities and social and economic problems. “More than SR 140 billion of remittances are being sent outside the Kingdom, causing huge damage to our economy,” he argued.
Poor regulations and supervision are the main reasons for the underground economy, said Abdulah bin Abduaziz Al-Nashwan, the secretary general of the Ahsa Chamber. “All laws and regulations to fight commercial concealment are new to the Kingdom, and the penalties imposed on offenders are not severe enough to deter such activities,” he added. “These activities are responsible for the high rate of unemployment in the country.”
Economist Fadl Al-Buainain said that the few studies available on commercial concealment show its huge negative implications for national economies around the world. “It affects the monetary policy of any state,” he added.
Al-Buainain applauded King Abdulaziz University’s establishment of a scientific chair, the Prince Mishal Chair for the Research and Study of Commercial Concealment.
Legal counselor Fahad bin Muhammad Al-Hakami said that the practical reality makes it hard to prove commercial concealment. He said that penalties concerning violators and offenders should be severe.
Underground economy poses challenge for national development
