Introduction: Saudization as a Strategic Pillar of Saudi Vision 2030

"Tawteen" (Saudization), as it is officially known, represents one of the primary strategic goals of Saudi Vision 2030, which aims to diversify the national economy and enhance the participation of male and female citizens in the labor market. In this context, the "Nitaqat" program, launched by the Ministry of Human Resources and Social Development, serves as the main tool to incentivize private sector establishments to achieve Saudization targets by linking the establishment's performance in hiring national talent to its access to government services.

With the continuous developments in the labor market, the "Nitaqat Al-Motawer" (Developed Nitaqat) program was launched to represent one of the most important strategic transformation initiatives of the Ministry, with the aim of improving the performance of the labor market, providing decent job opportunities, and creating a safe and attractive work environment for the sons and daughters of the nation. This article aims to provide a comprehensive analytical guide to the "Nitaqat Al-Motawer" program, clarifying its basic concepts, its dynamic mechanisms, and the consequences of non-compliance, thereby enabling business owners to make informed strategic decisions to ensure sustainable compliance and growth.

First: What Is Meant by Saudization?

Saudization in the Kingdom of Saudi Arabia is a strategic program aimed at increasing the participation rates of male and female Saudis in the private sector and reducing the unemployment rate to its lowest levels. This concept represents a qualitative shift in the Kingdom's labor market policies, as it transcends the traditional concept of "Saudat."

"Saudat" fundamentally differs from "Tawteen" in their focus and objectives. While "Saudat" focused primarily on the quantitative aspect—achieving specific percentages of Saudi employees in an establishment regardless of the professions or qualifications—"Tawteen" focuses on the qualitative aspect. This means that the goal is no longer just to fill numerical quotas, but to hire qualified national talent for specific professions that require certain competencies. This shift in philosophy reflects a governmental realization that sustainable Saudization requires investment in efficiency and training, not just filling job vacancies. Saudization aims to increase the productivity and competitiveness of the Saudi individual in the labor market, which reduces the risks of "ghost Saudization" and contributes to building a high-quality national workforce.

The importance of Saudization as a pivotal element in achieving Vision 2030 is highlighted through its multiple impacts:

• Economic Impact: By incentivizing the private sector to hire citizens, Saudization contributes to diversifying national income sources and reducing reliance on expatriate workers in jobs that Saudis can fill.

• Social Impact: Saudization works to provide decent and stable job opportunities for male and female citizens in various sectors, which enhances social stability and contributes to human development.

• Human Capital Development: The Saudization program aims to develop the essential and future skills of national talent, ensuring their ability to compete in the local and global labor market.

The following table shows the main differences between Saudat and Tawteen as terms:

Second: What Is the Nitaqat Program? And What Is Its Purpose?

"Nitaqat" is an automated classification system for private sector establishments, based on the percentage of Saudi citizens they employ compared to their total workforce. Establishments are classified into five main categories, each with a color representing its level of commitment to Saudization percentages:

• Platinum Tier (Platinum): Represents the highest level of Saudization compliance.

• Green Tier (Green): Includes establishments that meet the required Saudization percentages and is divided into three sub-levels: High Green, Medium Green, and Low Green.

• Red Tier (Red): Represents the lowest level of compliance, and establishments within it face penalties and restrictions on their services.

  
  

"Nitaqat Al-Motawer" came as one of the most important strategic transformation initiatives of the Ministry of Human Resources and Social Development, aiming to:

• Improve the performance of the national labor market.

• Provide decent job opportunities.

• Create a safe and attractive work environment for the sons and daughters of the nation.

The key amendments introduced by the program are in three main areas:

1. Integration of Economic Activities: Small and micro-establishments have been integrated with the rest of the economic activities, which expanded the scope of the program to include all establishments in the private sector.

2. Fixed Saudization Plan: Since its launch, the program has aimed to provide a clear and specific Saudization plan for the coming years, which gives establishments enough time to align their human resources plans and helps them with future strategic planning.

3. Improved Direct Relationship: The direct relationship between the number of workers and the required Saudization percentage has been improved, which solved a problem that establishments faced in the previous system. In the old system, the required Saudization percentage would rise sharply and suddenly when the number of workers exceeded a certain threshold (e.g., moving from 499 to 500 workers), which was known as the "cliff effect." This large jump was a deterrent for establishments from expanding and hiring more workers, fearing moving to a higher category with difficult-to-achieve percentages. The developed program addressed this problem by making the relationship between the size of the establishment and the Saudization percentage smoother and more aligned, which encourages establishments to grow without the fear of a Saudization "shock”.

   
   

Third: Key Terms to Understand the Program

To analyze the mechanisms of the "Nitaqat" program, it is necessary to deeply understand the basic terms it relies on:

• Establishment: Represents every project managed by a natural or legal person that employs one or more workers for a wage.

• Entity: This term is pivotal in the new system. The entity is the designation that the Ministry will deal with for the purposes of calculating Saudization, recruitment, and service transfer. The entity represents all branches of the same economic activity owned by a single establishment. In other words, if one establishment has several different activities (such as contracting and retail), the Ministry will deal with each activity as an independent entity. This prevents establishments from achieving a high Saudization percentage in one activity and then relying on it to compensate for a lack of Saudization in another activity, which ensures genuine compliance within each sector.

• Economic Activity: A classification of establishments based on the business sector the entity operates in. The required Saudization percentage varies depending on the economic activity and workforce size, as some activities require higher Saudization percentages than others.

• Expatriate Workers: Workers who are not citizens of the Gulf Cooperation Council (GCC) countries and work for an employer in the Kingdom.

• Saudization Percentage: The percentage calculated by dividing the sum of the average number of Saudi workers in the entity's establishments by the sum of the average number of Saudi workers and expatriate workers in the entity's establishments, and then multiplying the result by 100.

• Nitaqat: A classification of an establishment based on the Saudization percentage it has achieved, with different classifications as mentioned earlier.

The program has the flexibility to calculate the Saudization percentage to include certain categories of citizens, with the aim of achieving social development. Some categories of Saudi workers are calculated at a higher rate, such as people with disabilities and ex-convicts, who are counted as double the normal rate. In contrast, some categories are counted at a lower rate, such as students and part-time employees, who are counted as half the normal rate. Other categories are counted as one Saudi employee, such as remote workers, children of Saudi mothers, and the mother and widow of a citizen, and GCC citizens. This multi-level approach highlights that the program is not just a strict employment tool, but a comprehensive tool that considers the complex social and economic aspects of the labor market.

Fourth: How Does the Nitaqat Program Work?

The new mechanism for calculating the Nitaqat tier in the "Nitaqat Al-Motawer" program represents a radical shift from the previous system, which was based on fixed establishment sizes. Instead, a dynamic mechanism has been adopted that relies on a mathematical equation that takes into account the total number of workers in the entity and the establishment's economic activity.

The following equation is used to determine the minimum required percentage for each of the four tiers (Low Green, Medium Green, High Green, Platinum):

P=Mlog(S)+C

Where:

• P: is the minimum required percentage for each tier.

• M: is a constant value for the curve for each tier and economic activity.

• log(S): is a function to calculate the natural logarithm of the total workforce.

• C: is a constant value for Saudization for each tier, activity, and year.

• S: is the total workforce of the entity.

This equation ensures that the relationship between the size of the establishment and the required Saudization percentage is smoother, which encourages establishments to grow without facing sharp jumps in Saudization requirements.

Illustrative Example of the Calculation Mechanism

To clarify how this mechanism works, we can look at the example of "Abdullah Plastic Company," a manufacturing company with 400 workers and a Saudization percentage of 35.00%.

Determining the Tier for 2023

Using the constant values specified for the industrial activity for the year 2023, the minimum limit for each tier is calculated as follows:

• Low Green: 1.68 × log(400) + 12.08 = 22.15%

• Medium Green: 1.87 × log(400) + 18.87 = 30.07%

• High Green: 2.08 × log(400) + 22.47 = 34.93%

Platinum: 2.08 × log(400) + 28.37 = 40.83%

Since the company's Saudization percentage (35.00%) is higher than the minimum required for the High Green tier (34.93%), the company's tier for 2023 is High Green.

Determining the Tier for 2024

In 2024, due to the increase in the constant Saudization values ("C"), the new minimum limits are calculated:

• Low Green: 1.68 × log(400) + 17.08 = 27.15%

• Medium Green: 1.87 × log(400) + 23.87 = 35.07%

• High Green: 2.08 × log(400) + 25.47 = 37.93%

• Platinum: 2.08 × log(400) + 32.87 = 45.33%

Even though the company's Saudization percentage (35.00%) has not changed, in 2024 it is only higher than the minimum for the Low Green tier (27.15%). This means that the company's tier for 2024 is Low Green.

This example demonstrates that maintaining the same Saudization percentage does not guarantee staying in the same tier in subsequent years, which requires HR departments to shift from short-term thinking to long-term planning. Companies must anticipate the gradual increases in required Saudization percentages and take proactive steps to hire and train national talent to maintain their distinctive tier. You can get the required values for the equation from the Procedural Guide for the Developed Nitaqat Program. You can also use the Nitaqat calculator without the need to apply the equation yourself.

Instant and Periodic Calculation

The Nitaqat system relies on periodic calculation, but there are certain cases where instant calculation is used, such as for newly established entities (where the establishment's founding date is no more than 13 weeks ago). Instant calculation can also be used for existing establishments if they remain in the Low Green tier or higher for at least 13 consecutive weeks.

Fifth: Penalties for Non-Compliance

Compliance with the "Nitaqat" program is not just a legal obligation, but a fundamental condition for business sustainability in the Kingdom. The penalties for non-compliance extend beyond financial fines to include serious operational restrictions that can affect the establishment's ability to operate normally.

Penalties for a Low Tier

A decline in an establishment's tier leads to it being denied access to essential services from the Ministry of Human Resources and Social Development, which directly impacts its operational processes.

• Low Green Tier: New visa applications and professional changes for expatriate workers are stopped.

• Red Tier: Strict penalties are imposed to push the establishment towards Saudization, and they include:

  • Allowing employees to transfer to another employer immediately without the current employer's consent or completing the notice period for transfer.

  • Not allowing new visa applications.

  • Not allowing the issuance or renewal of work permits for expatriate workers.

  • Not allowing the transfer of expatriate workers' services to it.

  • Not allowing the professional change of expatriate workers.

  • In general, establishments in the Red Tier will not receive Ministry services.

This denial of services leads to what can be described as "operational paralysis" for the establishment. The inability to recruit new workers or renew the work permits of current workers means that the establishment will lose its ability to retain its workforce, which threatens its continuity and may lead to its closure.

Financial Penalties and Risks of Non-Compliance

The legal and financial risks of non-compliance with regulations are numerous and include large financial fines. Some of the most prominent violations and their penalties are:

• Providing incorrect information: An employer may be subject to a fine of up to 25,000 Saudi Riyals if they provide incorrect information or data to the Ministry that results in obtaining a service or benefit.

• Not opening a file or updating data: Not opening a file for the establishment in the competent labor office or not updating its data exposes it to a fine of up to 10,000 Saudi Riyals.

• Non-compliance with Saudization percentages: Employing non-Saudi workers in jobs reserved for Saudis or not complying with the specified Saudization percentages exposes the establishment to a fine ranging from 2,000 to 8,000 Saudi Riyals.

Ghost Saudization and Its Penalties

"Ghost Saudization" is one of the most serious violations and is defined as an establishment registering Saudi citizens as employees without them performing actual work, with the aim of increasing the Saudization percentage or obtaining government support. This practice not only harms the labor market and the establishment's reputation but also exposes the establishment and the employee to severe penalties:

• For the Establishment: An establishment that practices ghost Saudization will have its services suspended, and the violation may be referred to the competent authorities in case of suspicion of forgery or collusion, which may lead to criminal penalties up to imprisonment. It will also be obligated to refund any government support disbursed to the registered citizens.

• For the Employee: The employee is considered a partner in the violation and may be penalized by being deprived of government support and facing financial fines that can reach up to 10,000 Saudi Riyals for each case of fake registration.

Conclusion: Saudization... From Challenge to Opportunity

The "Nitaqat Al-Motawer" program represents a fundamental shift in Saudization policies in the Kingdom of Saudi Arabia, as it has moved from the concept of "quantitative Saudat" to "qualitative Saudization." The goal is no longer just to achieve numbers on employment lists, but to build qualified and stable national talent capable of contributing effectively to the national economy.

The new mechanism of the Nitaqat program is dynamic and flexible, as it avoids the "cliff effect" and encourages growth, but in return, it requires business owners to plan strategically for the future. As our example showed, maintaining the same Saudization percentage does not guarantee staying in the same tier in subsequent years, which requires establishments to follow updates first-hand and take proactive steps to hire and develop national talent continuously.

The penalties for non-compliance, especially falling into the Red Tier, are not just financial fines; they are serious operational penalties that can cripple an establishment's ability to continue. This close link between compliance with the "Nitaqat" program and access to essential government services places compliance at the core of any business strategy that seeks to grow and be sustainable in the Kingdom.

Saudization is no longer just a challenge, but a real opportunity for establishments to enhance their competitiveness by investing in local human capital and benefiting from the incentives and services the program offers to compliant establishments. Through proactive planning, continuous compliance, and commitment to Saudization goals, business owners can turn this challenge into a cornerstone for success and growth, in perfect alignment with the objectives of Vision 2030.