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Saudi construction companies hit hard by expat worker levy
| Published: | 12 Sep at 6 PM |
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Construction firms in Saudi Arabia are now feeling the effect of the recently imposed expat worker levy, with many small firms closing down and major companies’ profits falling.
The expat worker levy, introduced at the end of 2012, together with the quota system for Saudi employees, has forced a number of smaller firms to close their doors and is affected the larger companies’ profits. The policies are part of the Saudization scheme, aimed at increasing the number of Saudi nationals in work.
Up until last year, the kingdom’s construction sector employed a huge number of workers from overseas as they were cheaper to hire than Saudi nationals. The Saudi government’s expat worker levy costs employers US$640 per work permit for every foreigner employed over the number of Saudi staff.
Given the labour-intensive nature of construction, the charges were a blow to companies of all sizes. One of Saudi Arabia’s largest firms, Al-Khodari Sons Co has seen its profits slump by 43 per cent in the second quarter of 2013.
The fall in profits, according to CEO Fawwaz al-Khodari, is likely to continue over the next several quarters as there is still a backlog of construction projects which were costed before the levy was introduced. New projects, he added, will be negotiated taking into account the full cost of the levy.
Government officials have stated that compensation may be available to cover losses due to the levy, but the payments still have to be made and compensation claims to date have not produced any results. Smaller companies with less cash flow are going to the wall whilst the compensation issue is being sorted out, and economic growth is slowing.
The expat worker levy, introduced at the end of 2012, together with the quota system for Saudi employees, has forced a number of smaller firms to close their doors and is affected the larger companies’ profits. The policies are part of the Saudization scheme, aimed at increasing the number of Saudi nationals in work.
Up until last year, the kingdom’s construction sector employed a huge number of workers from overseas as they were cheaper to hire than Saudi nationals. The Saudi government’s expat worker levy costs employers US$640 per work permit for every foreigner employed over the number of Saudi staff.
Given the labour-intensive nature of construction, the charges were a blow to companies of all sizes. One of Saudi Arabia’s largest firms, Al-Khodari Sons Co has seen its profits slump by 43 per cent in the second quarter of 2013.
The fall in profits, according to CEO Fawwaz al-Khodari, is likely to continue over the next several quarters as there is still a backlog of construction projects which were costed before the levy was introduced. New projects, he added, will be negotiated taking into account the full cost of the levy.
Government officials have stated that compensation may be available to cover losses due to the levy, but the payments still have to be made and compensation claims to date have not produced any results. Smaller companies with less cash flow are going to the wall whilst the compensation issue is being sorted out, and economic growth is slowing.
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