No pain, no gain

Saudi Arabia’s crackdown on expatriates is causing some companies to struggle, but economists argue that the long-term impact of the move will be positive

Saudi Arabia’s King Abdullah ordered a three-month suspension on an expat crackdown, to allow foreigners more time to sort out their papers

Saudi Arabia’s King Abdullah ordered a three-month suspension on an expat crackdown, to allow foreigners more time to sort out their papers

A government crackdown on illegal foreign workers in Saudi Arabia has disrupted the lives of tens of thousands of people and made it harder for some businesses to operate. But ultimately it may create a stronger, more diverse economy.

Thousands of foreigners — over 200,000, according to an unnamed passports department official quoted by the Al Hayat daily last week — have been deported from the country over the past few months.

People stopped going to work at some businesses in major cities such as Riyadh for fear of being caught by government inspectors. Parents at some private schools say there were unscheduled holidays because teachers were staying home.

The turmoil was so great that last Saturday, King Abdullah ordered a three-month suspension of the crackdown, to give foreigners time to sort out their papers. Many people remain fearful of trouble with authorities when inspections resume.

Some businessmen in Saudi Arabia complain privately that the government should have launched its campaign more carefully, coordinating closely with companies to reduce their uncertainty over staffing levels.

The crackdown is likely to have an economic impact far beyond the country’s borders, since foreign workers from south and southeast Asia remit billions of dollars home to their families every year.

But within Saudi Arabia, the economic costs are likely to be outweighed in the long run by the benefits of reducing excess manpower, creating upward pressure on local wages and moving Saudi citizens into private sector employment, analysts say.

“Most of the illegal labour is unskilled labour, extra labour that in fact creates inefficiency in the economy. So these people are more than the economy needs,” says Abdulwahab Abu Dahesh, a Saudi economist. “Proper policies to reduce inefficiencies will create more competitiveness in the economy.”

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Posted by: The Consultant

This article is long on speculation and fairly short on established economic theory. It's certainly the first time I've seen the suggestion that removing supply (labour) will lead to improved competitiveness.

The reality of this policy is it is designed to restrict the number of foreign workers and thus force companies to take on Saudis. This in itself is an understandable aim, there is no need to pretend it will deliver economic benefits as well.

Having fewer corner shops will not "improve efficiency" either. If there are too many shops some of them will close because they won't be making money. If all are operating profitably then all that will happen is that residents will have less choice and Saudi landlords will find it harder to let the retail units in their buildings.

The quid pro quo for this reform should be to make it easier for firms to hire the staff they actually need, instead of having to guess in advance what nationality of employees they are going to recruit.

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