SAUDIZATION REQUIREMENTS HAMPER BUSINESS

S E C R E T SECTION 01 OF 02 RIYADH 001708

SIPDIS

DHAHRAN SENDS,
STATE FOR NEA/ARP

E.O. 12958: DECL: 11/16/2018
TAGS: ELAB KWMN PGOV SA SOCI
SUBJECT: SAUDIZATION REQUIREMENTS HAMPER BUSINESS

Classified By: Dhahran CG Joseph Kenny for reasons 1.4 (b),(d)


1. (S) Summary: In a meeting with Dhahran Consul General
Kenny, Abdulrahman Ali al-Turki, a leading business person in
the Eastern Province (EP) of Saudi Arabia, candidly spoke out
against a government quota system that requires a percentage
of a company's workforce to consist of Saudi nationals. He
also severely criticized the segregation of women in the
workforce as hampering productivity and efficiency.
Contradicting several others of the region's business
leaders, al-Turki shared an unusually pessimistic forecast
for the Saudi economy in the short-term. End summary.

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Saudis Considered Not Desirable As Employees
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2. (S) Dhahran Consul General (CG) Kenny made a courtesy call
on Abdulrahman Ali al-Turki, an important business person in
the Eastern Province. The CG was accompanied by EconOff and
the LES Political Specialist. Al-Turki is the Chairman and
CEO of the ATCO Group, an influential and significant
consortium of companies involved in construction, port
management, marine services, shipping, car dealerships,
household appliances and several other industries. In a very
frank conversation, al-Turki criticized the Saudi Arabian
Government's (SAG) policies impacting the business
environment.


3. (S) Al-Turki told the CG that the religious and Arabic
language dominance of Saudi primary and secondary education
ill-prepare Saudis to become productive members of the
private sector workforce. He also complained about the lack
of a strong Saudi work ethic. His personal experiences with
Saudi employees as a major employer have largely been
negative. He laughed when describing how some Saudi
employees complained about the howling winds and rough waves
they found unpleasant and annoying on a drilling rig they
were working on in the Gulf. Recently, al-Turki opened
several restaurants in the EP, but said he was unable to
recruit a single Saudi employee that would be willing to work
a full week. He said that because of experiences like these,
he simply prefers to hire foreign workers.


4. (S) In al-Turki's view, it is the SAG's responsibility,
not the private sector's, to train and educate the Saudi
population with real world skills. He even refuted the
utility of the King Abdullah scholarship program which
provides full scholarships and stipends for Saudi students to
study in places like the U.S., Europe and Australia. He
commented that even when Saudis return after completing their
studies in the U.S. with virtually no work experience, they
expect to immediately become managers and have subordinates
reporting to them. He believes the problem begins before
college and is a result of poor primary and secondary
education. At one point during the conversation, al-Turki
said that the SAG "is dumping problems of their own making
onto the private sector to fix." Note: A 2005 labor law
requires firms to employ 75% or more Saudis, but few firms
have been able to come close to meeting this requirement.
Post estimates that Saudis constitute only 10% of the
domestic labor market. End note.

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Female Saudi Employees Increase Productivity
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5. (S) When the conversation shifted toward women in the
workforce, al-Turki exclaimed, "I love women employees; they
make the men work harder!" He explained that he had opened
offices where women and men worked side-by-side and the
women's stronger work ethic inspired a competitive
environment which in turn raised the men's productivity.
However, he said that the Commission for the Promotion of
Virtue and Prevention of Vice, colloquially known as the
"mutawwa'in" or religious police, has intervened and forced
the company to physically separate the genders. The
efficiency gained by having both genders working together, as
well as increased competitiveness between the genders, was
lost and resulted in reduced productivity and profitability,
in addition to the added expense of having to maintain two
identical workspaces. Although the Governor of the EP,
Prince Mohammed bin Fahd Al Saud, has made strides to reduce
the mutawwa'in presence in the province, al-Turki says that
they are "stronger" than the prince.

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EP Economy is Not on Solid Ground
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RIYADH 00001708 002 OF 002




6. (S) Al-Turki demonstrated a degree of skepticism on the
ability for the EP economy to weather the current global
financial crisis. He said that the economy is "not solid" in
the EP and sees the tight global credit markets beginning to
impact liquidity in the domestic lending market. As a major
share owner of Sipchem, a large Saudi chemical manufacturer,
he noted that although the company will continue with plans
to double the number of factories operating in Saudi (from
three to six),they are not looking into any new projects for
the foreseeable future. He said that before the current
economic turmoil, Sipchem was pursuing a much more aggressive
growth strategy. (Comment: Al-Turki is the first among
Consulate Dhahran's business contacts to share such a sober
view of the region's economic outlook. End comment.)
However, al-Turki did say that the SAG's previous experience
in dealing with economic crises and their guarantee of bank
deposits are promising steps that may negate some of the
negative impact on the Saudi economy.


7. (S) Comment: Al-Turki's anecdote related to imposed
Saudization requirements reflects longtime frustration in the
Saudi EP business community over the difficulty in hiring
skilled, hard-working Saudi employees. Other Consulate
Dhahran contacts have voiced similar concerns, citing
shortfalls in quality managers and engineers in the Kingdom.
One important Saudi business person said that he prefers
working with Western companies to be able to utilize their
effective managers in the joint venture. Though most
contacts are not as unabashed in their criticism of SAG
policies as al-Turki, the vast majority agree that it should
be the government's responsibility to improve the Saudi
workforce and not individual businessmen. Despite the
requirements "on the books" to Saudi-ize most sectors of the
workforce, the prominent merchant families do not see this as
a viable option from a business standpoint. Instead, they
pay lip service to it and go about their business as in the
past, employing foreign workers in all aspects of their
operations. End comment.

(Approved: JKENNY)
FRAKER