The History of the Expatriate Community in Saudi Arabia
Since the discovery of oil, many states in the Persian Gulf have used these resources to transform from small desert sheikhdoms into modern states with sizable economies. Among the Gulf states, Saudi Arabia, home to the world’s second-largest oil reserves, successfully emerged as the largest economy in the Arab world. The oil boom in Saudi Arabia was accompanied by development efforts on an unprecedented scale, leading to a surge in demand for foreign labor to assist them in this process. In 2013, expatriates constituted about 32 percent of Saudi Arabia’s population and more than half of the country’s labor force. These numbers become even more significant when we look towards the private sector of the Kingdom, where foreign workers account for nearly 90 percent of the labor force. In 2009, the World Bank reported Saudi Arabia as the world’s second-largest source of remittances to other countries, at USD 26 billion. Since it constitutes a large part of the Saudi population and economy, the expatriate community has also been a source of national grievance for many years. With one of the world’s highest youth unemployment rates, Saudi Arabia has long blamed foreign workers for pushing out job opportunities for the locals, especially in the private sector. Since the 1990s, the state has attempted to indigenize the Saudi workforce. However, these attempts have been fruitless due to fierce opposition from the local business community. The expatriate community in Saudi Arabia has played a significant role in building and developing the Saudi Arabian economy. Despite this, Saudi expatriates have been, and continue to be, marginalized inhabitants who cannot assimilate and integrate into Saudi society.
The History of Foreign Labor in Saudi Arabia
Before the discovery of oil, migrants from the Arab and Islamic worlds came to Saudi Arabia. The Hejaz region, in particular, served as a critical destination for pilgrimage for the Islamic world. Religious tourism fostered the economy of Hejaz, becoming a renowned destination in the region. Once the Kingdom of Saudi Arabia was founded and established, those who arrived as pilgrims or refugees had taken up the Saudi nationality and naturally integrated into the growing business community. The Hadrami community hailing from South Yemen is just one such example of a group of people who migrated to Saudi Arabia in the early twentieth century. In the early days of the Kingdom, King Abdulaziz relied on customs duties, agricultural taxes, pilgrim fees, and merchant loans to operate the economy. Being a significant source of state revenue, the traditional Saudi merchant class had great power and influence in the political and economic realms of Saudi Arabia.
In May 1933, an oil concession agreement was made between Saudi Arabia’s finance minister and an attorney representing Standard Oil of California (SOCAL). This agreement allowed the subsidiary branch of SOCAL, the California Standard Oil Company (CASOC) – which later became the Arabian-American Oil Company (ARAMCO) – to build the first drilling camp in the city of Dhahran in the following year. The company initially employed only 150 American employees. In the late 1930s, when the oil exploration led by the American oil company proved successful, foreign employment rose even further. To illustrate, within CASOC alone, the number of foreign employees rose to 3,641 in 1939. This discovery made the oil industry one of the most important industries in the economy. The traditional merchant community in Saudi Arabia declined, which opened the business sector and employment up to many Saudis, who used this as an opportunity to move up the economic ladder, and foreign firms and workers to fill this void. The immigrants who arrived during this time included foreign experts from advanced economies and groups of unskilled laborers from poorer neighboring Arab countries to primarily assist in the development and operations of the oil industry. Between 1938 and 1958, the Saudi government’s revenue rose from USD 7 million to USD 180 million, indicating to the rest of the world that the Saudi Arabian economy had the potential for substantial economic growth. However, it is also important to note that until the oil boom in the 1970s, the number of foreigners in Saudi Arabia remained relatively small; in 1975, the estimated number of foreigners in the Kingdom was only 484,000.
After the first oil boom in Saudi Arabia in 1973, there were much larger flows of skilled and semi-skilled foreign workers into Saudi Arabia compared to the first wave of labor migration in the 1930s. In 1980, the number of non-Saudi workers was estimated at 1.7 million, more than a two-fold increase since 1974. More significantly, these non-native workers now accounted for 52.7 percent of the total Saudi workforce, hence overtaking the indigenous population in terms of employment. With the rise in oil revenues, Saudi Arabia made development efforts on an unprecedented scale. At the time of the oil boom, the Saudi state had implemented the first two five-year-long development plans to promote industrialization within the state. The industrialization of the Saudi economy led to the invitation of many skilled workers from high-income countries to Saudi Arabia to assist in its large-scale development projects by partaking in the construction of airports, hospitals, and housing infrastructure. Beyond the increased demand for skilled laborers in the private sector, there was an urgent need for professionals in technical fields such as medicine, higher education, and technology in the public sector as the Saudi state began to centralize. This demand was met by importing a foreign workforce. Hence, the first oil boom and the expatriate community that arrived during this time helped to stir the economic diversification and infrastructure-building of the emerging economy of Saudi Arabia.
The native population of Saudi Arabia has undoubtedly benefited from the arrival of these expatriate communities. Migrant workers, primarily non-Saudi Arabs and Asians, were recruited on a short-term contract basis and did not enjoy full social and political rights as the Saudi nations. As foreigners were subject to the Kafala system, where an employer assumes full responsibility for the employee during their contract period, and the employee, in return, would only work for their sponsor. With this system in place, Saudi private sector employers did not have to concern themselves with the threat of unionization and worker’s rights, as foreign employees are not granted these same privileges under the law. As for these expatriate workers, they also lacked the opportunities for social integration, which made it challenging for them and their families to form an attachment to their host country, Saudi Arabia, and successfully integrate into society. The lack of rights and social opportunities for migrant workers would likely discourage members of the expatriate community from permanently settling down in Saudi Arabia. This deterrent effect may have contributed to the local Saudi population being more receptive to accepting large numbers of foreigners into the country. For the entire decade of the 1970s, the Saudi Arabian economy was characterized by extremely high levels of total investment, where the growth of capital formation had averaged 27.8 percent a year. This high level of investment and money circulation in the Saudi economy gave rise to wealthy Saudi banking families such as Al Rajhi, Bin Mahfouz, and Kakki. They operated Islamic bank accounts that paid no interest to customers and, instead, placed deposits on interest-bearing government-issued development bonds or chipped away at the profits of remittances sent home by the millions of foreign workers. The growth in the expatriate population in Saudi Arabia at this time also allowed its citizens to generate income from trading labor visas. On the other hand, the recruitment of foreign workers became increasingly detached from market demand for labor, and the number of foreigners who are unaccounted for by Saudi officials had also increased. The thriving economy of the 1970s has attracted many foreigners to Saudi Arabia in search of employment. Since the oil boom, Saudi Arabia has become increasingly dependent on foreign labor. There were three waves in which the foreign workers in Saudi Arabia arrived. The first wave occurred in a period preceding the oil discovery when migrant communities formed through the arrival of individuals and families from neighboring Arab countries driven by forces of pilgrimage or refuge-seeking. The second wave of migrants arrived in the 1930s when the oil explorations began with the partnership between the Saudi state and the American oil company CASOC. The third wave occurred during the oil boom of the 1970s, bringing a considerable number of foreign workers to diversify the economy. The Kingdom relied on these skilled and semi-skilled expatriate workers to assist in extracting its oil resources and executing the state’s development projects to transform the economy of Saudi Arabia.
The Shift in the Composition of the Saudi Foreign Labor Force
Over time, the composition of the Saudi foreign labor force was impacted and shaped by various political and historical events in the Gulf peninsula. During the first two waves of foreign migration in Saudi Arabia, there was a clear preference for workers who immigrated from other Arab countries. This preference existed because Saudi employers believed that Arab workers were able to assimilate more easily into Saudi society than non-Arab expatriate workers due to a shared sense of identity stemming from their shared language, history, culture, and religion. In addition, as an emerging power within the region, the Saudi government made an effort to help ease some of the internal economic hardships of other Arab countries by offering indirect aid by providing employment opportunities. Many Arab migrant workers who arrived in Saudi Arabia before the oil boom were people compelled to leave their home countries due to political instability or armed conflict. In the early 20th century, the outbreak of WWI and the collapse of the Ottoman Empire left many states in the Persian Gulf in economic ruin and political disarray. The largest group of non-Saudi Arabs that immigrated to the newly emerging economy of Saudi Arabia were the semi-skilled Yemenis and Egyptians who were seeking better employment opportunities. The Palestinians had also arrived as migrant workers in Saudi Arabia following the Arab-Israeli War (1948) and the occupation of Palestine. Before the oil boom in the 1970s, the 1968 Ba’ath party coup in Baghdad and the civil wars in Yemen had motivated Iraqis and Yemenis to seek both refuge and employment in Saudi Arabia. These groups of migrants were often employed as administrators, teachers, translators, and laborers. There were also more traditional local migrant laborers who arrived in Saudi Arabia during this time. For instance, the Omanis, hailing from a country that directly shares a border with Saudi Arabia, had also migrated to the kingdom in search of jobs in the fast-growing economy. In the period following the 1973 oil boom, foreign laborers from Yemen, Egypt, Sudan, Jordan, Palestine, and Syria began to arrive in even greater numbers.
Although there was a strong preference for expatriates from the Arab world, the composition of foreign workers transformed in the 1970s. This shift in the labor force was largely due to the political tensions that emerged between the Gulf monarchies. During the Cold War, ideologies hostile to Gulf monarchies had emerged. One such example is Arab nationalism or Pan-Arabism. The anti-imperialist, secular political movement captivated the attention of many people across the Middle East. It was especially true when President Nasser broadcasted Pan-Arabist messages after overthrowing the Egyptian monarch and successfully seizing power. Although Nasser sought to empower Arab states against foreign powers, he was also critical of Gulf monarchies that aligned with the West. In the Persian Gulf, Iran emerged as a more belligerent actor in the region by establishing the Islamic Republic and giving rise to the leftist movement, which also propagated anti-monarchical messages. These political movements across the Middle East sparked great mistrust among the Saudi regime against their Arab workers as it made the royal family fearful for the survival of their government.
These political and historical forces led to the gradual replacement of Arab migrant workers with Asian laborers. Kapiszewski (2006) explains that Asian migrant workers became more desirable due to three factors. Firstly, they were less expensive, easier to lay off, and more obedient. Under the Kafala system, the legal status of these migrant workers depended entirely on the terms of the short-term contract forged between them and their Saudi employer. Unlike the Arab migrant workers, the non-Arab Asian migrant workers were more detached from the regional politics of the Middle East. Hence, the Saudi state and employers deemed them less prone to political claims within the kingdom. Contrary to Arab workers who relocated to Saudi Arabia with their families, non-Arab Asian workers were likely to leave their families behind in their home countries. In the eyes of the Saudi state, this act of leaving families behind indicates that these migrant workers are less likely to stay permanently in their country. Lastly, after the 1973 oil boom, the demand for labor, especially for unskilled workers, was far greater than the labor supply of neighboring Arab states. From a practical standpoint, in order to keep up with the pace of economic growth, the Saudi government had to bring in migrant workers to meet their labor needs. To illustrate, during the oil price surge in 1979, the Saudi government's revenue rose significantly within a single year. Using this revenue, the Saudi government launched more ambitious development projects and welfare programs for its native population. This grand scheme resulted in the demand for an additional 700,000 expatriates in the following year. The culmination of such factors led to an increased preference for semi-skilled non-Arab Asian expatriate workers in Saudi Arabia since the 1970s.
One of the most recent political events that replaced a vast number of Arab expatriates in Saudi Arabia with South Asians occurred in the backdrop of the two Gulf Wars. Saddam Hussein’s Iraq was once considered a valuable regional ally to Gulf monarchies as he maintained a Sunni-led government. In the aftermath of the Iran-Iraq War, however, Saddam Hussein felt betrayed by the other Arab states as he was denied debt forgiveness after waging what he believed was a necessary military campaign to defend the Arab World against Persian aggression. He became convinced that the survival of his regime was at stake, and he began to take a more belligerent stance toward the Gulf monarchies, especially Kuwait, when it had failed to meet OPEC quotas and overproduced oil in the aftermath of the Iran-Iraq war. Tensions quickly escalated between Iraq and the other Gulf states. Consequently, in 1990, the First Gulf War began with Iraq’s invasion of Kuwait. When the invasion first occurred, the Arab League remained heavily divided. Having long-standing ties with Kuwait and strategic concerns over Iraqi expansionism made Saudi Arabia sympathetic towards Kuwait in this armed conflict. However, Yemen, Palestine, and Jordan were supportive of Iraq due to geopolitical concerns and monarchical rivalries. The Kingdom of Saudi Arabia retaliated against these nations by expelling its migrant worker communities. As a retaliatory measure, up to one million Yemenis were expelled from Saudi Arabia along with 200,000 Jordanians and 150,000 Palestinians in both Kuwait and Saudi Arabia combined. This mass displacement of foreign workers created many job vacancies in Saudi Arabia. And thus, the labor issue was addressed by hiring South Asian workers, particularly Indians, Pakistanis, and Bangladeshis.
In the aftermath of the first oil boom, the Saudi expatriate population experienced a shift in composition, where employers demonstrated a preference for non-Arab expatriate workers rather than Arab. Although the sameness in identity drew many foreign migrants from neighboring Arab countries to Saudi Arabia during the oil discovery, the dynamic politics of the Middle East placed the Arab expatriate population in Saudi Arabia in a highly precarious situation. Regional rivalry and politics created a valuable window of opportunity for non-Arab Asian laborers, many hailing from South Asia, to take up employment in the Saudi state.
The Expatriate Community in Saudi Arabia in the Present Day
The present-day Saudi labor market is highly diverse, composed of many social and ethnic groups. In particular, the business sector consists of immigrants, young Saudi entrepreneurs, and an increasing number of women. Foreign laborers come from both the Arab world and other regions. In 2013, reports showed that the bulk of foreign laborers are semi-skilled, working primarily in the industrial sector (26.5 percent), retail and wholesale (22.3 percent), and in private households (15 percent). In the more specialized sectors like health (3.6 percent) and education (2.6 percent), non-Saudi workers constitute smaller numbers. It is also important to note that non-Saudi workers constitute the majority of higher managerial and specialist positions at the workplace as well.
However, the expatriate community in Saudi Arabia came under much pressure and scrutiny from the indigenous population as they had often been the scapegoat for the many ills of the Saudi Arabian economy. First and foremost, locals blamed expatriates for Saudi Arabia’s unemployment issue. The labor market in Saudi Arabia is confronted with unusually high rates of youth employment. In 2014, the World Economic Forum reported that the Middle East and North Africa (MENA) region had the highest youth unemployment in the world. And among the
GCC countries, Saudi Arabia was reported to have the highest youth unemployment rate of 27.8 percent. Further breaking this down, youth unemployment is much higher for working-age women (55.5 percent) than men (21.2 percent) in Saudi Arabia. As unemployment poses a political threat to the Saudi government, the regime has led many fruitless attempts at remedying the unemployment issue by placing restrictive measures on foreign labor. In the mid-1990s, for example, the Egyptian expatriate population had been the target of Saudization, a policy that aims to reduce the kingdom’s reliance on foreign labor and increase the economic participation of Saudi nationals. In an attempt to increase employment opportunities for many jobless Saudi youths, the government of Saudi Arabia reduced the number of work permits issued to Egyptians. As a direct consequence of this policy, the number of Egyptian expatriates in Saudi Arabia decreased from 900,000 in 1995 to 670,000 within two years.
In reality, this unemployment crisis stems from the low diversification of the local economy and the inadequacy of human capital in Saudi Arabia. The Dutch Disease Effect explains that significant resource discoveries can be detrimental to the long-term growth and development of certain economies. In the Saudi context, the oil boom resulted in a strong balance of payments, encouraging imports and discouraging non-oil exports. Consequently, oil-rich countries are characterized by low demand for labor, hence providing very few employment opportunities for the local population. The lack of economic diversification in Saudi Arabia can be traced back to when the oil boom had first taken place. When oil profits began to surge, the government of Saudi Arabia used these profits to support the private sector business. They have allowed local businesses to sell the government everything to help them secure profits. This meant that even the non-oil sector in Saudi Arabia was financed by oil, making the health of the private sector dependent on the highly volatile global oil market. When examining the economic growth and development processes of other economies, agricultural and manufacturing sectors have played a substantial role. However, in Saudi Arabia, these sectors made little contribution to its economic growth as they had only accounted for about 16 percent of the employment industry from 1994 to 2004. The oil industry may have led to the initial boom in the Saudi Arabian economy. Thus far, the Saudi Arabian economy has failed to sufficiently diversify away from the oil sector to enable sustainable growth and create more job opportunities for its local population.
Instead of creating more jobs in the private sector through diversification, the Saudi government provided a rather generous social contract to its citizens. Using the oil revenues it had generated, the government created many “secure, comfortable, and well-remunerated public sector jobs” to keep its native working population content. To Saudi nationals, these public-sector employment incentives render private sector employment opportunities unattractive. The World Economic Forum warned that employment in the private sector shapes the Saudi youths’ education choices, heightens their expectations about working environments as well as its incentives, and limits their risk-taking behavior, which is necessary for entrepreneurship. For instance, in 2004, estimates show that only 9 percent of Saudi graduates were considered qualified in science or technology, which is considered the lowest figure when compared to other countries in the Arab world such as Bahrain (19 percent) or Iraq (29 percent). Instead, there is an oversaturation in humanities, a field where two-thirds of Saudi graduates have obtained a degree. As depriving more technical fields of potential workers, the oversaturation of the field of humanities creates yet another challenge to help Saudi Arabia diversify its economy. Consequently, private sectors must look toward foreign workers to help fill this void.
Looking at the Saudi national education system, the Saudi government, too, has made minimal effort to advance human capital in its economy. Yamada (2018) proposes that the lack of progress and reform in the Saudi education system can be attributed to the political alliance between the Saudi royal family and the Wahhabi clerics. In the context of Saudi Arabia, one of the key issues surrounding human capital development is the conflict between those who advocate for reform and those who wish to protect traditional and religious values. Although there had been some attempts made to reform the national primary education curriculum between 1946 and 1979 by reducing the proportion of religious studies, this progress virtually stopped when the survival of the regime came under threat in the 1979 seizure of the Grand Mosque in Mecca. Ever since religious conservatives argued that it is necessary to maintain a certain level of religious studies for the survival of the Saudi state. In addition to this, it is also important to note that even at the time of oil discovery, literacy rates among the Saudi population remained extremely low, estimated at less than 5 percent in the 1950s. Until ARAMCO became fully nationalized into the Saudi Arabian Oil Company, the company had no choice but to rely on American employees and other expatriate workers to compensate for the lack of human capital in the industry until it had been nationalized.
Private sector employers often describe the indigenous workforce as “more expensive and less qualified [than expatriates].” As a result, the Saudi government has introduced many policies in an attempt to make it advantageous for private-sector employers to hire native laborers. For example, in 2011, the Saudi government introduced the Nitaqat campaign, which is a system that classified private companies by color – red, yellow, green, and premium – based on the number of Saudi employees it hired in relation to their size. This system rewarded companies in the green and premium zones with attractive business incentives and services while penalizing those companies in the red and yellow zones by imposing a fee of SR2,400 (or USD 640) per redundant expatriate.
Since the 1990s, the business community in Saudi Arabia has strongly resisted the forces of Saudization due to many reasons. First, as the local law favors Saudi employees, it is very challenging for employers to lay off Saudi employees. From the perspective of employers, underperforming employees cannot be held accountable. This is different from the reality that confronts foreign employees, workers whose legal status to work and reside in the kingdom rest entirely on their performance at the company and the will of their employer to keep them in their company. Private sector employers also notice that locals perceive their employment and pay as a right of Saudi citizenship rather than their job performance. This attitude towards work makes it challenging for employers to trust indigenous workers to be productive. Finally, private-sector employers in Saudi Arabia typically agree that foreign workers tend to bring more skills and better training than Saudi nationals who are educated in the local school systems. Foreign-educated expatriates are more likely to have been exposed to various schools of thought in their education that may encourage more critical thinking and challenge conventional ideas. The local school system in Saudi Arabia, which continues to regard religion as a core value, may be less conducive to these skills demanded by the private sector.
Saudi Arabia has directed much of its resentment toward expatriates as it struggles to address its structural unemployment issue. They accuse private sector employers in Saudi Arabia of being discriminatory and rewarding expatriates from distant lands with “unearned jobs.” This local frustration towards expatriate communities has given rise to other social issues in the modern Saudi state. The international community has grown increasingly concerned over the treatment of migrant workers in Saudi Arabia, especially those unskilled laborers. Not only are expatriates subject to restrictive employment contracts, but they are often subject to suboptimal living and working conditions. This treatment of expatriate workers not only harms the well-being of the migrants, but it has also had devastating consequences on the international image and prestige of Saudi Arabia to the rest of the international community. Regarding this issue, Khowala Mattar, a senior specialist on workers’ rights at the International Labor Organization’s regional office for Arab States said, “The culture of rights is weak in our societies; unless we enhance this culture at the regional level, migrant workers will continue to be exploited and their rights would be abused.” Another issue that confronts expatriates – as well as regular migrants – is the right to citizenship. Despite composing the majority of the present-day population of Saudi Arabia, second-and even third-generation expatriates born in the Kingdom are considered foreigners if they are born to foreign or Saudi mothers. This demographic feature prevents the integration and the feeling of belonging among expatriates and keeps them as marginalized inhabitants of Saudi Arabia for an indefinite period.
Despite being an essential feature of the Saudi Arabian economy in the past and present, the expatriate population in Saudi Arabia has faced many struggles in maintaining their right to work and lawfully reside in the country. Prior to the oil boom, foreign workers helped transform the impoverished kingdom into one of the largest economies in the Arab world by investing in and constructing the basic infrastructure that allowed them to discover oil. Once the valuable resources necessary for economic growth and development had been obtained, both skilled and semi-skilled workers arrived from both the Arab world and from outside to assist in various development projects and offer technical assistance to build the modern Saudi state. Regardless of their contribution, many domestic and international pressures have constantly shaped and challenged the status of migrants in Saudi Arabia to the present day. A challenge confronting the Saudi Arabian economy today is remedying high youth unemployment, diversifying the oil-based economy, and answering the question regarding the status and treatment of its expatriate community. It remains to be seen how effective the kingdom’s economic development programs and indigenization policies would be in finding solutions to these problems.
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