Saudization: Economic Impacts and Role in Saudi Financial Market

Saudization is a term that expresses a set of government policies aimed at increasing the employment of Saudi citizens across various economic sectors while reducing reliance on foreign labor. Saudization programs have been implemented for decades but gained significant momentum with the launch of Saudi Vision 2030, which established localization as a strategic goal to contribute to economic growth and social stability. The Ministry of Human Resources and Social Development oversees the implementation of these policies, imposing mandatory localization rates in the private sector, with criteria and requirements varying according to the size and activity of the company. The Capital Market Authority (CMA) is also part of the regulatory framework, monitoring the compliance of listed companies on Tadawul with the disclosure of Saudization policies in their annual governance reports. The term Saudization also reflects the Kingdom's desire to build a sustainable knowledge-based economy, relying on national competencies and enhancing the competitiveness of the local market at both regional and international levels.

Saudization is a central focus of Saudi Vision 2030, which aims to build a diverse and sustainable economy by increasing the participation of Saudis in the labor market, especially in vital sectors such as technology, energy, tourism, and financial services. Localization policies are linked to the development of human capital and the enhancement of training and technical education programs, which prepare Saudi youth to compete in the job market. Official data for 2024 showed an increase in foreign direct investment to 77.6 billion riyals and a rise in non-oil exports to 515 billion riyals, indicating the effectiveness of Saudization policies in attracting investments and stimulating economic expansion. The vision also sets clear standards for measuring Saudization rates within key performance indicators (KPIs) for sectors and companies, linking these rates to incentives and benefits provided by the government to compliant establishments.

Saudization programs aim to achieve several economic and social objectives, notably reducing unemployment rates among Saudis, diversifying national income sources, and enhancing local spending. These programs encourage companies to train and qualify national talent, providing an attractive work environment that offers citizens opportunities for professional development. One of the key tools for localization is the 'Nitaqat' program, which classifies companies based on their Saudization rates, providing incentives for compliant companies and imposing penalties on violators. The Kingdom has also launched qualitative initiatives such as wage support, on-the-job training programs, and joint projects with the private sector, contributing to an increase in the number of Saudis in technical and administrative positions. Thanks to these policies, the contribution of the national workforce has increased in enhancing productivity and innovation within Saudi companies.

Statistics for 2024 indicate significant progress in Saudization rates in the Saudi market. Foreign direct investments reached 77.6 billion riyals, while non-oil exports rose to 515 billion riyals, an increase of 13% from the previous year. Data from the Ministry of Human Resources showed an increase in the average percentage of Saudi employment in small and medium enterprises, with rising localization rates in technical and leadership sectors. The unemployment rate among Saudis has dropped to single digits, boosting wage levels and consumer demand. Reports from companies listed on Tadawul indicate that compliance with Saudization policies has become part of periodic disclosures, with many annual reports outlining clear plans to increase localization rates and develop recruitment and training programs for national talent.

The banking sector is one of the most committed sectors to Saudization policies due to its vital role in the national economy. Saudi banks have launched special programs to employ Saudi youth in administrative and technical positions, raising localization rates in branches and central departments. A notable example is Al Rajhi Bank (symbol 1120), which has shown increasing commitment to Saudization rates in its annual reports. The rise in Saudization positively impacts the stability of the banking sector, as it enhances the local customer base and increases the volume of deposits and loans for Saudi individuals. Regulatory authorities link the provision of certain services or government facilities to achieving specific localization rates, prompting banks and listed financial companies to adopt active policies in localization and internal training.

The oil and petrochemical sector has long maintained high Saudization rates, particularly in major companies such as Aramco and SABIC. These rates reflect a deep investment in training and qualifying national talent, with the number of Saudis in engineering and technical positions exceeding 70% in many companies. These companies set annual plans for developing Saudis in technical and administrative fields and ensure the disclosure of Saudization indicators in their financial reports. With the introduction of new technologies in renewable energy and chemistry, localization opportunities are expanding to include modern specialties, enhancing the sector's efficiency and sustainability in the long term. Challenges remain in some rare technical positions, but internal and external scholarship programs are gradually bridging the gaps.

The telecommunications and information technology sector is witnessing a continuous rise in Saudization rates, driven by specialized training and qualification programs targeting Saudi university graduates. Major companies in this sector seek to attract national talent through graduate training programs, summer internships, and direct recruitment of graduates. This has led to an increase in localization rates in engineering and administrative positions, enhancing local innovation and the development of digital services. Regulatory authorities grant licenses and new technologies to companies committed to employing Saudi talent, boosting the sector's competitiveness regionally and supporting the objectives of Vision 2030 in digital transformation and knowledge economy.

The retail sector is one of the most challenging sectors in implementing Saudization due to its traditional reliance on foreign labor in medium and low-skilled professions. The government has launched training and incentive programs to encourage the employment of Saudis, especially in sales and customer service roles. Some major retail companies have relied on hiring Saudi women, offering benefits such as flexible working hours and a safe work environment. The healthcare and logistics sectors are also witnessing a gradual increase in localization rates, focusing on non-specialized jobs. Saudization policies positively impact the reputation of community companies, enhancing the trust of local customers and investors in these entities.

The construction sector faces specific challenges in implementing Saudization due to the need for specialized technical skills that are often more available among foreign labor. However, the government has directed efforts in recent years to increase the localization of supervisory and administrative jobs, supporting field training programs for Saudi technicians. The government bidding committee prefers contractors with higher Saudization rates, which drives listed companies on Tadawul to raise localization rates in infrastructure projects. Modern construction technologies also contribute to enhancing the participation of Saudis in operational processes, opening up greater opportunities for national talent in the near future.

The commitment of companies listed on Tadawul to Saudization policies affects their financial and social performance in several ways. Economically, employing citizens enhances local spending, increases demand for products and services, and reduces risks associated with regulatory fluctuations or penalties. Socially, Saudization contributes to achieving social stability, reducing unemployment, and improving the company's image in ESG (environmental, social, governance) reports. Regulatory authorities monitor Saudization rates within key performance indicators and link some incentives or facilities to achieving certain rates, compelling companies to engage in long-term strategic planning in the field of localization.

The years 2024 and 2025 witnessed intensified regulatory measures on companies' compliance with Saudization rates, with fines and warnings imposed on those failing to meet regulatory commitments, especially in the retail and restaurant sectors. The government launched new initiatives to support training and employment in collaboration with the Human Resources Development Fund and national training centers, providing financial incentives to companies achieving high Saudization rates. Efforts to empower Saudi women have also emerged, with expanded job opportunities for women in technical, administrative, and healthcare professions. The new government roadmap includes raising the ceiling for localization rates in emerging sectors and incorporating Saudization indicators into licensing and investment requirements. Media and awareness campaigns continue to enhance the awareness of business owners and investors about the importance of localization and its impact on the sustainability of companies.

Despite the notable progress in Saudization rates, challenges remain related to aligning educational outputs with labor market needs and raising the skill levels of the national workforce. Some sectors face difficulties in attracting citizens to demanding or low-wage jobs. Conversely, promising opportunities are emerging in the technology, renewable energy, tourism, and entertainment sectors, where there is an increasing need for specialized Saudi talent. The government is working on developing modern educational and training programs and encouraging companies to adopt flexible policies for remote work and part-time hours, which will contribute to raising localization rates in the future. The partnership between the public and private sectors remains a critical factor in the long-term success of Saudization policies.

Saudization rates have become an essential part of governance and annual disclosure reports for companies listed in the Saudi financial market. Companies include localization data in their social performance reports, outlining development and training plans directed at national talent. The Capital Market Authority requires companies to disclose Saudization rates in administrative and technical positions and monitors their compliance with ESG standards. This enhances the credibility of companies in front of local and international investors and increases the attractiveness of Saudi stocks in global indices. This transparency also contributes to improving the work environment, attracting national talent, and achieving sustainable development goals in line with the Kingdom's Vision 2030.