Nationalization Targets: An HR Conundrum

Author Simon Stephens
March 30, 2017

Nationalization, how does it affect recruiting in the Middle East region? Targets in the Middle East create problems for multinational firms looking to acquire the best talent, writes Simon Stephens, Head of Frazer Jones Middle East.

It is well known that having the right people in the right place at the right time with the right skills is a key factor in the success of any company. This philosophy can sometimes come under pressure where there are strict nationalization targets. Introduced to reduce demand for an expat workforce in the long term, the policy promotes the employment of GCC (Gulf Cooperation Council – an intergovernmental political and economic union consisting of all Arab states of the Persian Gulf) nationals over expats. These targets are rightfully put in place by governments to create career opportunities for nationals so that the long term sovereignty and national identity is protected. It’s not simply the best person for the job irrespective of nationality or cost, there is a bigger picture.

Given there was very little or no industry in areas of the GCC before the discovery of oil and gas, only a matter of a few decades ago, the heavy use of an expat workforce to build the advanced regional hubs that exist today was always going to be required. Whilst many companies have rightly invested in incubating local talent to take over senior leadership positions in the future others have been less interested in such investment and have preferred to try and circumnavigate the real intention behind nationalization policies. This is done by employing nationals simply as figureheads and in some extreme cases simply having them on the payroll with no expectations of them significantly contributing in the workplace.

A high proportion of nationals work in the public sector, often enjoying shorter working hours and better benefits than those offered by the private sector. As a consequence, from a financial perspective it’s often not a level playing field, and the perceived allure of an international career path in multinationals is not always attractive to GCC nationals who often come from strong family units with a deep rooted cultural affinity to the Middle East. Multinational companies find themselves in a difficult situation as they need to be both regionally and globally competitive but also take on the task of putting something back into the Middle East countries which have invested heavily to create the platform for them to operate.

Some GCC countries are stricter that others in respect of nationalization quotas. For example, Saudi Arabia has very strict requirements; the Saudi population is vast in comparison to other countries in the region and as a result the need to create meaningful careers for its population is greater. Should companies not reach defined quotas there are defined penalties, annual work visa processing costs rise significantly and on many occasions visa applications for non-nationals are simply denied.

What are the challenges of adhering to local nationalization laws?

In a best case scenario, companies would be looking to attract workers both locally and globally to assemble a multi-talented workforce. However, the skills just may not exist in certain sectors. For example, the Pharmaceutical industry, as we know it in developed markets, is relatively new to the Middle East and so senior directors with 20 years’ experience will naturally be thin on the ground. This means hiring an expat may be the only option some companies have, but this makes meeting the nationalization quota difficult. Herein lies one of the problems for HR departments, they face the challenge of adhering to laws while making sure the business does not suffer. There are free zones that have been set up in the UAE that allow organisations to operate outside of nationalization guidelines, but these are not present in places such as Saudi Arabia.

Talent Development and corporate social planning

The key to making the system work is to understand and appreciate the role of expats and the countries they work in. It is a mutually beneficial relationship, as it means skilled workers get jobs, whilst they support economic growth.

Moreover, these skilled expats are in an ideal position to train up their successors, who should be nationals if the right processes are put in place. By making sure this system runs smoothly and effectively, multinationals can continue to get the best of both worlds – highly-skilled employees and the gradual reduction in their reliance of expats, many of whom have costly expat packages.

The corporate social responsibility policies of multinationals need to be higher on the agenda, as they look to put something back into the community in the form of jobs, genuine careers, or training and development for the local workforce.

If nationals are hired purely to meet a quota, it can lead to a less productive workforce per capita, which will ultimately counteract the long-term aspirations of nationalization policies. Finding the balance between getting the best currently available person for the job and the right person for the organisation in the medium and long term is crucial.

When talking to our Frazer Jones colleagues in our Hong Kong and Singapore offices this is a problem actually replicated between the Middle East and Asia who similarly utilise high levels of expat employees. So whilst challenges exist when it comes to adhering to local nationalization laws, by adopting the right approach and putting succession planning in place, multinationals can deliver a first-rate service, including bespoke graduate training schemes, that genuinely give something back and long term sustainable careers to the country they are operating in.