Saudization order at malls to impact costs, but will boost efficiency

Saudi Arabia’s recent decision to restrict jobs at malls only to its nationals is likely to drive up operating costs for business owners, but will in turn force mall operators to improve efficiency to offset negative any impact.

The Kingdom has already set SAR 3,000 as the minimum wage for employees that fall under the Saudization quota.

Mall operators “will definitely incur higher prices. Saudis earn a minimum wage to be considered in Saudization,” Tamer El Zayat, senior economist with National Commercial Bank (NCB), told Argaam.

Mall operators, however, could scale down the number of jobs to balance out the differences in salaries.

“The only way to offset this is to either hire less number of staff by driving operational efficiencies and/or increase rentals and other charges to offset the impact. Ideally, margins should get affected,” said Nishit Lakhotia, head of research at investment firm SICO.

Meanwhile, mall operators expect negative impact to last only short-term. They also plan to use other measures to help offset escalating costs and expenses.

“I think people (mall owners) will reduce overhead costs or may be margins,” said Mohammed Alawi, chief executive of Jeddah’s Red Sea Mall.

“But on the other side, the money (salaries paid) will improve the disposable income of the Saudis, which is good for the retailer,” Alawi said, adding that the government order opens new job opportunities especially for women.

He also believes that this latest directive could be part of the government’s plan to nudge citizens into exploring employment opportunities in the private sector, as compared to the more preferred public sector jobs.

“Putting Saudis in jobs is very good. No one will disagree about that,” Alawi said.

 If part-time job opportunities were to open for young graduates and students it would help “improve the attitude of Saudis towards understanding the value of work,” he pointed out.

“While there continues to be a preference among Saudis for jobs in the public sector, economic necessity and the lack of government hiring will push people to accept opportunities in the private sector,” Graham Griffiths, analyst at consultancy Control Risks, told Argaam.

But, bringing in change on the economic front seems to be more of a top-down vision that is driven by the deputy crown prince and his circle of advisers.

“Saudis recognize the need for a transition to a more diversified economy, but the speed and depth of the transition the government is envisioning and the lack of communication over the reform process is limiting the public’s buy-in,” Griffiths said.

Khaled Al Jasser, CEO of Arabian Centres chain of shopping malls, said the government’s order will be positive for both young Saudis looking to enter the job market and on the local economy.

The Kingdom’s retail sector is also expected to get a boost from the recent royal decree that rolls back pay cuts and restores bonuses as consumer spending improves, possibly mitigating the negative impact of job restrictions directive.

“(The royal decree) is definitely a positive, especially, on the discretionary sector. It not only puts more money into the consumers’ pockets but also will improve confidence, which has been affected considerably in 2016,” Lakhotia said.

With more subsidy reduction expected to be announced in the second half of this year, the rollback of pay-cuts will help improve sentiment among the public, Zayat from NCB added.

Write to Nadeshda Zareen at nadeshda.zareen@argaamplus.com