Wed, Apr 09 11:30 AM EDT
By Marwa Rashad
KHOBAR, Saudi Arabia, April 9 (Reuters) - Major Saudi Arabian construction firm Abdullah A. M. Al-Khodari Sons expects labour reforms to keep weighing on its bottom line for a few more years, but the situation will start improving in the second half of 2014, its chief executive said.
After decades of ineffective localisation policies, the Saudi government imposed in late 2011 stricter penalties on companies which failed to meet quotas for hiring Saudi citizens.
A year later, it also introduced a levy of 2,400 riyals ($640) a year for every foreigner which a company employs above the number of its Saudi workers.
Most private-sector jobs in the kingdom are held by roughly 10 million expatriates, who are typically paid less than Saudis, so the tighter labour policies have had a big impact on some firms by pushing up their costs and cutting profits.
In labour-intensive industries such as construction, companies complained the reforms caused bottlenecks in important projects. Telecommunications firms lost business as some foreign workers left the country; even banks were hit as they made bad loan provisions in case the construction firms were forced to delay some loan repayments.
Al-Khodari, which has about 17,000 employees, has been at the centre of the upheaval. The company's margins were eroded by more than 50 percent as the labour reforms were introduced, with an average annual cost impact of 50 million riyals since July 2011, Fawwaz Al-Khodari said in an interview.
The company now includes the cost of the reforms in the new contracts it signs, but it still feels some negative effect as it works through contracts signed before the reforms were introduced. This effect will "drag on for a few more years", but it is steadily decreasing, the executive said.
"2014 will have a mix of old and new business, but I think by the second half of this year we will be coming out of the rot and the damage we've been having in the last couple of years, and we should be witnessing an improvement reflected on our bottom line."The company, which has yet to announce its first-quarter earnings, reported a 69 percent year-on-year decline in net profit for the fourth quarter of 2013 to 8.5 million riyals. It cited as one reason an increase in manpower costs, which jumped 28 percent. METROS While the labour reforms appear to have slowed the country's overall economic growth moderately - gross domestic product expanded 3.8 percent last year, after 5.8 percent in 2012, mostly because of slower oil sector growth - government policies are in some other ways stimulating the economy, a fact which Khodari readily ackowledged. As demand for the company's services grows with rising incomes and heavy infrastructure spending by the government, there is huge potential for growth in the local construction market, he said. In its 2014 budget, the government plans to spend 855 billion riyals, with much of that focused on social welfare projects such as schools, hospitals, new roads and railways, and upgrades of ports and airports. Al-Khodari's core business line is executing such government projects; it also hauls and disposes of municipal solid waste. Last July, the government awarded $22.5 billion in contracts to three foreign-led consortia for the design and construction of the Riyadh Metro, the capital's first metro rail system, which will require tens of thousands of workers. Authorities plan other metro systems in cities such as Mecca and Jeddah. The company has discussed with some of the Riyadh consortium members the possibility of being nominated as a subcontractor for that project, Khodari said. "If Al-Khodari participated with one consortium or more, the areas which would be relevant to our scope could be up to 6 billion (riyals) in any single contract," he said. "We all know that as things develop, capacity problems may build up with some of the contractors, and there may be a need for other contractors to come in." He added, "I think in 2015 (Saudi Arabia) will probably be the busiest workshop in the world for metros. The potential is huge and if we are successful in our drive to get our share of the business, it could definitely have a major positive impact on the top and bottom lines of Al-Khodari." These expectations may explain why the company's share price is up 15 percent so far this year, slightly outperforming a 13 percent rise in the main Saudi stock market index. Last year, the company won contracts worth nearly 2.7 billion riyals, up from slightly below 1 billion riyals in 2012. This year it hopes for a further increase, Khodari said. "Our backlog in 2012 was about 2.5 billion riyals and in 2013 it was about 3.7 billion. So if we accept that this rise will be reflected in our revenue stream, then you should see pretty healthy growth in the top line in coming years." The firm, with offices in Abu Dhabi, Qatar and Kuwait, expects to see better opportunities in Qatar later this year or during 2015 as the country prepares to host the 2022 World Cup soccer tournament, Khodari said. LABOUR REFORMS Labour Minister Adel al-Fakeih said in January that Saudi Arabia had doubled the number of its citizens working for private companies in the 30 months since it began introducing the labour reforms. Khodari, speaking in an interview at his 11th-floor office overlooking the Gulf, acknowledged the good intentions of the reforms. But he said the country also needed adequate educational and vocational training for Saudi citizens, aligned to the requirements of industries which employed them. Since 2011, many companies have said they struggle to find qualified Saudis to replace expatriates, despite high government spending on university scholarship programmes and technical training colleges. Firms have also complained that employment rules make it too hard to fire Saudis. "I think the last thing you should expect is for the contracting industry to be forced to become professional universities and colleges and vocational training centers," Khodari said. "We can be part of the process, but we cannot take on the whole responsibility." He also said the statistics on Saudis finding private sector employment might be misleading, as all construction companies were having "a serious battle trying to get those that they hire to actually do anything". He said many Saudis were not willing to work in projects such as city cleaning or at remote sites, making hiring a large number of Saudis in non-administrative jobs a major challenge. "By forcing the contracting sector to hire nationals that are neither available in the numbers needed, nor with interest in the sector, we are encouraging unproductive dependency. "Official figures will indicate that we are beating unemployment, while we are in fact affecting our youths, morally and ethically, by promoting such dependency." (Reporting by Marwa Rashad; Editing by Andrew Torchia) ==================== Number of labour strikes in Dubai falls almost 25% Officials say that although the number of incidents declined last year, there were more workers – 25,788 – involved in the strikes, with wage delays cited as the primary reason for industrial action. Preeti Kannan April 17, 2014 Updated: April 20, 2014 08:13:00 Save this article DUBAI // The number of labour strikes in the emirate last year fell to 34, from 45 in 2012, according to a report released by the Federal Government. Related ■ Arabtec workers in UAE strike over wage dispute ■ Pay disputes behind 75% of UAE labour strikes ■ Consulate staff dash to airport to stop unpaid workers being deported Labour abuses can start even before workers get here ■ Dh68m in unpaid wages returned to workers Topic Workers' rights, Nearly 26,000 workers were involved in industrial action. The National Committee to Combat Human Trafficking said in its annual report that the main reason for the strikes, and which accounted for at least 20 last year, was delayed payment of wages. Demands for higher salaries were another reason. Officials said although the number of protests had declined from 2012, when 21,600 workers had downed tools, more workers – 25,788 – were involved in fewer protests last year. Figures for other emirates were not available. “We have started many programmes, which include meeting workers in their accommodations regularly,” said Col Dr Mohamed Abdullah Al Murr, director general of the human rights department at Dubai Police. “We also have a 24-hour toll-free number – 800 50005 – where workers can call any time with their complaints. We want to know if they have a problem before they stop working. We have put up posters in accommodations in English, Urdu, Bengali and Arabic with our number.” Col Al Murr said the most strikes in any one month was five, which occurred in January and August last year. One of the largest strikes, however, took place in May, when thousands of employees from Arabtec Construction stopped work for four days over a pay dispute. The staff, who earned between Dh650 and Dh1,200 a month, wanted their Dh350 food allowance to be paid in cash, instead of being given daily meals. More than 460 workers, mostly from Bangladesh, Pakistan and India, were discharged and sent home. Four months later, the company announced it had raised the salaries of 36,000 of its workers by an average of 20 per cent. The committee report, which was released last week, also revealed that nearly Dh30 million owed to workers as wages was recovered from companies last year. This represents a substantial jump from Dh2.76m in 2012, but lower than 2011, when Dh87.3m was recovered from companies. Complaints numbering 1,005 were made by workers to Dubai Police last year, the report said. Of this, 43 per cent involved demand for higher pay and another 23 per cent reported a delay in the payment of wages. However, police said the rise in complaints was a good sign, as more workers now understood their rights and were approaching them before downing tools. “The complaints have increased but the strikes have decreased,” said Major Saeed Rashid Alhelli, head of Temporary Employment Conditions Control Section and General Department of Legal and Disciplinary Inspection at Dubai Police. “They now have an easy way to contact the police. They understand that police can help them. We are telling the workers: ‘We will come to you. You don’t have to go to the roads.’ “We want to quickly respond to build their confidence. We realised that when a strike happens, we can stop it for that time but we can’t stop them from happening again. So, we have focused on preventative ways.” However, with a rising number of grievances related to pay, experts said companies should have strategies in place to increase wages. “Salaries cannot stay the same forever,” said Dr Saeed Al Ghufli, assistant undersecretary for Federal National Council Affairs and a coordinator at the human trafficking committee. “There should be increases and evaluations. Companies should have clear strategies from the beginning on how they will increase salaries.” A labour recruitment firm said companies have to look at pay increases of at least 30 per cent for skilled and unskilled workers. “If they need workers to finish projects before 2020, they need to offer better pay,” said Mohammed Jindran, managing director of Overseas Labour Supply, which recruits workers from 16 countries on behalf of contracting firms. “There is a huge shortage of workers and companies are in dire straits. We are trying hard to recruit workers from India and other countries, but Indian workers want better salaries.” He said unskilled workers do not want to settle for less than Dh1,000 a month, despite Dh750 being acceptable a couple of years ago. The 2013 NCCHT report also said more workers – 3.6 million – were receiving their monthly earnings through the Wage Protection System (WPS), which was introduced in 2009. It also said a total of 252,000 labourers now had companies transfer their salaries through banks or money transfer companies, rather than making cash payments. pkannan@thenational.ae Read more: http://www.thenational.ae/uae/workers-rights/number-of-labour-strikes-in-dubai-falls-almost-25#ixzz2zOjq9oiJ Follow us: @TheNationalUAE on Twitter | thenational.ae on Facebook ============================= Khodari Q1 net profit up 78pc on auction April 21, 2014 - 12:00:00 am DUBAI: Major Saudi Arabian construction firm Abdullah A M Al Khodari Sons said yesterday that its net profit for the first quarter of this year jumped 78 percent on the back of earnings from an auction of plant and machinery. Net profit rose to SR32.63m ($8.7m) from SR18.28m a year earlier. The machinery auction brought in SR41.3m of income. Operating profit plunged 96 percent to SR1.02m, however, partly because of reforms to Saudi Arabia’s labour market which have made it more expensive to hire foreign workers. Work permit costs to the company increased by SR13.2m. Profit was also hurt by an increase in depreciation costs as the company deployed equipment for newly awarded projects worth SR1.5bn, a 31 percent rise in manpower costs mainly due to a ramp-up of labour-intensive cleaning projects, and a 69 percent leap in financing charges as the company enlarged its funding base to meet its contract backlog. Reuters
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