The Remittance Industry In Saudi Arabia
To increase a CAGR of 15% from 53bn USD at the final stages of 2010, the remittance men in the GCC section jointly submitted 105bn USD in the year 2015. Some countries including the Kuwait, Saudi and UAE have formed further than 80% of the outflow between 2010 and 2015. Amid the GCC, Saudi Arabia leads with an outward remittance. This makes Saudi Arabia to be always graded second internationally after the USA. There has been a remarkable increase in demand for overseas labor in 2010-2013 due to the tough oil prices as well as animated fiscal measures in Saudi Arabia. Remittance from Saudi Arabia has grown at a 14% CAGR in between 2010 and 2013. This growth has however seen a significant development of remittance that has subdued to a CAGR of 3% from 2013-2015.
Outward remittances, as well as remittance population, are directly affected by oil prices and capital investment. For instance, increase in oil prices has witnessed increased investments which have as a result led to expatriate population congregating to Saudi Arabia to cater for the need of labor markets. Increase in the expatriate workforce has resulted in increased remittance outflow in Saudi Arabia.
The period of 2005-2014 has seen an increase in oil prices of Avg 83.6 USD as weighed against earlier years which observed about Avg 22.61 USD which has accordingly generated a noteworthy increase in capital investments. When compared to the year 1994 that saw a 36.3bn USD, the average capital investment in 2005-2014 was 161bn USD, signifying the considerable difference. Exhaustive manual work is required for the significant increase in expenditures channelized for capital investments. The impacts of the expatriate labor force were a double growth from 3.5mn non-Saudi male expatriates at the final stages of the year 1994 to 6.9mn at the final stages of 2015. Consequently, there was an increase in remittance outflow. Accordingly, the annual remittance grew to approximately 2.6 times in 2005-2015 as that of the year 1994 to 2004.
Table 1 demonstrates the workflow remittance outflow of workers, the rate of growth and government expenses in Saudi Arabia as a proportion of GDP for the time in 1970-2010.
Years GDP growth rate Remittance outflow Government expenditure
|
Years |
GDP growth rate |
Remittance outflow |
Government expenditure |
|
1970- 1979 |
14.6 |
2.4 |
16.3 |
|
1980- 1989 |
-0.6 |
5.0 |
28.8 |
|
1990- 1999 |
3.1 |
10.5 |
27.3 |
|
2000-2004 |
3.7 |
7.4 |
25.6 |
|
2005 |
5.6 |
4.5 |
22.2 |
|
2006 |
3.2 |
4.5 |
23.3 |
|
2007 |
2.0 |
4.3 |
22.3 |
|
2008 |
4.2 |
4.5 |
19.3 |
|
2009 |
0.2 |
7.0 |
25.3 |
|
2010 |
3.8 |
6.0 |
22.2 |
The table is in the form of oil price, investments, and remittance
The decline in oil prices in Saudi Arabia has directly affected its financial system. From a GDP of 3.5% in the year 2015, it was expected that the GDP would get to 1.2% in 2016. The most recent forecast was that deficits would be approximately 9% and 14% GDP for the year 2016. Saudi witnessed a fiscal deficit of USD 97.9 bn in the year 2015 and USD 83bn for the year 2016. Saudi Arabia has learned a lesson to manage shortages since the mid-2014 decline in oil prices. However, there have been hitches given that the banks have been investing in government debts thus the government has been increasing deposits withdrawal and credit available by banks to assist other sections of the financial system like businesses and retails. The reduction of liquidity, as well as rise in interests rates in interbank’s which has exerted pressure on tribute development, has impacted the growth of the free enterprise.
Saudi Arabia has been compelled to reduce the investment expenses by nearly two thirds as its struggles with the oil price overthrow. Projects aimed at fund allocation have failed in the year 2016. For instance, the Riyadh Metro along with Jeddah’s King Abdulaziz international airport has seen a significant reduction from the year 20165 to 2016. Research indicates that transportation and infrastructure expenses are likely to decline by 63% in the year 2018 as the kingdom partnership capital expenses with the aim of lessening the deficit. To sustain the budget deficit, Saudi Arabia is using around 9bn USD on a monthly basis for its foreign reserves. This expenditure is approximately 1.5 times the expenditure on the 2008-2009 budget deficits. Impacts of using foreign reserves include limiting the country’s public expenses. Consequently, Saudi Arabia is reviewing lots of projects and considering plans to cancel others to cut ministry budgets by Qatar and secure compressed finances. Cancellation of projects would have adverse outcomes to the economy of the country. For instance, the construction sector would be negatively impacted by the cancelation of the plans.
Saudi Arabia has considered the most competitive market all over the world gave that it is the second highest remitter following the United States. On the other hand, there are factors that impact the market other than oil price and investments. The elements can be divided into lots of categories including general factors found in all remittance markets like socio-cultural, economic, technological, gender and internal factors. These factors directly impact the remittance market in the country such as 2030 vision, VAT, and Nitqat points agendas.
General Factors
Social, Cultural Determinants of Remittance
The population of Saudi Arabia is 33.41 million, with 12.64 minimum which is about 37.84% being foreigners. The country has eight nationalities represented approximately 85% of immigrants. The top five nationalities fall in order of 19.4% being Indians, 14.5% being Bakestan, 14.4% being Bangladesh,14.3% being Egyptians and 11.3% being filipin. Typical characteristics of nationalities include high population and extensive poverty. The presence of immigrants in Saudi Arabia makes it receive some money to help them and their families. Of the nationalities, the eastern community is regarded as one among those who value the family relationship urging emigrants to transfer money in a more continuous pattern. This idea contrasts the idea of some immigrants who believe in individualism and making self-improvement a priority this spending more than they dispatch.
Gender and Age Determination Of Remittance
Other than economic factors, gender plays a significant role in the remittance flow. For instance, at the final stages of the 90’s, female represented more than 45% of the total migrants. Females are currently traveling independently, and the pattern of migration is significantly changing. Research indicates that the women who worked in Saudi Arabia at the final stages of the year 2017 were approximately 3.98 million, representing about 31.8% of total foreigners. Affluent families in Saudi Arabia are bringing in caregivers from needy families and countries taking advantage of low-cost salaries for them. Despite the fact that female migration generates less income as compared to that of the males, studies reveal that females appear to save higher portions of their profits than men. According to Tacoli (1999), women dedications and obligations among Filipino labor migrants are powerful as compared to their male counterparts. On the other hand, it might be an excellent opportunity for Filipino immigrants to practice self-interest goals as a result of spatial detachment and increased monetary reliance while simultaneously maintaining a functional role as a result of normative gender roles.
Figure 2 shows Filipino as one of the top three Remittance-Receiving Countries, 2014
The figure below demonstrates top Remittance corridor as of 2015. From the top list, it is clear that 3.3bln remittance come to Filipino from Saudi Arabia.
Remittances and Migrant Associations
The role of migrant associations is comparatively understudied. Hometown associations as a class of migrant associations have received some attention from a particular region or town in their motherland. One of the tahweel alrajhi branches observed a dramatic decrease in the remittance capacity for approximately six months and lasted for ahead of 4 months. The department is located in a Khobar city, a downtown with most of its occupants being aliens from the Philippines. Several Filipino employees worked at the branch but shifted as a result of regulations indicating to move employees between all departments in a continuous manner. The ordinance aimed to change all Filipinos operating from there to other branches and bring employees from different cultures. According to the branch manager(Abdullah Al-abbey), the regulation impacts the remittance capacity in the subsection negatively for several months following extended periods of negotiations with top managers to bring back the employees and add more top Filipino employees to strengthen the remittance operations in the subsection. The reinforcement was a very vital decision and the branch record excellent account of the remittance volume.
Internal Factors
Nitaqat Program (Saudization)
A Nitaqat program with the aim of increasing job opportunities has been established by the Ministry of Labor of the kingdom of Saudi Arabia in the free enterprise. The government's direct involvement is aimed at obtaining quick outcomes and giving Saudi nationals an enhanced stand in the neighboring jobs market, which is presently subject to foreign workers holding 6.5 million which is about 90% of the jobs.
The table below demonstrates the nationalization quotas for a variety of firm sizes in the Building materials and construction sector this presenting a snapshot of the Nitaqat system.
Presently, foreign workers represent further than 8.4 million which is a 31% of the population of the empire. The workers dominate the free enterprise labor force by having about 90%S of jobs. Conversely, those who represent 18.7 million which is about 70% account for the remaining proportion of employment.
The rate of joblessness for Saudi Arabia nationals were 10.5% and 0.3% respectively as of the year 2009.s
Saudi 2030 Vision
The most critical goal Saudi is to recover the economy by finding alternatives to oil, income diversification, Fight Corruption and lessen financial waste as well as external expenses. The vision is enclosed by substantial regulations to strengthen and put into practice the critical objectives in the image. Among the provisions is the application to lessen the outflow remittance and improve internal investment and expenses to manage a limit for the employee money distribution.
Value-Added Tax
The general authority of zakat and tax articulates that the VAT will not apply to the remittance amount though it will be taken from the rigid tax amount as 5%. The charge is not expected to affect the remittance volume to a great extent but to, on the contrary, affect the remittance trends more. As a result of an accord by the members of the g20 Saudi Arabia trying to maintain the average expense below the global average of 7.45%, the average cost of conveying remittances from Saudi Arabia is 5.20%.
Works cited
Impact of low oil price on Saudi Remittance industry. (2017). e-marmore.com [Blog] A
subsidiary of 'Markaz'. Available at: https://www.e-marmore.com/Blog/Infrastructure/February-2017/Impact-of-low-oil-price-on-Saudi-Remittance
Tacoli, C. (1999). International Migration and the Restructuring of Gender Asymmetries:
Continuity and Change among Filipino Labor Migrants in Rome. [ebook] International Migration ReviewVol. 33, No. 3, pp.658-682. Available at: ( http://www.jstor.org/stable/2547530?seq=1#page_scan_tab_contents)
