Saudi Arabia needs to overhaul its labour market if it wishes to reach its goal of increasing competitiveness and diversifying the economy, said a senior executive of Manpower, a global employment services provider.

Like several Gulf Arab neighbours, Saudi Arabia uses a sponsorship system -- called Kafala -- to regulate the inflow and residency of foreign workers, said David Arkless, the executive in charge of government relations at Manpower.

'Without wholesale reforms to its labour market, including sponsoring, Saudi Arabia cannot increase its competitiveness,' he explained.

'The sponsorship system ... doesn't work, so we need to reform the labour policy,' Arkless said at a business forum in the Saudi capital Riyadh.

About 30 per cent of Saudi Arabia's 25 million population is foreign and come mainly from Pakistan, the Philippines, India and Egypt. The majority of expatriate residents perform blue-collar jobs in the construction industry and as domestic aides.

Non-Saudi workers receive an entry visa and a residence permit only if a Saudi citizen or institution employs them.

The system requires the employer to assume full responsibility for the employee during the contract and requires the worker to work for the sponsor. The sponsor is legally able to confiscate either the passport or residency permit of employees until their contract has ended.

International rights groups say the system opens the door wide to abuse in a region that does not adhere strictly to the respect of human rights and labour laws, especially women employed in domestic services.

'Saudi (Arabia) is developing a lot of individual bilateral treaties to bring the right kinds of skilled workers,' Arkless said. 'But the 19th century labour construct in the country is doing the country no favours from a competitiveness point of view.'

Bahrain became the first Gulf Arab country to abandon the Kafala system last year. – Reuters