GCC set to remain reliant on expat labour

Gulf hydrocarbon producers will likely remain heavily reliant on expatriate labour given the relatively high growth in their economies and the shortage of skilled manpower in their native population, experts said on Wednesday.

Although Saudi Arabia is planning to enforce a partial six-year limit on the stay of expatriates in some of its firms in a bid to tackle festering unemployment, a similar move is unlikely in the UAE and other high-income members of the six-nation Gulf Cooperation Council (GCC) given their low jobless rates.

The six-year limit announced by Saudi labour minister Adel Faqih on Monday sent brief shivers across the large foreign community in neighbouring countries before Riyadh issued a statement on Tuesday clarifying that the decision would only affect local companies that do not abide by job Saudization plans.

In their comments , many expatriates in the UAE voiced concern that the Saudi decision could spread into other GCC members and some of them even went further by saying Indians and Filipinos could be the main victim.

Analysts doubted the Saudi plan would be fully enforced even on companies failing to adhere to job nationalization rules, dubbed by the labour minister “yellow and red” companies.

Those which support the programme are classified as “excellent and green” companies and will get “generous” government incentives.

“The decision will only apply to companies rated as yellow on the traffic light system they announced recently.…the color of a company depends on their Saudization ratio…. if it is too far low (i.e. red) then the company won’t be allocated any new employment visas for expatriates,” said Paul Gamble, head of research at the Riyadh-based Jadwa Investments.

“If it is yellow (not high enough) then there will be restrictions on visas(such as the one on people that have been here six years),… if it is green then the company can get the visas it wants,” he told.

Gamble said he believes there should be a full and detail policy announcement on the revised Saudization plan soon.

But he added that companies have been able to get round their quotas in the past, so it all depends how aggressively it is enforced.

“For those GCC countries where unemployment is very low – UAE, Qatar, Kuwait – the policy will not be considered. Elsewhere, they are likely to see how effective the policy is before deciding whether to follow it.”

Another Saudi-based expert ruled out a full implementation of the Saudi six-year limit on the grounds it could adversely affect the country’s economy.

“The minister needs to qualify his statement because if it includes all foreigners then those who heavily contribute to the local economy will negatively impact the output and productivity of the private sector,” said John Sfakiankis, chief economist at Banque Saudi Fransi.

“I don't expect that such rules, if implemented will change the dependence on expatriates as one laborer will be replaced by another……. structurally nothing will happen. I don't know if this might be replicated in the region but even if does it will not change the labor market structure and dependence on expat labor….such policies are misdirected.”

Clarifying the labour minister’s statements, a Saudi government spokesman said the six-year limit would affect only red and yellow firms, part of an aggressive job nationalization programme dubbed “Nitaqat”, to be launched in June.

"What the Labor Minister meant by his statement was that the measure would be applied on those foreigners who work for companies in the yellow category," said Hattab Al-Anazi, official spokesman of the labour ministry.

He said visas for foreign workers in red category companies would not be renewed at all, irrespective of the years they have spent in the Kingdom.

"The new Nitaqat system allows renewal of iqamas (work visas) without any condition for expatriates who work in companies in the green and excellent category," Al-Anazi said, quoted by local newspapers.

He noted that the measures would not affect domestic workers as their visas would be renewed without considering how many years they stayed in the country, the largest Arab economy and the world’s top oil exporter.

In a recent study, a prominent global organization said it expected the GCC nations to seek more foreign labour because of the sustained growth in their economies and lack of skilled national manpower.

The Swiss-based International Organization for Migration (IOM) estimated at more than 16 million expatriates live in the GCC, an increase of nearly 20 per cent over their number in 2005.

“The high growth in foreign labour in the GCC is due to several factors including the national demographic structural imbalance, and the steady growth in most sectors of their economies such as services, real estate and trade,” it said.

“These countries will continue to rely on Arab and international labour in the future to ensure their needs of skilled workers and expertise.”

The study gave no breakdown but Saudi Arabia has the largest number of expatriates in the GCC, estimated at around 8.4 million. The UAE has over six million foreigners while the rest are based in Kuwait, Qatar, Oman and Bahrain.

Asians, mainly from India, Pakistan, Bangladesh, Afghanistan, Sri Lanka, Indonesia and the Philippines account for more than half the expatriate community in the GCC, which controls just over 40 per cent of the world’s recoverable oil wealth and a quarter of the global gas resources.

Foreigners began streaming into the Gulf nearly half a century ago when the discovery of oil kicked off one of the largest infrastructure construction drives in history. The drive has largely receded but regional nations continue to be heavily reliant on expatriates as more experienced and less costly labour.

In another study, the GCC’s private sector itself said it expected member states to hire more foreign workers in the future because of higher growth rates.

Given their heavy reliance on expatriate workers, the GCC countries should prepare for such growth by taking measures to regulate the movement of foreign labour within them, the Saudi-based Federation of the GCC Chambers of Commerce and Industry (FGCCI) said early this year.

The report expected flow of foreign direct investment into the GCC to pick up from around $48 billion in 2009 to $64.4 billion in 2010 and $81.3 billion in 2011. It projected private capital to swell from around $50.7 billion to $55.9 billion and nearly $68 billion in the same period.

“The job market requirements in the GCC states are projected to record sharp growth in the coming years due to an expected expansion in the regional economies……..demand for qualified labour, whether nationals or expatriates, will largely increase,” it said.

“At the same time, pressure from international labour groups will gain momentum and this should prompt regional nations to adopt flexible laws and regulations that will take into consideration the interests of all parties and meet the demands of their membership in the World Trade Organization.”

GCC states have often been urged to support the private sector as their only means to absorb the rapid rise in national job-seekers on the grounds the public sector has become saturated and is not growing enough. Another reason is that the private sector is dominated by expatriates given the preference by nationals of government jobs for more attractive financial benefits.

According to a joint study by National Bank of Kuwait and International Bank of Qatar, the number of national employees in the pubic sector stood at nearly 50 per cent of the total work force in Saudi Arabia and as high as 88 per cent in Qatar, 85 per cent in the UAE and 82 per cent in Kuwait.

“The GCC countries face two serious challenges in the coming decade…they include their ability to create enough jobs for their people and the possibility of the return of large deficits to their budgets,” it said.

“The public sector is expected to have a limited capacity to absorb new employees and its ability could weaken further in the future as it has become saturated and a possible drop in oil prices could curb high public spending and push the budgets of member states into shortfalls again.”

The study said such challenges should prompt the GCC to take measures to encourage the private sector to absorb millions of nationals.

“The GCC countries must allow the private sector to play a bigger role in the domestic economy with the aim of creating sufficient jobs for nationals…it also should be enabled to become the main provider of public services instead of the government…to do so, GCC governments must adopt policies that will facilitate the expansion of the private sector and remove unnecessary barriers for investors…despite some progress in this regard, a lot more needs to be done.”