Why the gulf will always need migrants?

Published on 10th Oct, Edition 41, 2016

 

Forecast

– Slumping remittances will rebound from the Gulf to the developing world when oil markets stabilize and Gulf diversification plans pan out.
– As part of their nationalization initiatives, Gulf States will edge out some highly skilled expatriates in favor of citizens.
– Since the burden of taxation will fall on expatriates, Gulf States will have to rely on public relations to maintain migrant flows.

Analysis

The recent collapse in oil prices has made the six members of the Gulf Cooperation Council painfully aware of the risk of making such a volatile commodity as the foundation of their wealth. Now, leveraging their existing wealth for diversification requires unpopular measures that may upset the present political order. The resulting transition will also take more labor, since workers will be needed for massive infrastructure and construction projects and to staff growing tourism, financial and retail sectors. Historically, Gulf state locals prefer public sector jobs over jobs in private sector.

Remittances rebound

The slump in remittances sent back to the developing world over the past year and a half has somewhat disturbed the macro-economies in South and Southeast Asia. But this trend probably will not last for long as funds are projected to rise again in 2016 and 2017. Low oil prices are what drove remittances down in 2015, however, subsequent global oil market’s recovery will lead to their resurgence — particularly in the Gulf region.

Presently, the Gulf States have postponed some of their projects during the economic slowdown by drawing down reserves and tapping international capital markets. Once the oil market rebounds, Gulf States will move beyond its over reliance on oil to quickly boost their public spending. As the oil market recovers over time, the Gulf region will expand its workforce to take advantage of the more favorable economic climate.

Meanwhile, expatriate employment will remain steady — and in some cases, even rise — in construction, retail, transportation, services and tourism sector. Locals are less interested in filling these roles and consequently are not being trained for them. In addition, the new projects and sectors targeted for growth by governments’ diversification initiatives will raise demand for higher-paid expatriate employees to act as executives, managers and consultants.

 

However, in sectors such as telecommunications, banking and engineering, foreign workers will be replaced by locals. Such localization initiatives have been ongoing for the past decade, albeit on a small scale, and they will continue without substantially lowering the number of foreign-born workers employed in the Gulf. In fact, Saudi Arabia’s gender, labor and social development minister clarified in early June that despite the emphasis on employing locals in the kingdom’s new Vision 2030 plan, Riyadh does not consider reducing the number of foreign workers within its borders a goal. Saudi Arabia, being the second-largest source of remittances in the world faces the biggest challenge among the Gulf States in striking a balance between its burgeoning youth population and its insistence on retaining high levels of foreign labor.

Migrant burdens

Apart from good news for skilled workers in the Gulf, there is a downside as well. The Gulf States are considering income tax for foreign residents. Induction of locals will change the composition of workforce as they demand higher salaries as a result of which companies will have to cut wages, which will largely impact migrants. The effects of the taxes will dissuade some expatriates from working in the Gulf, which may result in small-scale ‘expat flight’.

To deal with this possible ‘expat flight’, Gulf States, in an effort to continue attracting the skilled workforce they need, have made certain cosmetic changes which includes proposed changes in Kafala Labor Laws and salary hikes for expats to justify proposed remittance taxes.Of the Gulf States, Saudi Arabia will face the greatest labor-related challenges in the coming years as it tries to project a positive image of its labor market abroad. The kingdom is facing unique roadblocks as it has the largest population comprising of young Saudis who have low productivity levels meaning laws that encourage their employment over foreign workers are an economic burden.

While the Gulf labor market is transforming through taxation and nationalization, a string of one-off projects and events intended to create jobs, including FIFA World Cup 2022 in Qatar, Expo 2020 in Dubai and Saudi expansion plans in Makkah have been announced that will still require a steady stream of foreign labor.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan