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The exodus of expats and foreign workers in the Gulf

Authors: Hu Si Ying, Nicholas Tan

Region Head: Hu Si Ying

Editor: Praharsh Mehrotra

Illustration by Chen Hsuan Ju


Abstract


In this article, we explore the importance of migrant workers (expats and laborers) to the economies of the Gulf Cooperation Council (GCC), focusing on Dubai and Kuwait. We examine how the Covid-19 crisis has exacerbated the exodus of foreigners and how this would pose a threat to Dubai and Kuwait’s economies, which have already been hit by falling oil prices and the Covid-19 crisis. Finally, we discuss what Dubai and Kuwait can do to overcome their economic challenges when faced with the flight of expatriates.

The Reliance on Foreign Labor in the Gulf


Gulf countries have been symbols of globalisation and metropolitism, with towering skyscrapers such as the Burj Khalifa to the likes of the Palm Islands. These infrastructures have been made possible through the efforts of foreign nationals who make up the majority of the population in the Gulf. For reference, foreign nationals account for about 87.4% of the total population in the UAE in 2016, while making up 69.8% and 87.3% of the total population in Kuwait and Qatar respectively in 2018 (GLMM, 2018). Majority of the foreign nationals work in the private sector, with employment opportunities that attract low to high skilled workers. As such, the Gulf has long been heavily reliant on migrant workers to sustain economic growth. Economic contractions and the Covid-19 situation have been causing expats to leave GCCs. However, it is important to note that in Dubai’s case, expats have been leaving for their home country on their own accord while in Kuwait, most expats have been forced to leave due to nationalistic government policies.

The Exodus of Migrant Workers in 2020

In Dubai, Covid-19 has taken its toll on the region’s important economic sectors, such as tourism and transportation. When surveyed in April 2020, roughly 74% of tourism and travel businesses, and 30% of transport and storage businesses were expected to shut down within 6 months. Facing uncertainty as consumer demand is brought to a standstill, many firms are either reducing headcounts or cutting pays. (Turak, 2020). Figure 1 below shows the percentage of expected temporary or permanent layoffs in the private sector in July 2020, and it is evident that the expected proportion is higher in the UAE compared to other countries. This is particularly bad for migrant workers, not just because they make up the majority of the workforce, but also because foreign nationals are unable to obtain citizenship in the Gulf states, thus making them ineligible for any form of government support. This leaves expats who lost their job, or unable to cope with an economic crisis in an expensive city with no choice but to leave (Staff, 2020).

Whereas in Kuwait, “kuwaitization” has been a common term echoed by citizens and the government with intentions to make Kuwait less reliant on foregin labour and reserve jobs for Kuwaitis. This has resulted in a government policy in 2018 that retrenched 50 000 expats holding government jobs (Desk, 2020). The double whammy of low oil price and Covid-19 situation has exacerbated such sentiments - with a large inclination to provide jobs for Kuwaiti. In recent months, a bill has been passed to impose a quota on the number of expats in the country, with the aim of reducing the proportion of expats from 70% of the population to 30% (Clarance, 2020). This shows how migrants workers have to bore the brunt of economic crises, as they are being kicked out to make room for nationals, as the government cannot afford to pay them welfare due to low oil revenues (The Arab Weekly, 2020).



(Figure 1: Expected temporary furloughs and layoffs in July 2020. Source: PwC, COVID-19 CFO Pulse)

Implications on Dubai’s and Kuwait’s economy


Dubai, like other Gulf regions, has already been experiencing an economic slowdown prior to Covid-19. Some of its important industries, such as real estate and hospitality, faced falling revenues in the past few years. In 2019, its economic growth was a mere 1.94%, the slowest since 2009 (Turak, 2020). Dubai’s economy has been reducing its oil dependence and diversifying into other areas like real estate, retail and recreation, and the flight of migrant workers means that they are taking consumption power away as they leave, which further drives down demand and dampens business revenues. Considering the fact that 24% of foreign workers are employed in managerial and professional positions who possess higher spending power (De Bel-Air, 2015). Their repatriation would make it harder for Dubai’s economy to bounce back from the sufferings it had from Covid-19.

With the Kuwaiti government set on implementing expat quotas, this causes a significant fall in human capital in their domestic economy. Kuwaitis have all along been attracted to government service jobs, and the majority of the private sector are being runned by expats. Such policies coupled with Kuwaiti’s lack of interests in such sectors, could result in potential labor supply shortages. In particular, wholesale and retail trade as well as construction where foreign expats make up a large proportion (De Bel-Air, 2013). This is particularly significant as the wholesale trade industry is vital for an economy to be runned smoothly. This is further echoed by Dungey and Volkov (2018), who view that “if stores cannot source or transport goods they cannot be distributed to their consumers. If manufacturers cannot transport products then they cannot sell their output and hence remain in business”. With the outflow of talent, this could lead to supply bottlenecks and economic activities could be disrupted.

Recommendations


Overall, if GCC states like Kuwait were to embark on nationalistic goals such as quotas that restrict the number of foreign workers, they would have to put in place measures to counteract the labor supply shortages in the areas where expats were displaced. The demographics of migrant workers in GCC constitutes mainly in the retail and wholesale trade industry as well as private households (De Bel-Air, 2013). Hence, it is imperative that they have plans to train their citizens in the areas of wholesale trading, warehouse facilities et.c as they are vital for continued productivity growth (Nordhaus, 2002). Since the fundamental cause of reliance on foreign workers in such industries is due to the inclination of locals towards governmental jobs, it is perhaps wise for the government by being more involved in the running of logistic companies directly instead of letting it be runned privately. This could redirect local talent towards these industries indirectly and help further facilitate future developments such as the Kuwait 2035 vision of being a commercial and trade hub (Kuwait Vision 2035, n.d.).

While low skilled labor are repatriated to provide jobs for nationals, the departure of skilled professionals remains concerning and needs to be addressed. Many of the GCC states have long-term economic development strategies also known as ‘Visions’ and to the extent that these ‘Visions’ can be executed successfully, high-skilled professionals are needed (Siddiqui, 2020). Take Dubai for example, it aims to develop a ‘competitive knowledge economy’ as part of UAE Vision 2021 (Economy, n.d.). Such large scale economic policies cannot be implemented without enough qualified personnels. As such, Gulf states have to find ways to incentivize middle to high income expats to stay or attract them back. This might be the time to re-evaluate their immigration policies and introduce legislation to make it easier for middle to high skilled workers to obtain permanent residency, which could grant them better rights and government aid when it is crucial.

Conclusion

Whether the Gulf economies can pick themselves up from this economic contraction would depend on when oil prices rebound and the Covid-19 crisis subdues. In the meantime, the exodus of expats can leave behind gaps in the labor force that can result in serious consequences to the GCCs. It is important that the Gulf governments employ a basket of complementary policies - put in place measures to fill in labor shortages as foreign workers are repatriated by will or not. The training and reallocation of locals to the private sector remains a challenge for the Gulf governments if they want to reduce heavy reliance on foreign workers in the future.


References

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