Jun 02 2011
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PGCC Reliance on Expat Labor
Although Saudi Arabia is planning to enforce a partial six-year limit on the stay of expatriates in some of its firms to tackle festering unemployment, a similar move is unlikely in the UAE and other high-income members of the six-nation Persian Gulf Cooperation Council (PGCC) given their low jobless rates, Emirates 24/7 wrote.
The six-year limit announced by Saudi Labor Minister Adel Faqih on Monday sent brief shivers across the large foreign community in neighboring countries. However, 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 to Emirates 24/7, many expatriates in the UAE voiced concern that the Saudi decision could spread to other PGCC 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 labor minister "yellow and red" companies.
Those which support the program 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, the 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."
For those PGCC 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 it does, it will not change the labor market structure and dependence on expat labor ... Such policies are misdirected."
Clarifying the labor 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 program 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 labor 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.
In a recent study, a prominent global organization said it expected the PGCC nations to seek more foreign labor because of the sustained growth in their economies and lack of skilled national manpower.
The Swiss-based International Organization for Migration (IOM) estimated that more than 16 million expatriates live in the PGCC, an increase of nearly 20 percent over their number in 2005.
"The high growth in foreign labor in the PGCC 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 labor 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 PGCC, 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 Main Community
Asians, mainly from India, Pakistan, Bangladesh, Afghanistan, Sri Lanka, Indonesia and the Philippines account for more than half the expatriate community in the PGCC, which controls over 40 percent of the world's recoverable oil wealth and a quarter of the global gas resources.
Foreigners began streaming into the Persian 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 labor.
In another study, the PGCC'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 PGCC countries should prepare for such growth by taking measures to regulate the movement of foreign labor within them, the Saudi-based Federation of the PGCC Chambers of Commerce and Industry said early this year.
The report expected the flow of foreign direct investment into the PGCC to pick up from $64.4 billion in 2010 to $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 PGCC states are projected to record sharp growth in the coming years due to an expected expansion in the regional economies ... Demand for qualified labor, whether nationals or expatriates, will largely increase," it said.
"At the same time, pressure from international labor 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."
Private Sector Role
PGCC 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 percent of the total workforce in Saudi Arabia and as high as 88 percent in Qatar, 85 percent in the UAE and 82 percent in Kuwait.
"The PGCC 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.
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