“In Saudi Arabia for example, the foreign labour force is rapidly shrinking, meaning expats are leaving …we’re seeing the same thing happening in Bahrain and Oman as well,” he added.
The public sector wage bill occupies a large, if not the largest, part of total public spending in some of the GCC countries and in some cases, exceeds half of the total spending, according to Elbadri.
“In countries like Kuwait, with oil prices lower than historical averages, this will restrict government’s ability to expand public sector. This may be worse for countries with fairly sizable youth population. For example, Saudi Arabia’s youth population exceeds a third of the total population,” he said.
“If the government is unable to take in the youth, this could potentially lead to a feeling of marginalisation, so they will probably rely more on the private sector to absorb more of the youth into the labour force… But some GCC states will be under more pressure to generate private sector jobs than others,” he added.
Progress on implementation of labour force nationalisation has been mixed across the Gulf. While countries like Oman and Saudi Arabia are hiking expat fees and implementing foreign hiring bands, the UAE and Qatar have started offering 10-year residency permits for select expats, which underpins the core narrative that some countries will pursue stricter policies than others, according to Fitch Solutions.
Last month, the UAE issued 10 resolutions to provide 20,000 jobs to its nationals across several sectors over the next three years. Read more here:
Earlier in May, the UAE launched the permanent residency system for investors and exceptionally skilled foreigners. Read more here:
This followed the approval of the Saudi Cabinet for granting ‘green card’-style visas for highly-skilled foreigners and owners of capital funds. Read more here:
However, Fitch Solutions expects implementation of labor force nationalisation to be flexible across the GCC, in that “should it prove damaging to the non-oil economy or fail to attract public support, the authorities will likely backtrack on some measures,” according to Elbadri.
In Saudi Arabia, for example, earlier this year, the government introduced $3.1 billion compensation scheme for firms that found it difficult to comply with expat fee hike. Saudi authorities also announced recently that they will bear expat fees’ costs in the industrial sector over the next five years. Read more here:
“This leads into another core argument, which is that we are more likely see a targeted approach in the next two years,” Elbadri said.
He pointed out that with oil prices under pressure, labour force policies will remain a key policy dilemma for governments on multiple fronts, ranging from diversification efforts to shift in the social model to foreign investment inflows.
“Today expats occupy somewhere between third and 90 percent of population. Industries such as manufacturing, retail, trade and construction have become heavily reliant on expats,” he said.
Meanwhile, a substantial public-private wage gap will incentivise nationals to prefer government jobs that offer better benefits, which will limit the progress of labour market reform.
“As for the GCC economic model and social contract, the state offers generous wages and benefits as part of public sector employment, leaving less well-paid private sector jobs for expats,” he said.
(Writing by Nada Al Rifai email@example.com, editing by Anoop Menon)
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