Keep it in the family

Localisation of the private sector work force in the Gulf is the new buzz idea, but is it reality or just for show?

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By  John Irish Published  July 1, 2003

|~||~||~|In recent months, the region’s press has carried news story after news story on plans by respective Gulf governments to nationalise their workforces. In the UAE, the Ministry of Labour and Social Affairs suggested a Dhs8.50 levy on foreign nationals each month to create a fund for local labour development. In Saudi Arabia, authorities declared that operating licences for new taxi firms seeking foreign manpower would not be granted.

In Oman the situation is no different. The government announced that all cashiers, drivers, security officers and retail industry workers would be localised by the end of this year. Even gas-rich nation Qatar has got in the act, as the Doha-Ritz Carlton formed a Qatarisaration council aimed at introducing local citizens to the hotel industry.

But are initiatives to introduce a comprehensive ‘Gulfisation’ strategy realistic, and if so how will the area’s nations succeed in a achieving their goals?

Expatriates represent as much as a third of the 30 million Gulf population, according to the World Bank. Additionally, with unemployment ranging between 5-25% in certain Gulf states and a mindset similar to post-war Europe, where guest workers were expected to carry out low skilled labour, the road ahead appears to be bumpy. The need for change in many ways stems from the region’s greatest success, oil.

While the oil boom of the late 1970s and 1980s had a positive effect on the economy, it paradoxically had a negative effect in forcing Gulf nations to rely on an international labour force. Much like the situation in France, Germany and the UK in the 1960s, the Gulf brought in a workforce to plug the gaps without really considering future repercussions.

Additionally, rather than growing over time, GNP (Gross National Product) doubled, quadrupled or even increased tenfold over a 5-10 year period. As a consequence a skilled workforce was imported, because local labour could not adapt fast enough.

“The discrepancy is between the need for economic development, as motivated by the wealth of the oil, on the one hand, and the limited human resources capacity in number on the other hand,” says Aboubakr Al Badawi, vocational training advisor for the International Labour Organisation (ILO).

While Gulf Arabs have now grown accustomed to the luxuries of an expatriate workforce, since the oil boom of the 1970s, the economic outlook has taken a turn for the worse.

According to the Arab Human Development Report, published by the United Nations Development Programme in 2002, the Arab world has achieved an average GDP growth of 3.3% over the period 1975-1998.
However, as population growth grew on average by 2.8% over the last quarter of a century, it has meant that that the real per capita income growth during this period has been much smaller, averaging 0.5% per annum.

Gulf countries, which for many years were considered the economic success story of the Middle East, saw the greatest deterioration. Their GDP, which grew at a rate of 3% between 1975-1980 declined by 4.4% annually between 1980-1990 and remained negative at -1.7% between 1990-1998.
Private Sector: friend or foe?

For localisation to succeed, the different nature of the Gulf states needs to be taken into account. On the one hand, Oman and Bahrain, which have initiated comprehensive plans to nationalise their workforce, are ahead of the rest, because economic circumstances dictated that they were forced to change early on. In the second bracket Saudi Arabia, stands alone, unsure exactly how to proceed with reforming internally at all levels.

The third category, Qatar, Kuwait and the UAE, are more half hearted partly due to population size, and partly due to larger oil and gas reserves. The simple demographics of a place like Dubai, where there are more expatriates than nationals, means that localisation will always be a project on the side.

“I found that people in the UAE don’t worry about it. When you talk about future percentages they have said that the labour force will [always] be a majority of foreigners. It’s not as if they want or expect to get rid of them all, they expect to reduce it from 90% to75%, not much more than that, partly because they can afford to hire foreign labour,” says William Rugh, former US Ambassador to the UAE.

“It’s partly a matter of the prestige that goes with skilled labour jobs, rather than manual labour jobs. As long as the foreign workforce behaves itself politically, they are happy to continue with it.”

Nevertheless, as long as stereotypes about the quality and dedication of the national work force continues in the private sector, the less it will appeal to nationals. While the public sector has in many ways offered nationals healthy remuneration packages, in the private sector employers are not willing to provide local workers with the same conditions, implying that the value of local workers is lower than that of expatriates.

According to Beshr Bakheet, managing partner of Bakheet Financial Advisors, one reason for the Saudi unemployment problem is a type of reversed racism where some parts of the expatriate community are apprehensive of hiring locals for fear of eventually losing their own jobs. The more locals, who fill the private sector, the harder it will be to hire from within the expatriate communities and the easier it will be to phase expatriates out.

One way of avoiding this sort of practice is to follow the sort of simple visa procedures that are adopted for foreign labour across Europe and the US. By introducing legislation where work visas for non-locals are granted only when there is nobody within the country that can carry out the job, it would ultimately ease the introduction of quotas of nationals on companies.

But the question of quotas is a tricky one. While it appears to resolve immediate short-term unemployment problems, the danger is that if they are enforced too quickly it will antagonise the private sector.

Lucy Hodgson, training manager at Le Meridien Al Aqah resort in Fujairah claims that at this stage it is too early to impose quotas as countries are still training the local work force to sufficient standards that would enable them to fill any future quotas. “When a quota does come in, it will have to be phased in over a number of years, to allow the educational institutions and the employers time to prepare,” asserts Hodgson.

Enforcing quotas has two consequences. Firstly, private sector employers cynically hire locals to fill the gap, but do not consider them part of the workforce, because, as Rugh explains, “They don’t expect to get much out of a Saudi.” Secondly, as seen recently in Saudi Arabia, when the Saudi Ministry of Transport decided to introduce quotas on taxi and limousine firms, more than 170 firms faced closure because they were unable to convince Saudis to work as drivers.

As Badawi from the ILO explains, intervention in the private sector is a dangerous way of going about things, “You should solve the problem of unemployment through enhancing and developing the economy,” he says. “If you force people in the private sector, the private sector may find it less or of no benefit to them so it should be taken in an economic context rather than a social context.”

In Bahrain, where unemployment is circling at around 15%, some job seekers are keen to lay the blame firmly at the hands of expatriates for taking their jobs. While on the one hand, they call for Bahrainisation, Maysoon Sabkar, manager at the strategic planning unit for the Bahrain Economic Development Board, points out that they fail to demand improved education, school to job transition programmes and the required work experience programmes that would make them suitable candidates.

In essence, it is difficult for governments to introduce quotas, when candidates are not as qualified as many expatriates. Rather than quotas, Sabkar suggests creating an environment where expatriates and locals alike are treated on an equal basis.

A huge gap exists in white-collar jobs between salaries paid to expat workers and salaries paid to local workers. Local workers need to be shown that they are a valuable commodity - if not more valuable than expats, then at least as valuable. The emphasis should be on ensuring justified and equitable practices in employment,” she says.

An alternative to imposing direct national quotas is the idea of introducing a ‘reward’ system to encourage private sector companies to hire locals. By offering incentives such as tax breaks or financial rewards to those that hire nationals or fines to companies that fail to achieve certain criteria, it could work to encourage employers. As long as quotas are not ridiculous and are combined with systematic training programmes, then companies that have higher quotas of nationals could eventually be awarded government contracts.
Careful calculation

Developing labour reforms in the GCC will not be easy. Many of the current codes that have developed over the last 30 years are directed solely at expatriates. As a result, fundamental changes in basic rights such as annual leave, working hours, minimum wage and health insurance need to be harmonised with other sectors such as petroleum and government.

By doing this, there’s a greater likelihood that the private sector will be competitive enough to attract a local workforce. However, on the flip side, reforms should ensure that companies are not held to ransom for hiring nationals.

“Employers should have the right to hire and fire both local and expat workers, and a minimum wage, if implemented, should be set at the same level for both locals and expatriates. If the end goal is to become an efficient, growing economy that competes in a globalised world economy, then workers should be rewarded and penalised for their actual productivity, regardless of their nationality,” explains Sabkor.

Several factors need to be considered when introducing labour reform. The mindset is the number one priority. In Saudi Arabia for example, the number of non-Saudis has grown to around 7 million, yet unemployment rates, according to economists, could be as high as 31% amongst Saudis. This paradox has often led to accusations that Saudis and other Gulf nationals are unenthusiastic, although Beshr Bakheet believes it is unreasonable to expect attitudes to low skilled work to change overnight.Reforms, must aim at introducing training programmes whereby the average citizen regards different kinds of work as respectable.

In western societies, money makes the difference. If we take plumbers and electricians, for example, while considered semi-skilled in the Gulf, in the west, because these professions make a lot of money, the jobs gain respect. “In the Gulf, where you have a welfare economy, where everything is provided free, health and education, even housing - that undermines the ability to raise the prestige of a job through pay, so reforms must take that into account,” says Amabassador Rugh.

Additionally, the public sector is the main recruiter of nationals. These jobs have been easier to handle with fewer working hours, but with increased privatisation and a fall in national income throughout the region, the public sector is saturated and the private sector the only recourse for nationals. The demands on an employee in the private sector, where longer hours, different structures and less security are intrinsic to the job, must be taken into consideration when reforming.

If we take the example of Bahrain and Oman, where nationalisation has worked to a certain degree, we see that this is linked with a change in economic circumstance. Firstly, from the outset, the percentages of nationals in the labour market were higher than other GCC countries. Coupled with this, in Bahrain revenue from oil refining is drying up, while in Oman oil production has traditionally been low.

These two economies forced nationals to look for jobs outside the public sector from an early age. According to the ILO’s Badawi, this has led to a change in behaviour of nationals, who have realised that the government is unable to mollycoddle them through the system.
Badawi believes that attracting locals into higher skilled jobs is equally as important as making low skilled work more attractive. One way of doing this, he says, is to encourage the high tech economy. Although this creates less working opportunities, it will create higher salaries and better working conditions.

“If the economy moves to a high tech economy then the percentage of expatriates will decrease normally. Those who are [then] working in lower skilled jobs will also be nationals because they will not be serving expatriates. They will be serving their own.”

Ultimately, the decision to nationalise across the region will continue to be a challenge. At this stage Oman and Bahrain stand out as the shining examples. But even in these two countries we could be looking at around the 40-50% nationalisation mark. Yes, countries are considering nationalisation, but are they doing more than paying lip service to the issue?

In Qatar and Kuwait, the necessity to nationalise the workforce isn’t as pressing as in the rest off the Gulf. In Saudi Arabia, where unemployment is steadily growing, the government announced plans that for every 12 metre long fishing boat there must be one Saudi.
How can people take this subject seriously when projects like this skirt around real change? Additionally, where are official unemployment rates? If countries are serious about nationalising their workforce, then they must have a benchmark, a target, before they can put together a strategy.

Until then, plans must look at opening up more opportunities for women as well as enhancing training and education systems so that people are more skill orientated rather than certificate orientated.
Likewise raising national awareness about work, revitalising work ethics and values are imperative. Only in this multi-faceted approach will a more successful nationalisation programme prosper, rather than the current half-hearted measures. ||**||

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