We can work it out: the future for the GCC’s labour markets

Reuters/Amr Alfiky

• Mena employers are going on another oil-fuelled recruitment spree
• They now have to grapple with governments’ labour reforms
• New laws cover the hiring and treatment of Gulf nationals and migrants

“Help wanted” signs are going up all over the Gulf as employers seek to expand their workforces and attract migrant labourers. This hiring spree is not the kind of free-for-all seen in previous oil booms, however.

In Saudi Arabia, for example, overseas workers make up more than 70 percent of the labour market, but their entry and employment terms are now carefully monitored under the Nitaqat “labour localisation” programme.

It aims to address a concern common to all Gulf states: the employment status of citizens.

Across the GCC, foreign hires make up more than 50 percent of the total workforce, but this cheap source of labour comes at the expense of rising numbers of jobless or underemployed citizens.

Traditionally, Gulf nationals have worked in the public sector while migrants have dominated private business – but rapid population growth in the region is making this system unworkable. 

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As the London-based Serco Institute pointed out in a September report: “With half a million young Saudis entering the labour market annually, and two-thirds of the population aged under 35, it is clear the government cannot sustainably continue to employ all Saudis.”

So, the pressure is building on the private sector to provide more jobs for citizens. Most Gulf states have had labour localisation policies for decades, but they have often been characterised as crude or heavy-handed.

Private employers complained that the quotas of the 1990s placed burdens on companies in terms of recruitment and training costs, while also threatening fines for non-compliance. 

“We had to hire [Saudis] but couldn’t fire them, and many we did hire didn’t want to be there,” said a retired US executive who was a senior manager in Riyadh in the early 2000s – a period when many private companies struggled to meet a 30 percent “Saudisation” target. “It was frustrating for everyone.” 

Employers say the authorities have since refined the Nitaqat system, adopting a more nuanced approach that prioritises certain sectors for Saudisation. Under a July 2020 directive, for example, all foreign pharmacists are to be replaced gradually by nationals.

Similar targeted approaches have been adopted by other Gulf states, although some reforms still veer towards the punitive. In 2020, Kuwait’s National Assembly passed a draft bill imposing quotas on expat hires, while Oman’s Labour Ministry raised its structure of fees for various types of foreign worker.  

Bahraini MPs voted in November 2021 to form a committee to oversee the nationalisation of five sectors. Expat contracts for government work were also capped at two years.

However, targets to reduce dependence on foreign workers and allocate jobs for locals can be hard to achieve without compromising the health of the labour market. Labour localisation rules appear to undercut the very qualities – such as tax-free status and a light regulatory environment – that have attracted foreign companies to the Gulf.

Kafala, the Gulf “work sponsor” system that gives companies extensive control over their migrant employees, has been heavily criticised by human rights groups for legitimising indentured labour and enabling the abuse of workers, particularly those in construction and domestic services. But it still operates in many parts of the region.

“Reform remains elusive as powerful private sector employers stand to profit from cheap imported labour,” said the Wilson Center, a Washington think tank, in June.

“Yet mounting criticism over unfair practices is forcing authorities to make difficult policy decisions regarding the future of [their] workforce.”

Dubai has seen two exoduses of skilled employees in recent years: after its 2009 debt crisis and during the coronavirus pandemic. Governments in the region drew interesting conclusions from those experiences – not least that kafala systems can dent economies.

According to the International Labour Organisation of the United Nations, reduced labour mobility – because kafala workers typically need their bosses’ permission to leave – leads to poor productivity and reduced inward investment.

Gulf states are now more minded to mollify employers while also taking steps to improve employees’ rights. Emergency legislation passed by the UAE in 2020 allowed private firms struggling in the pandemic to fire non-national staff, but also enabled workers to negotiate paid or unpaid leave. 

In Qatar, the International Labour Organisation has been working with the government since 2018 to reform its kafala system in the run-up to the World Cup. In March 2021, Qatar introduced a minimum wage of QR1,000 ($275) a month for private-sector workers regardless of nationality.

The growing understanding that private companies will have to shoulder the burden of employment for Gulf nationals is likely to improve labour standards across the board.

For their part, private employers have to accept that the days of cheap labour and lax regulation are numbered. But other incentives remain: foreigners can now invest in UAE businesses and real estate, while overseas investors have been able to own companies outright since June last year.

The number of workers heading for the Gulf may be lower, but tax-free salaries – and the promise of better protections to come – will continue to be a lure.

Labour localisation across the six members of the GCC

1 Bahrain

Bahrain is one of the few Gulf states in which it is not uncommon to see nationals driving taxis or stacking supermarket shelves.

Leading employers such as the Bapco oil refining company and aluminium producer Alba have “Bahrainisation” rates approaching 90 percent, with many recruits coming from poorer Shia communities. 

Bahrain’s Labour Market Regulatory Authority sets localisation targets based on a list of more than 1,000 professions, ranging from childcare (60 percent) to sewage and refuse disposal (20 percent). Quotas may also vary on the basis of company size. Each business is prescribed a maximum allocation of work visas.

Five sectors – media, law, Sharia (religious), dentistry and sociology – were prioritised recently for local graduate recruitment.

2 Kuwait

Of a population of about 4.8 million people, as many as 3.4 million are foreigners. A broad target of 20 percent nationalisation has been set for the private sector by the end of 2025. Levies on work visas were introduced this year.

However, a mass exodus of workers from vital industries during the pandemic has made the government reluctant to legislate too heavily against migrant labour, with authorities watching Saudi Arabia’s Nitaqat programme for results.

3 Oman

A shake-up of the labour market in 2021 involved raising fees for higher-paid non-Omani workers. Sectors including higher education have been prioritised for Omanis, with visas for foreigners in areas such as university administration and finance no longer being replaced when they expire.

The number of foreign workers in Oman began falling for the first time in 2018, with a pronounced drop in 2020 because of coronavirus. As in other Gulf states, it is hard to separate the effects of Omanisation from those of the pandemic. 

4 Qatar

Qatar’s tiny non-expat population has grown at a far more modest rate than those of its neighbours, placing less pressure on the authorities to find jobs for nationals. Even so, the government has imposed a 50 percent Qatarisation target on the vital energy sector.

The actual figure achieved is thought to be closer to a third. High education levels among Qataris – notably women, who are twice as likely as men to be university-educated – means there is strong potential for increasing the proportion of local hires in many high-paying sectors. 

5 Saudi Arabia

Under the Nitaqat programme, Saudisation efforts are now focused on specific professions such as legal and retail services, where national statistics show high numbers of Saudi graduates in relevant subjects. Authorities are also investing heavily in vocational training for specific jobs such as electrical engineering and plumbing.

Saudisation quotas typically range up to 70 percent for the private sector – and as much as 100 percent for certain jobs – with adjustment periods tailored to specific companies. Minimum wages have also been introduced for most occupations.

Companies are graded according to their recruitment policies, which affects their access to incentives such as state subsidies or visas. A company that recruits and trains a high proportion of Saudi citizens may acquire coveted “platinum” status when bidding for government contracts.

6 UAE

Employment legislation remains relatively light. Companies with more than 50 employees have until January 2023 to meet a 2 percent Emiratisation target, in order to avoid paying monthly fees.

The requirement fits into a broader $6.5 billion “young talent” programme to employ 75,000 Emiratis in the private sector in the five years to 2026. The aim is for nationals to hold 10 percent of private sector jobs by the end of that period.