Can Gulf Governments Reduce Dependency On Expats?

Getting the right balance between expatriate workers and the local minority has long been a struggle for many Gulf governments.

Saudi Arabia has already introduced strict Saudisation policies and issued an amnesty to reduce the number of illegal workers in the kingdom.

And last month, it announced it is considering fixing the minimum wage for both Saudis and expats in the private sector in 2015, with for a minimum wage for locals set at SAR5,300 ($1,412) and expats at SAR2,500. The Labour Ministry said it aims to make the private sector more appealing to Saudis and boost the process of job nationalisation.

Similarly, Oman and Kuwait are actively looking at ways to reduce their dependency on cheaper foreign labour and encourage more nationals into the private sector.

As part of the discussion, two interesting reports sparked a lot of debate online. According to the Robert Half 2015 Salary Guide, the UAE employment market continues to thrive and demand for specialist occupations far outweighs supply, resulting in talent shortages across the region.

At the same time, a government report found that Qatari nationals work less than half the amount of time expats spend earning money in an average day. The report found Qataris work two hours and 52 minutes a day, compared to six hours and 42 minutes for non-nationals, according to the country’s first Time Use survey, by the Ministry of Development, Planning and Statistics.

In the midst of this, we asked a number of experts whether it really is possible for Gulf governments to reduce their long held dependency on expat workers and still maintain the growth levels and development schedules they have enjoyed up until now.

It has long been mooted in many emerging markets and countries on how to find a balance within the workforce between expats and local employees. With over 150,000 British workers leaving the UK each year and an estimated 1.28 million UK expats and over 6.5 million Americans currently choosing to ply their trade outside their home countries, it’s no wonder emerging countries have a talent pool rich with knowledge to choose from.

But are they here for a working holiday and tax-free salaries or are they here to grow their careers and add to the economy/culture? Before answering this question we need to ask if there is enough local talent coming through to take over from the many expats currently in highly skilled positions.

This is an evolution of the GCC which isn’t limited to just the Gulf: Australia and parts of Asia have struggled in getting the right balance between expats and good solid working cultures. Australia made a very interesting stand in 2012 when they abolished Living Away From Home Allowance (LAFHA), which had a major impact on expats living in Australia. 

Many had taken leases based on the huge tax break each month which was given as part of the LAFHA programme, this was taken away within two months and collapsed parts of the rental market resulting in many expats leaving the country. The stand point is true across the globe and that is if you want to come to a country which offers excellent employment opportunities and salaries then you come to add to the economy and be part of the culture.

Here’s the problem: How do you grow at such a pace but keep a solid local culture in the workforce that is balanced and fair? There is no simple answer to this but a good starting point would be the hiring strategy of all companies from multinationals to SMEs with the focus been firmly on creating a long-term culture. Granted, the attraction in the past for expats was the wonderful weather and tax benefits offered by countries like Dubai, Australia and Asia. 

However, I believe we will see more competition for places from the local market due to the investment in education and training in recent years but the real focus should be on career professionals in the GCC rather than the candidates who pass through for financial gain. I do believe we will see a tax come into effect in the next ten years which will again shake more working holiday makers from Gulf states but I don’t see this anytime soon.

Unfortunately the answer to whether we can reduce dependency on expats starts with yes, but… we have to go back a few steps to see what is actually going on. Various GCC governments are trying to address this issue through a number of tactics, from having quotas to banning expatriates from driving and everything in between. These schemes are very tactical and short-lived in their nature, as has been observed in many countries in Africa and Asia.

Localisation of key roles has created active conversations all over the Gulf, and rightly so. This, however, will only truly happen if there is responsibility and accountability from both parties (ie) employers and employees to want to go beyond lip service.

The only way expatriates can be reduced is by having a holistic approach and total commitment to a multi-pronged long-term strategy to ensure sustainability. Some thoughts include: Firstly, strengthening the foundations of education from junior school through to university with an aim to build indigenous leaders at grassroots level with a strong work ethic.

Next, employers (both private and public) must work on building strong local talent succession pipelines and implement performance management procedures that actively manage employees through.

Thirdly, develop local talent through executive education programmes to be better leaders than their predecessors but, most importantly, make them accountable for their learning.

Lastly, revisit incentives as part of the broader strategy. If we are incentivising employees to do their jobs there is a fundamental issue. Bonus structures and incentives by definition should be earned through delivered results and, therefore for some institutions a fundamental re-write and implementation of the policy may be required.

The feeling most commentators have is to go beyond government legislation and for the parties concerned to take responsibility for the change in behaviour required. The first is that the expat must stop protecting his role and, secondly, and perhaps most importantly, the local executives and institutions must challenge the expat role and work on the transfer of knowledge to ‘bring it home’.

This is an issue that dominates the region. How can governments encourage more locals into the private sector and grow a skilled workforce? Many say the answer is reducing the number of expats. Will this work? What is the best policy? Are quota systems really working?

The challenge of upskilling the local workforce and increasing the number of locals employed within the private sector is one that many governments face. However, despite being a global problem, it has become a pressing issue in the Middle East. This was exemplified by the recent foreign worker quota that was first introduced in Abu Dhabi in June this year. Despite the worthy intentions behind this quota, there are real concerns amongst the region’s oil and gas firms that limiting the number of expats that can be brought in could actually impact on local personnel negatively and even inhibit growth.

One of the key benefits of the expatriate workforce is that companies gain access to a pool of international expertise. A workforce comprised of both expatriate and local personnel benefits in terms of knowledge transfer and the sharing of international experience. This is particularly valuable to the oil and gas sector, which is currently in the grip of a growing skills crisis globally. Crucially, the ability to import talent enables oil and gas companies to quickly scale projects up and down as required, and in a way that caters to the cyclical nature of the industry.

Furthermore, companies can use their expatriate workforce to upskill local employees through mentoring and education schemes. These programmes ensure a formal approach to knowledge transfer and provide local personnel with the opportunity to broaden their horizons and potentially progress more rapidly up the career ladder.

In addition, implementing a mentoring scheme enables organisations to attract the best candidates and improve employee retention rates. By encouraging locals to apply for roles that have a clear and structured career path, this strategy can inspire, nurture and develop the next generation of talent. Such initiatives are essential for the oil and gas industry in particular, if it is to future proof itself against another skills crisis. It’s vital that the Middle East’s oil and gas industry continues to embrace the expatriate workforce and, in doing so, fully harness its international expertise to up-skill locals and fuel recruitment and retention rates.

Free movement of skilled people is fundamental to international business. It achieves three things: first, it facilitates foreign direct investment (FDI); secondly, it allows for knowledge and technology transfer; and finally, it underpins network economies.

Both developing and industrialised countries depend on labour mobility, capacity building and skill enhancement. The last century is full of examples of international treaties and bilateral agreements which purport the close link of international trade with free movement.

The advantageous employment opportunities for skilled foreign workers and the low tax regime act as an incentive for migration in the Gulf states. Clearly, the Gulf states over the past decade have witnessed a significant improvement of domestic labour skills and there are numerous instances where successful technology and know-how transfer has been coupled with and directly attributed to foreign migration. However, it comes to a point where the labour mobility and free movement of workers interfaces with cultural integration and public policy.

Initially, it was suggested that taxes will have to be imposed as a result of the population explosion in the Gulf States in order to provide for infrastructure and public services. There has been considerable debate as to whether foreign workers will eventually be subject to income tax and also foreign undertakings subject to a corporation tax. The practical difficulty with these policy suggestions is that if implemented, they have to be universal, meaning they have to cover both domestic and foreign subjects.

The Gulf states are legitimately concerned about migration and the balance between foreign and domestic workforces. They are also genuinely concerned about cultural integration and the absorbance of westernised ethos, lifestyles and behaviour from Sharia law and policy.
What can be done? First, a more controlled migration system needs to be introduced which moves away from traditional visas and is based on residence permits and employment permits.

Secondly, for corporate mobility and foreign investment, mobility restrictions must be minimal. Company seats and corporate residence are not only highly desirable but advantageous from a multiple point of view.

Lastly, reciprocity agreements covering free movement of persons and labour should be established between Gulf States and World Trade Organisation members which will formalise a “quota-based migration system”. The benefits of such an approach are the internationalisation of the domestic economy and the ensuing cultural plurality of the society.

There’s still a huge drive to hire expat workers, although there’s an increasing preference for professionals with experience in the region who can grasp the cultural and local differences in both business styles and operating methods, as well as understand the challenges that emerging markets often face.
The private sector needs to become a more attractive place for nationals to work. 

However, the challenges faced by many businesses, particularly SMEs, is that it’s extremely difficult — if not impossible — to compete with government bodies and semi-governmental companies in terms of salaries and benefits. But ultimately, there are only a finite number of available positions in public sector organisations and the private sector will need to become more proactive in engaging with local talent in order to attract the best candidates.

Integration is an absolutely crucial factor. A large proportion of expats are still relatively new to the region after many left during the global recession. Unfortunately, some of these professionals come to the market with a “them and us” attitude. A better understanding between all parties would help to break down perceptions on both sides and would aid better strategic workforce planning.

I believe we’ll see an increasing number of young nationals entering the workforce in entry level positions and participating in graduate or fast track schemes. In the next decade approximately 200,000 UAE nationals are due to reach employment age so this is almost inevitable. However, the economy relies on overseas workers so the makeup of the talent market is unlikely to change too significantly.

It’s impossible to answer this for the region as a whole as it varies drastically from country to country. In the UAE and Qatar, for example, it’s not realistic. Instead, the focus should be on how governments can convince expats that they have a long-term future here. Many professionals see it as a short or mid-term assignment that allows them to earn a lot of money and either save it or send it home. This does make the region a very attractive area to work in but it has a serious knock-on effect on local economies. 

The GCC (Gulf Cooperation Council) currently has around 15 million overseas workers with around a third of these based in the UAE and the figures for remittance stand in the billions of dollars. Encouragingly, more expats seem to be making long-term plans in the region which keeps more money inside local economies. This in turn drives profits and investments which results in more opportunities for both locals and expats in the region.