The never-ending debate on Gulf localization policies

Year after year, the debate continues on the merits or otherwise of various localization measures – in essence, a mechanism to replace foreign workers with nationals.

The policy objective is driven by a young Gulf population base and increasing number of national job entrants, both male and female. The “curse” of the present dependence on foreign labour is that most of the non-national jobs are the type, because of social values, that hitherto many young nationals do not want.

That said, certain attitudinal changes for the better have taken place. The younger Gulf generation has indicated its willingness to accept positions that have been traditionally rejected.

As the private sector sees it, market forces drive at least part of the solution to these problems and the opening up of the entertainment industry in Saudi Arabia is expected to generate many local jobs in this new sector.

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To some extent, the Gulf localization programs have been successful in replacing foreign workers with local employees, but this has been primarily in the government sector where there is much more hiring control than in the private sector.

Here there seems to be some reluctance on parts of the private sector to hire nationals to replace low cost foreigners, despite government directives and regulations, with government fees now being introduced on foreign labour employed as a form of indirect tax to equalize the cost of hiring foreign and local labor.

Attracting FDIs

There are problems in adopting whole scale localization policies. Opening up the regional economies to globalization and making it attractive to foreign direct investment (FDI) could cause conflict for the twin objectives of localization and liberalization.

Foreign companies might refuse to comply with imposed quotas, leading to a reduction of FDI. Foreign firms may feel not only that localization puts them at a disadvantage compared to their foreign competitors but also that the whole localization program itself is unpredictable, with targeted economic sectors, rules and quotas changing without warning.

The issue of foreign workers and how they are treated and replaced must be approached with care and caution. This could become one of the most contentious issues in the years ahead. Expatriate workers feel threatened and begin to voluntarily “withdraw” part of their labour input and create economic inefficiencies if they feel their jobs are under threat.

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The imposition of monthly dependents fees in Saudi Arabia, payment for once free government medical services, VAT on school fees, and more recently, Kuwait’s planned taxes on remittances has also led to this sense of uncertainty.

The so-called sponsorship system is another layer of concern. Sometimes external pressure brings about changes to the so- called kafala system as happened with Qatar which came under international human rights pressure over the treatment of foreign workers involved in the upcoming 2022 World Cup tournament in that country.

Others did so voluntarily. Bahrain was the first to abolish the so-called “kafeel” or private sponsorship of foreign workers and replaced it with government sponsorship. They country also enabled foreign workers free to move between jobs at wages set by market demand and supply forces.

Fulfilling obligations

The relationship between foreigners and their host country seems simple enough. Foreign workers are meant to fulfill their obligations, receive their payment and eventually return to their homeland.

This relationship sometimes puts a strain on the expatriate workforce. Most of them are in a temporary situation in life. They feel they are in a hotel – they can never entertain the illusion of being at home.

National groups stick together, even though with some exceptions, they did not know each other before. Together they are a collection of solitudes. The problems of expatriates does not end here but often continues when they leave to go back home, some after decades in the Gulf.

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They face problems when they return to reclaim their place in societies they left behind. They find that their friends and former associates do not understand or appreciate the things they have experienced, or even the new skills they learned in the Gulf.

For those that do settle, these expanded experiences, the higher degree of responsibility they had assumed in the Gulf and the new technologies they learned, especially in capital intensive industries in energy, finance, IT and the health sector, makes expatriate labour more valuable to the home country.

Economic transformation

In a paradoxical way, the Gulf states have indirectly been a major factor for the economic transformation of the so-called Asian tiger economies through the transfer of “free” skills to expatriate labour as well as their remittance flows, and this should not be underestimated in a final balance sheet of who benefitted from who in the equation.

However, for others that do not settle, there are host of problems. They are forced to forget a whole area of their lives or to meet with other former expatriates like veterans of campaigns.

Some cannot make the adjustments and return overseas to become de facto career expatriates, moving from job to job around the world like nomads, maintaining contacts with friends along the way. In the final analysis, it is the duty and right of every sovereign state to set up policies that provide jobs as a priority for its citizens.

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Even the most advanced countries of the world do that, whether in protecting home jobs as in the UK following Brexit, or in the US under president Trump with his “America First” slogan and bringing back jobs to the United States.

The GCC countries have a right to claim “GCC First” but it is the manner by which localization is carried out and its human consequences that need to be carefully managed.

Nothing better to show the human side of this relationship than putting up large plaques at all GCC airport departure halls with a simple message of “Dear Guest Workers – Thank you for all you have done and wishing you all the best”.

It will bring a few tears to the eyes and hopefully some happy memories.
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Dr. Mohamed Ramady is an energy economist and geo political expert on the GCC and former Professor at King Fahd University of Petroleum and Minerals, Dhahran, Saudi Arabia and co author of ‘OPEC in a Post-Shale world – where to next ?’. His latest book is on ‘Saudi Aramco 2030: Post IPO challenges’.