Could Emiratisation help drive SME growth?

Tamara Pupic analyses why the UAE’s educated and highly skilled Emirati workforce is a treasure yet to be discovered by local SMEs
Could Emiratisation help drive SME growth?
Employee nationalisation programmes – Emiratisation, Saudisation, Qatarisation – have been devised in parallel to ensure proactive employment of nationals in the private and public sectors and to transfer skills and knowledge from expatriates to citizens
By Tamara Pupic
Wed 14 Dec 2016 11:34 AM

Aiming for economic recovery, countries around the world have turned their attention to small and medium size enterprises (SMEs), considering them the bedrocks of their economies.

Reports on improvements in the SME sector or barriers holding these ventures back – usually grouped around topics related to creating an enabling business environment, improving access to funding, or finding the right staff – dominate the business pages.

In the GCC, however, the implementation of various employee nationalisation programmes in the private sector is a region-specific issue grabbing front-page headlines.

The region has been heavily reliant on foreign labour.

Over the past four decades of its rapid economic growth and societal transformation, the influx of expats – occupying more than 80 percent of jobs according to various estimates – has been necessary to cope with the increasing demand on the labour market.

Employee nationalisation programmes – Emiratisation, Saudisation, Qatarisation – have been devised in parallel to ensure proactive employment of nationals in the private and public sectors and to transfer skills and knowledge from expatriates to citizens.

Most national jobseekers have found public sector positions attractive due to their generous compensation packages and desirable working conditions. On the other hand, private sector employment is considered less appealing, with the overall ratio of expatriates to GCC nationals in the private sector being less than 5:1, according to recent research by the IMF.

However, in an attempt to shift towards knowledge-based economies, regional countries have started putting an emphasis on creating private sectors pioneered by nationals with adequate skillsets.

One example is the UAE Vision 2021 National Agenda which stipulates the country’s aim to increase the current number of UAE nationals working in the private sector tenfold by 2021. To achieve this goal, the UAE government has initiated different programmes to train young Emiratis in skills needed for the private sector.

It has also offered subsidies to companies to encourage them to hire and keep Emirati staff.

Nevertheless, the results are considered variably successful, with few private sector companies, mainly large corporations, reaching their employee nationalisation targets. At the same time, Emirati graduates have outpaced the number of available public sector positions and are increasingly unemployed.

The recently published ‘Youth and Entrepreneurship in UAE’ report by the Khalifa Fund for Enterprise Development estimates that approximately 14 percent of UAE nationals are unemployed, which is significantly higher than the unemployment rate amongst the non-nationals, estimated to be around 2 to 3 percent.

Another report – “The Emergence of the Giant: The Role of SMEs in Bolstering Employment in the GCC” report by Bloovo.com, an online social recruitment platform – states that SMEs can help generate employment in these cases since they already employ close to 17 million people in the region.

However, the Emiratisation requirements are currently not applied in the DIFC and other free zone areas, where most of the country’s SMEs are based. Government officials have voiced a request for strict enforcement of these programmes in free zone-based companies on numerous occasions.

Abdulmuttalib Talib Hashim, a UAE workforce nationalisation expert and founder of TBH Consultancy, explains that enforcing the Emiratisation programme at the discretion of free zone authorities. “Obviously, part of the mandate of any free zone authority is to attract and retain as many companies as possible,” he says. “To do that, their value proposition has to be appealing, such as a 100 percent foreign ownership, ease of the process of setting up, and exemptions from some of the rules that apply in the land, one of which is Emiratisation.

(L-R) Abdulmuttalib Talib Hashim, founder of TBH Consultancy and Anirban Chatterji, senior manager - solicitor, PwC Middle East and Ghassan Yusuf, nationalisation manager, PwC Middle East.

“Some of the foreign companies in free zones I spoke to, I have to admit, look at Emiratisation as another form of tax which is enforced by the government. This is their perception. The reason behind this is in the nature of Emiratisation, which has historically been based on numbers and quotas.”

The UAE Labour Law (Federal Law No. 8 of 1980, as amended) stipulates that non-nationals should only be recruited if there was no suitably qualified UAE national available. The Emiratisation scheme began to take its current shape in 1996 when a regulation required the banking sector to employ 4 percent of Emiratis, stipulating that this percentage should increase by four points every year, up to 48 percent.

In 2005, the obligatory quota system was expanded to also cover private sector companies in other specific sectors, including retail and insurance, obliging them to employ two percent (for commercial entities with more than 50 employees), four percent (for banks) and five percent for insurance companies with more than 50 employees), of UAE nationals as a percentage of their workforces year on year (Ministerial Orders No. 41, No. 42 and No. 43 of 2005).

The National Human Resource Development and Employment Authority (TANMIA) was established to assist with the Emiratisation programme and provide career guidance and training to Emiratis.

“The Emiratisation policies in the UAE are quite relaxed compared to other GCC states,” explains Anirban Chatterji, senior manager - solicitor and US attorney-at-law, PwC Middle East. “For example, Saudi Arabia has a very robust framework and stringent policies to ensure a higher representation of Saudi nationals in the private sector.

“The enforcement is quite varied [here]. Essentially, if a company does not have that one Emirati [per 100 employees] they will still be able to sponsor non-Emirati nationals, but they may have other things to consider. For example, the immigration applications would be more costly if they did not have that one Emirati national.”

Consequent regulations introduced additional requirements, including an obligation to employ an Emirati or GCC national public relations officer (PRO) if an employer has more than 100 staff; employing new secretaries only through Tanmia; and a requirement that the role of human resources manager is carried out by a UAE national (Ministerial Resolution No. (635) of 2008).

“What we see in most cases is that when companies are forced to hire an Emirati national, they mostly go for an easier option, such as hiring a PRO,” says Ghassan Yusuf, nationalisation manager, PwC Middle East.

“They usually don’t have an appetite to invest in hiring, developing, and retaining nationals. So, they go for an easier option by hiring a PRO who performs very simple tasks. These kind of people are easier to find and they are probably the easiest option for SMEs.”

The implementation of the Emiratisation programmes became stricter in 2010 when a three-category classification system was put in place to incentivise employers to recruit nationals (Ministerial Order No. 1187 of 2010, as amended (the 2010 Order)). The classification ranked the companies according to their adherence to Emiratisation requirements, with category one being the highest and category three being the lowest, and introduced a black-point system against offenders.

“It essentially means that if you are in category one, which is obviously the best one, and you implement an Emiratisation policy, you will get preferential treatment in getting government contracts, and the fees for hiring nationals will be a lot lower than for companies in category three, for example,” adds Chatterji.

“The government is not saying: ‘You have to employ Emiratis.’ But they are saying that if you employ Emiratis, you will be given certain privileges. In addition to the ones already discussed, it can be faster processing time of visa applications for non-Emirati nationals, for example.

“So, it is about different things to ease your business rather than stipulating that you have to have an Emirati employee.”

The three recently introduced changes, which will come into effect from 1 January 2017, require companies employing 1,000 or more employees to register on the Ministry of Human Resources and Emiratisation’s electronic system and to employ two Emirati data processing officers, while companies operating in the construction or industrial sectors with 500 or more employees will be required to employ an Emirati in the role of occupational health and safety officer.

With the obligatory requirements put aside, few private sector positions are occupied by Emiratis. A report by the Federal National Council (FNC), published in July 2016, revealed that out of 3.8 million jobs in the private sector, only 20,000 to 30,000 are filled by UAE citizens although the figure could go up to 800,000.

If SMEs are taken into account, the figure could go even higher. However, when compared to large corporations SMEs are less likely to attract and retain Emirati staff. “There has to be more awareness among nationals when it comes to the private sector in general, about both SMEs and larger corporations,” Yusuf explains. “For example, what we have noticed even regarding professional services is that they do not really know what we do and what they can expect.

“Nationals are more interested in joining public companies because they feel a sense of pride, especially when we talk about the big names that everyone knows. It is easier for them to relate to their jobs and their people. I think that the private sector is, unfortunately, relatively new here although we talk about multinationals.

“We faced difficulties as well when we talked about our brand, and SMEs will definitely find it even more difficult. That is why I think that awareness among nationals themselves is very important.

“On the other hand, when investing in local talent, SMEs need to understand what their ROI is, what they will get out of that. It is not just about filling a quota.

“You can think of it as investing in nationals and giving something back to the community. It is always a plus to have nationals representing a company. That is something SMEs should look into and should understand.”

Marwa Al Siyabi, solicitor, PwC Middle East, points out that the nature of SME businesses prevents many nationals from considering them as a viable and secure employment option. “The main problem is that at the moment SMEs cannot offer Emiratis the job security that the public sector and big private companies offer,” she says.

“The other element is incentives. The costs of hiring Emiratis are considered very high. SMEs do not have the support they need to grow, for example, they cannot obtain a bank loan until they have been operating for three years. Also, if you look at statistics generally, it takes another three years for SMEs to break even, and then out of 10 SMEs, you have six to seven that basically shut down. All of this results in job insecurity. In my opinion, this is why Emiratis do not really look at SMEs as an employment option.

“Therefore, they opt for large corporations and not SMEs because they are more sustainable, and can offer the incentives that are attractive to Emiratis. They are pretty much comparable to the public sector.”

Hashim adds that private sector employers need to make their employment offers more appealing to UAE nationals. “If you don’t promote what they will be part of if they work for you, UAE nationals will either reject the offer or sign the offer, go back home and never come back,” he says.

(L-R) Marwa Al Siyabi, solicitor, PwC Middle East and Kamal Al-Samarrai, founder and CEO of Dawaam and Omaira Farooq Al Olama, founder of Advance Learning Formulas Administration.

“Why? It is because the key stakeholder and decision-maker in the UAE society is the family. We are a collective society and decision-making is within the family. They will always ask about the organisation, the work environment and how secure they will be.

“‘What will happen to you if they lay you off?’ is a big fear that local families have about private sector companies, regardless of whether they are large or small.

“I think that shifting the conversation from a salary to what the value is, is crucial.”

Kamal Al-Samarrai, founder and CEO of Dawaam, a Dubai-based specialist recruitment and headhunting agency, says the company has not received any requests from SMEs to recruit Emirati nationals.

“What tends to happen is that they go to companies, such as Mubadala, and then they somehow ‘disappear,’ meaning that they are comfortable there,” he explains. “They don’t need to update their LinkedIn profile, they don’t need to be out there in the job market, so it then becomes difficult to find and employ these people.

“What happens is that these bigger groups, large corporations, are sucking them in and no one else has a chance to see them. I see them in the SME sector in the future, but they have to believe that they want to be in that sector and not in the government offices.

”As this country develops and the education system becomes stronger, we will have more skilled locals to get involved in smaller companies and help them grow into bigger groups.”

It is regularly stated that Emiratis are considered less ‘work ready’, and thus not yet prepared to take advantage of opportunities arising from the country’s transformation into a knowledge-based economy.

Omaira Farooq Al Olama, founder of Advance Learning Formulas Administration, a Dubai-based company that trains UAE nationals for corporate roles, says that it is just one of the stereotypes about Emiratis in the workforce

“For example, in Western culture, it is normal for a teenager to get a job at the age of 13, if not younger, whereas the majority of nationals start working after completing their bachelors,” she explains.

“That doesn’t fully develop their understanding of what a working environment really is all about, and what they need to contribute to be productive in their roles.

“Recently, I worked with 27 displaced nationals in a large government organisation. Their problem was that due to not having prior work experience and not being fully trained in their positions, they became unable to cope with the workload.

“One of the biggest misconceptions is that these nationals are not able to cope in the workforce. On the other hand, they are often too afraid to stand up for themselves and explain that they are demotivated due to the fact that they are not trained to the same standards as their expat counterparts. It is often the fact that they were put in these positions mostly as quota fillers, without a clear development path of their careers.”

In Hashim’s opinion, a perception that UAE nationals are less skilled than their expatriate counterparts is just an excuse. “I hear a lot of employers who are not really interested in being proactive saying: ’It’s not our problem, fix your education system,” he says.

“If you really believe that, then look at the government sector in the UAE, which has most UAE nationals and is considered one of the most progressive sectors here. The government sector in Dubai operates very much like a private sector entity. Why is it working so well in the government sector and not in the private sector? So, it dispels that education-related myth.”

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