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Sun 4 Jan 2015 10:00 AM

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The Big Debate: Can Gulf governments reduce their dependency on expats?

GCC states have launched many initiatives to reduce the gap between foreign and local workers, but can the region survive without overseas workers and only local talent alone?

The Big Debate: Can Gulf governments reduce their 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.

First up is Craig Fletcher, partner at recruitment firm Mackenzie Jones, who believes investment in education will make locals more competitive...

Investment in education will make locals more competitive, says Craig Fletcher, partner at recruitment firm Mackenzie Jones.

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.

Mackenzie Jones is a recruitment business that has been based in Dubai for the last ten years placing many candidates across many different industries.

Second is Rahul Dhadphale, regional director of the Dubai Centre at London Business School, who believes change will only happen if authorities move beyond simple lip service...

It will only happen if authorities move beyond simple lip service, says Rahul Dhadphale, regional director of the Dubai Centre at London Business School.

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’.

So can we rely less on Expats? Absolutely, but not without hard work and commitment and a focus on sustainability.

Third is Ashley Kempson, a team leader at recruitment firm Petroplan, who believes there are real concerns amongst the region’s oil and gas firms that limiting the number of expats could inhibit growth...

There are real concerns amongst the region’s oil and gas firms that limiting the number of expats could inhibit growth, says Ashley Kempson, a team leader at recruitment firm Petroplan.

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.

Petroplan offers tailored recruitment, contractor management and support services throughout the oil, gas and energy industry from a global organisation.

Fourth is Professor Christopher Bovis, who believes Gulf States are right to be concerned about the balance between foreign and domestic workforces...

Gulf States are right to be concerned about the balance between foreign and domestic workforces, says Professor Christopher Bovis.

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.

Christopher Bovis is professor of International and European Business Law at Hull University Business School, University of Hull.

Our last expert is Gavin Smith, director of recruitment firm ReThink MEA, who believes we need to end the ‘them and us’ attitude on both sides...

We need to end the ‘them and us’ attitude on both sides, says Gavin Smith, director of recruitment firm ReThink MEA.

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.

ReThink MEA is part of Rethink Group, which delivers recruitment and talent management services around the world.

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Jit 5 years ago

Why countries buying oil/gas from these countries start buying from other nations who support its excess manpower.

Balance of payment also needs to be considered with localisation.

My suggestion is instead of forcing local manpower into jobs they should encourage them to become entrepreneur and create more jobs and contribute to country and world GDP otherwise they will end up increase subsidiary.

Mark Renton 5 years ago

It may interest the "experts" to know that some GCC countries already apply business taxes (and no they don't have to be consistent between foreign and local business). It's also difficult to stop a "them and us" culture or for expats to stop protecting their jobs where the country's labour law was written on the basis that every expat is in the country temporarily until a local replacement can be found, or where employers have varying degrees of control over an employee's ability to move to another job or in some cases even to leave the country for a weekend break. And I doubt any expat who has worked 60+ hours with no overtime pay and several hours a day of commuting will see themselves on some sort of working holiday.
One of the most effective things that can be done is to remove all restrictions on expat employees moving jobs after a minimum period of service. This will greatly reduce the incentive of bad employers to favour expats because they are easier to exploit and control

RealityCheck 5 years ago

Entrepreneurship is not a magic solution. In fact very few people will succeed as entrepreneurs on a normal market economy.
In economies with the heavy government influence that we have in the GCC chances are even lower.

The only way is to reduce the barriers to employment (that is all the perks and benefits that accrue to locals employed in Government and that now will need to be extended to non government jobs) But that is simply unthinkable, better change the title from "the big debate" to "the endless debate"

I am not even going into the paltry state of the education system in the GCC (or the education of GCC nationals to be more precise, other groups seem to do better) This has been going on since 2002's UN report on the matter and nothing has changed

SA1 5 years ago

In next 40+ years...yes.. but not in immediate future.

as new generations comes up and oil revenue depletes....there is no other option.

GCC countries hopes by that time, they will have enough sovereign wealth diversification to support future needs.

One has to not forget, these are desert lands with no other resource beside oil. The only feasible growth sectors on such land would be to be trade junctions, and tourism hubs.

Peter 5 years ago

Instead of having the minimum wage for a national that high, they should do exactly the opposite. So they have to get a better education to be competitive in the market. By forcing the private sector to employ locals, it will not always the best who gets the job, but the least worst. And the local have to learn to be productive for their employers!!! Without the expats, not one of the GCC countries would be able to run for more than 2 month.

Naeem Ul Haq 5 years ago

The idea of giving more pay to locals will dishearten the expats thus adversely effect the output . A satisfied and willing worker is an asset for the country. GCC should rather build a world class colleges and school, wherein they can produce a class of professionals which the local entrepreneurs would prefer over expats. There is no short cut to the solution. Any amount of penalties on local businessman for hiring experts will not help.

MT3 5 years ago

I work for a global company. I'm in the UAE not because I'm incompetent or fleeing from economic armageddon in Europe etc... I'm here because global companies move their staff around the globe; it's just one more posting for me. An important part of my role is to mentor local talent, a job I've done successfully in South America, Asia and the UK. There are three major challenges in getting GCC nationals up to international standards i) education standards are often poor and the curriculum does not address the key skills required in the workplace, ii) the work ethic is not engrained, an issue compounded by an entitlement culture and unrealistic expectations in many cases. These first two problems I can work with and I've seen in plenty of countries. The third is, however, the killer. 3) an inability to take constructive criticism in a professional and unemotive manner and learn from it. This is the one holding GCC nationals back and it's tough to combat.

whatever 5 years ago

simple, yes of course they can.

There would have to be a realistic adjustment of the benefits and conditions however.
Salary paid to reflect the work performed, not increased by nationality.
Sickness and lateness dealt with for the benefit of all.
Capability and Disciplinary discussions on regular performance reviews.

All is easily doable. Just depends on the will to do so.

Critic 5 years ago

Its an interesting article and survey. Need is something which motivates human. When someone gets motivated due to need, he mobilizes and take different actions to fulfill the need. During the phase of this life activity, one is genuinely committed till the end and then becomes thankful to what has achieved. This is how you build an attitude to live a life facing hardship and competition, which of course takes years to do so.

Being an expat, many like me have and still passing through the same phase. This has matured us and made us more wise in making our choices and being realistically practical.

Such attitude is not found in locals, not just in UAE but all over GCC. With such inherently personality trait, their is no way that this region will ever stand up on their own feet. They will always be relying on expats and this debate will just be a debate with not real valued actions.

RealityCheck 5 years ago

You did not discuss the legal environment that makes essentially impossible to fire a local employee. Do you see that as an issue or have found ways to handle it? I am genuinely curious, i know for us being an SME it is a deal-killer

The other question I have is about international posting for GCC nationals, how do you handle that, especially for women

Thanks for a much needed post