Saudi Arabia’s construction giant Binladin Group has cut thousands of jobs. Flag carriers Emirates and Qatar Airways will reportedly let go of up to 40,000 employees.
In Dubai, the Middle East’s business hub, 70% of companies could go bankrupt within six months.
The scale of the disruption caused by the collapse in oil prices and the Covid-19 pandemic to the Gulf states is unprecedented: employment across the region could fall by about 13%. Local citizens, overwhelmingly employed by the public sector, will be largely spared.
Foreign employees, from construction workers to skilled professionals, lack such safety nets and will be hit hardest. Population loss due to unemployment could exceed 3.5 million people, Scott Livermore, the chief economist at Oxford Economics Middle East, estimated in May.
The region has long mitigated economic downturns by “exporting unemployment” to Asia and Africa, where most of the workers who power its economy originate from. Migration schemes enforced by Gulf governments make citizenship acquisition nearly impossible, turning millions of migrant workers into the first variable for adjusting economic contractions.
But flexible migration policies also put Gulf economies at risk of a downward spiral as foreign laborers whose visas are linked to their jobs leave en masse during sharp recessions. In Dubai, where less than one inhabitant in 10 is an Emirati citizen, the population could shrink by a minimum of 10%, a former director of Dubai’s Department of Finance tweeted.
“When people leave, you end up with less demand for local products and services. Ultimately it creates a big deflationary issue,” Kuwaiti investor and advisor Ali al-Salim told Asia Times.
The International Monetary Fund forecasts non-oil activity in the region to contract by 4.3% this year, reversing the 2.3% growth it had previously projected.
Downsized economies
Not only do the 30 million foreign laborers in the Gulf account for the vast majority of the working population, but they are the backbone of non-oil economies. Foreign citizens make up a large portion of the customer base for businesses across various sectors including real estate, transportation, food services, retail, money transfer, hospitality and entertainment.
According to the UAE’s Household Expenditure and Income survey 2014/2015, non-Emirati households living in Dubai spend roughly US$50,000 a year in the country’s economy. The metropolis’ once glittering real estate sector is now expected to lose its shine after it had already suffered from massive oversupply and declining prices for a fifth straight year.
Migrant workers, who live in labor camps without their families, earn significantly lower wages and their contribution to the emirate’s local economy averages $3,000 a year.
But they are also subject to the same taxes as other expatriates, are drivers of small businesses and are normally granted a paid ticket home every two years, a boon to local airlines.
Besides drying up demand for businesses, the exodus would cost losses in taxes Gulf states have recently started to levy on daily life spending to increase non-oil revenues.
Following the implementation of a 5% value-added tax (VAT) in 2018, the UAE generated more than two times the revenue it expected, contributing to 1.79% of the country’s GDP.
In neighboring Saudi Arabia, VAT revenues accounted for a quarter of the country’s total tax revenue in 2018. Earlier this month, the Kingdom said it would triple its value-added tax to 15%, but analysts said the move will impact consumption and hit consumer spending.
A shrinking non-citizen population would also affect fees the Kingdom has imposed on businesses since 2018 for each foreign worker they hire as part of a “Saudization drive,” as well as a monthly fee migrant workers have to pay for each familial dependent they sponsor. The government previously expected to raise more than $17 billion from the fee in 2020.
Now the figure could be a fraction of that.
In spite of risks to the non-oil economy, stimulus packages announced by governments across the Arabian Peninsula protect citizens but provide minimal assistance to jobless migrant workers, who are largely left to fend for themselves and forced to leave.
White collar exodus
Since May 7, India has embarked on a “massive” operation” to repatriate more than half a million of its citizens from the Gulf.
“Initially it is likely the exodus will be unskilled workers to Asia, but will quickly include skilled workers to all parts of the world,” said Livermore of Oxford Economics.
According to Ryszard Cholewinski, Senior Migration specialist for Arab states at the International Labour Organization: “This crisis is likely to be much deeper than the global financial crisis.”
The departures, he adds, are “likely to be staggered over a period of time.”
A diplomatic source interviewed by researchers Shaikha al-Hashem and Geoffrey Martin revealed the future might arrive earlier than expected.
In Kuwait, tens of thousands of skilled middle to upper-class Indians have already left the emirate with their families.
“We can see the brain drain starting,” Hashem and Martin said in a May paper on labor outflows in Kuwait.
Gulf leaders determined to realize various Vision-branded plans must now cope with a pressing issue: the outflow of skilled professionals.
Diversification megaprojects such as Saudi Arabia’s projected $500 billion futuristic city NEOM, with the target of one million residents by 2030, are intrinsically interconnected with the presence and spending of a vibrant, skilled foreign workforce.
Cities in the desert also depend on a vibrant aviation sector, with ease and low cost of travel a key selling point for expatriates.
The Gulf aviation industry, which employs mainly middle-class expatriates, is expected to see job losses up to 800,000 in the coming period, the International Air Transport Association said.
Jasim Husain, a former member of Bahrain’s parliament, believes an exodus will undermine Gulf-wide efforts to diversify economies away from oil revenues.
Governmental diversification reforms, he notes, rely on the private sector, which is powered by foreign labor.
Economic life in the GCC, Husain told Asia Times, is simply “not sustainable” without foreign labor.