Expatriates Face a Changing Reality in Gulf Countries

The percentage of expatriates in the six Gulf Cooperation Council (GCC) countries grew from 22.9 in 1975 to 37.1 in 2004, constituting about 70 percent of the workforce. However, a number of changes on the ground during the last few years have redefined the rules of behavior for about 13 million foreigners, yielding mixed results.

Due to demographic changes, characterized by a population growth of more than 3 percent, contributing to unemployment rates ranging between 9 and 20 percent, there is now increasing pressure on the governments to accommodate nationals in the public and private sectors. In order to meet this challenge, the GCC countries have been employing various measures, including nationalization of the workforce. Jobs in many sectors are no longer open to expatriates, especially in Oman and Bahrain, which have smaller oil revenues and less of a willingness among nationals to see jobs dominated by foreigners. In Oman, the number of expatriates in the private sector fell by about 24 percent between 2003 and 2005.

Saudi Arabia decided in 2003 that its foreign workforce would be reduced by more than half in 10 years. This means that even if all new recruitments are stopped, about 4 million foreigners will have to leave the country by 2013. The government plans to create about 1 million jobs for Saudis by 2010 and has reserved over 50 sectors for its nationals.

As part of its "cultural diversity policy," the United Arab Emirates announced in 2003 that it intended to scrutinize visa applications of Asian workers because of official concern about their growing numbers in the country, its reliance on foreign workers and its changing demography. Moreover, many of the unwritten benefits are presently being phased out. While companies previously provided inflated salary certificates to enable lower-income workers to get family visas, they are less forthcoming now.

Last year, GCC ministers of labor and social affairs recommended a maximum six-year uninterrupted legal stay, tougher recruitment conditions, deporting surplus expatriate workers and making renewal of residence permits more difficult. However, the first item in the proposal was sidelined owing to pressure from the private sector. Among those openly discouraging the plan was the Riyadh Chamber of Commerce and Industry, which stressed the importance of expatriates for ongoing development programs. Instead, the ministers proposed a quota system to limit the number of foreigners permitted to work in the region, which is currently under study.

In June 2006, the UAE announced that unskilled foreign workers would be allowed to stay for only six years in the future, which may be economically non-viable for many, given that they need a much longer stay abroad to recover more than what it costs to travel to the Gulf. According to this plan, about 2 million unskilled workers will be considered "temporary contractual workers" under an agreement with the International Organization for Migration. This will change the workers' position from being immigrants to temporary contractual workers.

At the level of day-to-day existence, a booming UAE economy has triggered high inflation, which has had a negative impact on most expatriates. A survey in the UAE revealed that between April 2005 and April 2006, the perceived average inflation rate was about 22 percent - topped, of course, by rents. Worse, this inflation has not been matched by a commensurate increase in salaries, which was put at 7 percent. While the government sector announced a public-sector pay increase of 25 percent for nationals and 15 percent for expatriates, its implementation in the latter case has not been uniform. Compounding the problem is the dirham's decline internationally (in conjunction with the US dollar), which, if it continues, will further reduce the value of repatriated earnings as well.

Apart from inflation, measures that can be likened to indirect taxes are in vogue now. Health services, including consultation, medicines, hospitalization and surgeries - which were otherwise free for expatriates until five years ago - now come at a price. In addition, rising electricity, water, sewage and municipality charges have ensured that making ends meet is a daily struggle for many families, leading to loans, debts and accompanying problems in several cases.

No wonder, then, that expatriates in Saudi Arabia heaved a sigh of relief in 2003 when the Shura Council rejected a proposal to impose a 10 percent income tax on foreign workers who earned more than $800 a month. But tax-free environments in the region may soon become a thing of the past with a UAE proposal calling for the imposition of value-added taxes now under consideration. The initiative suggests that initially taxes could be imposed on tobacco and other "harmful" products. In May, Kuwait announced that it is studying a proposal to introduce a flat 10 percent income tax.

In the midst of these developments, however, some countries have taken positive measures to protect the rights of foreign workers. In 2003, the Saudi government approved the formation of the Saudi Human Rights Committee and the National Human Rights Association, an independent human rights monitor. In 2004, the Shura Council even took the extreme step of announcing that foreigners could apply for citizenship, though the eligibility criteria are tough to fulfill. Qatar too is considering a similar proposal. The UAE Labor Ministry has proposed a 29-point plan to improve the plight of expatriate workers. A law allowing the formation of trade unions is also on the anvil, while Bahrain has allowed migrant workers to join trade unions and vote since 2002.

Most important, regional governments are increasingly adopting liberal economic measures to contain the practice of foreign workers' transferring home about $27 billion in remittances annually, which has squeezed the region's resources by an estimated $500 billion between 1975 and March 2006. Bahrain has allowed expatriates with more than 15 years of working experience and a healthy bank balance to reside in the country even without work permits. And, several emirates in the UAE now allow expatriates to own real estate and trade on stock exchanges. All these measures help ensure that money will be invested in the GCC. This will begin to alter the edifice of the relationship between the host countries and expatriates because the fruits of engagement will no longer be shared by just the labor-exporting countries, but will be considered mutually beneficial.

Though the rules of engagement have changed for expatriates, in reality, with the advent of globalization and the accelerated pace of integration of the GCC economies into the global economy, the in-flow of foreign workers will be determined by economic factors. The demand for foreign workers is not going to be reduced drastically, even if regional governments are proactive in trying to limit their dependence on expatriate labor. And, irrespective of the negative impact of the changes in the rules of engagement, the size of expatriates in the region is anticipated to grow by 5 percent every year to reach 18 million by 2017.