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38
Mi d d l e ea s t Po l i c y , Vo l . XVii, No. 2, su M M e r 2010
© 2010, The Author Journal Compilation © 2010, Middle East Policy Council
T
he growing level of national
unemployment in the Gulf Co-
operation Council (GCC) coun-
tries remains one of the region’s
key domestic policy challenges. This
is clear, even if one does not share the
hyperbolic depiction of it as an “impend-
ing time bomb” that could culminate in
“armed insurrection.” In order to provide
adequate (and productive) employment
opportunities for all nationals, not only is
a major overhaul of educational systems
required; there also needs to be a renewed
focus on policies designed to facilitate
economic diversication that generates the
sorts of jobs nationals consider appropri-
ate. Moreover, the region’s ruling elites
need to modify and then recommunicate
their respective social contracts (“ruling
bargains”). These, in many senses, lie at
the heart of the issue.
For it is the way in which oil wealth
has been historically distributed that has
led to a situation in which nationals choose
to remain unemployed until they obtain a
government job. It is the primary transmis-
sion mechanism of the social contract —
the provision of well-remunerated public-
sector jobs — that, albeit unwittingly, has
caused GCC labor markets to become so
highly segmented. The concomitant laissez
faire approach to the private-sector labor
market has further exacerbated distor-
tions. From the 1960s onward, an inux
of expatriate workers, while pivotal to the
impressive and rapid transformation of the
region’s infrastructure, accepted wages
at levels far below those being offered to
nationals in the public sector.
There is, it seems now, a growing real-
ization within the region that public-sector
bureaucracies have reached the saturation
point. They can no longer act as employer
of rst and last resort. It is therefore likely
that, in the coming period, both percep-
tions of entitlement and the manner in
which hydrocarbon wealth is distributed
will need to be reconsidered, regardless
of the predicted rebound in oil prices (see
Chart 1). For Bahrain, Oman and Saudi
Arabia, where per capita oil revenues are
much lower, the imperative to address this
issue is considerably greater (see Table 1).
Nevertheless, many citizens, especially
those who operate local businesses, have a
vested interest in the status quo.
Un e m p l o y m e n t i n t h e GU l f : ti m e t o Up d a t e
t h e “So c i a l co n t r a c t ”
Ingo Forstenlechner and Emilie Rutledge
Dr. Forstenlechner and Dr. Rutledge are assistant professors at the
College of Business and Economics at United Arab Emirates University.
Dr. Rutledge is the author of Monetary Union in the Gulf: Prospects for a
Single Currency in the Arabian Peninsula.
39
Fo r s t e N l e c h N e r / ru t l e d g e : uN e M P l o y M e N t i N t h e gu l F
Indeed, opportunities for nationals to
utilize expatriate labor without any form
of taxation (by sponsoring an individual
expatriate’s work visa under the kafala
system) is another of the social contract’s
transmission mechanisms that affect the la-
bor market. Nationals have long beneted
from expatriates’ managing and stafng
of their business and commercial inter-
ests and provision of domestic services
(i.e., having cooks, drivers, gardeners and
maids improves the average Gulf citizen’s
standard of living). With such an abun-
dance of cheap and highly elastic labor,
businesses owned by nationals, especially
those catering to the domestic market, have
little motive to invest in productive (“labor
saving”) technologies and little incentive
to employ nationals, whose wage demands
are considerably higher.
It appears hard to marry current levels
of unemployment with the labor market
in question (see Table 2). A third of all
public-sector and two-thirds of all private-
sector positions are staffed by expatriate
workers. Far more positions are created
(albeit predominantly in the “true” private
sector) annually than there are nationals
actively seeking employment. On closer
examination, however, the market is a
highly distorted one. In some respects it
is rigid, with pronounced differences in
the minimum wage expatriots or nationals
would work for. In others, it is exible:
current laws make it very easy to hire (im-
port) and re (deport) expatriates. For all
intents and purposes, “unemployment” is
a national issue, for if and when an expa-
triate’s work visa is terminated he/she is
obliged to return to the home country.
Most of those who write on the subject
of GCC labor markets point to the paucity
of consistent and reliable data. We do not
consider it likely, however, that such data is
being purposely hidden from public scru-
tiny (i.e., collected but not disseminated).
It is more likely that many of the respective
government agencies do not themselves
know exactly how many nationals of
working age are unemployed or the precise
sectors in which they work. Several factors
lead to this assumption. First, none of the
countries have a standardized job-seekers-
allowance system such as the computerized
mechanism by which most OECD countries
collate their unemployment data. Second, in
terms of public/private-sector employment
ratios, the issue is one of denition. Many
private-sector entities are partly, if not
wholly, state-owned, including many of the
largest companies listed on regional stock
markets, such as the Emirates Bank Group,
Qatar Telecom and SABIC.
1
In order to
seriously address and mitigate growing
levels of unemployment, however, regular
and standardized collection of data will be a
prerequisite, not least to gauge the effec-
tiveness of educational reforms, economic-
diversication strategies and labor-national-
ization (“localization”) policies.
This paper will rst outline some of the
key idiosyncrasies of these labor markets:
in essence, a public sector predominantly
staffed with nationals and a private sector
dominated by expatriates. Strains are indeed
emerging, as high levels of unemployment,
despite the recent economic boom, attest.
Demographically, the GCC is experiencing
a period of rapid growth in its youth popu-
lation, and increasing levels of educational
attainment — while acting to increase sal-
ary expectations — have not made pursuing
a private-sector career any more desirable.
It will then look at what we term “rst-
generation” policy initiatives that were
deployed from the mid-to-late 1990s, the
tail end of a long period of low oil prices. It
had, by then, become apparent that the pro-
40
Mi d d l e ea s t Po l i c y , Vo l . XVii, No. 2, su M M e r 2010
Finally, we consider the implications
for investors, both local and international,
and the ways in which the social con-
tract will need to be reworked in order to
mitigate its distorting effects on these labor
markets. Governments and companies
controlled by them are now, for instance,
frequently requesting private-sector com-
panies that are seeking contracts within
the region to factor knowledge transfer
and technical-training plans into their bids.
GCC sovereign wealth funds (SWF) are
increasingly basing some of their interna-
tional investments on the extent to which a
company can add value locally, such as by
establishing regionally based joint ventures
with a GCC government-backed company.
We contend that an updated social contract
that distributes hydrocarbon wealth via
mechanisms other than the provision of
public-sector jobs will need to be deployed
and then be recommunicated to citizens.
If this is not addressed, associated labor-
market reforms will not achieve the aims
of making the private sector more attrac-
tive and levels of nationals’ unemployment
less of an issue.
A SATURATED PUBLIC SECTOR
In the early stages of the region’s eco-
nomic development, governments accepted
that their ability to efciently extract
hydrocarbons hinged on importing both
foreign workers and knowledge. In the
1970s and early 1980s, most government
expenditure was directed towards building
domestic infrastructure; little effort was
made to diversify away from oil. In lieu of
active political participation, citizens were
provided a range of generous social ben-
ets and subsidies; there was, and still is,
virtually no direct taxation. (Although not
ofcially referred to as such or formalized
in any way, this is what observers dene
vision of public-sector jobs to all nationals
by default was rendering the sector increas-
ingly unproductive and the recurrent wage
bill prohibitively expensive. In response,
considerable emphasis was placed on
educational reform, and efforts were made
in all countries to diversify their economies
away from the hydrocarbons sector. A se-
ries of top-down labor nationalization poli-
cies was also enacted during this period.
Bahrain sought to make nationals (rela-
tively) less expensive for the private sector
to employ by taxing expatriate labor. Oman
was, and probably still is, the most dedi-
cated to enforcing quotas and designating
certain occupations to be staffed solely by
nationals. Generally speaking, however, the
results have been disappointing; in many
instances, dependence on expatriate work-
ers has continued to increase. For instance,
during Saudi Arabia’s ve-year develop-
ment plan spanning 1991–95, which set out
to reduce the number of expatriates in the
kingdom’s workforce, they actually grew
considerably.
2
The paper then focuses on “second-
generation” policy initiatives. While, in
essence, these cover the same areas as
earlier ones — education and economic
diversication — they are better thought
out and more systemic in nature. Qatar and
the UAE are in the process of transform-
ing their respective education sectors and
both are placing far greater emphasis on
English instruction and vocational subjects
such as mathematics and the sciences.
Such changes are not without controversy;
they are, nonetheless, necessary. Contem-
porary economic-diversication strategies
are laying the foundations for a high-skill,
high-tech industrial transformation. For
nationals to be competitive vis-à-vis expa-
triate workers in this future market place, a
rst-class education will be mandatory.
41
Fo r s t e N l e c h N e r / ru t l e d g e : uN e M P l o y M e N t i N t h e gu l F
wait for a government job (remaining un-
employed) rather than take a private-sector
one in the interim, even if they are aware
that the wait may last several years.8
There is a certain amount of prestige
and pride associated with having a govern-
ment job, and in the cultural context of the
Arab Gulf, such sentiments cannot not be
understated. Nonetheless, it was inevitable
that during the 1990s, when oil prices were
protractedly low and the babies born during
the oil-price boom of the 1970s began enter-
ing the labor market in signicant numbers,
the region had to start looking for alterna-
tives. Meeting existing public-sector wage
bills was difcult enough; to have simply
absorbed all new entrants would have led to
serious scal decits in many countries.
Although in the GCC fertility rates
have steadily declined since the 1980s,
the wide-based age pyramid is resulting in
substantial numbers of new labor-market
entrants annually. For instance, a UN
regional body, ESCWA (Economic and
Social Commission for Western Asia),
predicts that the GCC’s 15–24 age group
will grow from 11.9 percent of the popula-
tion today to 13.3 in just ve years.9, 10 This
does not bode well, as youth unemploy-
ment is already high by any measure (see
Table 2). Yet, in the period 1985–99, the
number of foreign workers coming into the
region grew by almost two million.11
Since 2005 and the sharp upturn in oil
prices, Kuwait, Saudi Arabia and the UAE,
somewhat counterproductively, have all
raised the pay of public-sector employees
and, in all cases, given nationals propor-
tionately larger increases than the expatri-
ates. This was ill-conceived, primarily
because it has further exacerbated the
public/private-sector pay discrepancies.
Such increases will make newly graduated
nationals all the more determined to hold
as the “social contract.”) The extent of the
welfare system is often not fully appreci-
ated by outside observers; it is one of the
most generous anywhere in the world. In
all GCC states, it is certain to include free
education, health care and housing assis-
tance, and either free or heavily discounted
utilities and gasoline.
Generally speaking, however, a job
in the public sector is the key component
of this social contract. These jobs for life
provide salaries several times higher than
private-sector ones and in addition convey
an array of benets, such as shorter work-
ing hours and longer holidays. Pension
packages are also generous. On average,
after completing 20 years of service, na-
tionals are entitled to retire on 80 percent
of their nal salary.
3
Such attractive em-
ployment propositions give context to what
might otherwise have been misconstrued as
a typo: UAE Minister of Labor Saqr Gho-
bash recently stated that 0.04 percent of the
UAE’s private-sector labor force were na-
tionals
4
(somewhat lower than the gure —
1.3 percent — that we present in Table 2;
however, our data is from the UAE’s 2005
labor-force survey results. Since then, the
UAE’s expatriate population has grown).
Until the early 1990s, regional govern-
ments had the surplus revenues to disguise
unemployment by providing jobs that in
some instances were considered by outside
observers to be little more than sinecures.5
This is no longer tenable, especially in
the three countries with relatively low per
capita oil reserves and revenues: Bahrain,
Oman and Saudi Arabia (see Table 1). Yet
over the past four decades, many nationals
have, in the words of Davidson, become
“wholly accustomed to material benets
and no forms of extraction.”6 Consequent-
ly, due to a certain sense of entitlement,7 at
the present juncture, many nationals will
42
Mi d d l e ea s t Po l i c y , Vo l . XVii, No. 2, su M M e r 2010
than a decade’s worth of substantial bud-
getary allocations. For example, as part of
the UAE Ministry of Education’s new re-
form agenda, “Strategy 2010–2020,” it was
reported that of all nationals entering one
of the Emirate’s three federal universities
in 2009, just 6 percent were able to do so
without rst requiring a remedial founda-
tion year (546 out of 9,208 applicants).
13
Indeed, the mismatch between the needs
of the private sector and the skills of most
graduates at both the secondary and tertiary
levels is considered to be one of the prin-
cipal obstacles to both economic develop-
ment and diversication.
14
This may be so;
however, the main reason nationals do not
seek private-sector careers is that those in
the public sector are so much more attrac-
tive — better paid and less onerous.
With respect to many of the rst-gen-
eration economic-diversication strategies,
it is the case, for logical comparative-
advantage reasons, that much of the focus
and success was in energy-intensive
industries such as aluminium smelting and
petrochemicals. Although they provide val-
ue, these types of industries are capital-in-
tensive, requiring only a few highly skilled
individuals to operate what are largely
automated processes. To complicate mat-
ters, the conventional path many transi-
tional economies take — labor-intensive
manufacturing — was not a viable option.
The GCC’s domestic market is too small,
its citizens are arguably too accustomed to
European luxury goods, and most nation-
als are not going to be willing to accept the
necessarily low wages and long hours.
In addition, a whole range of conven-
tional private-sector job categories (hair-
dresser, waitress) are deemed inappropriate
by nationals for a combination of cultural
and social factors, while others are shunned
for being associated with unskilled ex-
out for a government job. The ndings of a
recent survey corroborate this: a clear ma-
jority of this cohort desired, above all else,
a career in the public sector, more so even
than starting their own business. This is
in spite of the pollsters’ adding the caveat,
“assuming pay and working conditions are
similar” in both sectors.11
FIRST-GENERATION RESPONSES
Broadly speaking, there were three
types of policy responses: enhancing
educational attainment, diversifying the
economy and intervening directly in the
labor market (i.e., introducing quotas
and designating certain occupations to be
staffed solely by nationals). With vary-
ing degrees of commitment, all countries
experimented with these policies from the
mid-1990s onward.
With respect to educational reform, it
has been stated that, while the new college
and university campuses were architectur-
ally impressive, the reform policies did lit-
tle to engender critical thinking over learn-
ing by rote; neither did they impose some
degree of minimum acceptable standards.
11
While the right sort of education will equip
individuals with the skills needed for the
private sector, obtaining more qualica-
tions (especially tertiary-level ones) tends
to increase salary expectations and does
little per se, in the regional context, to
change a given national’s sectoral prefer-
ences. Indeed, the ability of the contempo-
rary education system to produce nationals
with the skills the private sector requires —
post-rst-generation reform — is doubtful.
In a recent government-sponsored survey
that sought the views of Arab executives
across 12 industries, just half felt that na-
tionals had the necessary competencies.
12
Education at the secondary level is
especially underperforming despite more
43
Fo r s t e N l e c h N e r / ru t l e d g e : uN e M P l o y M e N t i N t h e gu l F
tive perceptions of their fellow citizens’
vocational competencies and commitment
to hard work, but in many cases were less
likely to recruit a national than an expatri-
ate HR manager would have been.
Other labor-nationalization strategies
that sought to incentivise nationals into
the private sector in effect added further
costs to their already high wage demands,
thus making them even less attractive to
businesses operating in this sector. For
instance, draft labor regulations suggested
that all new nationals employed in this sec-
tor would be entitled to work for shorter
hours and, once hired, could not be red.
Such regulations were seen as a form of
taxation — in what was marketed as a
“tax-free haven.” Well-connected citizens
with signicant domestic business interests
often double up as policy makers and have
a vested interest in continued unfettered
access to expatriate labor. In the UAE, for
instance, where nes were introduced for
not meeting quota targets, they ended up
being so negligible that it was far less cost-
ly to pay them than it would be to hire and
train nationals. It is also no coincidence
that since 2007, when oil prices began to
rise sharply, some of the less popular poli-
cies have seemingly been put on the back
burner, especially in the states with higher
oil-per-capita revenues.
Only in Bahrain and Oman (and to a
lesser extent in Saudi Arabia) are labor-
nationalization policies that directly
intervene in the “true” private sector likely
to be rigorously enforced. Even here,
there will be those among the leading lo-
cal business families who petition against
such policies, seeking to turn enforceable
regulations into recommended practices.
In Bahrain in 2008, for example, where the
average national earned $15,000 per year
compared to the average expatriate salary
patriate workers (checkout assistants and
construction workers). While service-sector
industries such as banking and nance are
more attractive — indeed, in the UAE, this
is the only industry where quota targets are
remotely close to being met — other areas
in which non-oil labor-intensive diversi-
cation has been successful, such as tour-
ism, have thus far only attracted expatriate
workers. Thus, if measured in terms of
generating private-sector jobs for nation-
als, many modes of diversication, to date,
have met with limited success.
Policies that sought to directly inu-
ence the private-sector market, such as
quota systems (e.g., banks in Kuwait have
been requested to work towards the goal
of a workforce that is 50 percent nationals)
and the designation of certain occupations
for nationals only (e.g., procurement man-
agers in Saudi Arabia), not only called into
question the region’s business-friendly per-
sona; it presented GCC policy makers with
a classic conjunctural dilemma: Obliging
businesses in the “true” private sector to
hire nationals alleviates unemployment
but makes them less competitive. This, in
turn, makes them more likely to relocate or
reduce the size of their overall workforce.
These types of labor-nationalization
policies also acted to generate resentment
and distrust between employers and expa-
triate employees, on the one hand, and their
national counterparts, on the other.
15
In the
UAE, it was decided that certain compa-
nies with over 100 employees would be
required to hire an Emirati human-resource
manager. The government agencies respon-
sible for this decision may have reasoned
that an Emirati would be more likely to
hire his compatriots. Recent research into
stereotyping in the UAE, however, found
the opposite to be the case.
16
The study re-
ported that nationals not only shared nega-
44
Mi d d l e ea s t Po l i c y , Vo l . XVii, No. 2, su M M e r 2010
were once very stable, as Omanis are not
always willing to accept the conditions that
their expatriate predecessors once did.
19
The system of job codes, while ef-
cient in limiting new expatriate visas, has
two key problems, one at each end of the
skills spectrum. At present, for instance,
there is a shortage of trained Omanis with
energy-related engineering qualications; at
times, this has reportedly hampered the sul-
tanate’s oil industry.
20
At the other end —
the “unskilled” service sector — businesses
have at times found it hard to maintain
pre-1995 operations. For instance, as all
home-delivery drivers must now be Omani,
on Fridays and during nationals holidays
(when most of this cohort expect to have
time off, as indeed their public-sector coun-
terparts do), fast-food delivery businesses
have not been able to fully function and at
times have come to a complete standstill.
From an Omani employee’s perspective at
least, both of these problems have a posi-
tive side, for increased competition among
businesses seeking to fulll their Omani
quotas has given rise to a certain level of
headhunting and poaching. This, in turn, is
leading to higher salary offers.
A crackdown in 2010 on illegally em-
ployed expatriates,20 accompanied by large
nes, sent a clear message to the sultan-
ate’s private-sector business community:
in the long run employing Omanis will be
less costly. Such actions indicate that for
Oman, at least, direct labor-market inter-
vention will proceed even if this erodes
competitiveness compared to neighbor-
ing countries. For Qatar and Dubai, such
adherence to “rst generation” labor-
nationalization policies is not likely to be
feasible, for both are seeking to become,
inter alia, regional “nancial hubs.” In an
endeavor to achieve this mantle, to be seen
as “business friendly” is paramount.
of $5,000,17 a policy was devised to close
this gap by way of imposing a monthly tax
on companies that hired expatriates. Local
business leaders campaigned, not for the
abolition of the ne, but for a reduction in
the amount, eventually getting it down to
just over $25 a month.18 The net result: ex-
patriates were still far cheaper to employ,
and the law was ineffectual in closing the
remuneration discrepancies.
Oman, after Bahrain, has the lowest
per capita oil reserves and revenues in the
GCC (see Table 1) and is arguably unique
in its commitment to such policies. It has
been an independent country for consid-
erably longer than most of its Arab Gulf
neighbors and, with its history of seafaring
trade, has been relatively less resource de-
pendent. Consequently, national workforce
participation was higher when Omanization
policies were rst introduced in 1995. At
that time, 68 percent of public-sector em-
ployees were already nationals.
19
By 2007,
this gure had risen to 80 percent. Without
huge oil reserves, it is simply unable to ab-
sorb all nationals into the public sector and
thus must rely more on the private sector.
To no small degree this is aided by the
fact that the issuance of expatriate work
visas is controlled by the same government
department — the Ministry of Manpower
— whose raison d’être is to propagate the
Omanization process.
19
Expatriate work
visas are managed according to a system of
job codes. In practice, this means that every
time a private company wants to employ
an expatriate, it needs to specify what role
the individual will be fullling, effectively
requiring it to negotiate for every new ex-
patriate employee.
20
In addition to quotas,
entire job categories (from truck drivers
to shop assistants) have been set aside, by
decree, for Omanis only. This phenomon
has led to high turnover rates in sectors that
45
Fo r s t e N l e c h N e r / ru t l e d g e : uN e M P l o y M e N t i N t h e gu l F
tional signicance” in Saudi Arabia.21 The
fact that King Abdullah provided KAUST
with a $10 billion endowment from his
own personal fortune is a clear signal of
what he sees as the necessary way forward.
To date, many of these new universi-
ties have admitted only limited numbers
of nationals. For instance, just 15 percent
of the 374 graduates who enrolled in
KAUST’s inaugural year were Saudis.21
However, this could be construed as a
measure of the integrity and uncompromis-
ing standards of these new institutions,
demonstrating that minimum standards are
now being enforced. It is in fact reective
of the aforementioned weaknesses still
inherent in the GCC’s secondary-education
systems rather than a lack of any national
interest in pursuing studies at such institu-
tions. In acknowledgment of the decit
at the secondary level, Qatar is working
with the Rand Corporation to bring in
new curricula and teaching practices for
its secondary schools, while the UAE has
enlisted Singapore’s National Institute of
Education to provide teacher training in
the Emirates.22
The traditional focus on humanities
and religious studies is tacitly acknowl-
edged as having failed to equip nationals
for the (private sector) workplace,23 which
in the modern age requires vocational sub-
jects at the expense of the arts. It is likely
that for this reason, among others, second-
generation reforms will have a profound
social impact and may inspire some reac-
tionary calls for their curtailment. GCC
governments will need to mitigate the
increased disenfranchisement arising from
growing levels of national unemployment,
against the more conservative elements
of society that view such transformations
as somehow harmful to society, posing
another dilemma.
“SECOND GENERATION”
RESPONSES
Policy initiatives formulated dur-
ing the recent oil-price boom to upgrade
educational sectors and facilitate more
high-tech, high-skilled economic diversi-
cation, while essentially renements of
rst-generation policy initiatives, are far
more systematic and much better thought
out, particularly in the cases of Qatar and
Abu Dhabi. Nonetheless, while educa-
tion can make nationals more employable,
and diversication can provide a wider
range of challenging and creative employ-
ment opportunities that are more likely
to appeal to nationals, they will not be
enough to endear young nationals to the
private sector. Across the region, educa-
tion sectors are now being overhauled, in
some cases wholesale. Saudi Arabia has
allocated $36.7 billion of its 2010 budget,
equal to a quarter of total planned expend-
iture, towards this sector; the UAE allo-
cated $2.7 billion (22.5 percent of its total
budget); and Qatar allocated 20.5 percent
of its 2008–09 budget to education.
21
The
focus now is unambiguously the content
of the curriculum, not the color scheme of
the campus.
Qatar’s “Education City” initiative
has attracted six leading U.S. universities
(including Carnegie Mellon,
Georgetown
and Texas A&M) to establish satellite
campuses in Doha. Qatari authorities
have achieved this by agreeing to meet
all of their setup and operational costs for
at least the next 10 years. The UAE has
likewise attracted the Sorbonne and New
York University to Abu Dhabi by again
bankrolling all associated costs for these
prestigious institutions. The opening of the
$2.6 billion graduate-level King Abdul-
lah University of Science & Technology
(KAUST) was billed as an “event of na-
46
Mi d d l e ea s t Po l i c y , Vo l . XVii, No. 2, su M M e r 2010
half of the 1,000-strong workforce to be
Emirati six years from now.24
It seems likely that SWFs are seeking
to procure sought-after technologies and
technological “know how.” This is seem-
ingly achieved by providing the given MNC
nancial incentives to locate production
plants, add value locally and transfer tech-
nological capacities. However, the success
of such projects — in labor-nationalization
terms — depends upon having a qualied
and willing body of workers in place to ab-
sorb and utilize this value-added knowledge
when it arrives in the region. This, in turn,
depends on providing nationals with the
right sorts of educational opportunities from
the earliest age possible and instilling in
them the work attitude necessary to contrib-
ute to such projects in a meaningful way.
While the educational reforms now un-
derway are promising in this regard, neither
they nor the new economic diversication
strategies will be fully successful unless
the social contract’s distortive labor-market
transmission mechanism is addressed at
the same time. An albeit isolated incidence
of unemployment-related “civil unrest” in
Saudi Arabia should serve as a reminder
to regional elites that, along with second-
generation reforms, the social contract
itself needs to be revisited. In 2006, police
needed to be called to disperse as many as
10,000 angry Saudi job seekers who had
rushed in person to apply for one of 500
advertized administrative jobs at a govern-
ment passport ofce.
21
The sheer number
of applicants led to the doors of the ofces
being closed, and an impromptu demon-
stration “demanding jobs” broke out.
In fairness, some policy measures
seek to rectify these distortions. In many
instances, Kuwait is now ofcially subsi-
dizing the employment of its citizens by
direct transfer payments to private-sector
There has already been a degree of re-
actionary backlash in Saudi Arabia and, for
observers of the kingdom, an interesting
government response. Sheikh al-Shethri,
a high-prole cleric, was dismissed from
the Council of Senior Clerics by the Saudi
government in 2009 after he criticized the
“policy of mixed classes” and teaching
subjects “such as evolution” at KAUST.21
While GCC ruling elites are at pains to
point out that educational reforms are not
intended to bring about change to the Arab
Gulf’s “traditional values” and “cultural
norms,” but rather to help alleviate na-
tional unemployment, it remains to be seen
whether one is entirely possible without
some degree of the other.
The new wave of economic-diversi-
cation projects seems to have been devised
to create the kinds of jobs nationals are
more likely to view as desirable in terms of
remuneration levels and prestige. It is note-
worthy that many of the latest economic-
diversication strategies are spearheaded
by government-controlled investment
bodies and SWFs. Strategic investments in
industrialized-world multinational com-
panies (MNCs) seem to be done with half
an eye to potential synergies with local
government-backed entities. For instance,
Mubadala, a UAE government-owned in-
vestment vehicle, has stated that it intends
to make investments in leading companies
in order to leverage the required expertise
to build businesses in the UAE that have
a global reach.21 A recent example is an
aerospace subsidiary company, Strata. It
focuses on “next-generation carbon-bre
materials” that are used in modern aircraft
such as the Boeing 787 Dreamliner. Since
2008, it has won more than $2 billion in
work packages from Airbus, among others.
The UAE-based assembly plant will be
in Abu Dhabi, and the project intends for
47
Fo r s t e N l e c h N e r / ru t l e d g e : uN e M P l o y M e N t i N t h e gu l F
nuclear-power deal to date in the Middle
East
27
provides some interesting insights.
The South Korean consortium won, con-
trary to expectations and against stiff Amer-
ican and French competition. Among other
reasons, its bid entailed a very well-devel-
oped plan for training and incorporating
Emiratis into the project at all stages and
levels. This deal, worth at least $20 billion,
is the largest thus far in which an element
of workforce nationalization was speci-
cally mentioned as a criterion and seen to
have had an inuence on the outcome.
CONCLUSION
The above-mentioned schemes in Ku-
wait and the UAE — “subsidizing” nation-
als by topping up their private-sector salary
or paying an above-market rate in a state-
owned “private” company — are but one
avenue. Such measures, taken at face value,
may seem extreme, but they are a less
unproductive allocation of state resources
than would be the case if such a worker
were to be absorbed into the archetypal
public sector (automotive, bureaucratic,
deskbound occupations). SOEs, in particu-
lar those of the new generation, have the
potential to be growth-generating invest-
ments despite such subsidies. Pensions and
benets such as access to day care and ma-
ternity leave should be standardized across
both sectors. If this were done in all GCC
countries — they do, after all, now consti-
tute a common market — it would prevent
any national market from becoming more
competitive in this regard than another.
A line should be drawn between classic
public-sector and highly skilled public- and
quasi-private-sector jobs, especially those
in the emerging high-skilled and high-
tech industries. Over a gradual period, the
benets and incentives should become
signicantly larger for the more productive
employers. The UAE is doing so in more
discrete ways, indirectly subsidizing state-
owned entities (SOEs) and state-backed
commercial ones. There is also talk of
creating some form of jobseekers allow-
ance and providing government pensions
to nationals who work in the private sector.
IMPLICATIONS FOR INVESTORS
Thus far, the only indisputable benet
accruing to businesses operating in the re-
gion — both local and international — from
proactively pursuing labor-nationalization
agendas is as an endeavor to gain favor with
the respective host government. In practice,
this means that a business with a good track
record for recruiting and training nationals,
all other things being equal, is more likely
to be fast-tracked through certain bureau-
cratic processes. Indeed, recent research
25
suggests a key driver of businesses nation-
alizing their workforce has been the desire
to obtain goodwill from the host govern-
ment, which could then be used to improve
the chances of securing future contracts
tendered by the public sector.
Across the board, in fact, with respect
to securing new contracts, it is becoming
a prerequisite, for any bid or proposal, to
factor in a plan for how nationals would ei-
ther be employed or trained. For example,
Saudi Arabia’s state-owned oil company,
Saudi Aramco, recently let it be known
that all of its overseas partners would
need to set up joint ventures with local
rms if they wanted to compete for future
contracts. Heeding such calls, Samsung
Engineering of South Korea committed
to build a training and technology center
for its Saudi employees at Jubail, a large
industrial and petrochemical complex.26
Furthermore, in the UAE, the recent
successful bid of a South Korean consor-
tium for what is far and away the biggest
48
Mi d d l e ea s t Po l i c y , Vo l . XVii, No. 2, su M M e r 2010
jobs that continue to attract nationals and
have the most pride and prestige attached
to them. Oil wealth can be distributed in
non-distortive ways, Norway being a case
in point. If the social contract is not up-
dated to reect contemporary demographic
and labor-market realities, increasing
numbers of unemployed nationals — those
without sufcient wasta (connections) to
secure one of these classic positions —
will become ever more likely to voice their
discontent and ask exactly what is in the
“ruling bargain” for them.
and growth-generating parts of the public
sector (i.e., SOEs). On one side of the line,
pay freezes could be enacted (cuts and re-
dundancies are untenable, politically speak-
ing), and future entrants to this sector could
be obliged to serve for a 30–35-year period
and accept xed salaries. On the other side,
salaries should start at a higher rate and
afford more opportunities for performance-
linked salary increases.
As long as salaries offered by the
“classic” public sector are several factors
higher than those elsewhere, it will be such
Chart 1: GCC OPEC Members’ Net Oil-Export Revenues in Real Terms
Source: Authors’ calculations based on EIA (2010)28 data.
Notes: Estimates for 2010 and 2011 are the authors’ calculations based on EIA (2010)29 forecasts.
49
Fo r s t e N l e c h N e r / ru t l e d g e : uN e M P l o y M e N t i N t h e gu l F
Table 1: Resource Reserves and Remuneration
Per Capita
Oil Reserves
End of 2007,
barrels per capita
Per Capita
Gas Reserves
End of 2007,
TCM* per capita
Per Capita
Oil-Export Revenues
$US, 2009
Per Capita SWF /
Oil-Stabilization Assets
$US, 2009
Total pop. Nationals Total Pop. Nationals Total Pop. Nationals Total Pop. Nationals
GCC 13,150 19,624 1.02 1.67 13,395 57,610 37,160 55,454
Bahrain 171 229 0.12 0.17 –– –– 17,972 25,740
Kuwait 37,697 47,173 0.66 0.83 18,996 23,767 58,902 94,253
Oman 1,638 2,555 0.29 0.45 4,500 7,019 2,961 3,741
Qatar 27,943 212,273 26.06 197.97 24,490 184,615 59,199 505,412
Saudi Arabia 9,206 13,669 0.26 0.39 6,344 9,420 17,311 22,307
UAE 20,381 101,907 1.34 6.70 12,646 63,229 142,003 704,909
Norway 1,567 –– 0.60 –– 8,894 –– 92,960 ––
Sources: BP Statistical Review (2009),30 CIA World Factbook (2010),31 EIA (2010),32 SWF Institute (2010).33
Notes: *Trillion cubic meters
50
Mi d d l e ea s t Po l i c y , Vo l . XVii, No. 2, su M M e r 2010
Table 2: Labor-Market Figures
Public Sector
Labor Force (%)
“Private Sector”
Labor Force (%)
Unemployment
Among Nationals
Public Sector
Preferences
Nationals Expatriates Nationals Expatriates All
Nationals (%)
Aged
15–29 (%)
Aged
15–29 (%)
GCC 72.3 27.7 31.7 68.3 9.2 17.2 66.6
Bahrain 90.8 9.2 28.6 72.4 18.4 27.0 73.0
Kuwait 74.6 25.4 2.7 97.3 3.7 8.0 71.0
Oman 80.5 19.5 15.5 84.5 6.3 –– ––
Qatar 52.8 47.2 17.0 83.0 3.2 11.0 63.0
Saudi Arabia 91.3 8.7 45.3 54.7 9.8 28.0 60.0
UAE 27.4 72.6 1.3 98.7 13.8 12.0 66.0
Sources: Gallup (2009),34 Rutledge (2009),35 CIA World Factbook (2010).36
Notes: Labor market data cover the period 2004–2007. Figures for unemployment gures for the 15–29 age bracket are for
those “neither in education nor in work.” As noted in the text, the private sector in the GCC tends to include entities that are
partially state-owned.
51
Fo r s t e N l e c h N e r / ru t l e d g e : uN e M P l o y M e N t i N t h e gu l F
1 UNDP, Arab Human Development Report 2009 — Challenges to Human Security in the Arab Countries,
(United Nations Development Programme, Regional Bureau for Arab States, 2009).
2 Anthony H. Cordesman, Saudi Arabia Enters the 21st Century: Economic, Demographic and Social Chal-
lenges (Center for Strategic and International Studies, 2002).
3 Booz & Co, “The Case for GCC Pension Reform from Sinking to Sustainable,” http://www.booz.com/me/
home/what_we_think/40007409/40007869/47412496 (accessed February 23, 2010).
4 Paul Melly, “Educating for Employment,” Middle East Economic Digest, Vol. 54, No. 8, 2010, pp. 39-41.
5 Tim Niblock, Saudi Arabia: Power, Legitimacy and Survival (Routledge, 2006).
6 Christopher Davidson, “No Shortage of Wealth,” Länderprole: Edition Golfstaaten (2008), pp. 9-10.
7 Mishaal Al Gergawi. “Emiratisation and the Curse of Entitlement,” The National, 2008.
8 Radwan A. Shaban, Ragui Assaad, and Sulayman S. Al Qudsi, “The Challenge of Unemployment in the
Arab Region,” International Labour Review, Vol. 134, No. 1, 1995, p. 65.
9 Tim Niblock, The Political Economy of Saudi Arabia (Routledge, 2007).
10 Onn Winckler, Arab Political Demography: Population Growth and Nationalist Policies (Sussex Academic
Press, 2005).
11 Gallup, “The Silatech Index: Voices of Young Arabs,” http://www.somalilandtimes.net/sl/2010/422/Silat-
ech_Report_Final.pdf (accessed February 16, 2010).
12 Sultan Lootah and Anne Simon, “Arab Human Capital Challenge — The Voice of CEOs,” Mohammed Bin
Rashid Al Maktoum Foundation (2009).
13 Ministry of Education of the UAE, The Ministry of Education Strategy 2010 – 2020 (2010).
14 Bureau of Near Eastern Affairs, “Saudi Arabia (01/09),” ed. U.S. Department of State (2009).
15
Christopher Davidson, “Abu Dhabi: Labour Nationalization,” Länderprole: Edition Golfstaaten (2008), pp. 28-9.
16
Mohamed Al Waq and Ingo Forstenlechner, “Stereotyping of Citizens in an Expatriate Dominated Labour
Market: Implications for Workforce Localization Policy,” Employee Relations, Vol. 32, No. 4 (2010): forthcoming.
17
Oxford Business Group, “The Report: Bahrain 2008,” Annual Business Economic and Political Review (2008c).
18 “Bridging the Gulf,” The Economist, January 14, 2010.
19 Mark Valeri, “The Omanisation Policy of Employment: An Omani Economic Dilemma,” www.ceri-scienc-
espo.com/archive/mars05/artmv.pdf, March 13, 2010.
20
Visvas P.D. Karra. “Striking the Right Note,” Oman Economic Review, January 2010 (accessed January 2010).
21 Elizabeth Bains, “Raising Standards and Aspirations,” Middle East Economic Digest, Vol. 53, No. 51,
2009, pp. 38-41.
22 Marcus Noland and Howard Pack, “Arab Economies at Tipping Point,” Middle East Policy, Vol. 15, No. 1,
2008, pp. 60-9.
23
EIU, “The GCC in 2020: The Gulf and Its People,” The Economist Intelligence Unit, September 2009, pp. 1-21.
24 Ivan Gale. “Industry Flies into Strata’s Sphere,” The National, March 10, 2010.
25
Ingo Forstenlechner and Kamel Mellahi, “Gaining Legitimacy through Hiring Local Workforce at a Premium:
The Case of MNEs in the United Arab Emirates,” Journal of World Business, Vol. 46, No. 2, 2011, forthcoming.
26 Perry Williams, 2010 Yearbook (Middle East Economic Digest, 2009).
27 Chris Stanton. “Abu Dhabi Signs Nuclear Power Deal with South Korean Group,” The National, December
28, 2009.
28 “Short Term Energy Outlook,” Energy Information Administration. http://www.eia.doe.gov/steo (accessed
March 20, 2010).
29 Ibid.
30 BP, “BP Statistical Review of World Energy,” http://bp.com/statisticalreview (accessed February 4, 2010).
31 CIA World Factbook, The World Factbook, https://www.cia.gov/library/publications/the-world-factbook/
(accessed March 20, 2010).
32 EIA, “Short Term Energy Outlook”
33 Sovereign Wealth Fund Institute, “Sovereign Wealth Fund Rankings,” http://www.swnstitute.org (ac-
cessed March 12, 2010).
34 Gallup, “The Silatech Index: Voices of Young Arabs.”
35 Emilie Jane Rutledge, Monetary Union in the Gulf — Prospects for a Single Currency in the Arabian Pen-
insula (Routledge, 2009).
36 CIA, The World Factbook.
