Strategic Assessment
Shockwaves in the energy market and the COVID-19 pandemic have repositioned the issue of migrant workers higher on the Gulf agenda. The recent economic damage has forced the Gulf states, which have the world’s highest concentration of foreign workers, to re-examine the employment model in the area. Some wish to turn the crisis into an opportunity—to shake the dust off the reforms needed in order to provide a solution, even partial, to the problem, or at least to limit its consequences. This article assesses the phenomenon of foreign workers in the Gulf, the challenges it poses to the countries involved, and the largely problematic options available as they try to localize their job markets.
Keywords: Gulf states, Saudi Arabia, United Arab Emirates, migrant workers, oil market, COVID-19
“We need it, we need it, but I think in 2020 we can live without oil."
Mohammed bin Salman, April 2016
Background and Data
For at least half a century, migrant workers have been the backbone of employment market in the Gulf countries. The six Arab Gulf states—Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Oman, and Bahrain—have the world’s largest concentration of temporary migrant workers, about 10 percent of migrant workers worldwide. The International Labor Organization (ILO) puts the number of migrant workers in the Gulf states (as well as Jordan and Lebanon) at about 35 million. In four of the six Arab Gulf States, the proportion of foreign workers even exceeds the proportion of citizens, and they comprise a majority of the population: 88 percent of people in the UAE, 75 percent in Qatar, 73 percent in Kuwait, and 51 percent in Bahrain are migrant workers (authorities tend to downplay the number of migrant workers, and there are also illegal foreign workers unknown to the authorities). Thus, out of a population of 9.5 million residents in the UAE, for example, about 8 million are foreign workers. The majority of foreign workers in the Gulf states meet the definition of low skilled workers, with most from Asia (particularly Southeast Asia), while the number of migrants from Africa, and Egypt in particular, is rising steadily. The Gulf states previously employed many Palestinians (about a million), primarily in Saudi Arabia and Kuwait, but due to their support for Saddam Hussein in the Gulf War, about half a million were expelled, mainly to Jordan. The fate of many Yemenis working in Saudi Arabia was similar, and for the same reason. The official total of annual money transfers from the Gulf states is about $120 billion, and the main destination countries are India ($50 billion annually) and Egypt ($20 billion annually).
According to the World Bank, over 95 percent of the workforce employed in construction and manual labor in the Gulf consists of foreigners.
Demographic changes due to migration have accelerated considerably since the early 1970s, with the blossoming of the oil industry and greater demand for labor in the oil, industrial, and construction sectors. In 1972 the average price of a barrel of oil was about 3 dollars, while in 1982 it was 30 dollars. The so-called "oil decade" brought about a rise in the standard of living and growing demand for foreign workers in the industry, as well as in households. According to the World Bank, over 95 percent of the workforce employed in construction and manual labor in the Gulf consists of foreigners. Today, anyone with an average income in the Gulf states can employ a number of foreigners in the home. In fact, the mechanisms of normal daily existence in the Gulf depend on migrant workers. Some of them are already second and third generation in the Gulf, and some have even acquired property, but they are still officially defined as foreigners.
A striking feature of migration to the Gulf is that it is mostly temporary in nature, for employment purposes. Very few of the migrants acquire citizenship of the host countries, and most of them transfer their wages to the families left behind, in their country of origin, until they return. The legal basis of migrant policy in the Gulf rests on a complex set of laws known as the kafala system, whereby the migrant workers are in fact utterly dependent on the mercies of their local patron, a native of the country. They cannot move to another employer, they are forbidden to enter or leave the country without permission, and they are unable to open a bank account or have a telephone line without the patron’s consent. Every foreign worker is thus completely dependent on a local guarantor who can charge him money, and the loss of the sponsor usually means expulsion.
Abuse of migrant workers is common in the Arab Gulf States, although not widely reported. In this strict legal framework, workers have very few rights, and the most common complaints in the Gulf relate to withheld wages, denial of medical treatment, confiscation of passports, and imprisonment and maltreatment. When such events reach the headlines, they often lead to diplomatic tensions between the host country and the worker’s country of origin.
Nationalization of Labor
Since the 1980s the Gulf states have adopted “localization” plans that represent an attempt to replace the foreign workers with local workers. The fear of high unemployment rates is common to all regimes, but in the Gulf states there is also a concern that unemployment will lead to domestic unrest. The unemployment rate in Saudi Arabia is rising steadily: in 2016, when the 2030 Vision was published, the official figure was 11.6 percent, and since that it has not fallen below 12 percent. In the wake of the COVID-19 crisis, the official rate of unemployment among citizens has risen to 14.9 percent, while the rate among the total population rose to 9 percent (in the third quarter of 2020). Particularly troubling is the fact that over half the Saudi unemployed have a Bachelor’s degree, mainly in the humanities, while the rate of unemployment in the 20-29 age group is 60.7 (in the third quarter of 2020). This is the same population segment that Crown Prince and de facto ruler Mohammed bin Salman sees as his main support base.
Notwithstanding the high rates of unemployment, the number of foreign workers in Saudi Arabia is the largest of all the Gulf states. According to data from the World Bank, about 10 million people or a third of the residents are migrant workers. In 2013 the kingdom began mass expulsions of foreign workers, who were mostly from Africa and employed primarily in manual labor, ostensibly because they did not have suitable permits. Since then, hundreds of thousands of foreign workers have reportedly been located, arrested, and expelled, and the numbers may be even larger. The drop in oil prices at the end of 2014 once again led the Gulf states, each according to its needs and character, to try and nationalize various sectors in the economy.
This was true above all for Saudi Arabia, which also imposed new restrictions on foreign workers, particularly taxes and fees (and concurrently, the prices of goods and services such as water, electricity, and fuel began to rise, as government subsidies were withdrawn in 2017). As a result, from January 2017 to September 2018 over a million foreign workers left the kingdom. For the Gulf states, the increasing cost of living, beyond the attempt to bring more citizens into the work cycle, also presented another way of artificially increasing non-oil income.
This is not the first time that efforts have been made to expel foreign workers in order to make room for local workers. Previous attempts, particularly in the period of falling oil prices, were only partially successful and only temporary. In Saudi Arabia, the process that was dubbed “Saudization” included the expulsion of foreign workers who did not have the skills to develop the economy, and since 2017, along with taxes and fees on foreign workers and their employers, included incentives to employ locals, mainly in the retail and services sectors.
However, in the short term Saudi workers did not rush to take the place of the foreigners. Many young Saudis complete university without suitable skills for the private sector, or their wage demands are higher than those of the foreigners. As a result, the public sector, which is traditionally seen as a prop for the regime, employs most Saudi citizens, while the private sector continues to employ mainly foreign workers (77 percent). Saudi Arabia has also begun to limit the number of trades in which foreigners can be employed, in the hope that locals will take the jobs. For example, foreign women are not allowed to sell clothes in women’s clothing stores; these are jobs that are now reserved for Saudi women. Only Saudis can be employed as human resource managers in the private and public sectors, and the same applies to hotel receptionists, private security guards, clerks in car rental companies, and cellular telephone workers. It is even forbidden to employ foreign workers on stalls (“carts”) in the large malls.
In response to public pressure, it pledged to reduce the number of foreign workers from 70 to 30 percent and stop the employment of foreigners in the oil industry. It also began a process of replacing foreign workers in the public sector with locals.
In spite of the attempt to encourage local employment, however, the kingdom’s policy is not consistent, and long term planning is generally neglected in favor of immediate needs. For example, the royal house removed some of the fees imposed on foreign workers because of the damage to the Saudi economy caused by their departure, and it was even reported that the kingdom is considering suspending this measure, due particularly to the damage to the construction industry. In April 2020 the fees on the employment of foreigners were indeed temporarily frozen following the negative effect of COVID-19 on the Saudi economy. In February 2021 the kingdom also announced that foreign companies that moved their activity to Saudi Arabia (as part of the competition among Gulf states to attract foreign companies) would be exempt from the need to employ local workers.
Elsewhere in the Gulf, the Kuwaiti government announced what appears to be the most ambitious goal. In response to public pressure, it pledged to reduce the number of foreign workers from 70 to 30 percent and stop the employment of foreigners in the oil industry. It also began a process of replacing foreign workers in the public sector with locals and even set a target date. Qatar, Oman, and the UAEannounced pay cuts for foreigners in the public sector, and in Oman, falling oil prices and the coronavirus crisis led the government to call on the private sector to stop employing foreigners, and even asked that they "leave permanently," hoping that locals would take their place (“Omanization”).
Consequences of the Pandemic
Like the oil crisis of 2014, the COVID-19 crisis that began in early 2020 increased economic pressure on the oil economies in the Gulf, and once again the first to pay the price were the foreign workers. Although the decline in global economic activity preceded the pandemic, it was made worse by COVID-19 and led to further declines in oil prices. The Gulf states reached deep into their pockets and offered households and the private sector considerable aid, which did not reach the migrant workers.
Many of the foreign workers became unemployed as factories closed, construction stopped, and tourism and commerce shrank. As infection spread, the poor living conditions of many migrants, overcrowding, and the difficulty of getting medical treatment aggravated their situation, particularly those who were living in improvised work camps and detention facilities. The situation was so serious that the Saudi Minister of Health announced that 80 percent of all new infections were among foreign workers. In fact, some Gulf states took the opportunity to stop issuing work visas, and in some cases began to expel workers to their countries of origin. Over 300,000 foreigners left Saudi Arabia in the first half of 2020, and it is estimated that with the return of international flights, the total number leaving in 2020 will exceed 1.2 million, almost triple the number who left in 2019.
As the situation of the foreign workers deteriorated, so too did attitudes towards them. This negative attitude was found among many citizens, including cultural and media figures, who blamed the foreign workers for the spread of the virus and called for their expulsion in order to keep hospital beds for locals. Citizens in Oman compared work migrants to a cancer, and in Saudi Arabia there were many who directed their anger against the business sector and even the authorities.
The governments tried to exploit these negative feelings in order to implement the necessary changes and reduce reliance on a foreign work force, in order to improve the local job market. However, the steps they took were similar to the steps taken in the past, including:
1. Barring entry and expelling foreigners: the pandemic led countries to increase the pace of expelling foreign workers, particularly illegal, which drew criticism from international human rights groups. According to a leaked UN report, Saudi Arabia began sending some 200,000 migrants back to Ethiopia, some with COVID-19.
2. Encouraging local workers:in most Gulf states old plans for “localization” of employment were revived. So far these attempts have had partial success, although in Saudi Arabia, for example, it is possible to see young Saudis working in coffee shops, as couriers, and in hotels—jobs that were previously taken by foreigners. This trend will probably be accelerated by the effects of the pandemic.
3. Encouraging higher birth rates among citizens: encouraging fertility among the natives, in order to outnumber the foreign workers (the current fertility rate in the kingdom is 2.37 births per woman). There is some concern among the smaller Gulf states, where the citizens are a minority, about changes to the local social and cultural fabric (Arabic-Islamic-tribal), which in turn could also affect political stability (in the UAE the fertility rate is 1.49).
4. Encouraging women to participate in the labor force: the status of Saudi women in general has improved in recent years, including their right to a hold driver’s license and fly abroad without a male companion (for women over 21). These reforms in themselves give women greater mobility and have led to their greater participation in the labor force—from 19 percent in 2017 to 30 percent in the last quarter of 2020.
5. Improving the quality of the local labor force:many businesses, particularly in Saudi Arabia, have trouble finding skilled workers, either because few young people study technological subjects and engineering, or because the standard of those who have studied these subjects is generally lower than among the foreign workers.
If the current attempt to make sweeping changes in the labor market is to be more successful, it will require a sharp drop in the standard of living of many Gulf citizens, who have become used to a different reality. Not only that, it will require adjustments in education and training: about half of the Saudi population have only a high school education or less, even though the education budget in the kingdom is one of the highest in the world, and technology education suffers from serious shortages. Finally, reducing the employment of foreign workers will significantly damage the ability to realize the ambitious but essential economic reforms that are needed to develop economies that are no longer dependent on oil.
Test Cases: Egypt and India
In the Gulf states there is an overall preference for workers from East Asia, for several reasons. First, the cost of employing them is generally lower, they are more efficient, and unlike workers of Arab origin, they usually migrate unmarried. Second, the fact that they are not Muslims is an advantage, because they are not subject to the restrictions of religious law. In addition, in many cases they have no cultural or familial ties to the local population, and their political awareness is not like that of migrants from Arab countries.
Of the countries that export workers to the Gulf, India is home to the largest number, while among Arab countries, Egypt leads in the number of people seeking work abroad. These countries encourage their citizens to work in other countries, for a number of reasons, above all to relieve internal employment pressures and to bring in foreign currency in order to improve the local economy. It is estimated that in 2018 some 9 million Indians were employed in the Arab Gulf states in construction, trade, and services, and they sent about $40 billion back to India every year. As the Indians are the largest group of migrant workers in the Gulf, their work is essential for the proper function of the host states’ economies. India is forced to consider carefully any political move that could put at risk the security of its citizens in the Gulf and the payments that help its economy. The Indian diaspora can to some extent be a lever for New Delhi to apply pressure to the Gulf states, but it is also a burden. For example, during the occupation of Kuwait, India had to evacuate over 100,000 of its citizens in an airlift from Iraq and Kuwait, and it is therefore very sensitive to political stability and good relations between the countries. Now, as a result of the pandemic, many Indian citizens left unemployed are being repatriated.
Even in normal times, attitudes to their citizens working abroad are a source of concern for India, and sometimes even a source of tension between the countries. The planned economic reforms in the Gulf states and efforts to rely as much as possible on local labor could intensify these tensions. The steps taken to “nationalize” their labor markets have already reducing their reliance on Indian workers, which would deprive New Delhi of possible leverage over them. 1
About five million Egyptians worked in the Gulf just before the pandemic, sending essential capital back to their country, but at the height of the crisis the Gulf states closed their borders, and in some cases also began sending foreign workers home. This led to some diplomatic tension with Egypt, and even rioting among Egyptian workers in the Gulf. The crisis forced the Gulf states where a majority of residents are foreigners to repatriate them in a way that imposed an additional burden on the countries of origin, above all on Egypt, the Arab country with the largest number of workers in the Gulf, including teachers, engineers, and even judges. Following the outbreak of the pandemic and the closure of the education system, some Gulf states froze visas for non-resident Egyptian workers. Qatar, for example, barred entry of Egyptian workers (who arrive in Doha via Kuwait or Oman). In Kuwait alone, the authorities ordered 67,000 teachers, of whom 17,000 teachers were Egyptians, some with families, to return to their countries. In Kuwait, the pandemic led to a temporary crisis in relations with Egypt. The loss of remittances by Egyptian workers, estimated at about $20 billion annually, will have a drastic impact on Egypt, and the return of so many workers has already hiked unemployment rates and created pressures on health and housing.
The average rate of unemployment in Arab countries (excluding the Gulf) before the outbreak of COVID-19 was about 11 percent. In addition to the unemployed, many workers are employed in unsuitable conditions. These are significant figures that threaten the economies of many Arab countries that have become dependent on the Gulf states. A particularly sensitive point is youth unemployment, when one in five young Arabs is unemployed—almost twice the average global rate.
Conclusion
There is a delicate balance around the employment of foreigners in the Gulf, which if upset will damage both the Gulf states themselves and the expatriates’ countries of origin. So far, the plans to nationalize the job market in the Gulf states have not achieved their goal and the Gulf economies are still dependent on foreigners in many occupations—despite the increasing size and quality of the local labor force and the volatility of the oil market. In the short and medium terms, the Gulf economies are expected to sustain losses due to the departure of migrant workers—apart from their ability to implement various reforms and infrastructure and tourism projects, they are also losing an important non-oil source of income, namely, the taxes and fees imposed on foreign workers and their families.
Two main factors led to the dependence of the Gulf oil economies on foreign workers: the huge profits from the sale of oil and gas thanks to their natural reserves, and the relatively small size of their populations, who are unskilled or not interested in mainly low-paid manual work. This inherent distortion creates a relatively small private sector with a marked preference for foreign workers who are prepared to work for lower wages.
Although crises such as the pandemic led to growing nationalist feelings and xenophobia, in the foreseeable future the Gulf economies will remain just as dependent on foreign workers as in the last fifty years. Reducing the number of foreign workers in the Gulf states depends on the ability of their governments to persuade their citizens to engage in jobs that are often resisted, by improving wages and other conditions. It also depends on the ability to overcome the shortage of skilled workers, although they already incentivize the young to study engineering, medicine, and computer science. Nevertheless, a minimal number of Saudi students acquire a technical or engineering degree, and most still prefer religious studies or the humanities and social sciences.
As for the standard of living of foreign workers, there have been changes. Some countries, such as the UAE, which needs migrant workers to complete construction of Expo 2021, are aware of the situation and have begun to offer foreign workers various benefits, subject to restrictions, including the ability to change employers, and in certain cases to receive permanent residency. The UAE even went further, and for the first time announced in January 2021 that citizenship could be granted to foreigners with needed skills or investors and their families, as part of the effort to improve the UAE’s economic performance. Qatar has also begun improving working conditions for migrants, in the face of criticism from human rights organizations and foreign governments about the treatment of foreign workers, many of whom are laboring to construct the enormous infrastructure required to host the 2022 World Cup. Over 6500 migrant workers from Nepal, Pakistan, India, Bangladesh, and Sri Lanka were reportedly killed since Qatar was chosen to host the competition. (The actual number of migrant workers in Qatar who died is a lot higher, as these figures do not include deaths among workers from other countries.) In response to international criticism, Qatar announced new labor laws, giving workers the right to change employers and setting a minimum wage of 1,000 rials (about $250). This reform also includes severe penalties for employers who do not pay their workers or do not ensure they have suitable living conditions. Saudi Arabia, which has the harshest kafala system of all the Gulf states, also announced reforms that will allow to migrant workers to change employers and leave the kingdom without the employer’s permission. This move may also have been influenced by criticism in the United States of human rights in Saudi Arabia, particularly following the entry of Joe Biden into the White House, and the kingdom’s desire for better relations with the US. Many details about the proposed changes are missing, but their implementation should certainly be monitored.
As for the local workforce, there is a gap between the reserve of local workers and their skills, and the (necessary) reforms announced by a number of Gulf states, which focus on the need to nationalize the work force. Many foreign workers have left in the past decade, due to employment uncertainty and deteriorating living conditions, or due to government demands to employ locals. The rate of exit accelerated following the economic crisis in the Gulf as a result of the steep decline in oil prices in early 2020, and the pandemic. For example, in Saudi Arabia alone, some 1.2 million foreign workers believed to have left in 2020.
All the Gulf states have plans for professional training, and are introducing laws to encourage the employment of locals, including information campaigns for employers and trade unions. But apart from the cultural difficulty that stops young Gulf Arabs from engaging in menial or physically demanding work, the problem has arisen largely due to the huge number of projects and the accelerated rate of development in these countries, compared to the available local workforce. The shortage of skilled workers is the main, though not the only cause of their structural dependence on foreign workers, in spite of their large investment in recent years in training institutions and programs, including hosting extensions of universities and lecturers from overseas.
Arab citizens of Israel might seek to work in the Gulf, both to advance normalization and to improve their economic and employment situation.
Following the normalization accords signed between Israel and the UAE and Bahrain, Arab citizens of Israel might seek to work in the Gulf, both to advance normalization and to improve their economic and employment situation. Israel should prioritize this in its discussions with representatives of the UAE and Bahrain, although just as there is structural suspicion in the Gulf states of foreign workers from Arab countries, there may also be hesitation vis-à-vis Arabs from Israel. Both the political leadership of Arab society in Israel and voices heard from the community had reservations about the accords, and it is not clear whether they will want to migrate to the Gulf for work.
There is no certainty that the increased rate of departure of foreign workers from Gulf states will continue, and if so, that it will bring about the required change in the labor market, because it essentially conflicts with the reliance on welfare policy, generous subsidies, and grants that contribute to political stability in those countries. Maintaining political stability will continue to be the central interest of the regimes, notwithstanding the heavy burden on their budgets, because much of the funding is directed at the public sector and is linked to population growth. This has created the impossible situation of increased employment of foreign workers together with increasing rates of unemployment among the locals.
The preference for political stability means that most citizens benefit from subsidies for a range of services, and also obtain comfortable jobs in the public sector. The locals prefer to work in government ministries, where the work ethic is poor, salaries are fixed, and there are no particular professional requirements (thus creating hidden unemployment). Widespread employment of locals in the public sector is the main way of distributing the oil profits, and thus creates dual dependency: citizens rely on generous salaries, and the regime has to maintain their high standard of living.
