Aspects of Dualism in the Gulf
The prospect of lower oil revenues certainly will constrain the Gulf States to diversify their economies away from dependence on this commodity. Countries like Bahrain seek to focus on education and training, communications and infrastructure and promoting a start-up ecosystem for fostering entrepreneurship. The level of ambition is also high as they intend to generate high skill jobs and build a knowledge- based economy. The technology sector in the Gulf States is likely expected to grow by 10 per cent per annum over the next five years while the spending on technology in the Middle East as a whole is expected to touch $200 billion.
However, the transition to this brave new world requires bridging the skills gap. The labour market in this region depends heavily on low skilled and low wage earning migrant labour. More than 80 per cent of the workforce in private sector employment in Bahrain is comprised of expatriates. It goes up to 96 per cent and 98 per cent in Kuwait and Qatar respectively. In sharp contrast, the nationals are disproportionately represented in the bloated public sector. So, one form of dualism in the labour market is that the private sector is dominated wholly by expatriates while the public sector is largely for the locals in the Gulf.
Another source of dualism is that women are not adequately represented in the labour market due to pervasive gender discrimination in these conservative economies. Although women’s enrolment in higher educational institutions is rapidly rising of late — a case in point are courses in financial services in Bahrain which attract a lot of women — female labour force participation rates are well below 30 per cent as against the global average of 50 per cent. Jobless among young females is as high as 55 per cent in Saudi Arabia which is three-times higher than that of young males, according to the World Bank’s World Development Indicators.
Gulf’s labour market thus is “locked in a low skills, low wages and low productivity equilibrium” argued Frank Hagemann, deputy regional director of ILO, at one of the sessions at the Bay Forum. This dualism is reflected in a substantial wage gap between the private and public sector. At the lower end, the living and working conditions of migrants is sub-standard and highly exploitative in nature. Dependency-driven employee-employers relations are rife. The big challenge for the Gulf States is to kick-start the transition from this state of affairs to one driven by higher skills, higher wages and productivity.
What is the impact of abundant supplies of low skilled, low productivity expatriate population queried Ausamah Al Absi, chief executive, Labour Market Regulatory Authority in Bahrain? If an entrepreneur were to make an investment in a state-of-the-art printing press in Germany, he has to employ high technology and productivity tools as the cost of manpower is high. But in Bahrain, he can go for lower technology supported by a low skilled workforce. Pursuing a capital-intensive option in a low wage economy is not on. For such demand-side reasons, this entrepreneur will naturally be rendered uncompetitive in this economy, felt Al Absi.
Low oil prices complicate the efforts of the Gulf States to address these distortions without throwing out the baby with the bathwater. If revenues continue to decline, a worry is that it reduces the fiscal space to pay nationals in the public sector. At the same time, there is a compulsion to reduce subsidies on water, electricity and school fees that will disproportionately hit the expatriate workforce. The Gulf economies thus will make it more and more difficult for the expatriates to work in these economies over the near-term Controls on migration appear inevitable, regardless of the heavy dependence on such labour at present.
The transition to a higher skills, wages and productivity equilibrium is far from easy. It entails changes over a generation. For instance, in Saudi Arabia, 40 per cent of the graduates come from humanities or Islamic studies while only 4 per cent are engineers. Stepping up the numbers of engineers takes more time. Yet there is a temptation to look for quick fixes like inviting tech giants in the US to set up cloud computing courses in the Gulf States! At the Bay Forum, Bahrain announced a $100 million venture capital based fund to that will work as the first cloud technology accelerator in the region. Can such moves kick-start hi-tech start-ups? Intermediate steps are perhaps more necessary like vocational and on-the-job training. Only 17 per cent of firms in the Gulf States provide on-the-job training as against the global average of 35 per cent. The best bet for these countries is greater gender empowerment in the labour market than expat-bashing policies to reduce sources of instability.