, Arab Times and Akhbar Al Khaleej
Expats presently
constitute about half of the total population in the GCC (52%), with a low of
37% for Saudi Arabia and a high of approximately 88% for UAE and Qatar. The
increasing and large proportion of the expatriate population is a matter of
concern for many GCC countries, as it slows down nationalisation goals. It also
imposes costs, such as growing remittances, places a burden on public services,
such as healthcare and infrastructure, and can result in illegal stay.
How will
this evolve and impact certain sectors?
The GCC
economic model is unique, as a large number of expats are involved in nation
building. While the government tries to contain or reduce this number, in order
to provide employment opportunities to nationals, it has economic costs and
impacts key sectors. Before assessing costs, let us look at the benefits. A decreasing
number of expats will lead to lower remittance. Nearly $100 billion leaves the GCC
every year through remittance and hence is a burden on the current account.
However, this argument only stands if there is no “qualitative” change in the
profile of expats that are working in the GCC.
If this is
indeed the case, remittances may increase, rather than decrease, due to the per
capita effect. Recent research, published by Marmore, showed the average per
capita remittance for a male expat in Saudi Arabia increased from $2,755
between 1994-1999 to $5,618 between 2011-2015; due to the significant increase
in blue collar expats. A qualitative change in favour of white collar workers
will also encourage GCC governments to work on labour market flexibility, immigration
options and partial opening of markets to real estate investment by white
collar expats. A lower expat population will reduce the pressure on public
services like healthcare, transportation, infrastructure, water and electricity.
Given that most of the public services are highly subsidised, this should be a
welcome factor. On the back of lower usage, the need for spending on
infrastructure also comes down.
The debate
about public versus private sector is also relevant here. In the GCC’s public
sector, around 9.6% of the workforce is comprised of expats, while in the
private sector, 88% of the workforce is comprised of expats. Given this, displacing
expats in the private sector can lead to efficiency loss and an increase in operational
costs, as well as reduced margins. Industry associations and chambers will
obviously resist more pressure coming from this factor. The private sector is already
facing a slew of new taxes to disincentivize expat employment. However, the
reduction in expat employment can happen in the public sector, which is currently
dominated by local employment.
Sectors
that will be impacted by this demographic shift include banking, financial
services, real estate, retail, transportation, hospitality, food and beverages
and tourism. In the case of banking, the impact will be more positive given the
fact that on the retail banking side, GCC nationals are the major consumers of
retail products, except for credit cards and personal loans. On the other hand,
a qualitative shift in the expat demography will help banks expand their reach.
Real estate will be impacted in terms of falling rental yields due to demand
contraction. The impact on the retail industry will be mixed, as some aspects
of retail catering to essential goods shopping by blue collar workers can
suffer due to volume contraction. However, the wealthier segment of the expat
population can create new demand for goods higher on the value chain and even
open up new business opportunities for the food and beverage sector. The transportation
industry, especially low cost airlines, may be impacted due to lower passenger
growth and so will the generic food and beverages sector; which is dependent on
population growth. Except for Dubai, other places in the GCC are still evolving
as tourist destinations and hence the impact should be subdued.
In summary,
it is likely that expats will continue to be a binding agent for GCC economic
development but there will be a shift towards a more qualified and educated workforce
that will not only focus on remittance but can also contribute to local
economies as major consumers.