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.
Presently, a large majority of expats are blue collar workers (i.e. construction workers or domestic household helpers) whose per capita remittance is always lower than white collar workers. However, considering the weight given to economic diversification and the knowledge economy thrust by many GCC governments, it is reasonable to expect the expat profile to undergo a qualitative change from blue collar to white collar. This push is also likely to come from technological advancements in the construction industry, which will reduce the need for blue collar workers.
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.