A welcome move towards greater mobility for foreign workers

After favouring time limits for foreign workers, Bahrain's labour minister seems to have had second thoughts.

Foreign element: The free flow of labour will address shortages in the GCC where a construction-fuelled boom is taking place.

The winds of change are blowing through the Gulf. After coming out strongly in favour of setting time limits for foreign workers, Majeed al Alawi, the labour minister of Bahrain, seems to have had second thoughts. He now advocates a U-turn and has stated that Bahrain plans to scrap its sponsorship system by the end of the year as part of measures to liberalise the kingdom's labour market. The minister added that the Bahraini government wanted to promote "the free movement of labour, as well as stamp out human rights abuses and human trafficking". In Saudi Arabia, the president of the National Society of Human Rights (NSHR) has openly come out and recommended that the present sponsorship system in Saudi needs to be abolished and replaced with a government commission to look after guest workers.

If implemented this would indeed be a far-sighted step for the Gulf countries, as the abolition of sponsorship will open up a new era in employer-employee relationships for the millions working in the Gulf. But how will the other GCC member states, obsessed with both domestic security considerations and controls - or with being "overwhelmed" by foreigners - react to this novel proposition? There is pressure on the Gulf countries to do something concerning labour sponsorship and employment conditions. The reasons for changing the status quo are obvious: it has been estimated that the Gulf as a whole could face an acute labour shortage of up to five million workers in the coming five years as competition for wages from booming Asian countries keeps "low-cost" workers at home. Creeping inflation and erosion in their take-home pay due to depreciation of the dollar-pegged Gulf currencies have caused some workers to leave the region when their contracts have expired.

Should this trickle turn into a flood, the construction sector is likely to be hardest hit, with the US$1.9 trillion (Dh6.9tn) worth of projects planned in the Gulf at risk of being under-staffed. This could lead to rounds of wage competition to retain workers, leading to higher costs, budget overruns and further inflation. In theory, the free flow of labour will ease supply shortages, moving labour from one country with surpluses to another with labour shortages. Surplus labour can be free to seek work where it is most needed. Secondly, the vexed problem of control over foreigners can be resolved in a different manner from the current sponsorship system. Already there is some debate about replacing the current individual or company sponsorship system with one that is fully managed and controlled by contracted companies to provide labour pools.

The issue of "localisation" and finding suitable jobs for Gulf nationals is a matter of priority, given the region's youthful populations. It has been estimated that marginalised youth and real unemployment is causing a huge loss in national GCC economies. In the final analysis, matching local and expatriate labour demand and supply can be solved through the application of fundamental economic forces whereby Gulf employers will choose nationals or foreigners based on their economic efficiency and contribution to jobs on offer, and not because of nationality or "wasta". Market forces will drive nationals to acquire new skills and seek jobs that were shunned before.

However, it is difficult to speak of, say, a Saudi or UAE labour market in the sense of a unified and open market where a single price is paid for a specific amount of labour. Instead, in all the GCC countries, labour markets are characterised by segmentation into nationalities and different labour skills. Within such groups, pay scales are determined relative to labour markets in their country of origin. More mobility is a necessary prerequisite for a labour market that would also eliminate pools of unemployed expatriates in the Gulf.

Some argue that the priority of Gulf countries is to find suitable jobs for their fast growing populations, and not to try to eliminate unemployment among expatriates. This is where the debate on "time limits" for foreign workers crept in, espoused by no less than the same Bahraini labour minister before his conversion to free labour market mobility. The reason could be that "time limits" could turn out to be counter-productive.

It is not very clear if time limits on foreigners working in the Gulf would apply to all categories of workers. Some ministers have stated that only non-skilled foreign workers would be affected. This would most certainly be the case, given the past experience of imposing blanket decisions on all foreign workers. This happened when Saudi Arabia imposed personal taxation on all expatriates in 1987, only to rescind the measure after several skilled foreigners threatened to resign and were exempted. The same would happen again if an arbitrary time limit was imposed on all worker categories.

In the final analysis, what might emerge in the Gulf is a hybrid form of labour mobility and a more flexible transfer of sponsorship system, instead of full-blown freedom of movement across the GCC. Some individual countries could implement full labour mobility within their national boundaries, which might make them more attractive for some categories of expatriate workers. However, the current debate on foreign workers, issues of "localisation" and changes in the current sponsorship system are all to be welcomed, to enable a new chapter to be opened, leading to a viable and humane relationship developing between host GCC countries and their guest workers.

Dr Ramady is a former banker and Visiting Associate Professor, Finance and Economics at King Fahd University of Petroleum and Minerals, Saudi Arabia @Email:[e-mail]