Expatriates are demanding higher pay packages from prospective employers in the UAE, creating a headache for managers competing for skilled workers.
Four in 10 human resources directors surveyed have complained salary demands from prospective candidates are outstripping market levels of remuneration, according to a study of 75 companies based in Dubai released last week from Robert Half, a recruitment firm.
Just over half of firms surveyed said candidates' pay packet expectations were in line with market trends and 5 per cent said salary expectations were below the market average.
The lack of sufficient home-grown talent, a long-term problem in the region, is one reason expatriates have tried to bargain up remunerations.
"If there's a skills shortage and a talent gap, clients have to look beyond the UAE," said Gareth El Mettouri, the associate director at Robert Half Middle East.
"When [prospective employees] think of Dubai, they think [it is] a majorly expensive place to live," Mr El Mettouri said.
"The biggest expense is normally accommodation but that's come down over the past 24 months."
"Typically, there was a full expat package and we're seeing that now eliminated," Mr El Mettouri added.
In recent years, firms have cut back on allowances such as for cars and accommodation that characterised the boom years, particularly in Dubai.
However, although headline inflation figures are declining because of a fall in rents as a result of the property slowdown, Dubai remains the most expensive city in which to live in the Middle East, according to a study by UBS.
Increased salary expectations also come during a year when most workers' pay packets have already risen, with the economy strengthening and companies seeking to attract top talent to pursue expansion plans.
The vast majority of UAE companies and their Arabian Gulf counterparts increased salaries this year, said Harish Bhatia, a regional manager at Hay Group, a global management consultancy.
The reason for higher wage packages is because during the past decade, real rates of pay increases in the Gulf failed to keep up with persistent high inflation, he said.
Another factor pushing up pay packets is the lack of long-term incentives such as share options, said Mr Bhatia. Companies in the UAE, long accustomed to a transient workforce, were often unwilling to grant stock options to employees and boosted pay instead.
However, that strategy may now be a little out of date as an increasing number of expatriates look to settle in for the long haul in the Emirates, Mr Bhatia added.
"The UAE now is looked at as a place to be and live for the long term," he said. "But it's not like America or Europe where the population of your company's workforce are sticking around."
Although basic salary increases have tended to take precedence over perks, Mr Bhatia said education allowances were one exception where companies were spending more to help employees meet the rising cost of school fees.
Despite western economies' troubles in struggling back to life in the midst of multiple recessions, Robert Half's study also found a third of human resources directors were finding the number of expatriate hires on offer had decreased.
ghunter@thenational.ae
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How Tesla’s price correction has hit fund managers
Investing in disruptive technology can be a bumpy ride, as investors in Tesla were reminded on Friday, when its stock dropped 7.5 per cent in early trading to $575.
It recovered slightly but still ended the week 15 per cent lower and is down a third from its all-time high of $883 on January 26. The electric car maker’s market cap fell from $834 billion to about $567bn in that time, a drop of an astonishing $267bn, and a blow for those who bought Tesla stock late.
The collapse also hit fund managers that have gone big on Tesla, notably the UK-based Scottish Mortgage Investment Trust and Cathie Wood’s ARK Innovation ETF.
Tesla is the top holding in both funds, making up a hefty 10 per cent of total assets under management. Both funds have fallen by a quarter in the past month.
Matt Weller, global head of market research at GAIN Capital, recently warned that Tesla founder Elon Musk had “flown a bit too close to the sun”, after getting carried away by investing $1.5bn of the company’s money in Bitcoin.
He also predicted Tesla’s sales could struggle as traditional auto manufacturers ramp up electric car production, destroying its first mover advantage.
AJ Bell’s Russ Mould warns that many investors buy tech stocks when earnings forecasts are rising, almost regardless of valuation. “When it works, it really works. But when it goes wrong, elevated valuations leave little or no downside protection.”
A Tesla correction was probably baked in after last year’s astonishing share price surge, and many investors will see this as an opportunity to load up at a reduced price.
Dramatic swings are to be expected when investing in disruptive technology, as Ms Wood at ARK makes clear.
Every week, she sends subscribers a commentary listing “stocks in our strategies that have appreciated or dropped more than 15 per cent in a day” during the week.
Her latest commentary, issued on Friday, showed seven stocks displaying extreme volatility, led by ExOne, a leader in binder jetting 3D printing technology. It jumped 24 per cent, boosted by news that fellow 3D printing specialist Stratasys had beaten fourth-quarter revenues and earnings expectations, seen as good news for the sector.
By contrast, computational drug and material discovery company Schrödinger fell 27 per cent after quarterly and full-year results showed its core software sales and drug development pipeline slowing.
Despite that setback, Ms Wood remains positive, arguing that its “medicinal chemistry platform offers a powerful and unique view into chemical space”.
In her weekly video view, she remains bullish, stating that: “We are on the right side of change, and disruptive innovation is going to deliver exponential growth trajectories for many of our companies, in fact, most of them.”
Ms Wood remains committed to Tesla as she expects global electric car sales to compound at an average annual rate of 82 per cent for the next five years.
She said these are so “enormous that some people find them unbelievable”, and argues that this scepticism, especially among institutional investors, “festers” and creates a great opportunity for ARK.
Only you can decide whether you are a believer or a festering sceptic. If it’s the former, then buckle up.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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