Gulf youth work in progress

Over the next decade the GCC will have to find work for growing numbers of young nationals. As the government jobs market fills up, the private sector is going to have to step in.

Gulf states have relied heavily on foreign workers since the oil boom of the 1970s but nationalisation efforts hope to change that mindset. Lauren Lancaster / The National

Creating jobs for nationals in the GCC will be one of the biggest challenges for Gulf states in the next 10 years.

From quota systems to labour mobility restrictions, measures rolled out in the past to boost domestic participation in the GCC private sector have achieved mixed results.

At best, they tempted nationals away from government jobs - the traditional career choice - and into private industry. At worst, they formed artificial bottlenecks within the labour market and pockets of sluggish productivity within the economy.

More fundamental, however, is the limited success in addressing the pressing problem of unemployment in the region. More than 10 per cent of people are out of work in Saudi Arabia, the Gulf's biggest economy. In a sign of the problems facing the kingdom, 250 unemployed Saudi university graduates staged a rare protest in Riyadh yesterday about a lack of jobs.

"National employment will be the biggest socio-economic challenge during the coming decades, and it's an opportunity for GCC governments to show some leadership," says Dr Steffen Hertog, a lecturer at the London School of Economics who has studied labour issues in the Gulf. "So far, most [governments] have been found wanting, incapable of either confronting businesses or striking some grand bargain with them."

Now, however, governments are redoubling their efforts.

Tightening labour market conditions and reduced government spending after the financial crisis has given a renewed urgency to the campaign. Under changes to labour laws that emerged last week, the UAE Ministry of Labour announced it was scrapping visa fees for private firms hiring nationals.

Elsewhere in the Gulf, governments have also been active in recent months. Saudi Arabia has started implementing plans to create up to 160,000 private-sector jobs for nationals.

Bahrain wants to expand the private sector's capacity to fill a forecast 29 per cent rise in the Bahraini workforce over the next decade.

Gulf states have relied heavily on skilled and unskilled foreign workers since the oil boom of the 1970s. By 2020, the number of expatriate workers in the Gulf will increase to 30 million from today's 17 million, according to the GCC secretariat.

The arguments in favour of greater nationalisation are compelling. Foreign workers remit billions of dollars outside the region every month, money that could be invested in the GCC economy.

Low economic productivity is another symptom of an under-developed local workforce. Economists argue that relying on workers from outside the country for jobs that could be filled by locals does not make sense. Ultimately, however, nationalisation fits within governments' strategy of shifting the burden for driving the economy from the public sector to the private sector.

"Policies to affect the incentives for private firms to employ citizens, such as the reduction in visa fees announced in the UAE, can make a difference, but several caveats are in order," says Stephen Mezias, the professor of entrepreneurship and family enterprise and the academic director at the INSEAD Innovation and Policy Initiative in Abu Dhabi.

One caveat, he says, are subsidies that may be needed to enable private firms to pay salaries equivalent to those earned by nationals in government jobs.

Another is the lack of skills of some national employees. Any subsidies would have to reflect the skills deficit to encourage the private sector to pay for required training, he argues.

The region's demographics make the labour market problems more acute than elsewhere. The working-age population in the GCC is accelerating faster than other age groups.

This trend is particularly pronounced in Saudi Arabia.

About 400,000 Saudis are estimated to be reaching working age every year. A saturated government sector and a private sector sometimes unwilling to recruit nationals mean policymakers struggle to help new job seekers into work.

With about two-thirds of men already employed by private firms, Bahrain is arguably a leader in efforts to provide jobs for nationals. Yet the tiny kingdom realises even it will have to increase efforts. About 75,500 extra jobs for Bahrainis will have to be found in the coming decade, meaning Bahrain will have to create some 2,000 more jobs each year than it did over the past 10 years.

Raising education and training standards is viewed as crucial in boosting long-term participation by nationals in the private sector.

Bahrain's abolition of most of its sponsorship system for foreign workers is lauded as a breakthrough. So, too, is the UAE's recent axing of the "no objection certificate" workers required from their former employers to take up new positions.