Tuesday 23 July 2024

GCC nationalisation policy ‘may raise labour costs’

DUBAI, October 10, 2018

GCC countries' labour market nationalisation policies aim to provide more jobs for a rapidly growing population, but they are also likely to raise labour costs and hamper diversification, said Moody’s in a new report.

"The size of the challenge is greatest where nationals comprise a relatively large share of their total populations, unemployment is relatively high, and there is less capacity to absorb new entrants into the public sector. Amongst the GCC these conditions apply to Saudi Arabia and Oman in particular,” said Thaddeus Best, a Moody's analyst and co-author of the report.

 Key points:

•    Rapid GCC population growth is leading to increased demand for jobs as new entrants join the market and only modest numbers of workers retire.

•    Social changes will compound higher employment demand, particularly if more women enter the workforce.

•    Relative to the current size of the job market, the number of new jobs for nationals needed in the next two decades to meet labour market and social objectives is highest in Saudi Arabia (A1 stable), Oman (Baa3 negative) and to a lesser extent Kuwait (Aa2 stable).

•    By contrast, despite their young demographics, pressures are less marked in the UAE (Aa2 stable) and Qatar (Aa3 stable), where expatriate numbers are higher relative to nationals which indicates greater scope to create jobs for nationals as long as skills requirements are met.

•    Nationalisation strategies can have both credit positive and negative implications for sovereigns. It will be credit positive if these strategies are effective in providing wider job opportunities for nationals, while preventing a rise in unemployment and as a result maintain social and political stability.

•    However, large increases in public sector wage bills for the government to accommodate an increasing number of nationals in the administration would reduce fiscal flexibility and in some cases weaken fiscal strength.

•    Bans and quotas could increase labour shortages, while a rise in labour costs as the private sector at least partially closes the wage gaps with the public sector in order to employ nationals would hamper competitiveness.

•    Social and political tensions could rise if the nationalisation plans fail to increase employment sufficiently. Nonetheless, the authorities will find it challenging to create sufficient private sector opportunities to halt rising unemployment, at least over the near-term. – TradeArabia News Service

Tags: GCC | Moody’s | nationalisation | Labour costs |

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