Int. J. of Human Resource Management 18:1 January 2007 132–146
Employment creation and localization: the
crucial human resource issues for the GCC
Wes Harry
Abstract This paper outlines crucial issues of employment creation and localization in
the states of the Gulf Co-operation Council (GCC) and the factors underlying the issues.
Rapid demographic changes, highs and lows of oil prices, inequality of wealth, inadequate
education systems and ineffective government policies are creating major human resource
challenges for the region. Governments’ preference for expediency rather than solutions
has contributed to the ‘challenges’ becoming serious problems which could threaten the
existence of the GCC states and cause harm to other countries. The private sector has been
intent on maximizing short-term gain while creating long-term problems. Governments
throughout the region have emphasized the need for the private sector to localize. Even if,
however, the private sector is willing to employ many more citizens there will not be
enough jobs for all who want employment. Governments have attempted to reduce
dependence on foreign labour rather than creating a productive indigenous workforce and
worthwhile jobs for their citizens. This paper does not provide academic theory or
practical solutions to these crucial issues; however, it does make clear the serious
challenges facing this part of the Middle East and suggests some directions for research
and practice. The paper seeks to build sufficient understanding for academics to build
theory to help governments and employers meet the challenges of creation of sufficient
numbers of jobs for the increasing population of nationals while managing the orderly
departure of foreign workers.
Keywords Arab; employment creation; Gulf Co-operation Council; host country
nationals; localization.
Introduction
Fatah gunmen storm Gaza offices to demand jobs. Dozens of militants linked to Palestinian
President Mahmoud Abbas’s Fatah group raided a government building in Gaza on Saturday,
demanding he make good a deal to recruit them . . . (Arab Times, 2005a)
Bahrain’s king warned on Sunday against using high unemployment in the kingdom to stage
demonstrations . . . after clashes between police and demonstrators demanding jobs . . . (Arab
Times, 2005b)
The government of Kuwait has rejected a parliamentary proposal to speed up nationalisation in
public sector jobs, saying highly qualified foreigners were still needed by the ministries. (Daily
Star, 2005)
Dr Wes Harry, Honorary Visiting Fellow, Cass Business School, City University London,
106 Bunhill Row, London EC1Y 8TZ (e-mail: [email protected]).
The International Journal of Human Resource Management
ISSN 0958-5192 print/ISSN 1466-4399 online q 2007 Taylor & Francis
http://www.tandf.co.uk/journals
DOI: 10.1080/09585190601068508
Harry: Employment creation and localization in GCC 133
As these newspaper articles, and later references, will make clear there is no doubt that
the most crucial human resource issues within the states of the Gulf Co-operation
Council (GCC) region are those of employment creation for citizens and localization
(replacing expatriates with host country nationals). The first newspaper article refers to
an Arab state, Palestine that is outside the GCC but unless this region’s governments and
businesses are able to deal with employment creation there could be GCC gunmen
seeking jobs or demanding changes in social order. This paper provides insights on how
government and private business actions, and inactions, have made employment creation
and replacing expatriates such difficult issues to tackle. The GCC governments regularly
undertake programmes to reduce dependence on foreign workers but the creation of a
productive indigenous workforce and worthwhile jobs for their citizens are neglected. It
is not too many foreign workers, but the lack of needed skills and needed work attitudes
among GCC citizens, along with a lack of sufficient numbers of productive jobs for those
citizens, which is the threat to the region.
The image that outsiders have of the states of the GCC (which is comprised of Bahrain,
Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) is of vast oil wealth
and rich princes wasting this wealth. The more realistic image is of Saudi youths working
as supermarket checkout staff, Bahraini motor mechanics and Omani farmers. There are
certainly many wealthy citizens (Cordesman, 2001) in the region but there are also levels
of unemployment of over 25 per cent and high levels of underemployment, particularly
in the government sector (United Nations Development Programme (UNDP), 2002b) –
and the situation is becoming worse not better (Lopez-Claros, 2005; Aljazeera, 2005).
Alongside the unemployed citizens are large numbers of foreign workers accounting
for between 55 per cent and 90 per cent of the workforce of the GCC states (see Table 1).
Even if all of these foreigners could be replaced, as shown by Kapiszewski (2001) and
Fasano and Goyal (2004), and the underemployment of host country nationals (HCNs)
ignored, the region still faces tremendous challenges in creating sufficient employment
for its citizens.
This paper explores the factors underlying the issues of employment creation and
localization and demonstrates the magnitude of the human resource challenges facing
this part of the Arab lands. The challenge of creating sufficient numbers of jobs for
citizens is not limited to the GCC but within this region, there are the additional
Table 1 Statistics on GCC population
Population
under 15 years
% of total†
Non-citizens
% of total†
Expats as
% of workforce†
Head
counts
Country
Total 2002*
population
’000
Population
growth rate
1960 –2000, %pa
Bahrain
Kuwait
Oman
Qatar
Saudi
Arabia
UAE
650
2,300
2,400
720
23,000
3.6
4.9
3.9
6.5
4.1
28.8
33.5
44.5
26.8
43.4
40
64
26
80
27
64
81
55‡
90‡
55‡
3,300
8.8
26.7
82
90‡
Source: Economist (2002) using data from Dubai Inc.; Gulf Investment Corporation; US State Dept; UNDP.
Notes:
*
Forecast.
†
Latest.
‡
Estimate.
134 The International Journal of Human Resource Management
challenges of a rapidly increasing national population and the presence of large numbers
of foreigners. This paper will outline the issues and challenges, including rapidly
growing national populations, unemployment and employment creation, women seeking
employment, the education systems, and the employment of foreign workers and
localization. Finally, the paper will suggest how the situation will develop in the future,
the relevance of this region’s situation to other parts of the world and finally the way that
these challenges could be met by the states of the GCC. The author, in common with
others who try to conduct research in the region (Cordesman, 2002), has found it very
difficult to gain access to reliable empirical information or statistical data so relied upon
his 20 years as a senior manager in the GCC as the basis of this paper. While recognizing
the shortcomings in terms of theoretical and empirical research underpinning the paper, it
does provide the foundation for academic research and development of practical
solutions to these major issues of international human resource management.
Demographic gift
The UNDP (2001) makes a direct link between high birth rates and slow economic
growth. Recent Arab birth rates, including those of the GCC, at 3 per cent per annum, are
among the highest in the world – which has an average of 1.5 per cent (World Bank,
2003). This high birth rate combined with increased longevity for the populations of the
GCC (Laipson, 2002) is leading to great demographic pressures in the region.
The tradition of large families (Barakat, 1993) is also an important factor in the GCC
where the number of live births per woman ranges from 4.5 in the UAE to 7.1 in Oman
(Overpopulation, 2005). Girgis (2002) estimates that in the period 1975 –85 the GCC
national population grew by an average of 3.9 per cent a year with higher levels in Saudi
Arabia at 6.8 per cent and in Oman where the population grew by 7.17 per cent a year. In
the past two decades there has been a gradual reduction in the number of births per
mother (Overpopulation, 2005) but polygamy, or more commonly, serial marriages
(World Tribune, 2002 records that the UAE has a divorce rate of 8 per year per 1,000
marriages) has offset this decrease.
Now all the countries of the GCC have large numbers of young people entering the
education system and employment market. The World Bank (2003) estimated that
40 per cent of the population is aged under 14, so the pressures on the employment
market will become more severe as these young people seek jobs. Currently under half
the 120,000 young people (predominantly males) in Saudi Arabia, seeking jobs each
year manage to find work (Yamani, 2000). Employment, according to Girgis (2002),
will have to increase by 5 per cent a year for the next 15 years to create enough jobs for
those entering the workforce. In the 1990s the fastest growing country in the GCC, the
UAE (which has the lowest percentage of GCC nationals in the labour force), achieved
an increase of 4.5 per cent a year for employment (Fasano and Goyal, 2004) so it is
unlikely that the GCC states will succeed in creating 5 per cent more jobs each year until
2020.
The rapid increase in the number of people seeking work has been for some countries,
according to (Laipson, 2002), a ‘demographic gift’ as the productive people are able to
support the non-productive members of society such as the old, the young and those
caring for families. The countries of East and South East Asia were able, in the 1960s,
1970s and 1980s, to develop their economies and standards of living by harnessing the
work capacity of these job seekers (Richards, 2003). The key success factors for these
countries were investment in education and hard working populations (Ruppert, 1999).
As will be discussed, the focus of education in the GCC has not been on producing
Harry: Employment creation and localization in GCC 135
needed skills and attitudes (Al-Dosary and Rahman, 2005) while the wealth brought from
oil and gas has not encouraged a productive work ethic of the type claimed by the Asian
‘tiger’ economies. In Arab countries, Landes (1998) argues that the raised expectations
and consequent frustration of highly educated but unemployable young people is a threat
to social stability.
Unemployment
According to the World Bank (2003). ‘Perhaps the greatest single issue facing the
economies of the Middle East and North Africa region is the challenge of equipping its
people with good jobs.’ Within the GCC region the Economic and Social Commission
for Western Asia (ESCWA) (2004) estimates youth unemployment, of both sexes, at 12
per cent in Qatar (but over 50 per cent for females), 21 per cent in Bahrain, 26 per cent in
Saudi Arabia and 49 per cent in Oman. There were no data available for Kuwait and the
UAE. Most researchers, such as those who wrote the Arab Human Development Report
(AHDR) (UNDP, 2002a) and Al-Dosary and Rahman (2005) point out that a lack of
reliable data in the region (even for those countries that provide some information) is
symptomatic of the governments’ lack of willingness to recognize the magnitude of the
problem. In total, Girgis (2002) estimates, there are over 500,000 people unemployed in
the GCC or 15 per cent of total national workforce and he believes that the ranks of the
unemployed increase by over 200,000 a year. All these figures are for nationals seeking
work because expatriates who have no employment would officially have to leave the
country. Governments of the region, as the holders of wealth, used to be able to direct
their budgets to the creation of public sector jobs for citizens (Shaban et al., 1995;
Crystal, 1995; Kapiszewski, 2001). However even when oil prices are high it is becoming
impossible for governments to make available enough public sector jobs for all those
entering the labour market. The rise in unemployment among young nationals, according
to Shaban et al. (1995), Yamani (2000), Girgis (2002) and Gardner (2003), has fuelled
resentment at the jobs being held by foreigners even when the jobs are not ones attractive
to citizens.
Reducing unemployment is a serious challenge for most governments, not just those
in the GCC. Unemployed workers (or potential workers) are a waste of a nation’s
resources, a drain on the taxpayers (or informal support networks) and a pool of possible
or actual troublemakers. For a long time, the GCC governments were able to deal with
unemployment by creating government jobs for their relatively few citizens, or had
sufficient income from oil exports to provide generous social allowances and could
keep young people occupied in an undemanding education system. However, the
populations have grown while the income from oil declined (at least until 2004) so that in
recent years unemployment of citizens has risen to levels where real jobs have to be
created and many foreign jobholders sent away.
Employment creation
The governments are the major employers of citizens throughout the GCC. Citizens
prefer to wait for a government job rather than take a private sector job even when they
know that the wait might last years (Shaban et al., 1995). The governments are the
employer of ‘first’ and ‘final’ resort. When governments had high incomes they created
many jobs but when income dropped, and for most of the past two decades the
governments of the GCC have had budget deficits, they have rarely cut employment in
government sectors. Even with recent rises in the price of oil the income is still much less
in real terms than it was three decades ago and on a per capita basis is around half of the
136 The International Journal of Human Resource Management
amount in the mid-1970s. The ESCWA report (2005) shows that swings in government
budget deficit and surplus make it hard to plan or make difficult decisions on employment
creation. Nevertheless, the GCC has been warned many times before on the need to
create jobs (for example, Birks and Sinclair, 1980; Fergany, 1984) but the governments
have managed to find ways to cope. Now, according to Fasano and Goyal (2004), the
government wage bill is over 10 per cent of GDP in most GCC countries (for Kuwait and
Saudi Arabia it is over 16 per cent) and is over 22 per cent of total expenditure (for
Bahrain and Saudi Arabia it is over 50 per cent). It seems that the governments will not be
able to cope much longer.
Governments have been willing to be the employer of choice not least for the power
that gives them to control the citizens. With little taxation there were few citizens
demanding representation – while they had a good income from the state. As The
Economist (2003) maintained, because an oil infrastructure can be controlled by a few
people, the wealth it creates concentrates power. Power is often at the heart of
employment relationship in the GCC. Networks, nepotism and wasta are the ways to get
and keep jobs (Hayajneh et al., 1994; Weir and Hutchings, 2006). In many of the GCC
states nationals are reluctant to apply for jobs because having to ‘apply’ shows that they
have no ‘power’ to get a job using relationships and connections. However, in Saudi
Arabia there have been important changes in attitudes so that in the past five years
unsolicited applications, or even ‘cold calls’ by young men looking for jobs, have
become common for major employers such as banks, international companies and
expanding Saudi firms. The reliance on informal networks means that information on the
most suitable jobs and the most suitable candidates is unreliable and creates extra
inefficiencies for employment creation.
The GCC governments, as shown by Kapiszewski (2001) and Calvert and Al-Shetaiwi
(2002) among others, have tried to shift the challenge of creating employment for citizens
to the private sector with quotas imposed, certain job categories reserved for citizens and
fines levied for non-compliance. This is a symptom of the interventionist approach often
taken by the governments of the region. These governments, as Fergany (1998), Gardner
(2003) and Richards (2004) demonstrate, frequently interfere with business and the
government bureaucrats slow business activity as well as encouraging corruption and
inefficiencies. Dasgupta et al. (2002) found that the main hindrances to investment in
the region were ‘red tape, judiciary system efficiency and corruption’. A significant
number of companies owned by influential citizens is able to prosper in this business
environment. These influential citizens prefer to have agencies or to be intermediaries or
be in partnerships with foreigners rather than develop entrepreneurial businesses, which
could create major employment opportunities for fellow nationals. Less influential
citizens have to overcome many obstacles put in their way by government officials
(Fergany, 1998). The types of businesses owned by these less influential people are
exactly the ones that the ESCWA (2005) believes can make important contributions to
employment creation. Although changes are promised, the region lacks a modern legal
system with an independent judiciary and protection for individuals including
enforceable employment rights and property rights, which would support less influential
business owners.
The private sector has been shielded by governments from the real cost of employing
labour as there is no tax on income (so the employees will work for less in the ‘tax free’
environment) while basic foodstuffs and healthcare is often subsidized. However, the
‘shielding’ from real costs and outside competition means that the private sector is not
focused on using labour efficiently to get productivity gains. Abrahart et al. (2000) and
Lopez-Claros (2005) show that labour productivity in the region is very low with the
Harry: Employment creation and localization in GCC 137
preference being for low cost and low skills rather than high skills, high wages and high
productivity. Gardner (2003) believes that the private sector is more interested in rent
seeking (in the economic sense of being the difference between market price and
the opportunity cost of production) rather than entrepreneurial business opportunities
so the GCC businesses will be unable to face foreign competition. While the region’s
stock markets have soared in the years since 2002, entrepreneurs have been
more concerned to maximize their local knowledge of potential gains in stock rather
than productive enterprises that might create jobs. Even the real estate booms in the
region are based on cheap foreign labour in construction and services that produce few
jobs for locals.
Most of the employers connected with the GCC oil wealth are involved in capital- and
technology-intensive industries, what Fergany (1998) calls ‘labour light’, activities for
which few citizen job seekers are well equipped by the education systems (as is discussed
later). Other employers are in the construction or low paid service industries which,
although labour intensive, do not offer employment that is attractive to citizens when
compared to government jobs. Therefore, it seems that in the short term reducing
government employment will increase overall unemployment, as the private sector will
not take up the slack. Fergany (1998) and the AHDR (UNDP, 2002a) recommend that
governments concentrate on human-intensive projects involving small and medium
enterprises (SME) which are better at creating work for a growing population than are
large-scale organizations. Fasano and Goyal (2004) support these views, and believe that
significant job creation in the GCC will only come from the development of the non-oil
private sector.
The attitudes and skill requirements of the employers will also have to change as the
total market, not just employment market, changes. Inefficiencies, which have continued
due to government protection and restrictions on market entry, will be reduced by the
World Trade Organization (WTO), to which all GCC states are members or aspiring
members. The International Labour Organization (ILO) is already taking a great deal of
interest in the employment practices in the region. The international bodies such as the
WTO and ILO are likely to try to force governments to be regulators rather than active
participants in the economy with government resources focused on providing social
safety nets rather than being the employers of choice. The AHDR (UNDP, 2002a)
considers these changes will be beneficial to the region if they lead to a reduction in
monopolies, bribery and corruption and favouritism when awarding contracts and
business opportunities to cronies in the private sector.
The wage levels of citizens, even in the private sector, are driven by the government
sector, which is less demanding in terms of attendance (shorter working hours and longer
vacations), effort, skills and performance at work. Therefore, the private sector has to
offer much better wages to attract citizens away from jobs with government. Employers
know that job protection for HCNs is such that once employed it is very difficult to
dismiss a citizen even when there is a business downturn or poor performance by the
employee. Foreigners will work for the private sector for much less than a citizen and can
be dismissed almost at will. With higher public sector wage bills than they can afford it
would be expected that the governments would seek to reduce or at least hold wages.
However, since 2004, the governments of the region have increased wages of citizens, for
example Saudi Arabia has increased government salaries for citizens by 15 per cent
(Arab Times, 2005c), and there have been similar increases for citizens in Kuwait and the
UAE. These increases suggest that Gardner (2003) was right when he said that the social
consequences of lowering wage expectations are too risky for GCC governments to
undertake. But Fasano and Goyal (2004) show that the governments do need to lower
138 The International Journal of Human Resource Management
wage expectations to increase the number of jobs available for citizens in the private
sector. Fergany (1998), however, considers that even lower wages will not lead
to greater employment of HCNs. Fasano and Goyal (2004) found that between 1997
and 2001 average wages in the UAE private sector dropped by 8 per cent while
in the public sector average wages increased by 11 per cent, while in Saudi Arabia during
the same period, average wages for Saudis dropped by 12 per cent while for non-Saudis
wages decreased by 17 per cent. These reductions are the result of new recruits being
paid less than existing staff. Even if the governments were willing to make cuts, the
wages for citizens are not going to be reduced to reach a level that will make a GCC
citizen competitive compared with workers from less wealthy Arab or Asian countries. It
is not just higher wages that dissuade employers from recruiting citizens. Apart from the
lack of work attitudes and skills, which have been mentioned before, the formal or
informal ‘rights’ of the nationals compared to alternative candidates cause employers to
avoid recruiting them.
Women seeking employment
Adding to the problem of creating enough employment for male citizens, there are
now more female citizens seeking work as demonstrated by Gardner (2003). Those
from outside the region often think that there are severe restrictions on the
employment of women in the GCC. However, women are active in the employment
market although there are restrictions especially in Saudi Arabia. Throughout the GCC
conservative families are reluctant to have their female members travel far from home
or to mix with non-family (Barakat, 1993). For Arab families there is aib or shame in
not being able to provide for their dependants (Kapiszewski, 2001). This aib of not
being able to support their families may be a major reason for the low rates of
participation by Arab women in the formal labour market which Lopez-Claros (2005)
claims is the lowest in the world. Winckler (2002) quotes the rates of female
participation in employment to be around 50 per cent in Europe but below 25 per cent
in the workforce in Kuwait (which is the most open of the GCC countries to women
working), and around 10 per cent in Saudi Arabia (where women are mainly employed
in education and health services). There is less aib in working for the government than
in working for the private sector, so women seeking employment add to the pressure to
have public sector jobs.
There is growing participation of women in the employment market partly because
cultural norms are changing in countries such as Kuwait, Qatar and Bahrain, and ways
are being found in Saudi Arabia (Calvert and Al-Shetaiwi, 2002) to change working
practices to enable women to work in a culturally acceptable way. Women are not
taking over jobs currently held by foreigners because the majority of expatriates are
employed in unskilled or domestic service jobs and this type of work would certainly
not attract female citizens. Therefore new types of jobs will have to be created,
especially as Girgis (2002) shows that in the GCC female citizens are generally better
educated than male citizens so could be capable of performing higher levels of jobs.
Alternatively women could be encouraged to set up their own businesses as Fergany
(1998) found that women are often more successful than men at running small
enterprises. The bias against women in the labour markets (UNDP, 2002a; ESCWA,
2005) will continue to hamper women’s participation and it can be expected that the
bias will become even stronger when the competition for jobs is not against foreigners
but against male citizens.
Harry: Employment creation and localization in GCC 139
Education systems
In most parts of the world the education system is focused on equipping young people to
be able to take a place in the employment market and contribute to the wealth of their
home country. In the GCC the education system has mainly focused on developing a
national identity rather than creating a productive workforce. Most of the countries that
now make up the states of the GCC have existed in their present form for less than 40
years. The countries all have an Arab and Sunni Muslim heritage but with sizable
minority groups, such as non-citizens who are long-term residents (including the Iranian
community in the UAE and the Bidoon of Kuwait) and followers of different versions of
Islam including the Shia of Bahrain, Kuwait and Saudi Arabia.
In the 1960s and 1970s, as the countries of the future GCC gained control of their own
affairs after periods of colonial rule or protection (apart from much of what is now Saudi
Arabia), the few schools in the region mainly provided lessons in Islamic studies. The
main method of education was youngsters watching and learning from elders, with boys
being trained to be workers and girls being trained to be a ‘useful wife and mother’
(Calvert and Al-Shetaiwi, 2002). Literacy was low and in any case ‘book learning’ did
not suit the nomadic or seafaring way of life of most of the residents. In the 1970s
and 1980s education was principally concerned with Arabic language, history,
customs and tradition, and Islamic teaching. Most of the teachers and educational
administrators came from Palestine, Jordan, Syria and, especially, Egypt where ‘pan
Arabism’, of the time, encouraged educators to go to the Arabian Peninsula and which
some claim led to ‘Egyptianization’ of school systems and a low quality of education
(Kapiszewski, 2004). The GCC students did not respect the foreign teachers, and
discipline problems, poor attendance along with lack of interest in learning became
pervasive within the education system (Kapiszewski, 2001; Zamal, 2005).
Despite massive financial investment and greatly increased numbers of students
(Diwan and Girgis, 2002) the education systems have not developed to be able to create
the advanced technical, professional and managerial skills needed by modern economies.
Even basic literacy is weak with most GCC states having around 10 per cent of their
citizens not being able to read and write (UNDP, 2004). As the AHDR (UNDP, 2002a)
reported, the Arab region (including the GCC) suffers from poverty of capability and
poverty of opportunity. The GCC’s education systems are not providing needed ‘skills,
talents and knowledge to fill new job openings’ (Girgis, 2002). Education still focuses on
nation identity and religious studies. In their review of the issues facing the employment
market in the region the UNDP (2002a),Winckler (2002), Gardner (2003) and Ford
(2003) point out that, in the region, students prefer to study religion, literature and arts or
social sciences rather than the more demanding courses in engineering, medicine,
teaching or business studies which should lead to more job opportunities. However, as
appointment to government posts and promotion after appointment does not depend on
the subject studied or level of achievement then working hard to study a difficult subject
or to get high marks does not make sense to the students. As Al-Dosary and Rahman
(2005) show, neglecting education and vocational training will mean failure of attempts
to reduce the employment of foreigners through localization.
Employment of foreign workers and localization
As Table 1 shows, between 55 per cent and 90 per cent of the workforce in the GCC
are foreigners. The countries do vary in their reliance on host or expatriate labour but
all have a very high percentage of expatriates in the private sector and most citizens, if
in employment, are in the government sector. The GCC countries are mostly capital
140 The International Journal of Human Resource Management
rich (due to cheap and plentiful oil and gas resources) but labour poor (due to the few
people living in the harsh conditions of the region before wealth and urbanization
brought the means of supporting a larger population). Usually countries in such a
situation such as Australia, USA and Canada allow immigration. However the GCC
countries have not, with very few exceptions, allowed foreigners to immigrate although
they have allowed the ‘temporary’ residence of workers with the temporary often
continuing for decades.
Initially the inhabitants of the GCC region did not have skills needed to develop an
oil industry, build infrastructure or manage financial assets, so foreigners were
employed to carry out these and other productive tasks (Kapiszewski, 2004). However,
after several decades of oil wealth, the GCC is still importing skilled and qualified
expatriate labour (including those in well-paid jobs). This continued importation of
skilled, qualified and well-paid expatriates suggests that the ESCWA report (2005) and
Al-Dosary and Rahman (2005) are correct in arguing that education and training in the
GCC are not meeting the employers’ needs even for jobs that should attract citizens.
The lack of needed qualifications was demonstrated by Fasano and Goyal (2004) who
found that expatriates, in jobs requiring qualifications, tend to be better qualified than
HCNs. Part of the reason for there being so many well-qualified foreigners is that other
Arabs and Asians (even well-qualified ones) will often accept low pay and low skill
jobs as these jobs offer better pay and savings potential than are available at home.
Although the initial reason for employing expatriates was to participate in
‘productive’ work creating industry and infrastructure, now foreigners are mainly
employed to enable the HCNs to enjoy leisure and consumption as is clearly
demonstrated by Kapiszewski (2001) and Esim and Smith (2004). Ruhs and Godfrey
(2002) show that foreign domestic workers have become affordable even by the most
modest HCN household. Most expatriates (Girgis (2002) estimates that over 5 million of
the 7.5 million in the region) are now engaged in domestic work, retailing and the leisure
industries and other service industries rather than employed as producers linked to the
natural resources of the region. In service jobs the foreigners are very visible and have
added to HCNs’ fear that they are being ‘swamped’ by foreigners. As many of these
foreigners have resided in the region for decades they consider that they have acquired
rights, which the host governments are reluctant to grant (Crystal, 1995; Kapiszewski,
2004, 2005). Many expatriates would seek citizenship or at least residency with rights but
know that an application for citizenship would lead to deportation. The United Nations
and ILO have been putting pressure on the GCC governments to grant more rights to
expatriate workers and their families (Ruhs and Godfrey, 2002; Kapiszewski, 2005).
There is a widely held view in some Arab countries, especially Palestine and Egypt, that
the Arab ‘nation’ embraces all the Arab countries so wealth should be shared with all
Arabs and not held on to by those in a few rich countries of the GCC. The fear of the
claims that ‘all’ Arabs are entitled to share the wealth of the oil-rich countries as well as
the experience of the Iraqi invasion of Kuwait has heightened security fears among many
citizens of the GCC who prefer to employ non-Arab expatriates and to restrict the length
of employment, so preventing the expatriates becoming eligible for residency and other
rights. Before the Iraqi invasion of Kuwait in 1990, according to Winckler (2002) almost
half the expatriates in the GCC were from other Arab states totalling over 3 million
people. Following the liberation of Kuwait in 1991, Saudi Arabia deported over a
million Yemenis and Kuwait excluded hundreds of thousands of Palestinian residents
because of internal security fears and as punishment for support to Iraq given by their
governments (Fisk, 2005).
Harry: Employment creation and localization in GCC 141
With so many unemployed citizens and so many foreign workers it might be
considered obvious to throw out all the foreigners and let the citizens take the jobs. The
‘obvious’, however, is not the solution. Even if we accept the argument of Girgis (2002)
that up to 2.1 million jobs, held by expatriates, could be taken by GCC citizens (if they
are well trained and at a competitive cost to employers) there would still be over
5 million jobs which will not be attractive to HCNs. As we have seen, there are
not 2.1 million citizens trained and willing to work for the level of wages on offer. The
types of jobs that might attract citizens, such as those in finance and banking, make
up only 1 per cent of the jobs being created in the region (Fasano and Goyal, 2004). Most
new jobs are low paying, low skilled and low status ones in trade, manufacturing and
domestic services which will not attract HCNs. Governments have pushed the private
sector to employ more HCNs through imposing quotas to restrict the numbers and
percentages of foreigners in jobs (Shaban et al., 1995; Al-Dosary and Rahman, 2005)
and preventing expatriates from holding specific categories of jobs ranging from HR
manager to taxi drivers, but employers with wasta regularly find ways to avoid
restrictions.
In the ‘oil boom’ days of the 1970s there was a tendency to ‘buy’ workers and to
‘throw them away’ when no longer wanted. Fasano and Goyal (2004) describe this hiring
and firing of expatriates as part of the ‘flexible’ labour market. This ‘hire and fire’ ethos
contributes to a neglect of training and investment in technology by the private sector and
has contributed to the declining productivity in the region shown by Ruhs and Godfrey
(2002). The neglect of training and upgrading of skills is also found in attitudes to
investing in HCNs who have the right, as citizens, to take their improved skills to another
employer so existing employers will not ‘waste’ money in training someone who could
move. Expatriates are rarely trained even though they do not have the right to move to
other employers: they must have the permission of the existing employer to transfer
elsewhere or leave the country. It is cheaper to dismiss an expatriate and employ another
ready-trained one.
It is often argued that the employment of so many foreigners is a drain on the host
economies as the expatriates send money home rather than spend locally. Fasano and
Goyal (2004) demonstrated that within the GCC, between 1997 and 2001, remittances by
foreign workers amounted to 6–11 per cent of GDP a year. In remitted amounts per head
the lowest level, at $1,600, was for Kuwait followed by Oman and the UAE at around
$2,500 and highest level was in Qatar at $4,600. The differences in the levels of
remittances are partly explained by the type of workers employed because Kuwait and the
UAE have more low paid labourers and domestic staff as a high proportion of the
expatriate workers. However, Girgis (2002) showed that there are substantial savings
made by governments resulting from employing expatriates rather than citizens. For
example, during 1999 in Saudi Arabia the government sector ‘saved’ SR12 billion (around
US$4 billion) and the private sector ‘saved’ a massive SR214 billion which was equal to 50
per cent of that year’s GDP. These ‘savings’ arise from the difference between the cost of
having a foreign worker compared to the cost of having a citizen doing a comparable job.
Clearly, reducing dependence on expatriates and creating jobs for citizens are going to
be difficult and governments will expect employers to help, or at least not to hinder, their
efforts. The ability to develop effective solutions will be a major factor in the survival of
the governments and maybe even for the continued existence of the GCC countries in
their present form. As Harry and Collings (2006) maintain:
it might seem easy to create jobs for locals but in practice the creation of worthwhile productive
jobs depends on an appropriate education system, suitable work ethic within the host population
142 The International Journal of Human Resource Management
and willingness on the part of employers to make a sustained and genuine effort to support and
transfer skills, attitudes and behaviours.
The way forward
The countries of the GCC use human resources inefficiently because the governments
believe that ‘rents’ (from natural resources) can be used to catch up with industrialized
countries without changing their social structures (Elsenhans, 2004). This, however, has
not been a successful strategy as can be seen in the stresses that are occurring in the social
structures due to the lack of job opportunities for young people. If the governments will
now invest the ‘rents’ to diversify from their reliance on oil and gas production by
creating new industries and boost the small and medium enterprise sector there are
opportunities to create wealth instead of spending on consumption. There will still be a
need to make changes in the social structures but the GCC is wealthy enough to afford to
invest in change. Eid (2005), in her research within other parts of the Arab world, found
that proactive reforms and programmes directing ‘smart’ resources to specific
educational and financial institutions created up to five times as much labour market
growth as the average growth in the region. Most of the institutions studied by Eid
focused on the needs of small-scale businesses or micro-organizations which have long
been neglected within the GCC where employment is dominated by governments and
powerful families. The governments are trying to create more employment for their
citizens but their focus has been on replacing expatriates. Organizations such as the
Kuwait Department of Manpower Development, Saudi Manpower Commission and
UAE’s Tanmia are working to find ways of replacing expatriates. One particularly
successful effort has been between the Saudi Manpower Commission and Aziz Panda to
employ 2,500 Saudi staff in shop floor jobs in supermarkets. However, such low status
and low paying jobs (previously held by expatriates) are generally unattractive to citizens
and the process of appointing and retaining the supermarket staff has not been easy.
Therefore, there needs to be a change in government thinking to create jobs that will
attract citizens. These jobs should not be in the public sector and the government must
withdraw from being the employer of choice.
The private sector, however, is not ready to face foreign competition (which the
WTO will bring) if they employ an expensive and ineffective HCN workforce. It will
be necessary to make foreign labour very expensive, for example through enforcing
minimum wages, increasing fees to employers of expatriates and having the
employers pay the real cost of government services to expatriates, such as the cost of
healthcare, as well as giving genuine legal rights to expatriate workers. Then
employers will be given notice that severe restrictions will be placed on future
employment of expatriates, and those restrictions must be enforced. The GCC must
act in a coordinated way otherwise employers will move jobs from one GCC state to
another as international banks did by moving jobs to Dubai when the governments in
Bahrain and Oman tried to force increased employment opportunities for their
citizens. The citizens of the GCC must also be willing to change their expectations
and commitment to education and employment. Without change, the challenges of job
creation and effective localization will not be met, but with changes there can be
individual and national benefits.
The benefits of change can be seen in the experience of those candidates who have the
capability sought by employers. Alzalabani (2002) shows that those citizen candidates
with high quality relevant qualifications and needed skills easily find jobs (and will often
get multiple offers). Salary surveys in the region show that at most levels, but particularly
Harry: Employment creation and localization in GCC 143
higher levels, the citizens are better paid than foreigners. In this regard, the GCC is
unusual because most studies (for example, Brewster, 1991; Scullion and Brewster,
2001; Banai and Harry, 2004) show that expatriates, in managerial and professional jobs,
are usually paid much more than HCNs. Those citizens who are not able to change by
gaining relevant qualifications and skills, and who lack connections or wasta are not able
to get attractive jobs so have to accept what was previously unacceptable – such as
checkout jobs in Saudi supermarkets or low level clerical jobs.
Relevance of the GCC experience to other places
This paper has drawn the attention to the most serious HRM issues in the GCC. These
issues are of great concern to governments, employers and citizens of the region.
However, these issues are not just parochial challenges in a few rich nations but are of
relevance to the rest of the Middle East and the wider world. Although the situation
regarding employment creation and dealing with foreign workers is particularly fraught
in the GCC, much of the rest of the world already has, or will soon have, to deal with
similar challenges. The Economist (2006), quoting studies by the Asian Development
Bank and the ILO, draws our attention to the already high and increasing levels of
unemployment and even higher underemployment in much of Asia including the rapidly
expanding economies of China, India and South East Asia. As in the GCC, the main
factors causing these human resource challenges in Asia are demographic pressures,
education systems not producing needed skills and behaviours and a lack of sufficient
numbers of private sector employment opportunities. As in the GCC, surplus labour in
poor parts of the world is attracted to richer countries where the host population may
welcome the availability of cheap services but regret the presence of foreigners who
provide these services.
How to create and maintain worthwhile employment for citizens, how to manage
changing demands on the education systems and how to deal with foreign workers are
challenges with no clear solutions. Governments, not just in the GCC, have focused on
the easy but wrong solutions of blaming foreigners for taking ‘our’ peoples’ jobs.
Globalization’s advantages in terms of cheaper imports and cheaper services provided
by migrants or home country based foreign workers have been welcomed. However the
‘costs’ of globalization in terms of the adjustments in host country government
practices, educational reform and extra efforts to create employment for citizens has not
been welcomed. Even if it is possible to solve the ‘problem’ of too many foreigners in
the GCC, this has implications for the repatriated foreigners’ home countries. Examples
of the instability caused by rapid repatriation of workers from the GCC could be seen in
Palestine and Yemen after expulsions of nationals of these countries following the
invasion and liberation of Kuwait in 1990 and 1991. These are not isolated examples of
‘solving’ one country’s problem of too many foreigners at the cost of harm to the home
country as has been seen when Malaysia deports Indonesians, the USA deports Latin
Americans and the European Union deports many of the foreign workers and potential
workers who are not from member states.
Meeting the challenges
There is great need for public and private co-operation to create employment for
citizens. The existing policies have been directed by governments seeking simple and
quick solutions, which do not upset too many citizens, especially those seen as being
opinion makers. The private sector’s response to directives has usually been to resist
and if pushed hard, by governments, to undertake small-scale programmes. There has
144 The International Journal of Human Resource Management
been little effort to apply modern forms of human resource management systems and
practices. Within the GCC, human resources are still seen as ‘costs’ to the employer not
valued assets of capital to be invested in. With access to cheap foreign labour, there
have been few attempts to use technology to replace low benefit jobs. As Ruhs and
Godfrey (2002) show, within the GCC three decades of high income from oil wealth
has led to a steady decline in labour productivity due to the creation of mostly low
benefit jobs and employment of many unskilled workers, with little technical support,
rather than employment of fewer workers supported by enhanced technology. For the
region to move from dependence on fluctuating oil and gas markets and rents from
these and other natural resources, the decline in labour productivity must be reversed.
Citizens must be educated to be able to work with technical resources and modern
management systems to undertake high benefit work. There must be a substantial, but
systematic, reduction in reliance on low skilled foreign workers, whose role is to aid
consumption and leisure time for citizens, even if this means that families must do
without their domestic helpers and drivers and office workers make their own tea. After
all, Islam encourages productive work by each individual rather than reliance upon
others (Tayeb, 2005).
The GCC does not yet have job-seeking gunmen but unless governments and business
owners can meet the challenges of employment creation and localization the region will
face serious economic, social and security problems. Perhaps the current high price of oil
will give governments of the GCC the resources to tackle these issues. However, just
adding more money, without changing the underlying situation, cannot provide
solutions. The governments, employers and citizens of the GCC will have to work
together. Throwing out foreigners and taking the jobs they held is not the solution. The
solutions will involve building a capable indigenous workforce through education and
changing expectations, as well as creating new worthwhile jobs for citizens. A focus on
employment creation will enable the region to make the best use of its natural resources
through making best use of its human resources.
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