Gulf Ex[pat]odus Accelerates with Mixed Economic Consequences

Nationalization plans may backfire as expats are leaving the GCC in droves, a trend greatly exacerbated by coronavirus

The exodus of Gulf-based expats has only accelerated during the pandemic, leaving many concerned about the economic consequences.

According to Oman’s National Centre for Statistics and Information, 79,000 foreigners left between March and June of this year. Jadwa bank in Saudi Arabia projects 300,000 have already exited the country in 2020. Bloomberg reports that the population could decrease by 4% in Oman and 10% in the UAE and Qatar.

Foreigners make up a large percentage of the GCC’s population and, in some countries, outnumber locals. Expats comprise approximately 70% of the total population In Kuwait and close to 90% in the UAE.

“We do know expats who have left The Kingdom of Bahrain during the COVID-19 pandemic. They left due to one of three main reasons: loss of employment, their countries of citizenship essentially calling them back-home and/or when the world shut-down many of us knew the GCC would be slower to reopen-and some did not want to live in a shutdown island in the Middle East,” said Lindsay Kennedy, vice president of the American Women’s Association Bahrain.

“My family has not considering leaving during the COVID-19 pandemic … yet,” she added.

Another reason for the exodus of foreigners is governments, such as Saudi Arabia, asking them to leave due to the limited capacity of their health care systems.

Coronavirus has also served as an opportunity for some natives to try and push low-income migrant workers from overseas out of the region.

“On top of institutional strains, the pandemic exacerbated xenophobia and fears that foreign workers would spark community transmission. The poor treatment of migrant workers is a result of decades of discrimination, arising from a flawed kafala system [where the worker’s legal status in the country is dependent, by law, on the employer] which in turn reinforced social stratification along racial lines, “ Dr. Clemens Chay, a research fellow at the Middle East Institute at the National University of Singapore whose fieldwork is in based in the Gulf, told The Media Line.

“As a result, their end-goal is the repatriation of their migrant worker populations, deemed as ‘temporary’ labor,” he added.

This will have an economic consequence, although experts are mixed about whether it will be good or bad.

Like countries everywhere, Gulf countries have suffered economically from the coronavirus.

Oliver John, the founder and president of Astrolabe Global Strategy LLC, a political-economic consulting firm focusing on the Middle East and a retired US foreign service officer who served in Saudi Arabia, Kuwait, and the United Arab Emirates, says that the largest source of economic distress to the GCC economies has been the drop in the cost of fossil fuel-based energy.

“The biggest hit from COVID-19 to the GCC countries is the sharp fall in the price of oil, and gas for Qatar, and the drop in quantities exported from the OPEC+ member states,” he told The Media Line. “Most of the countries are heavily dependent on oil exports for their government budgets: It’s the source of about two-thirds of federal revenue in the United Arab Emirates and over 70% of national income In Kuwait.”

“That has a direct impact on the non-oil economy, which is heavily dependent on government spending, either through salaries or contracts,” John added.

However, even before the pandemic, life became harder for expats due to measures like foreigner-targeted taxation.

“Expat living was a bit more difficult before due to the value added tax Bahrain instituted on nearly everything,” Kennedy said.

Nationalization programs also started driving foreign workers to seek their livelihood elsewhere.

Nationalization policies are employed by many Gulf countries, like Oman and Kuwait, to bolster the number of jobs held by natives in order to prevent the brain drain of a growing number of young people who cannot find jobs in their home country.

Varsha Koduvayur, a senior research analyst who focuses on the Gulf states at the Foundation for Defense of Democracies (FDD), a non-partisan think tank in Washington, DC which specializes in national security and foreign policy, argues that these countries’ nationalization plans will backfire financially.

“Even during boom times, nationalization quotas were important for Gulf regimes; now, during an unprecedented pandemic, nationalization quotas have become popular tools used by Gulf rulers to signal how understanding they are of Gulf nationals’ plight and to signal that they are committed to protecting and preserving nationals’ economic security,” she told The Media Line.

“Nationalization programs will not lose their luster as long as the world grapples with COVID-induced economic recession, but such programs pose the danger of harming Gulf states’ longer-term economic reform programs: Gulf regimes could overlook the fundamental fact that in order to truly diversify their economies, they must invest in better training their citizens and in improving their human capital,” she added.

Ryan Bohl, a Middle East and North Africa analyst at Stratfor, an Austin-based geopolitical intelligence platform, agrees with the caveat that with the reduced cost of energy, some countries may financially gain “in some marginal cases” such as electricity consumption with lower demand.

“In short, expats leaving is bad for each of these Gulf state economies. They are taking their consumptive power with them as they go, further driving down the economy,” he told The Media Line.

Bohl says that in countries like Qatar, the UAE, and Oman, it shrinks the number of workers available while in Kuwait and Saudi Arabia, nationals get paid at higher rates to work in professions formerly held by expats, increasing labor costs for employers. To do the work, more costly nationals are driving up the price of labor.

However, Dr. Zubair Iqbal, a scholar at the Washington-based Middle East Institute, who has also served as a senior adviser to the Saudi Arabian executive director to the International Monetary Foundation, disagrees that expat-flight will have a large detrimental effect on the economy.

“Given the fact that the exit of expatriate workers has been mainly triggered by economic slowdown and fall in domestic demand in the host countries, the negative effect of such exodus will be only marginal,” he told The Media Line.

Iqbal does acknowledge that the financial impact of having fewer expats will be felt if the economy expands in the future. “Of course, should economic conditions improve, oil prices recover, and the financial position improve, positive impact on economic growth could be slow in light of the shortage of skills that expatriate workers bring.”

Astrolabe Global Strategy LLC’s John also argues that the expat exodus comes with some positive and negative impacts on the area’s fiscal health.

He argues that having fewer migrants sending money back home “has a positive impact” on the amount of capital going into the GCC’s economies versus the amount leaving.

“The GCC, all told, was responsible for around 109 billion dollars in remittances in 2017. Remittances from Kuwait and the UAE were over 10% of GDP in 2018 and over 12% of GDP for Oman,” he said.

However, John says the absence of higher-paid expats spending money in-country will be detrimental to the local economy.

“For example, you might see some real impacts in Dubai, which relies on expatriates to purchase or rent real estate,” he said. “Qatar’s building boom in preparation for the World Cup will likely also be affected.”

While some foreigners may eventually return, Stratfor’s Bohl contends that the number of Gulf-based expats will probably not be as numerous as it was before coronavirus hit.

“I expect the populations to continue to drop until the pandemic’s economic effects have fully come through, and for them to then begin to stabilize once that’s clear to businesses and governments in the Gulf. It is unlikely that they will quickly recover to their pre-pandemic level,” he said.

Bohl contends that some Gulf countries, like Kuwait and Saudi Arabia, will likely seize the moment to permanently lower the number of expat workers. Others that want foreign labor, like the UAE and Qatar, will be unable to create the same incentive for them to return such as income exempt from tax and robust professional opportunities.

“We are likely looking at a changed foreign labor market in the Gulf – one that sees less cheap foreign labor and one that relies more on more expensive, longer-term workers,” he said. “Some countries will have more expensive workers close to home, like Saudi and Kuwait, and others will still pull them from abroad, like Qatar and the UAE. But it appears that the trend right now favors this adjustment.”