Since the 1970s, the private sector of Gulf countries has been relying on expat labor. However, as Arab Times and the Jerusalem Post report, expats are now leaving massively because of the pandemic's impact on both the oil and non-oil sectors, the lack of subsidies for non-citizens, and job nationalization. The most affected are middle-class expats, who rarely receive a support package from their employers.
GCC countries' structural reliance on expats
The Gulf Cooperation Council (GCC) is the economic and political alliance of the six major oil-producing countries of the Middle East: Saudi Arabia, Kuwait, the United Arab Emirates (UAE/Dubai), Qatar, Bahrain, and Oman. These countries experienced rapid economic development since the 1970s, and they started bringing in foreign labor to sustain their booming private sectors. Apart from the oil industry, expats also work in financial services, construction, education and healthcare there.
Over time, the expat workforce largely dominated the number of local workers. The 2021 statistics of Standard & Poor's Financial Services show that over 80% of the workforce of GCC countries are expats. For the private sector only, it's over 90%. The strongest reliance on expat labor is found in the UAE, Qatar and Abu Dhabi, where over 90% of all workers are foreigners without local citizenship.
Expats in GCC countries often come to work there for a limited number of years, are not looking for permanent residency (which is hard to obtain in any case), and prioritize sending remittances back home to their families. A high percentage of Gulf countries' revenue, 12% of the GDP in Oman's case, flows out in the form of remittances (S&P Global).
The local Arab citizens of Gulf countries are, on the other hand, mostly employed in the public sector. According to S&P Global and Forbes, they enjoy higher wages, more fringe benefits, more job security and better protection for their labor rights. These countries are infamous for human rights abuse cases of foreign workers, like the forced confinement and illegal confiscation of passports experienced by housekeepers in Saudi Arabia. Local workers are generally protected from this kind of abuse.
Despite receiving lower wages and having less security, expats still used to benefit from living in the GCC because their incomes are tax-free and the remittances sent home convert well into weaker currencies (e.g., the Pakistani rupee, the Egyptian pound). The pros outweighed the cons until the pandemic. The tables have turned since 2020: the oil industry has slowed down, Covid-19 and the Ukraine war have made inflation and the cost of living skyrocket. In addition, GCC countries have started prioritizing giving jobs to local citizens at the expense of expats.
Lack of subsidies for expats during the economic crisis
Gulf countries are facing a hike in the cost of living. This is part of the larger global pattern after Covid-19 and the Ukraine war. Dubai, for example, was affected by the contraction in the aviation, tourism and retail industries during the pandemic (S&P Global). Low oil prices in 2020, at 50 USD per barrel, also affected the countries' revenues. For comparison, around 2014, a barrel of crude oil sold for over 100 USD.
Citizens are insulated from the worst effects of the rising cost of living because they benefit from state subsidies and allowances. For example, according to the Jerusalem Post, Bahraini citizens now receive a cash allowance to buy meat after the subsidies on this product were lifted. However, expats need to pay for the full post-inflation prices. Similarly, in Kuwait, citizens can turn to cooperative societies to buy basic commodities at a lower price. However, non-citizen expats are not allowed to use this service.
Utilities and fuel are also more expensive for expats. The Bahraini state recently increased the price of gasoline by 200%. Expats have to pay the full 200% without any subsidy. The price of electricity in Bahrain is 29 fils per unit for expats while it is 3 fils per unit for locals; that is 9.6 times more expensive. Taking into consideration that private sector wages are lower than public sector ones, all of this must put a lot of financial pressure on expats.
Besides everyday living expenses, expats in Gulf countries are also subject to additional taxes and restrictions. For instance, they need to pay an expat fee for themselves and each member of the family. In Saudi Arabia, this fee was raised to 800 riyals (∼213 USD) per year in 2020, double its cost from two years before. In addition, the expat must pay 2400 riyals (∼640 USD) every 6 months for each dependent (spouse or child). To put this amount into perspective, the average salary of an Asian expat in Saudi Arabia is 11,066 USD per year, according to Gulf Business. The fees detailed above are clearly a non-negligible percentage of their earnings.
Another restriction is mandatory private health insurance and private schooling for children. Expat children are generally not allowed to enroll in public schools unless their parents work for the government, which is rare. Yearly international school fees cost between 15,000-90,000 riyals (∼3990 to 24,000 USD), which is again high compared to expat wages.
Middle-class expats are bearing the brunt alone
Expats in working-class jobs (e.g., construction, cleaning, domestic work) generally have their accommodation and bills paid for by the employees. For example, the standard package offered to most housekeepers in the UAE guarantees that they will receive accommodation in the employer's house itself during the course of their contract. The Jerusalem Post highlights that, even when these expats are paid much less than others, they are always able to make some savings to send back home as remittances.
However, expats in middle-income professions are having to face the rise in the cost of living completely alone. They are teachers, engineers, administrative workers, nurses, graphic designers, etc. Many hail from the “Global South,” i.e., South Asian, Southeast Asian and North African countries, and do not have the privilege of a stronger currency back home.
Middle-class expats in the GCC are now in survival mode and cannot save remittances, which had been their main goal in relocating. As a result, many have chosen to send their spouses and children back home and live in shared apartments with other workers to cut costs. This group earns between 1300 and 4000 USD per month. A Jordanian engineer in Saudi Arabia, for instance, told The Media line that even with a monthly income of 3,725 USD, he could no longer afford to keep his wife and kids in the country. An Egyptian teacher in Kuwait echoed the same, saying that he now needs to share an apartment with seven co-workers even if he earns 3,250 USD per month.
Job nationalization exacerbates the exodus
Unsurprisingly, Gulf countries have been losing 4% of their expat population yearly since 2020. For example, Oman's population has shrunk by 12% (262,000 out-migrating expats) in 2020, according to the country's National Statistics Center, while the expat population in Saudi Arabia shrank by a whole million since 2017, according to the newspaper Zawya.
In fact, population reduction is the explicit goal of GCC governments. For the first time since the 1970s, these states are looking to reduce their expat populations to boost local employment rates. Oman has explicitly called this strategy “Omanization,” which has banned expats from an array of jobs now reserved for Omanis (grocer, HR specialist, administrative manager, data entry, gas seller…). In 2020, Kuwait's Prime Minister said they aim to reduce the expat population to 20%, which would require 2.5 million people to leave.
Employment rates among locals have indeed improved. The Saudi economist Abdullah al-Otaibi says that unemployment among Saudi citizens fell from 15% to 11% during the same period as the expat exodus. The public sector is also relieved that some of its workers have shifted to the private sector, where they've replaced expats. As the revenue from oil has dipped, the public sector was struggling to pay all the wages and benefits of public servants. Nationalizing the workforce of the private sector is a way of relieving the state's fiscal pressure, even if it is at the expense of expats.
Ahmed Alwani, a Kuwaiti economic analyst, also stresses in The Media Line that more local workers in the private sector ensures that less wealth is leaving the country through remittances. He also mentions that artificial intelligence and automation can replace many jobs previously done by expats. Despite the multiple benefits for the local Gulf states, S&P Global's report warns that job nationalization also presents risks. A rapid expat exodus could lead to market stagnation and create skills shortages.
