Response to “Lessons for the GCC” About the European Union #Migration #Regulation

Senior Research Fellow Omar Al Ubaydli outlines the lessons that the Gulf Cooperation Council countries may learn from the United Kingdom’s experience with the European Union–specifically the migration and regulatory experiences.  He uses the Eurozone framework to compare and contrast with the GCC countries of Saudi Arabia, Kuwait, Bahrain, the United Arab Emirates, Oman and Qatar.  At the Arab Gulf States Institute, he explored the migration issue in more detail, which may explain why it was not a primary focus in his March 11th article for Al-Hayat “The UK and the EU: Lessons for the GCC”.

Migration in GCC: “It’s Complicated”

On the issue of migration, Al-Ubaydli states, “In the GCC, the migration issue is not a concern since the GCC economies are built upon foreign workers, which represent more than 70% of the labor force.”  However, I would tweak this a bit and say that the labor dynamics within the Gulf Cooperation Council is simple economics married to complicated politics for two reasons.  First, the migration issue is a socio-political concern regarding human rights, as documented by Human Rights Watch.

Second, the migration issue is a socio-economic concern regarding future labor opportunities for the second generation of expatriate labor and their families.

Perceptions and aspirations of non-Emiratis, especially 2nd generation ones, are important in terms of their future retention in, and productive contribution to the labor force.~Nasra Shah, Kuwait University at the MESA 2014 Conference discussing “Arab Gulf Labor Markets and Migration: Data, Challenges, Policy”
In all fairness, Al Ubaydli advocated in a related conference for GCC policy interventions to reduce the number of migrant workers arriving in receiving countries under false pretenses.

Background: How Did This Happen?

Since the 1970s oil boom in the six GCC countries’ increased oil revenues facilitated more infrastructure projects, which translated into more employment opportunities.  Coupled with a demand for both skilled and unskilled labor, hundreds of thousands immigrated to each of the GCC nations to either train domestic labor or fill the construction jobs.

“We were building two schools every three days. We had to build seven universities. We were trying to do so much in a constrained period of time. So the debate was, ‘Do we import foreign labor, or do we wait until we train our labor and then carry the projects ourselves?’ And I was of the opinion then that the decision that was taken at the time to import foreign labor was a great decision.” ~Shaikh Hisham Nazir, Saudi Minister for Petroelum in an interview with PBS Frontline

Consequently Gulf countries’ human development accelerated while GCC labor gaps were filled by overseas labor, both skilled and unskilled.  Think “land of perceived opportunity”–but without the chance for citizenship, unlike the Eurozone.

Between 2002 and 2008, the oil boom re-emerged to increase the average purchasing power in GCC households.  For example, the oil boom resulted in as high as $36,000 for a Qatari household.

However, filling these employment opportunities–both skilled and unskilled labor–presented an economic solution with socio-political challenges.  Bahrain’s VP Labor Regulatory Authority observed how importing foreign labor would trigger a critique of how non “citizen” labor were treated by citizens:

This “great decision,” which was made by all of the GCC states at that time, had a profound impact not only on the shape of the labor market, but also on power relations within the whole society between the citizens and non-citizens.

It is true that labor gaps had been filled, and continue to be filled by foreign/expatriate workers in the last five decades, as cited by Al-Ubaydil in “The UK and the EU: Lessons for the GCC”.  

In the GCC, the migration issue is not a concern since the GCC economies are built upon foreign workers, which represent more than 70% of the labor force. The six countries are also culturally and linguistically highly homogenous, and there are strong cross-border tribal bonds. The Gulf peoples did not experience any analogue to the horrific wars of Europe, and thus we find that Gulf citizens welcome and trust their Gulf bretheren.

However, Al-Ubaydli does not outline the various expatriate groups working in GCC countries and how much of the labor force they make up in each GCC country.  For example, Qatar is an example of the foreign workers outnumber the citizen population: Qatar has a native population of 300,000 while 1.8 million represent foreign labor.

Not all expatriate workers undergo the same treatment–especially the unskilled labor force.  The labor policies and practices remain under scrutiny due to treatment of foreign workers who do not come from neighboring GCC countries.In the unskilled labor sector, foreign workers undergo the most challenging conditions, or “indentured servitude”, as discussed in “Kingdom of Slaves”.  Through the “kafala” system, which is Gulf country sponsorship of foreign workers through a middleman, foreign workers must pay off their debt to middlemen who brought them into the country.

Regulations: GCC versus European Union “Eurozone”

In Al Ubaydi’s review, he highlights how regulation challenges and opportunities also exist for the GCC, and that, “the GCC economic model is based on economic freedom and commercial flexibility.”  One example of regulations is measured by the “Doing Business Index”.  However, I would push back on his assertion given how foreign employers undertake doing business.  First, I push back because the “Ease of Doing Business” measures the ease for LOCAL businesses–or startups founded by the country’s own citizens.  It will not indicate the experience of foreign businesses trying to invest, for instance, in the UAE. Second, I push back because, in the Eurozone framework, foreign companies are not required to identify local partners as partial owners.

In contrast to the labor dynamics of expatriate employment in the GCC region, being the expatriate employer is a different experience–but still challenging.  According to the Doing Business Index, the UAE ranks 31st overall, and leads the MENA region, for “Ease of Doing Business”, which is compiled by the World Bank Group. Yet, foreign firms seeking to sell products and services in the U.A.E. market must have a local agent/distributor.  This adds a layer of bureaucracy to the challenge of working with an emerging market.

One may critique this regulation– that is popular in other GCC countries– by saying that small to medium foreign businesses cannot fully participate, nor introduce intellectual capital, unless a local partner is “dealt in” like a poker game.  As such, it looks like the local partner must be given some type of majority ownership after setting up a subsidiary.

However, the UAE may be more receptive than other GCC countries to outside businesses, or expatriate employers, trying to do business because the UAE has implemented “Free Zones”.  In a country of 9 million people, a whopping 85 percent are actually expatriates living and working in the UAE.

The U.A.E. Commercial Companies Law, Federal Law No. 8 of 1984, as amended, provides
for a number of different corporate structures. The primary alternatives for foreign entities to establish direct business operations in theU.A.E. (outside the free zones) are (i) registration of a branch or representative office; or (ii) incorporation of a limited liability company with a U.A.E. national “partner”.
Except for companies located in the free zones, at least 51% of a business establishment must be owned by a U.A.E. national. A business engaged in importing and distributing a product must be either a 100% U.A.E.-owned agency/distributorship or a 51/49 (U.A.E./foreign) limited liability company. Subsidies for manufacturing firms are available only to those companies with at least 51% local ownership. Branch offices do not involve U.A.E. national ownership, but do require a U.A.E. national as a sponsor.
It is recommended that a U.S. company retain the services of a local attorney to ensure its best interests are carefully considered when establishing an office or entering into a business partnership of any kind.
Nonetheless, foreign firms that hope to manufacture in UAE –or even other GCC member countries–must still identify a reliable UAE citizen as a business partner and allocate “at least 51% local ownership.”  This is a markedly strong departure from Eurozone practices for American businesses.  Given these two conditions, I am curious to know to what extent the U.S., or other foreign, manufacturing companies find it cost-effective to produce in the GCC so that they may export to their Asian markets.

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Filed under Analysis, PIDE (Policy, International Development & Economics), Politics

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