What Lies Ahead of the Gulf Slowdown?
The Competence Cauldron

What Lies Ahead of the Gulf Slowdown?

Ravi Kumar Pillai

Ravi Kumar Pillai

Stories from One Thousand and One Nights, popularly known as Arabian Nights, have lighted up the minds of millions of kids in India for generations. Children who grew up listening to these stories by the bedside would have fantasized about the immense riches of Arabia. At least some of them would have migrated to the Gulf later in life in pursuit of job opportunities and savings.

The Oil-rich Arab monarchies, notably the five Gulf Coordination Council (GCC) nations of Saudi Arabia, United Arab Emirates, Bahrain, Oman and Qatar have played a key role in lifting millions of low-skilled and semi-skilled workers from South Asia to decent living standards. A stint in the Region would have enabled many of them to have a roof over their head and a bank balance to fall back. The newfound prosperity on the back of Gulf remittances is visible not just in Kerala where large houses dot even the rural landscape. In pockets across India with a sprinkling of gulf migrant households, the folklore centres around the local lads who returned with tidy fortunes from across the Arabian sea.

Migration to the Gulf countries, just a trickle in the 1960s, picked up momentum as the oil-based economies went into overdrive. Massive construction for oil and infrastructure projects, sweeping retail boom and surging need to service improved lifestyles of the local populace created massive demand for workforce across the GCC countries. Bulk of the migrants from India and neighbouring regions were with little education, practically no job skills and minimal exposure beyond their immediate communities. Many of them would have encountered harrowing experiences at the hands of recruiting agents, money lenders and in some cases even from their local sponsors. Insha Allah, by the Grace of God, the travails did pay off for many. Today, more than 9,000,000 Indian migrants work in the GCC countries and their combined annual remittance is to the tune of nearly USD 50 Billion, according to the IMF.

Gulf economies have had a chequered history of geo-political tensions and economic risks. The Region has demonstrated resilience to bounce back from adversities with remarkable agility. The dynamics of oil cartels in adjusting the supply and pricing of crude and the obsession of the US and Western arms exporters for the deep pockets of Gulf States have led to deft moves on the chess board of Arab politics over the years. For the past few years, the Region encountered a series of unsettling news from the Arab Spring protests in Syria in 2010-12 to the raging discord between Qatar and other GCC States. The economic slump of 2008 and fluctuating oil fortunes in recent years have put roadblocks on the dream-run of the region. The Covid-19 pandemic struck at a particularly tough time has hit everyone bringing the global economy on its knees. The lockdown has put enormous strains on the already mellowed economies of GCC countries.

Migrant labour on whom the Region is heavily dependent has suddenly found itself at the vertex of the worsening scenario. India, a key source nation for labour, is in a particularly uncomfortable position. The Indian expatriate workforce in GCC is worried about the unsettling impact of Covid. In the wake of uncertainty about continuity of employment and earnings, they look up to the Indian Government for repatriation and rehabilitation. There is pressure from the host nations to lighten the migrant stock due to the lingering economic woes of the region. We cannot be insensitive to the genuine concerns of a Region that has had historic ties and shares strategic interests with us. The massive reverse migration that the Government has embarked upon is therefore not only unavoidable but cannot wait any longer.

What is the future of migrant labour post-repatriation? Is there light at the end of the tunnel? How likely is it that most of the workforce would return to the Gulf sooner than later?

Both demand and supply sides of the migrant labour equation are in a state of flux. Market benchmarks on wages are tightening. The labour market and small business confidence are currently on razor’s edge. SMEs who employ bulk of the low and semi-skilled workforce are struggling to keep afloat. Pruning of the expatriate workforce in GCC economies is unavoidable given the construction and business sentiments taking a hard hit in the current economic scenario.

There are four key factors that impact the future of labour migration to the Gulf Region. Taken together, their combined effect would be a strategic shift in the volume, velocity, skill-mix, sustainability and earning potential of future migrants.

Firstly, the National workforce in the GCC countries today has no resemblance to that in the past. Seeking routine and easy-to-train skills from abroad is not a viable strategy any more. The demography of GCC countries is heavily tipped in favour of the younger age groups. The median age of citizens of Gulf countries is in the range of 25-30 years. For the UAE it is around 27 years and for Saudi 30 years. Overall, within GCC a little less than 50% of citizens are in the working age bracket of 15 to 64 years.

Though Nationals enjoy preference for employment in the Ministries and Government companies, the GCC member states find it difficult to keep adding to the size of the bureaucracy without restraint. The cost to the exchequer is high in view of the attractive salary and benefits package for Nationals, the huge social security obligations and rising expectations for upward mobility among the young entrants to the job market. Efforts to increase private sector employment of Nationals have met with lukewarm response both from employers and the local workforce. In order to provide avenues of employment for the burgeoning National working-age population, most GCC Governments are squeezing out expatriate presence in routine jobs in the retail, trade and commerce segments. With the private sector under severe financial strain, expatriate workers are staring at a gloomy outlook on employment and earnings.

Secondly, the macro-economic scenario looks set for a prolonged period of strain. Since oil revenues are the predominant resource for Governments, any slump in global crude prices below the comfort level would be a crisis for the Region. For 2020, the International Monetary Fund (IMF) estimates the breakeven prices for a barrel of oil to cover budgetary requirements of GCC countries as USD 45 for Qatar, USD 54 for Kuwait, USD 91 for Bahrain, USD 83 for Saudi Arabia, and USD 70 for UAE. The current Brent Crude price is below USD 30 per barrel. No wonder, GCC countries are under pressure to prune expenses, boost non-oil revenues and increase tax buoyancy.

Saudi Arabia has this week announced tripling of VAT on basic goods to 15 per cent and pruning the budgeted spending on major projects by around USD 26 billion. UAE’s economy has had to endure the twin impacts of coronavirus and oil price slump. While Abu Dhabi being an Oil-driven economy was hit hard by the petroleum industry crisis, Dubai which is heavily underwritten by non-oil revenue from trade, transportation, tourism, retail and real estate is feeling enormous heat. The story is similar across the rest of GCC as well. With significantly reduced industrial, commercial and construction activities, it makes economic sense to lighten the migrant labour pie in the workforce.

Thirdly, there is a discernible interest in digitalisation and advanced technologies in the GCC countries. The Region, notably UAE, is in the forefront of the digitalisation push. There is keen interest and commitment to pitchfork the national youth to the next level of digital competence. With wide ranging interest in technology, space, green energies, and bio-medical fields, UAE and other GCC countries in the future are likely to seek expatriate talent in niche areas of expertise. The demand for run-of-the-mill staffing from abroad is set to shrink pretty fast.

I visualise a scenario where GCC will compete with the Western world for the high-end Asian talent in emerging frontiers of knowledge. The living conditions and benefits offered would also be competitive to advanced economies. “Less in quantity, more in talent” would ideally define the future of Indian workforce in the Gulf. The ongoing reverse migration is to be understood as part of the logical churn in the expatriate workforce in line with the changing economic value profile of the Region.

Fourthly, due to the generational migration among the Indian expatriates in the Gulf, the youth would be increasingly reluctant to seek low-skill employment. We have witnessed closing of the wage gap between the urban job markets in India and GCC locations in the past few years making gulf openings less tempting to skilled and semi-skilled categories from India. With sizeable increase in fresh National job-seekers in coming years, it is quite likely that jobs which were traditionally on offer for Indian and South Asian expatriates would increasingly shift to local youth and the spillover would go in the first instance to low-cost expatriates from the Middle East and North Africa (MENA) Region. The residual manpower demand from India would shift from the traditional hubs of Kerala and Southern states to the Hindi heartland due to cost considerations. The trend is already obvious from the data for 2018, which shows nearly 45% of Indian migrants to the Gulf countries were from the two large North Indian states of UP and Bihar.

Economics is defined by cycles of ebbs and tides. I am optimistic that the Gulf States would rebound from the gloom of today to a brighter tomorrow. But cost, strategic skill-localisation and market dynamics would mean that much fewer Indian workers would be present in the emerging Gulf job market.

It is therefore incumbent upon the federal and state governments in India to handle the issue of returning migrants with imagination, empathy and accommodation. The responsibility to find long term and sustainable solutions to the woes and uncertainties of Gulf returnees can no longer be taken lightly.

India has a knack for seeing things from a narrow and short-term perception. But this time, it is an altogether different ballgame. We have no choice but to approach the migrants’ crisis with a holistic and affirmative agenda. It is time to let go of the old habits and fixated ideologies.

We need to open up our economy to massive industrialisation. We have to incentivize investments for scaling up capacities. We have to take reskilling and up-skilling of the workforce a lot more seriously than in the past. Skill India and Make in India initiatives have not taken off the way they should have. Agriculture has to be modernised and upgraded to global standards. We need to incubate a million small entrepreneurs. All these and much more are required to make India ready to provide sustainable employment not just to returning migrants but to the army of domestic jobseekers too.

In future, an Indian should ideally become an NRI on the basis of the pull of his skill-set or his burning ambition to compete with the best in the world. If being an NRI is an involuntary choice out of desperation for livelihood, the call for ‘Atm Nirbhar Bharat’ would remain just another slogan. The reverse migration from gulf would hopefully serve as a warning signal to reset and relaunch our skilling and employment strategies.

*Ravi Kumar Pillai is a practising strategy consultant, trainer, coach, mentor and start up enthusiast based in Trivandrum. He can be contacted at ravikumarpillai9@gmail.com