Its financial status has become exacerbated by the coronavirus pandemic and record low oil prices.
For all of the six states that comprise the GCC – the UAE, Saudi Arabia, Qatar, Kuwait, Bahrain, and Oman – an economic downturn entails grave consequences for future growth.
Most crucially, the Middle East will need to rapidly forgo its reliance on foreign workers and expats.
Predictably, low oil prices and crude output cuts have combined with the reality of imposed lockdowns on restaurants and businesses to cause many foreign workers to leave the region.
For a prolonged time, the UAE has enticed both unskilled labour and highly qualified workers primarily from Asia, with the promise of a tax-free salary. It may therefore seem odd that so many are returning to their homelands so quickly.
Odder still is that the sharpest decline was in the Middle East’s business hub, as reflected in the fact that Dubai was hit with a steep 8.4% population decline in the last year.
Two factors clarify this confusion. Firstly, the pandemic has mainly affected employment sectors such as tourism, aviation, and retail – these are key sectors in regions like Dubai.
Secondly, nearly 90% of the UAE is composed of non-natives. These factors, in addition to the high living costs that exist within Dubai, serve to explain why it has had the sharpest decline.
Why the Reliance on Foreign Work?
Historically, the GCC has predominantly been an oil-producing region. The narrow focus on oil in countries with relatively small populations – namely Saudia Arabia, Kuwait, the UAE, and Oman – explains the past labour migration to the Gulf.
Unsurprisingly, this fast growth occurred between 1975 and 1985, coinciding with the oil price boom. The rapid rise in new wealth that subsequently occurred was a form of rent capitalism.
Oil revenues can be viewed as a form of rent, as this practice ensures an income without requiring the transformation of a natural resource into a consumption good.
Two important characteristics of this economic system are: the general reluctance to reinvest profits and the focus placed on the accumulation of rent money.
Besides creating a huge dependence on oil market prices, this oil ‘rent’ money was not necessarily used for real productive investments, but rather for factories that operate far below their capacity.
Furthermore, the majority of the upper class generated most of their profits by investing in the international scene. Hence, it is clear why imported labour became such a necessity.
It is important to note that Dubai is recognised globally as a financial hub for trade, tourism, and banking. Today, less than 1% of Dubai’s GDP is from oil, compared to Abu Dhabi which still relies on oil for the majority of its wealth.
However, Dubai still experiences a decline in white-collar jobs and economic growth, with these being signs that perhaps the economy still is affected by the 2015 drop in oil prices.
Looking Forward
Both the uncertainty of the pandemic and considerations of how future markets will recover from the current recession has highlighted the difficulties that the GCC has been facing for years.
This mass exodus is not a new phenomenon, and the general lack of past economic diversification and the subdued growth in the non-oil sector is now forcing governments to nationalise the workforce and foster economic and social reforms that boost human capital.
It is also expected that GCC countries with levels below the break-even oil price will begin to moderate public investment spending – the main catalyst for non-oil growth in the region.
