Unemployment Drives GCC Reforms

Speaking at the Abu Dhabi Conference 2007, organised by Meed, de Boer said the GCC windfall from oil revenue could reach $3 trillion over the next decade, creating massive cash flows for these countries.

However, many young GCC nationals are either out of work or underemployed because the educational system has failed to prepare them for the private sector.

During oil booms in previous decades, GCC nationals were given high-paying jobs in government agencies or government-owned companies, but these jobs are now saturated.

Unofficial estimates put overall unemployment in Saudi Arabia, Bahrain and Oman at 15 per cent or more, and unemployment among 16- to 24-year-olds at more than 35 per cent.

This problem is magnified by the fact that the GCC has one of the world's youngest and fastest growing populations. In Saudi Arabia, 61 per cent of the population is under 25 years of age, compared with half of India's and 39 per cent of China's.

To address its unemployment problem, GCC counties need to create 300,000 high-quality private sector jobs annually at twice the current salaries, de Boer estimated.

Labour Market Reform Needed

One of the most urgent priorities facing the GCC is fixing its labour market model. Most countries outside the GCC make it hard to obtain work permits but relatively easy to switch jobs once a permit has been given. In such cases, foreigners receive permission to take jobs only when local skills - usually high level ones - are scarce, which serves to protect national workers.

By contrast, immigration policies in the GCC are flexible but labour markets are rigid. Foreigners represent at least 40 per cent of the GCC's labour force and in some countries hold over 90 per cent of all private sector jobs. The result is that businesses seek cheap labour rather than investing in building the skills of the national workforce.

De Boer urges tighter immigration policies to end employers' dependence on foreign workers. He also suggests imposing a tax on employers that maintain an expat workforce in order to increase the cost of foreign labour. He believes this would encourage private companies to invest in labour-saving technologies and create higher-value-added jobs.

The GCC also needs to improve the quality of its schools, which currently fail to give students the skills they need to be productive in the modern economy. One way to accomplish this is to set up better training programs for teachers and pay them higher salaries that will make their jobs more desirable. School curriculums must also be revised to reflect the demands of an increasingly specialised workplace.

Widening Wealth Disparity

Another problem facing some GCC countries is the ratio between oil and gas production and the number of citizens. Surprisingly, even Saudi Arabia falls into this category, as production per citizen in the kingdom is one-sixth of the UAE's, which means its oil revenues are spread very thinly across the population.

As a result, the kingdom's rapid population growth is outpacing its oil production, making it difficult to maintain its standard of living and leading to increased calls for economic and social reforms.

To combat this problem, the world's largest oil producer has undertaken a number of reforms and initiatives, including developing new cities and economic zones that will be open to the private sector, privatising telecommunications, and liberalising the airline industry.

Bahrain, which also has a low level of oil and gas production per citizen, has made similar efforts to modernise its labour and property markets.

See also:
Will Abu Dhabi become a global financial centre?
Abu Dhabi a bigger construction site than Dubai within four years