True cost of living a rising concern in Gulf (page 2 of 2)

'Employees who are in an existing job are not seeing their total remuneration keeping pace with inflation via salary rises from their employer,' O'Byrne said. However, large numbers of skilled expats are increasingly able to seek and secure higher salary packages (and thus keep ahead of inflation) by moving jobs and employers.

The movement between jobs and companies, which O'Byrne refers to as the 'talent churn,' creates its own spiral because employers need to replace those employees who have left. In turn, this has the net effect of driving up salary and recruitment expenses, which helps to feed inflation.

In lieu of offering higher base salaries, an increasing number of employers are offering short and long-term incentive programs, including performance bonuses and share plans for managers and key employee levels, he noted. Companies are also offering leadership development programs, international assignments, and extra leave.

Talent shortage

The good news for employees in the region is that the trend of pay rises, while in some cases modest, is likely to continue, due to the region's strong economy and the growing demand for talent.

The region is facing a talent shortage in part because of increasing competition with the emerging economies of Russia, India, and China, said Ayman Haddad, managing partner of the Mena region for Heidrick & Struggles, a global search firm. 'In particular, India has done a good job of bringing its diaspora back with a booming economy that offers better salaries and career opportunities,' he noted.

Since India has traditionally been one of the main suppliers of expatriates to the Middle East, it has restricted the labour pool in the region.

Another reason for the talent shortage is that companies with a presence in the Gulf want to grow their businesses regionally, and this is driving up the demand for qualified talent with experience in the region, O'Byrne said. Another key factor is the easing of laws regarding expatriates changing jobs.

In terms of job sectors, the talent crunch is biggest in construction, oil and gas, banking, and IT. There is also a huge demand for executive talent, noted Haddad. An increasing number of Gulf companies are saying talent shortages are limiting their ability to expand, forcing them to turn down new business or, in some cases, causing them to miss targets on their existing projects.

Still attractive

Despite the rising cost of living, the Gulf region still holds a very strong appeal for professionals as it offers a modern, cosmopolitan environment and opportunity to participate in some of the world' largest and most exciting projects, said Bayt.com.

O'Byrne points out that the tax-free environment in the Gulf means take-home pay in the region is proportionally higher than the rest of Europe. According to Mercer's global cost of living survey of 143 cities, Dubai is listed at 34, which means it is still relatively competitive, he noted.

Also, opportunities for long-term growth are seen as more important than short-term pay considerations, said Haddad. 'One of the reasons that the Middle East is becoming more attractive is it is seen as a good career move. Gaining Gulf experience is now seen as a good stepping stone, which was not the case in the 90s,' he noted.

Still, inflation in the Gulf has made it a less feasible destination for some compared to a decade ago. Would depegging the Gulf currencies help reduce inflation in the region? 'Dropping the dollar peg should fortify currencies of the stronger Gulf economies such as the UAE and dampen inflationary pressures somewhat,' said Bayt.com.

Kuwait chose to drop the dollar peg earlier this year and subsequently saw its currency appreciate 3%, thus increasing the competitiveness of Kuwaiti salaries relative to its neighbours. Other GCC countries may soon be forced to follow suit.

On the other hand, Haddad said it is difficult to judge the impact that depegging the dollar might have on the GCC economy. 'There are so many factors to consider. I'm not sure anyone can predict the impact that it would have,' he noted, adding that each expats' case is different. 'The impact that dropping the peg would have on an expat's ability to save would depend on the currency of the expat's home country,' he pointed out.

See also:
Rents eat into regional paychecks
UAE salaries rise by 10.7 per cent