The economic impact of expatriates leaving Saudi Arabia

There is no doubt that the recent violence directed at expatriates in Saudi Arabia is leading some to quit their jobs early, others to apply for jobs elsewhere, and a substantial number to relocate their families to Bahrain and Dubai. But there is no mass exodus as yet, more of an orderly move towards the exit sign.

For Saudi Arabia this probably means delays to existing maintenance and repair contracts, as qualified personnel may not be immediately on hand. It will also make multinational companies reluctant to take on new work which they might not be able to execute.

This would be very different if Arab nationals and Saudis of suitable qualification were available to replace the expatriates leaving. But this is manifestly not the case, otherwise expatriates would not have been their in the first place.

The looser then, for an economic perspective, is Saudi Arabia which depends on expatriates to service its all-important oil and gas sector infrastructure. The functioning of this sector will become less efficient, and its expansion much harder to organize.

However, the most immediate effect of departing Western companies is to expand the opportunities for local firms. Thus at present the Saudi stock market is rising, and nobody is too concerned about the economic impact of the recent terrorist attacks.

From the perspective of Bahrain and Dubai, the most immediate benefits are in the real estate sector. Expatriates arriving with their families will require somewhere to live, and the most popular compounds for foreigners are full to the brim. Rental levels are also rising, as construction of new supply fails to keep up with demand.

In addition, Bahrain and Dubai will gain as multinational company's relocate offices and their headquarters to 'safe havens'. Again this is good for local real estate demand, particularly commercial office space, and for all the ancillary suppliers, from IT equipment to paper clips.

Therefore, so long as Bahrain and Dubai retain their 'safe haven' status for the multinationals, which also appreciate their solid legal structures, liberal investment laws and tolerant lifestyle, then the main economic effect of terrorism in Saudi Arabia will be to boost these Gulf economies.

For Saudi Arabia, the short term benefit of extra work for local firms will be more than offset by the damage to long term competitiveness and a slowdown in economic development.