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July 2016, Volume 22, Number 3

Gulf, Asia

The six Gulf Cooperation Council countries employ about 24 million foreign workers, and these foreign workers are 80 percent or more of their private sector workforces. Saudi Arabia, with 20 million citizens and eight million foreigners, is the only GCC country where citizens outnumber foreigners. Two-thirds of Saudi citizens are under 30.

GCC countries require foreigners to have a local citizen sponsor or kafeel who grants permission to enter the country, monitors the stay of the foreigner in the country and approves his/her exit. Many sponsors are only nominally involved in the employment of the migrant workers they sponsor. Instead, they allow their names to be used to sponsor foreigners in exchange for payments of $500 or $1,000 from employers, recruiters or others. Many low-skilled migrants never meet the kafeel who is sponsoring them, and deal with their sponsors only through intermediaries who may be nationals of their country of citizenship.

Most migrants arrive legally with visas that tie them to a sponsor, but some do not work for that sponsor, so that legal arrival does not necessarily mean legal employment in the GCC. Some employers prefer to hire workers who were released by their sponsors so they do not have to provide them with housing and food. Sponsoring employers are not penalized because they label the workers they sponsored as missing.

The treatment of low-skilled migrants in their countries of origin during recruitment and in the GCC countries where they are employed has been widely condemned.

GCC countries have made changes in recent years that may improve conditions for contract workers. Some have made it easier for workers nearing the end of their contracts to find other employers and stay abroad longer, taking advantage of newly acquired skills and experience and reducing the cost of recruitment to the new firm. For example, Qatar in December 2016 will allow migrants to change jobs or leave the country without their sponsor's permission.

On the other hand, having workers stay abroad longer is likely to lead to calls for increased rights for settlers who contribute to host-country economies. Allowing workers to change employers before the end of their contracts, and to find new employers as their contracts end, would empower workers in the labor market, which could be followed by demands for political power as well.

GCC countries collectively have almost half of the world's proven oil and gas reserves, and they get at least 85 percent of government revenue from oil. The price of oil fell below $60 a barrel in 2015, and is expected to remain at this level for the next several years. Lower oil prices are forcing GCC governments to reduce spending and subsidies and raise taxes; some projects that employ foreign workers have slowed or stopped.

GCC countries account for a quarter of remittances to developing countries, and some are taxing remittances to generate revenue. Levying a two to five percent tax on remittances would, some argue, help to compensate governments for the value of subsidized services migrants consume. Saudi Arabia levies a $52 a month tax per "excess" foreign worker but, since there is no minimum wage, this tax effectively reduces worker wages (GCC governments do not levy income or wage-related taxes).

Saudi Arabia has taken the lead in announcing changes to its economy and labor force in response to lower oil prices and rapid native labor force growth. Vision 2030, announced in April 2016, aims to reduce Saudi Arabia's dependence on oil by selling five percent of Saudi Aramco for up to $150 billion and making the Saudi Arabia Public Investment Fund the world's largest sovereign-wealth fund, with over $3 trillion in assets. Oil provided three-fourths of Saudi Arabia's $162 billion in government revenue in 2015.

Two-thirds of Saudis in the labor force are employed by the government, where high salaries, good benefits and little work are the norm. Public sector wages are on average 70 percent higher than comparable private sector wages, and they consume 45 percent of Saudi GDP. The government's National Transformation Program aims to reduce government employment and have half of Saudis work in the private sector by 2020. Decades of reliance on migrant workers has held down wages and led to expectations of hard work.

The first challenge is retailing, where 20 percent of 1.5 million employees are Saudis. The Saudi government may try to make foreign workers more expensive by imposing an income tax on them or allowing them to change employers, which would push up wages.

The NTP calls for the creation of 450,000 private sector jobs for Saudis over the between 2016 and 2020. It may be difficult to encourage Saudis accustomed to government jobs to accept private-sector jobs. The Saudi economy has been creating about 45,000 private-sector jobs a year recently.

There are up to 100,000 Kenyans in GCC countries, mostly in the UAE. Amendments to Kenya's Labor Institutions Act in 2014 limited worker-paid fees to recruiters to 25 percent of a worker's first monthly salary abroad. A bilateral agreement signed in 2015 anticipates the employment of 100,000 Kenyan workers in the UAE, mostly domestic workers who are excluded from protective UAE labor laws. The major problems encountered by Kenyan workers are at home, where recruiters often charge them $1,200 to $2,200 for GCC jobs, far above the $50 to $100 allowed by Kenyan law.

Japan. Japan has one of the lowest shares of foreign workers in industrial countries; about two percent of workers are foreigners. However, the government in June 2016 promised to increase the admission of foreign nurses and construction workers for the 2020 Olympics in Tokyo, and to make it easier for skilled foreigners to enter and settle. About 4,300 skilled foreigners settled in Japan between 2012 and 2015.

There were 908,000 foreign workers in Japan in 2015, led by 225,000 Chinese and followed by smaller groups of about 100,000 each Vietnamese, Filipinos and Brazilians.

About 30 percent of the foreigners who graduate from Japanese universities stay on and work. The government wants to raise the stay rate to 50 percent, and allows foreign students to work almost 30 hours a week, increasing the number of foreign workers.

India. India's labor force grows by 10 million a year, and a million Indians a year leave to work in Gulf oil exporter countries, including 40 percent to Saudi Arabia and 30 percent to the UAE. Saudi Arabia had 9.1 million foreign residents in 2013, including almost two million Indians, followed by 1.3 million each from Pakistan, Bangladesh and Egypt, and a million Filipinos.

Kerala, a coastal state of 33 million in southwest India with the country's highest human development index, sends large numbers of citizens to the Gulf; 20 percent of Kerala households include an international migrant. In recent years, about 35 percent of Kerala migrants went to the UAE and 25 percent to Saudi Arabia.

A 2015 study found that smaller UAE employers increasingly rely on current workers to refer qualified new workers, using social networks to vet candidates. Current workers who refer newly hired workers are usually compensated by the new hires, and sometimes receive a payment from the UAE employers as well. UAE employers also charge workers, especially for "good jobs" such as security guards that offer wages of AED 2,000 or $545 a month.

Worker costs of migration vary by destination, with Qatar at $700 half the cost of going to Saudi Arabia at $1,400. Visa costs of $800 are usually half or more of worker-paid costs, followed by airfares of $350. Kerala's migration costs have been declining, from a median $4,000 in 1980 to $2,000 in 2014.

Many of the Indians in GCC countries are from poorer Indian states such as Uttar Pradesh, which accounted for 30 percent of Indians who went abroad in 2014, and Bihar, 12 percent. Most are low skilled and work in construction or in services when abroad.

Assam is the largest of India's seven poor states in the northeast known for tea and silk. Its 31 million residents include a third who are Muslims, and the ruling BJT party made gains in May 2016 elections by asserting that the opposition Indian Congress party was allowing Bangladeshis to move north to increase the Muslim population.

Nepal. Nepal is a poor country of 28 million bordering India that sends workers abroad to fill jobs in construction, security, and other sectors. Most embassies in Kabul use private security firms who hire South Asians to protect their buildings.

In June 2016, 15 Nepalese and two Indians who guarded the Canadian embassy in Kabul were killed when a Taliban suicide bomber attacked the mini bus taking them to work. One worker who was not killed said he paid $3,300 for the job in Kabul, where he earned $950 a month. Nepalese workers often pay more than other nationalities to obtain foreign jobs, and earn less abroad.

China. China is a development success story. Per capita income in China was a third of that in sub-Saharan Africa in 1980, and is over $8,200 today, compared to less than $2,000 in most SSA nations. China produces half of the world's manufactured goods and half of the world's cement, coal and steel.

What was the key to China's success? Theories of development stress inclusive institutions that provide checks and balances, free markets and property rights, and efficient and equitable justice systems. China had none of these. Instead, China's economic take off after 1978 was driven by a focus on maintaining political stability, bottom-up reforms beginning in agriculture, promoting labor-intensive rural industries, and investing in infrastructure, all without expert and financial help from the IMF and World Bank.

Rural industrialization in the 1980s gave China a surplus of basic consumer goods, and was followed in the 1990s by light manufacturing in textiles with imported machinery. Beginning in the late 1990s, Chinese manufacturing moved up the value ladder, adding machinery, autos and other more complex goods.

Some of those who study Chinese development argue that the IMF and World Bank are wrong to impose top-down processes on developing countries: free trade, capital intensive industries, privatization, and democracy, since they deny developing countries the step-by-step climb to development undertaken by today's industrial countries and China.

Australia. Australia's so-called Pacific solution to the arrival of migrants who come from Indonesia illegally by boat and seek asylum has been to send them to Pacific Islands to apply for asylum. In April 2016, Papua New Guinea's Supreme Court ruled that boat people could not be detained in Papua New Guinea since they had not arrived there illegally.

Australia announced that the Papua New Guinea center would be closed; the migrants there may be moved to Nauru, an eight-square mile island.

Australia has about 125,000 hired workers in a total farm workforce of 400,000. The largest group are working holidaymakers, foreign youth who are in Australia for work-and-tourism, that is, 18- to 30-year olds from 38 countries can stay in Australia for 12 months and work up to six months during their stay. Since 2005, foreign youth may stay another 12 months if they worked at least three months in several sectors including agriculture.

About 85 percent of working holidaymakers work while they are in Australia, and over half of the workers employed in fruit and vegetable production are working holidaymakers.

By contrast, many farmers shun the Pacific Seasonal Worker Program that allows Australian farmers to hire Pacific Islanders, but requires them to pay transport and other costs. In 2014-15, 59 employers hired fewer than 3,200 Pacific Islanders. Working holidaymakers and up to 50,000 unauthorized migrants in Australia who do farm work do not require farmers to invest in overseas recruitment or transport to Australia.

Wen, Yi. 2016. China's Rapid Rise. Regional Economist. April. http://www.stlouisfed.org/publications/regional-economist/april-2016/chinas-rapid-rise-from-backward-agrarian-society-to-industrial-powerhouse-ain-just-35-years


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