GRAPHICS

Gulf Remittances Feed Asia's Economies

Jun 15, 2016 | 14:32 GMT

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(Stratfor)

Gulf Remittances Feed Asia's Economies

Oil is the foundation of the Persian Gulf's wealth. But the recent collapse in oil prices has made the six members of the Gulf Cooperation Council painfully aware of the risks of relying on such a volatile commodity. Now, Saudi Arabia, Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates are working to leverage their existing wealth to diversify their economic bases. The effort will require more labor, since workers will be needed for massive infrastructure and construction projects and to staff growing tourism, financial and retail sectors. Yet historically, Gulf state residents have been uninterested in working in the private sector; instead, they prefer more lucrative public sector jobs.

For decades, Gulf states have turned to migrants from South and Southeast Asia to supplement their workforces in virtually every sector. Now, there are nearly 25 million non-national migrant workers in the Gulf, primarily from India, Bangladesh, Pakistan and the Philippines. These workers are willing to work for lower wages relative to their local peers, and the nations sending them have come to rely on the remittances they send home. In 2015, remittances from migrant workers abroad equaled 3.6 percent of gross domestic product for India, 10 percent for the Philippines and 7 percent for Pakistan. The funds not only help stimulate the home countries' economies but also supplement family incomes in difficult labor markets, providing an important cushion that prevents social unrest.

According to World Bank estimates, the growth in remittances sent to developing countries has slackened off in recent years, falling from 3.2 percent of GDP in 2014 to 0.4 percent in 2015. But this probably will not last for long: Funds are projected to rise again in 2016 and 2017, making a rapid recovery compared with the previous slump, which occurred during the 2008 recession. Because low oil prices are what drove remittances down in 2015, the global oil market's recovery will lead to their resurgence — particularly in the Gulf region. However, the Gulf may have a hard time courting the steady stream of foreign labor that it needs while taxation and nationalization remain the region's top priorities.