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Feb 1, 2019 | 14:57 GMT

8 mins read

Why the UAE's Short-Term Labor Fix Will Create Long-Term Problems

Dubai is a center of development and employment in the United Arab Emirates
(TOM DULAT/Getty Images)
Highlights
  • A confluence of factors has slowed the United Arab Emirates' ability to attract and retain the number of temporary foreign workers it once did, dampening the country's ability to offset its slowing economy.

  • Recent reforms introduced by Abu Dhabi will be met with pushback from the country's minority native population — risking further divisions between richer southern emirates and the more oil-deprived northern ones.

  • In the shorter term, this will lead the government to consider rolling back these reforms and extend economic subsidies and cultural privileges to protect Emirati citizens' elevated social status. 

  • In the longer term, rising divisions among north-south lines could lead to a restructuring of the country's political system, threatening its traditionally stable and business-friendly reputation.

The flow of foreign labor into the United Arab Emirates is drying up, leaving the country's leaders to grapple with a tricky balancing act: How to attract and retain enough workers from abroad to keep its economy humming without alienating its own citizens.

As it looks to bolster its labor market, Abu Dhabi has instituted a range of stimulus plans, visa reforms and business law changes over the past year. But those solutions risk upsetting Emirati natives, who see extended-stay expatriates as a threat to their way of life and elevated social status. Their discomfort opens the door for a historic shift in the country's generally stable political system.

The Big Picture

Gulf Arab states are steadily adjusting their social contracts to prepare for an era of peak oil demand. This comes at a time when their national budgets will be unable to support their traditional welfare rentier states, which may pressure them to cut cherished subsidies for their national populations. In an attempt to both prepare for and delay this impending era, Gulf Arab states are experimenting with varying economic and social reforms, including adjustments to their labor markets that could eventually lead to unintended political change and instability.

What's Behind the Labor Market Decline?

For decades, foreign expatriates have constituted about 80 percent of the Emirati population. This is due both to the country's small native population and its robust economy (relative to those of many of its Arab Gulf peers), which requires a labor pool that's both much larger and more specialized than what the minority Emirati population can provide.

For a time, expatriates who met these demands — which include English-speaking skills and prestigious university credentials — flocked to the United Arab Emirates on their own accord. This was especially true during the global financial crisis of 2008-2009 when highly skilled workers seeking refuge from countries with weakened economies flocked to Dubai (where about half of the country's jobs reside). But the factors that once pushed and pulled many expatriates to the country have largely dried up, causing a drop in its appeal to foreign labor.

 

A photo comparison shows the growth of Dubai since 1984

The global recovery, for one, means that most workers can find good jobs and strong economies at home. Recent political events have also tainted the United Arab Emirates' once placid and safe reputation. Several high-profile arrests of expatriates and locals have taken place in the wake of the Arab Spring, the blockade of Qatar and rising strife between Gulf Arab states and Iran.

But shifts in the Emirati economy are perhaps most responsible for driving expatriates away. This includes the recent introduction in January 2019 of value-added taxes (VAT), plus increased fees for services, a rising cost of living, and lower or stagnant salaries — all of which have eaten into the paychecks of foreign workers once lured by the country's promise of low prices and high incomes.

The Recent Wave of Reforms

As its once-reliable supply of expatriates dries up, the labor market has shown signs of slowing, with stagnating or dropping retail market prices, a contracting employer index, and dips in both private sector growth and consumer spending. But Abu Dhabi has fewer tools with which it can address the economic problems keeping foreign workers away. Not only does it not want to roll back the revenue-generating VAT taxes and fees, but it also cannot stop the rise of prices of everyday consumer goods as the economy develops.

As a result, the government has instead focused on tackling the logistical barriers to employment that are more within reach by introducing several labor market reforms over the past year. Most recently, this included 10-year visas — the longest in Emirati history — which the government began issuing in January 2019.

In 2018, the government changed its rules to allow retirees with enough assets to stay in the country past 55 (whereas previously older expatriates needed special exemptions) and extended the time that students graduating from its schools and universities could find work to a year. In addition, the country is now allowing foreign workers to switch jobs without having to first leave the United Arab Emirates — a boon to expatriates who found the process of job switching cumbersome.

The Short-Term Cultural Backlash

In theory, foreign workers who once cycled out after only a few years will now have a greater opportunity to "put down roots" in the United Arab Emirates — especially those from poorer countries like India, Pakistan, other parts of the Arab world and the Philippines, who already make up the majority of country's longest-standing residents. However, this risks breaking the government's social contract with its native Emirati community, which has in part long been predicated on expatriates staying in the country only for a short period.

Native Emiratis — who have enjoyed generous social welfare packages paid for by the country's traditionally strong economy since the United Arab Emirates' independence in 1971 — will see the reforms as a potential demographic and economic threat to their elevated social status. Those in the less wealthy northern Emirates, in particular, regularly voice concern about how the current system allows foreign workers to "take away" their jobs. This means that the more that visa reforms make expatriates appear like permanent residents, the more Emirati citizens will pressure their government to respond.

A chart showing the breakdown by age of the Emirati population in 1980 and in 2017

In the short term, this backlash will likely cause the UAE government to consider rolling back or amending visa reforms, creating uncertainty over which changes will remain and which will not. It could also pressure the government to increase economic subsidies and cultural privileges, such as cash handouts or the nationalization of certain job categories, to assure the preservation of Emirati natives' social status. Neighboring Saudi Arabia has implemented similar measures as part of its own Vision 2030 economic restructuring reforms.

Abu Dhabi could start implementing measures that formally repress the expression of foreign cultures as well, like scaling back tolerance for expatriate holidays such as Christmas, stricter policing of clothing and behavior in public spaces, and more stringent standards for Emirati language and culture in private schools.

The Long-Term Political Risks

However, these short-term compromises will likely not go far enough to fully defuse the growing strains between expatriates and Emirati locals, opening the potential for more widespread and longer-term political repercussions. Regardless of whether expatriates actually end up staying longer, the mere threat of a more permanent foreign population will continue to deepen divisions between the wealthy emirates of Abu Dhabi and Dubai in the south and the five poorer emirates in the north.

This could, in turn, affect the functions of the Federal National Council (FNC), the country's partially elected but otherwise largely toothless legislative body — and the only federal institution where the views of the five northern emirates are guaranteed representation. Pressured by native populations within their emirates, FNC members could start demanding greater oversight on not only visa rules or processes, but also other rules and issues unrelated to labor market reform. This would move the FNC closer to a true federal authority, posing a more permanent challenge to the country's current political system that for so long has given generous leeway to Dubai and Abu Dhabi's rulers on national decisions.

Emirati security forces are capable of quelling internal dissent. But for how long and to what extent remains unknown.

Rising north-south discord could also undermine the assumption that the country's succession will be a clean transition. The crown prince of Abu Dhabi, Mohammed bin Zayed Al Nahyan, is currently set to ascend to the presidency once his elder brother, President Khalifa bin Zayed Al Nahyan, dies. However, all rulers of the seven emirates must first agree to the succession, which gives the poorer northern emirates a means to possibly affect its smoothness and its outcome (though far more unlikely).

That said, the Emirati security forces are capable of quelling internal dissent. But for how long and to what extent remains unknown. Nonetheless, rising north-south tensions over expatriate workers introduce a measure of uncertainty and could call the future of the country's political stability into question.

Regardless of Emiratis' pushback to Abu Dhabi's labor market reforms, there's no escaping the fact that the United Arab Emirates depends on an expatriate workforce to maintain its economic stability — and likely always will. The country will have to balance the will of its citizens with securing its place in a globalized economy — a dilemma that many countries face as nationalist movements gain traction worldwide. But in the case of the United Arab Emirates, it is a plight that could potentially alter its political status quo, risking its reputation as a peaceful place to live and do business in the process. And should that happen, it could also change the country's regional strategy in places like Yemen, Qatar and Iran by eroding Abu Dhabi's current grip on foreign policy.

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