The crisis brought about by the combination of Covid-19 and sustained low prices will test many aspects of the social, political, and economic equilibrium in the GCC. The role of expats could be one such aspect.
Any deterioration in the environment for GCC expats would be negative for the investment case in regional assets and for some of the countries from which those expats originate. Equally, those GCC countries which use the crisis to improve the incentives for long-term residency and investment by expats could emerge competitively stronger.
Expatriate residents in the GCC remain key for efforts to diversify economic activity away from hydrocarbons and shrink the role of the public sector.
In reverse, remittance flows out of the GCC are a material share of GDP (2% to 8%) in a range of recipient countries, eg Bangladesh, Egypt, Jordan, India, Lebanon, Pakistan, Philippines.
A flare on the expat issue goes up in Kuwait
An article in local language daily Al-Rai (from 13 April) suggests the debate over the high share of the population made up by expatriates is stirring in Kuwait and that Covid-19 is the catalyst (because of fears over the potential stress on public healthcare resources for citizens). The report claims that an old plan to reduce the number of expatriates (from about 70% of the population to 50% in 5 years) is again under consideration.
As far as we are aware, neither has there been any official Kuwait government statement to corroborate or deny the report, nor has there been a report of similar plans in any of the other GCC countries.
Kuwait has a history of public debate over the role of expats in society; it is a moot point whether this is because of a generally more liberal environment, compared to the rest of the GCC, for public discussion of government policy, or because political populism flourishes in its parliament (where MPs are motivated to establish their credentials as critics of the Emir's appointed cabinet and as the champion of populist agendas because they will not get the credit, as individuals, from any cabinet successes and their campaign for re-election is always, potentially, around the corner).
The importance of expats to the GCC
Expats bring a range of positives for the GCC economies:
- Labour (skilled and unskilled) at a more competitive wage and in greater scale than citizens;
- Scale for the resident consumer base;
- Private sector development (expats proportionately work much more in the private sector than citizens);
- Fees (quasi-taxes) for the government; and
- Inbound direct investment (when incentivised with transparent and enforceable property rights and level competitive playing field with locally-owned private and public sectors).
The tensions with expats in the GCC
But in a crisis situation, expats may put a strain on public resources (eg hospital beds, medicines, bank liquidity), which creates tension over the allocation of (albeit temporarily) scarce resources between expats and citizens. This is at play in the resurfacing of the debate on expats in Kuwait.
In the long term, addressing high levels of unemployment in countries like Saudi (which are exacerbated by rising female labour force inclusion) ultimately require the replacement of expatriate labour with citizen labour. But in advance of this, the quality of education in skills training needs to be raised and the incentives for public sector employment needs to be reduced. (Ironically, Kuwait's global ranking for maths and science education is the lowest in the GCC by some distance).
The importance of GCC expats to their countries of origin
In reverse, remittance flows out of the GCC are a material share of GDP (2% to 8%) in a range of recipient countries, ie Bangladesh, Egypt, Jordan, India, Lebanon, Pakistan, Philippines.