Inflation gives labour the upper hand in Middle East

Construction workers on building sites in the Gulf have bargaining power and increasingly know it, while governments wonder how to respond.
Demand for workers needed to build the $1.9 trillion worth of capital projects in the inflation afflicted Gulf region has resulted in labour shortages and higher wages. Some construction companies now struggle to find the Bangladeshi, Indian and Pakistani workers who are building the glitzy hotels and office towers, which are then later serviced and cleaned by other poor Southeast Asian immigrants but which house wealthy businessmen and free-spending tourists.

Most workers have fixed contracts with labour-supply companies, and are struggling to cope with rising inflation in the Gulf states while their salaries remain the same. The problem is exacerbated by the declining relative values of the Gulf Cooperation Council (GCC) currencies, which are weakening against the Indian rupee and the Philippine peso, for example, because of their peg to the US dollar. All this means recruiters are finding it more difficult to hire workers at todayÆs wages.

The dollar peg is also reducing the purchasing power of those remittances back in their home countries. Whereas Indian construction workers would expect to earn four times as much as they would in India if they moved to Dubai five years ago, the pay differential has now been reduced to 40%.

A further disincentive for Asian labour to head to the Gulf is the fact that the main labour-exporting nations û especially India û are experiencing their own economic boom and their own demand for labour has risen significantly, pushing up domestic wages and encouraging Asian workers to stay at home.

Demanding a fair wage
In addition to these inflation-driven problems for Gulf contractors, is the growing call by governments of traditional labour-supply countries for fair wages for their nationals. In Bahrain, the Indian government has asked that their nationals be paid a minimum wage, and the Philippine and the Bangladeshi governments subsequently followed suit. But even with increased wages, contractors in Bahrain are complaining that fewer workers are entering the country.

The minimum wage debate has also been fuelled by an increasing number of strikes by workers across the Gulf, long fed up by their pay and conditions, yet recently encouraged by an awareness of the growing labour scarcity, as well as by their respective governmentsÆ more vocal support. The workers have dared to ask for more.

Last October, thousands of building workers in Dubai went on strike for two days, throwing stones at police cars and demanding higher pay. This strike followed two smaller incidents in the previous summer and a big walk-out a few months earlier, when workers blocked traffic on one of DubaiÆs main roads and ransacked the offices of Burj Dubai, which will be the worldÆs tallest building when it is completed. OctoberÆs strike was different because rather than just call for better working conditions û which had hitherto been the typical call û the strikers demanded a wage increase. The government responded by deporting 4,000 workers.

Dubai is not alone in feeling this anger and discontent. In March, hundreds of workers in the emirate of Sharjah set fire to buildings at a labour camp in a protest over pay, especially the wide gap between the wages paid to workers from the sub-continent and to indigenous labour. This glaring discrepancy came under the spotlight during a recent strike in Bahrain, with unions complaining that semi-skilled Indian workers received a basic salary of $184 a month, while a Bahraini, with similar skill sets, received almost three times that amount.

The more acquiescent û and pragmatic û response of business interests diverges from the hard line measures of governments, who prefer either expulsion or segregation of those they perceive as trouble-makers. In late 2007, the UAEÆs largest contractor, Arabtec Construction, agreed to raise wages by 20% to halt a strike and get the workers back on site. But the UAE government recently backed an initiative by Bahrain to limit the time that unskilled foreign labourers can work in any of the six member states of the Gulf Co-operation Council to six years, to prevent them from becoming too comfortable. This will force companies to recruit and train new workers continually.

In February, the UAE labour minister, Ali al-Kaabi, was moved in a cabinet re-shuffle despite, or more likely because of his attempts to address some of these problems. Kaabi had aggressively pursued the policy of emiratisation, through expanding the list of occupations subject to quotas for the hiring of nationals. He also tried to improve conditions for foreign construction workers, after criticism from human rights bodies, through updating labour legislation and strengthening the inspection agency responsible for ensuring that contractors abide by the rules covering their treatment of workers. These policies laid Kaabi open to criticism, both on the grounds that quotas were an imposition on business and that the championing of construction workers was aggravating the problem of inflation in project costs.

On a more positive note, the UAE recently implemented a scheme that will ensure all workers are paid through an electronic, government-run system rather than in cash by their employers, as part of a campaign against companies that fail to pay workers on time. An amnesty and repatriation programme has also helped to reduce severe ill-treatment of labour, which affects illegal workers particularly.

One answer might be to force companies to hire locals and impose quotas û a Malaysian-style affirmative action policy û but the danger is that it could create lazy nationals and frustrated immigrants. Too many Gulf nationals receive a government pay cheque for a meaningless job, or owe their jobs in private firms to a hiring quota. Foreigners do 60% of private-sector jobs in the GCC region and in the UAE, they do over 90%.

Bahrain has launched a major reform of its labour market, designed to make hiring foreign workers more expensive. From July 1 it will charge companies a monthly levy of 10 dinars ($26) for each foreign employee on their books, in addition to a visa fee of 200 dinars.

But in Bahrain, it is the local unemployed who are rioting. Most of the unrest takes place outside of the mainly Sunni capital, Manama, in poorer, mostly Shia, villages. Bahrainis are more willing to work in menial jobs than their wealthier counterparts in Kuwait or the UAE but cheap foreign workers keep down wages. There have also been rumours that the government is handing out passports to Sunnis from other countries in an attempt to turn the Shias into a minority.

Yet, in what looks like a populist sop after weeks of periodic but regular riots in the first six months of the year, the Bahraini Ministry of the Interior announced that it would expel thousands of Bangladeshi workers, after the alleged murder by a Bangladeshi mechanic of his Bahraini supervisor on May 23. Three days later, the ministry said that it would no longer grant visas to Bangladeshis, and that Bangladeshis working in the country would not have their visas renewed. It subsequently revised its decision û after protests from business groups û exempting from the ban those who already live in the country.

Foreign workers û the countryÆs 90,000 Bangladeshis tend to be among the lowest-paid foreign workers û are often scapegoats for causing unemployment among Bahraini citizens. Furthermore, the government has announced that it will designate special zones for foreign labourers to live in as part of a long-term programme up to 2020.

Some Gulf governments are seeking a short-term solution. Already Bahrain and Qatar are reportedly in discussion with other Asian and even African governments in an effort to plug the labour gap, possibly recruiting from Nepal and Vietnam.

Clearly, there is ambivalence towards foreign labour that is shared across the region. The native-born want to enjoy the profits and products that immigrant labour makes possible. But they do not want to face the competition immigrants bring.

This story first appeared in a Middle East Report that was published together with the July issue of FinanceAsia magazine.
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