Do you, per chance, remember what the next big things in 1990 were? The World Wide Web had just been born and the internet was still more of an academic playground than a ubiquitous communications universe. The European Community was a club of 12 nations and the euro was a concept waiting to be discussed in the 1991 negotiations of Maastricht. Introduction of the world’s first commercial GSM 900 mobile phone network was two years away.

It also was the time when Europe and the six member countries of the Gulf Cooperation Council started talking about a free trade agreement (FTA). Seventeen dusty years after the beginning of negotiations in 1990, talks between the European Union and the Gulf Cooperation Council in the past few weeks seem to have regained momentum toward finally signing the long-awaited FTA this year.

Touring the region at the end of February in support of finalizing the agreement, EU Trade Commissioner Peter Mandelson told the Jeddah Economic Forum that a completed FTA would make an important contribution to the greater diversification of Gulf economies by encouraging inward investment and boosting the competitiveness of Gulf exporters to Europe.

‘Very close to an agreement’

Mandelson said: “We are now very close to an agreement that will not only be the first ever region-to-region FTA in the global trading system, but which has the potential to open doors for new investment and new trade beyond what we offer each other through the WTO.”

A treaty between the two regional organizations would be the first of its kind, Mandelson enthused. But of course there are quite a range of reasons why European-Gulf negotiations have taken a modern eternity and were disrupted twice for long intervals, before the two sides last month publicly voiced confidence that signing ceremonies could be on the books sometime this year. 

Rewards of a successful treaty would be substantial by helping both communities strengthen their positions in the globalization game and, from the European perspective, by increasing stability in what the EU sees as a region of immense strategic importance but vulnerable to political and security risks. 

Obstacles

The business concepts and legal frameworks of the two blocks are far apart in many respects, but the points of real obstruction in past talks were European calls for liberalization of GCC economies and Gulf wishes to gain more direct access to European energy markets. Early in the negotiations (1990 and again in 1992), the European Parliament criticized the FTA talks for alleged repercussions on the European petrochemicals and fertilizer industries and employment in these sectors.

The considerable power of the US in the Gulf and the EU’s corresponding lack of power is one of the main structural features hindering real progress or even real interest in moving EU-GCC relations forward. The US is currently viewed as the only credible security guarantor by the Gulf monarchies, while the EU mainly is seen as a civilian and economic player.

Assessing the potential influence of the EU in the region, a Danish research institute wrote in late 2006 that “the Gulf monarchies are blessed with oil and natural gas resources, and equally cursed with domestic instability, war and foreign intervention. In this strategically important corner of the Middle East, bilateralism and hard security issues still dominate the agenda, and here the EU has only limited capacities.”

The report added that the EU also faces both barriers and divergences in term of assisting reform processes in the Gulf, and the European analysts saw it as open question if first steps towards political and social reforms were genuine or mere cosmetic changes. Post-Christian civil liberties concepts made in Europe have not found a large fan base in many Middle Eastern societies and when, for example, the European Parliament lambasted Bahrain in 1997 for its practices on human rights, the GCC rejected this as meddling. 

Limitations on foreign ownership of companies and restrictions on access to domestic markets, including equity markets, in several GCC countries are barriers that could also easily block European acceptance of the FTA this year. But on the other hand, the Europeans have to think about the heightened importance of Gulf oil producers in the globally growing demand scenario for black gold. The EU policy makers also have to grapple with the fact that today, beyond the US’s Middle Eastern goals and strategic interests, which have long caused headaches in many EU capitals, China is also flexing its increasingly toned geopolitical muscles in the region, with aspirations of securing supplies of oil and generating new economic partnership opportunities for its vast industry. 

EU a model of integration

While the EU playes a minor fiddle in the Middle East military and security realities to the US, and enjoys less shared affinity with the region’s cultural conservatism than the East Asian nations, Europe has one strong thing going for itself through the EU’s model function of regional economic integration. The GCC adopted many ideas from the processes of Maastricht and Europe’s Monetary and Economic Union building in its project to forge a similar cohesion among the six GCC member countries, including plans for a joint central bank and single currency for the realm.

As a matter of fact, the GCC governments’ 1999 decision to work towards an EU-like economic integration sparked new life into the FTA negotiations between the two regions, even though the verve was short lived. It is moreover also doubtful (to be friendly) that the GCC monetary union plans will be implemented in full by their 2010 target or even in a five-sixths solution of adopting a joint currency without Oman. Nonetheless, interaction between EU and GCC institutions in the context of the project has a relationship-building capacity for years of interaction, whether an FTA sees the light of the desert this year or not.   

For the business communities of both regions, any strengthening of information and cultural ties would nonetheless be poor replacements for an agreement that opens Gulf markets wider to European investors and European markets to Gulf petrochemicals and energy players.

The EU still is the Gulf’s biggest market and incurred a $22.4 billion trade deficit with the GCC in 2006, fundamentally because of Europe’s thirst for oil. In the other direction, the GCC is currently the sixth-largest export market for the EU, with machinery and transport materials accounting for over half of sales to the region. Beyond further growth in trade, direct investments in the GCC by European companies could see a sharp increase if an FTA comes into force.

Picking up the pace of talks

For the past few years, negotiations between EU and GCC moved at a rather leisurely pace of one round of talks per annum. However, following the discussions of the two sides in February, the EU emphasized that it will eliminate its 6% import tariffs on aluminum and also abolish tariffs on basic petrochemicals after the two regions reach an FTA. What the EU seeks in return, is an end to ceilings on foreign ownership of GCC companies. A new Gulf-EU meeting at the ministerial level is scheduled for May.

The Gulf region is famed for enjoying surpluses of liquidity and jobs over the available human capital. This situation has created a hunger for blue and white collar labor that boosted the ratio of imported to indigenous population to at least four to one in the UAE and some neighboring emirates.

In the past two years, the influx of new people and continuing enormous demand for labor has also created pressures on a wide front, from housing and remuneration to cultural, social, and health issues. The private and public sector agencies dealing with human capital in the various GCC countries are being seriously put to the test by these growing imbalances.

Research into labor issues in the GCC is still in its infancy, driven mostly by a few job agencies that aim to establish their franchises as suppliers and intermediaries in the market for skilled employees. The hotbed of job creation in the GCC is the UAE, and private sector job companies focus their research there. Two such employment companies published reports on salary trends and cost of living in December 2006 (Gulf Talent) and in February 2007 (Bayt).

What’s my salary?

On the salary front, annual increases in the magnitude of 7-8% and more have been the norm in the past two years, the Gulf Talent online survey of professionals found, while Bayt reported an even higher jump in average salaries of 15% in 2006 and 21% over the two-year period of 2005 and 2006.

Bayt gathered responses from what it called a “cross-section of the labor force” around the GCC but did not disclose the sample size and methodology used in its study when publishing the results. It reported that average monthly salaries in the GCC last year, with the exclusion of Oman, ranged from $2,700 in Qatar and $2,750 in the UAE to $3,100 in Kuwait.

In a breakdown by company type and sector, the survey found that multinational companies provided average monthly salaries of $2,222 and large regional companies similarly rewarded their employees (average $2,148/month) whereas public sector and small local companies forked out about $500 less per month.

By sector, earners in law firms sat on top of the Bayt survey, commanding an average of almost $5,900. The oil/gas/petrochemicals sector paid over $3,700, and jobs in advertising and banks were good for an average of $3,500. On the low end of the scale, hospitality, education, electronics (excluding IT), and health services (excluding MDs) offered average salaries ranging from $2,444 down to $1,926. 

Loving Dubai

While the three most recent Gulf Talent surveys gave no indication of average salaries per country and industry, the job agency stated that among some 11,000 queried professionals outside of the GCC, among those who wanted to work in the GCC, 73% named the UAE as their preferred place of employment in the region. Dubai was mentioned specifically by 38%. The survey’s number two and three targets of choice were Qatar and Saudi Arabia, with 9% and 8% positive responses.

By Bayt’s count, the preferred place of work in the GCC is Dubai, with 49% of answers from an overlay poll picking the city as their choice, followed by Saudi Arabia (16%), Kuwait (14%) and Qatar (11%). Although the methodologies and polled samples in the two surveys are hard to compare and results showed notable variations, findings of the two companies concurred strongly that the UAE is the preferred destination for foreign employees and job seekers who work or want to work in the GCC.

This highlights the UAE’s role as the center of the multi-national job market in the GCC, with the highest percentage share of expatriate employees. The most recent government research on employment and population figures tallied the UAE population in a census of population, housing, and establishments that was conducted in 2005. Released last month, preliminary results of the census said that the UAE’s seven emirates have a combined population of about 4.1 million—including nationals, registered expatriate workers and other expatriates—at the end of 2005. The census found that 78.1% of the total resident population included in the census were non-nationals.

The preliminary results did not provide a full data set on the numbers of people in each gender/age/nationality bracket and the composition of the labor force. However, it stated that of the registered population aged 20 to 64 years, almost 2.4 million are foreigners while the nationals in this group numbered less than 400,000. On top of that, the census assumes a presence of 335,000 foreigners (not included in the census tally) who work without permit, were on leave on the census date, or commute into the country. This hints that there could be as many as seven, eight or even nine expatriate employees and workers for every citizen in the national workforce, in line with estimates by some UAE academic leaders who have rung alarm bells over the country’s national identity.

Working the force

Regardless if the foreign workforce accounts for 80 or 90% of the UAE working population, the country’s 75% population growth between the last census in 1995 and end of 2005 relied greatly on inflow of foreigners, and the trend is estimated to have only accelerated since. Analysts at Global Investment House, a regional financial firm headquartered in Kuwait, estimated last month that the UAE population numbered 4.7 million in 2006 and will be above 5 million at the end of this year, suggesting further increases in the percentage of expatriates, despite the fact that more than half of the UAE nationals at the end of 2005 were younger than 20, meaning that the birth rate among citizens of the UAE has in recent years been high indeed for an affluent society.

The combination of high economic growth, the influx of new people, and extra liquidity from oil revenues in the GCC has taken an unavoidable expression in inflationary pressures that put a strong dash of vinegar into the lemonade of the UAE labor market. According to Bayt, the UAE in 2006 was the region’s “worst affected country in terms of erosion of consumers [sic] purchasing power with salaries being outpaced by cost of living increases to the tune of over 13%.”

This assumption is based on an estimate or perception that consumer price inflation in Dubai was 28% in 2006, based on responses by polled persons. The CPI estimate of the Economist Intelligence Unit for the UAE in 2006 was an increase of 13.5%.

Cost of housing is the main new burden on foreigners. Gulf Talent’s survey produced responses saying that rents in Dubai increased by 60% in the space of 24 months (November 2004-November 2006). The agency also reported that rent payments in Qatar and the UAE consumed 33% and 30% respectively of respondents’ household incomes, significantly above rent costs in Saudi Arabia (19% of incomes) which are closer to numbers for many developed countries.

Also, the savings rate among expatriate workers has gone down, a telltale sign that financially, the stay in the GCC is less attractive than it was 10 or even five years ago. Gulf Talent reported that 43% of expatriates working in the UAE are not putting money into savings and 7% even said that cost of living was not covered by their salaries and they had to rely on savings or support from family to sustain their lives.

However, the shrinkage of disposable or remittable income is no fundamental deterrent, as the job surveys showed significant shifts in the priorities and expectations of international job seekers in the GCC. First, people said that they were looking for a career more than for fast earnings. “Many of the newcomers are attracted by long-term aspirations and interesting career opportunities now available in the region, with short-term financial considerations playing a less dominant part in the overall value proposition,” Gulf Talent found.

Secondly, increasing percentages of the people relocating to the Gulf are doing so under a perspective of making the region their home in the long term and not just regard it an intermediary career step. This reorientation is an expression of both the region’s increasing depth of career choices and its broadening range of housing, entertainment, shopping, and cultural environments. And while the newcomers are not deeply rooted in local heritage, they appreciate the high mobility of their lives, characterized by the contemporary airports, hotels, shopping malls and recreation centers.

With careers and long-term living perspectives—according to Gulf Talent, 78% of professionals currently working in the UAE plan to stay; according to Bayt, a slightly larger 26% share of people intend to move away from the UAE—it fits together that people are not driven into other countries by cost of living changes as much as by other factors. Bahrain’s smaller cost of living increase did not cause expatriates there to consider moving away in larger percentages than their peers in the UAE, for example. The simple point is that it not only matters how much it costs to live in one locale of the Gulf, it matters equally or more what quality of life one gets in the cities of the region.

Of men & women

Salary surveys and census data are insufficient for describing the entire set of social and life options that determine personal satisfaction and integration of foreign workers into a new country. One census result that is of relevance in this regard is the immense overhang of the working-age male gender in the UAE population. Not only are some 49% of non-nationals between 25 and 40 years old, expatriate men in the three age categories—20 to 24, 25 to 29 and 30 to 39—outnumber expatriate women by factors increasing from 2:1 to 3:1 and then more than 4:1 for those in their thirties. 

The towering discrepancy in the ratio of men to women in the UAE is a deterrent to the country’s ability to be the natural center of living and planning for the members of its expatriate population.

Another obstacle to balanced social development is the stratification of the workforce into nationalities, where citizens of some origins are automatically paid better than those of others, a factor that may be decreasing but is far from having disappeared. Their is also the economic rift between professionals and blue collar labor.

As Gulf Talent concluded in an October 2006 report on compensation trends in the GCC construction industry, only the managerial and professional workers benefited from the almost 13% hike in salaries observed by the agency last year for the sector. Laborers, which make up the majority of construction sector employees, “have experienced little or no rise” in their remuneration, the report wrote. A huge portion of the expatriate workforce is working poor in the GCC; they live and work under conditions of increasing costs with pay raises that do not cover inflation.     

These societal and socioeconomic imbalances apparently have led already to higher rates of social unrest, sexual abuse and other crimes, disease and suicide, evidenced daily by media reports. However, statistics for problems such as the number of expatriates who contract HIV are not available from UAE officials, who only said that the country immediately expels foreigners who test positive for the virus.

Finally, the UAE government has produced a draft for a revised labor law and stepped up efforts to address grievances by the expatriate workforce and violations of labor codes by employers. However, when Human Rights Watch published a press release at the end of last month that asked for further changes to the law and for affirming international labor rights such as unionization, UAE authorities avoided direct responses to the NGO’s challenges, but acted defensively by quickly circulating statements through the state’s media mouthpiece that the country has already made much progress in dealing with “these issues.”