Workers Returning From Crisis-hit Gulf Economies Need State Support Back Home

The six states in the Gulf Cooperation Council (GCC) can expect an average economic downfall of 7.6% this year, according to the revised estimates of the International Monetary Fund (IMF). The IMF had earlier predicted in April an overall 3% decline in these economies. While the projections may delay economic projects in some of these countries, the impact on millions of migrant workers from India, Pakistan, Egypt and Bangladesh, among others employed in the Gulf, may be deeper and more significant. This is particularly due to lack of any social security net for most of these workers in the host countries which may safeguard them against the shock of the pandemic and resultant unemployment. Their misfortune is compounded by general apathy from the governments in the home states.    

Lockdown and oil prices

There are two clear and interrelated reasons for the predicted shrinking of the GCC economies this year. While the lockdowns imposed to curb the spread of COVID-19 have been directly responsible for the falling demand of hydrocarbons in the international market, the pandemic is not the only reason for the steep decline in the prices of oil, which is the main export commodity of the region contributing between 20% (UAE) to 90% (Kuwait) of the total export revenues.

Saudi Arabia’s audacious attempt to indulge in a price war with Russia, which is the world’s second largest exporter, led to oversupply of oil in the market back in March, a time when the need to reduce global production was already being contemplated. In fact, a slowdown in global economies much before the outbreak of the pandemic was already cutting the global oil prices.   

The price per barrel oil in the international market was over USD 70 in January. It gradually came down to around USD 40 in March before falling to a historic low of below USD 20 in April, with American crude prices once reaching minus. The 10 million barrels per day cuts announced after an agreement between the Organization of Petroleum Exporting Countries (OPEC) and Russia in April were not enough to raise the market price of oil.

Overdependence on the export of hydrocarbons makes the GCC countries extremely vulnerable to global fluctuations in oil prices. Despite their declarations of economic diversification, it remains a fact that except Bahrain, the share of hydrocarbon production in the GDP of these countries continues to be high, ranging from 30% in the UAE to 60% in Qatar. Half of Saudi Arabia’s GDP, which is the GCC’s largest, comes from the extractive hydrocarbon sector.   

While the cost of production is quite low in the GCC countries, they still need higher export prices to balance their revenue and expenditure. It is estimated that Saudi Arabia needs oil prices to be above USD 80 per barrel to “break even.” For Oman, the same is estimated to be around USD 87. The other countries also require similar levels of international prices to maintain their policy commitments. 

As per OPEC data, export revenue from hydrocarbons constitutes on an average over 60% of all the export earnings and roughly half of the GDP of the GCC countries. In such a context, the current prices will have a devastating impact on these economies.

Share of hydrocarbon industries in GCC country’s export earnings and GDP

It is evident that global consumption levels are at best stagnating if not decreasing. With precautions taken in reopening, it may take months if not years to restore pre-COVID-19 levels of consumption.

Number of COVID-19 infections and deaths in the GCC countries as on July 20

Failure of diversification plans   

Most of the Gulf countries have announced policies to diversify their economies, learning their lessons, first, from the 2008 global financial crisis and again during the 2016 oil price crash. For instance, Saudi Arabia’s Vision 2030 is an ambitious plan to develop Saudi tourism and other sectors. Qatar, Bahrain and the UAE too have their Vision 2030 plans, with Qatar’s being the oldest which was announced in 2008. Kuwait launched its own New Kuwait Vision 2035 last year. Oman has similarly been trying to diversify its economy for a long time.

The limited success stories of these diversification projects have felt the impact of the COVID-19 lockdowns and falling oil revenues. Saudi Arabia was forced to restrict its annual Hajj and Umrah pilgrimages this year due to the pandemic. Some 2.6 million pilgrims visited Saudi Arabia last year during Hajj and around 19 million for Umrah, bringing in about USD 12 billion in revenue. With the announcement of a “limited Hajj” this year, only for people residing inside Saudi Arabia, most of that revenue is gone. 

In Dubai in the UAE, which had 16.7 million international visitors last year and had aimed to increase it to 20 million this year, the tourism industry is in complete disarray following the suspension of all international flights since March. Its aviation industry, one of world’s largest, has already announced job cuts and layoffs due to loss of traffic. State-owned Kuwait Airways did the same in May.

Though most of the governments in the GCC have announced stimulus packages, chances of a quick recovery seem bleak. The central banks in Saudi Arabia, UAE and Qatar have announced a cumulative package of over USD 60 billion to tackle the economic crisis.

Migrants workers become the real victims

The GCC countries together host about 10% of the global migrant population. According to the International Labor Organization (ILO), in 2019, they collectively hosted around 35 million foreign migrants. The migrant population constitutes the majority of the residents in Bahrain, Qatar, Kuwait and the UAE. 

Though conditions for migrant workers in the Gulf region have always been a matter of concern, reports of non-payments of salaries and layoffs, with contractors and employers citing lack of business, have increased significantly in the last few months.  

Instead of acknowledging their contributions to the growth of their economies and GDP, some countries in the GCC have used the COVID-19 crisis as an opportunity to force a section of the migrants out in the name of increasing domestic labor participation. This seemingly pro-local agenda has already been implemented in Oman as part of the “Omanization project” being carried out by the government led by Sultan Qaboos. Similar policy initiatives have been taken up in Kuwait with the proposal of a law to fix the percentage of expatriate population in the country. For example, India and Egypt have been assigned a quota of 15% and 10%, respectively. As a result, more than 8,44,000 Indians and over 50,000 Egyptians will have to leave the country.    

Most of these migrants come from poorer nations of South Asia and Africa. People from India, Pakistan, Egypt and Bangladesh, among others, are working in the GCC countries for relatively higher wages. The remittances they send back home make an important contribution to their families and the national income.

It is expected that the contraction of the GCC economies will impact thousands of these migrant workers who will lose their jobs and be forced to go back home. Though one can hope that this contraction is temporary and most of them will be able to return to work after the pandemic, the duration of this “temporary period” is far from being certain. The host countries will also have to work out plans to accommodate these returnees. Lack of any social security measure for these workers makes them vulnerable to crises like the current one. Despite the gravity of the situation, barring a few State administrations in India, most governments have not announced any coping strategy for these workers so far.