03:16 am - Tuesday 26 May 2015

Gulf companies under pressure to meet nationalization quota

By staff - Mon Mar 12, 11:20 am

By Al Arabiya

Private sector companies in the Gulf Cooperation Council under a great pressure to meet their government quota by nationalizing its workforce are choosing to pay fines rather than meet government targets for hiring nationals.

Companies have been changing their policies to absorb more nationals into their businesses, but the pressure on labor markets to reduce the number of unemployed has created dual assumption among companies to be able to attract the workers they need while meeting quotas for their sector.

The UAE Ministry of Labor requires employers in some sectors to increase the number of nationals they employ by a set percentage each year. “There is a quota for the banking sector, for the trade sector and for the insurance sector,” said Essa Al Mulla, executive director of the Emirates Nationals Development Program (ENDP) to The National on Sunday. “The quota system has worked very well with the banking sector, but it failed big-time with the trade and insurance sectors,” he added.

The ENDP was set up in 2005 to help UAE nationals find jobs in the private sector. Emiratis are said to prefer careers in the government, and reportedly avoid careers in hospitality and retail.

Insurance companies inexplicably began refusing to hire Emiratis. Employees of companies were quoted in The National as saying” “In the insurance sector, we have to pay approximately 0.01 per cent of our net profit if we have not achieved the minimum quota required. ‘OK, we’ll pay the amount the government is asking us for, and we will not recruit Emiratis’.”

The Emirates is not the only Gulf country trying to address the hiring of nationals.

Meanwhile, a report by Saudi Fransi Bank bank in June 2011 said that plans to refuse expatriate work permits to companies that do not have enough local employees could force smaller firms out of business and could stall the recovery of the private sector in the kingdom.

“The initial shock of Nitaqat Color system (Company Category) if enforced with vigor, could lead numerous smaller businesses to shut down, shake already feeble foreign investor confidence in the economy, and further stall the private sector’s recovery,” the report claims.

Kristian Ulrichsen, a Gulf specialist at the London School of Economics, said it might not be possible for the UAE and other Gulf states to continue operating nationalization programs in the private sector.

“In the modern era of global governance and multiple jurisdictions it may become harder to achieve outright nationalization measures outside the purely public sector, as private companies and multilateral corporations become bound by international frameworks of governance,” he said. “This could be a clash that grows sharper in the years ahead.”

The Middle East region has the world’s highest rate of youth unemployment, estimated more than 25 percent – the rate in North Africa is around 24 percent. Unemployment among female youth is much worse, surpassing 30 percent in the Arab region, according to McKinsey report on April 19, 2011.

The issue is even more acute in the Gulf, where unemployment rates among young nationals exceed 35 percent – ranging from 40 percent in Saudi Arabia (2009) to 11 percent in Qatar (2010), according to Silatech research report.

Additional writing by Ikram al-Yacoub

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