Ambitious job nationalisation plans by Gulf oil producers could become the latest victim of the global financial turbulence as private sector retrenchment policies would scare off citizens, according to a key Kuwaiti bank.

Nationals in the six-member Gulf Co-operation Council (GCC) already prefer working in the public sector and any plans by governments to accommodate their fast-growing numbers mean a further enlargement in the public sector, which runs against stated objectives of expanding the private sector role in the economy, the National Bank of Kuwait (NBK) said.

"With the ongoing discharge of workers taking place in the GCC private sector, it is feared the existing preference of nationals for public sector employment will gain momentum, putting recent gains at risk," it said. To prevent this, serious measures are required to restore confidence in the private sector," NBK said in a study, referring to progress made by GCC countries in job nationalisation through setting quotas in the private sector.

Several companies in the GCC have been reported to have sacked employees or have plans to sharply cut their workforce within a new retrenchment strategy triggered by the global crisis.

Recent newspaper reports in Saudi Arabia spoke of the sacking of many Saudis in the private sector and attacked such moves as running counter to the country's policy of finding jobs for its citizens to tackle festering unemployment, which was put at more than 10 per cent in 2007.

"The enlargement of the public sector in Gulf countries is not consistent with global trends, or with the idea of promoting the role of private sector in economic activity…. the public sector is still the preferred place of employment for nationals because of the biased incentive structure, and the severe competition with expatriates in the private sector," NBK study said.

Its figures showed GCC nationals working in the public sector are estimated to be about 58 per cent of total GCC citizens employed in 2007. The ratio ranges between 50 per cent in Saudi Arabia and 84 per cent in Kuwait and about 90 per cent in Qatar.

"Unfortunately, GCC governments have not taken any solid market-oriented measures to tackle this issue," the report said.

The study said the imposition of quantitative quotas for nationals in private sector employment has been the used approach followed.

"Despite the evident success of this measure, it is time for Gulf countries to implement rigorous reforms in their labour market, at least to facilitate achieving the economic vision of private sector-led development."

The report described these reforms as "well recognised" and said they include investment in human capital, a productivity enhancing incentive structure, closing the skills gap between supply and requirements, and educational curriculum reforms.

"On the same front, the privatisation process is moving slowly across GCC countries, except in Saudi Arabia. Governments need to expedite their gradual withdrawal from commercial activity and become better regulators and facilitators," the study said.

Turning to salaries, NBK ruled out what it called a broad reduction in wages in 2009 or even 2010 on the grounds the GCC countries are not expected to downsize employment in the public sector.

It noted Bahrain was the only GCC nation to openly announce last December that it may stop paying the monthly BD50 (Dh487) cost-of-living allowance that was provided to families with less than BD1,500 of income, as well as limiting new hires in the public sector. It said the measure was justified by the anticipated deficit in its 2009 budget.

Citing official data, the study said salaries account for a large part of the GCC's current expenditure, which itself was estimated at 78 per cent of the total GCC spending during 2002-2007.

"Growth in current expenditures has been volatile in recent years, reaching 23 per cent in 2006 before dropping to 6.1 per cent in 2007," it said.

"Wages and salaries are the major and least flexible component of current expenditures, with a share ranging between 18 per cent in the UAE and 55 per cent in Bahrain"

It said most GCC states have recorded double digit annual growth rates in wages since 2005 and they are estimated to have risen sharply in 2008, following increases in salaries and cost-of-living allowances to offset the impact of higher consumer price inflation.

For Saudi Arabia, the rise in the cost of living allowance is a temporary measure that is set to be removed in 2010, the study said, referring to measures introduced by the Kingdom in early 2008 within a 17-point alleviation package to deal with soaring inflation.


GCC Salary status

Recent salary adjustments and cost of living allowances in the GCC

- Oman five per cent to 43 per cent salary increase (effective February 2008)

- Bahrain 15 per cent salary raise (effective September 2007)

- The UAE 70 per cent salary raise for Federal Government employees (effective January 2008)

- Qatar 40 per cent salary raise (effective December 2006)

- Saudi 15 per cent wage increase in 2005 and 15 per cent increase in cost of living allowance spread over three years (five cent a year starting January 2008)

- Kuwait a flat cost of living monthly allowance (effective April 2008) averaged about 15 per cent plus KD50 salary raise for nationals with a salary less than KD1,000 (effective August 2008)

— Source NBK

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