Special report: Putting the Gulf to work

A worker is silhouetted as Burj Dubai, the tallest tower in the world, is seen in the background at a construction site near Burj Dubai Mall, October 29, 2008.

DUBAI/DOHA (Reuters) - When Qatari paramedic Mohammed Majib rushed to Sheikh Khalifa bin Hamad al Thani's royal palace in the mid 1990s after a call for help, he wasn't sure what the ailing Sheikh found more shocking -- the heart attack he had just suffered, or the fact that his medic was a local. "You're Qatari?" the former ruler gasped, as Majib went to work. "Ma Sha' Allah. (God bless you)."

Khalifa's surprise was understandable. Across the Gulf, and especially in states where rapid growth is driven by oil and gas, locals rarely have hands-on jobs in health -- or anywhere in the private sector. In an unspoken pact between rulers and ruled, Gulf citizens seem all too happy to fill plush government jobs, where the pay is high, the hours short, and the work sometimes nonexistent. In the private sector, job after job is filled by South Asians, non-Gulf Arabs and Westerners.

Gulf Arab rulers have known for more than a decade that this is a problem, not least because it hands day-to-day power over whole sections of the economy to foreigners. Foreign workers make up more than 80 percent of the private workforce in many Gulf states and hold key positions running national airlines, real estate and financial service companies and the media industry.

In response, governments have introduced 'nationalization' schemes aimed at pushing their workers into the private sector. Oman was the first, setting out in the 1980s to 'Omanize' its workforce; governments in Bahrain, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates have all followed. Typically, the schemes combine tax incentives for private companies to hire locals, quotas, and investment in training local graduates.

It's not working. Most Gulf Arab rulers have found breaking a culture of easy-come government jobs and preparing their citizens for the private sector difficult. Qataris, about 16 percent of the country's 1.7 million people, still represent just 5 percent of the country's private-sector workforce, government statistics show. Locals fill about one percent of private-sector jobs in the United Arab Emirates. Saudi Arabia, with its large native population, has mustered a 10 percent participation rate.

"We need to share in the private sector," says Noora Al Bedur, a director of the UAE's Emiratization program. "The private sector is the backbone of a country's economy. And citizens have the right to work in this field. That is very important for us."

NEW STRUGGLES

Gulf Arabs have come to expect a nice government job as part of what Ingo Forstenlechner, an Austrian academic at the United Arab Emirates University, calls the region's ruling bargain: the rulers give you everything, but you don't ask for anything. "It's basically buying political acquiescence while distributing the oil wealth," Forstenlechner says.

That worked fine as long as government jobs were available. But in places like Saudi Arabia -- official unemployment is 10.5 percent, though diplomats and analysts say the real figure is likely to be higher -- state jobs are no longer guaranteed. In Kuwait, 12,000 nationals are waiting for government posts.

That's left young people frustrated. In an extremely rare public protest in late August, around 200 unemployed Saudi university graduates crowded in front of the education ministry in Riyadh carrying posters with slogans demanding government jobs and posters with slogans like "Enough Injustice."

Experts say unless unemployment is tackled, protests may increase -- adding to security risks. "The great majority of those recruited for terrorist activities are the unemployed," says Mustafa Alani, of the Gulf Research Center. "The (Saudi) government believes that the question of unemployment is a major problem with huge implications on security."

WHY BOTHER?

Part of the problem is that many Gulf nationals still don't see the point of seeking work in the private sector. In countries such as the UAE, where modest palm frond homes were replaced by glittering villas and skyscrapers in a generation or two, the government says most people are jobless by choice. Official statistics show 23 percent of Emiratis are unemployed -- a rate similar to the Gaza strip.

"These are strange economies -- they're economies that went from being rather poor and undeveloped to overnight having huge amounts of oil money invested in them," says Paul Dyer, a fellow at the Dubai School of Government who specializes in labor and political economy.

Khalid al Mutawaa, a 26-year-old Emirati who until recently worked as a project manager for an international bank, says the transformation has not been easy. "I think the older generations ... weren't ready for such a huge boom," he says, relaxing after work at a lounge in Dubai's beachside Ritz Carlton resort. "But I don't think the young people here were really ready for it either. UAE nationals have a very home-oriented environment. They see family as the priority."

Many also see a private job as less attractive than a government position, which usually offer shorter working hours and double the pay. "I can't not see the obvious," says 23 year-old Abdulla al-Kaabi, son of a date-farmer from the small UAE mountain town of Hatta, an hour outside Dubai.

Sipping coffee inside the massive Dubai Mall while fussing with his three silver mobile phones, Kaabi says he will hold out for up to a year for a government post rather than take a job with a private firm.

"I can work in a bank from at least 8am to 5 pm, and get half the salary that I would get in a government job working 8 to 2. Anyone would choose the better option."

'DESIGNED FOR EXPLOITATION'

One factor hindering progress is the fact the nationalization schemes are often disorganized -- dropped a few years after they are initiated, only to be restarted later. Saudi Arabia recently relaunched its Saudization program, which includes employment quotas for the number of nationals that must be hired, and an incentive program that pays a portion of a local employee's salary.

The private sector in the Gulf is also fundamentally ill-suited to absorb nationals, and nationalization schemes offer scant incentive for reform. How can so many Emiratis be unemployed in an economy with one of the highest growth rates in the Middle East and awash in oil money, Forstenlechner asked in a 2009 research paper. The answer: the millions of private sector jobs were created with foreigners, not locals, in mind.

"The private sector here is designed for exploitation -- for foreign investors and powerful locals to exploit a temporary and cheap foreign workforce. It's not actually built for employing a permanent, local workforce."

The huge imbalance between the number of locals and the number of temporary foreign workers means that government quotas for local workers can seem fanciful. The official Qatarization policy aims to have half of its workforce filled by nationals, a quota that most believe is impossible for a country whose indigenous population is less than a fifth of the total. The UAE, which brought in quotas for different sectors 10 years ago, expected many sectors to have at least 40 percent Emirati employees this year. Few companies have met these targets.

In many places there are simply not enough nationals to support growth. Qatar's GDP is expected to grow a staggering 15.5 percent in 2010, according to a Reuters poll. Saudi will grow by 3.8 percent. Even the UAE, which includes crisis-hit Dubai, is expected to grow by 2.4 percent.

As a result, private employers are forced "to go down the ladder to fill these positions," says an expatriate communications employee in Qatar, declining to be identified speaking critically of colleagues. "We're seeing unqualified, inexperienced people in many of these roles -… they just plunk them in a job and leave them to it. Often, when someone flounders at a job, they are simply moved to another position where they flounder as well."

AN EDUCATION

To improve the skills of the local workforce, governments have poured billions into educational schemes. But many say the system is still not up to scratch.

"There is a huge gap between what the market needs and what the UAE's education system produces," says Al Bedur, the UAE official who heads up employment and skills development at Tanmia, a government program to boost employment of nationals in the private sector.

In Saudi Arabia, where clerics are fighting King Abdullah's $2.4 billion efforts to modernize education and lighten textbooks' heavy religious content, the problem is even more critical.

"We are not graduating students who think, we are graduating students who carry information," says Sulayman Ibrahim, of the Gulf Research Center.

But even Saudis educated at American universities complain they cannot find private-sector jobs either. As unemployment rises, Saudi Arabia has become one of the few Gulf countries where locals drive cabs or work as security guards.

Turad al-Amri runs the Bait Assawada employment agency and has registered 4,000 jobless Saudi graduates of foreign universities.

In Saudi Arabia, unlike in most Gulf Arab states, the majority of the 25.4 million population are nationals. Al-Amri points to a conflict of interest at the heart of job nationalization schemes: most Gulf countries require a company to be more than 50 percent owned by a citizen, yet it is often these nationals who resist hiring their countrymen.

"They are hiring people who are even less qualified (than Saudis) ... because they are going to pay them less."

HIDDEN TAX

That, say young nationals, shows how the focus on education is missing the bigger problem: the abundance of cheap expatriates that makes nationalization schemes uneconomical.

That's especially true as businesses lobby to protect the status quo. Two years ago, when Bahrain tried to levy a tax on expatriate workers to make the cost of hiring them similar to hiring a Bahraini, wealthy local businessmen with political clout thwarted the plan. Instead, they negotiated a 10 dinar ($27) charge per foreign visa -- a pittance to large companies, where two to three foreigners can often be hired for the cost of one national. "If you have a big company with 10,000 Indians working for you for less," asks Forstenlechner, "why on earth would you want to hire that many Bahrainis?"

Indeed, many private businesses tend to see the national employment schemes as a burden they have to put up with -- a hidden tax -- rather than a way of building up their host countries. A 2009 poll on Emiratisation by Forstenlechner and Mohammed Al-Waqfi found that both foreigners and locals alike "tend to agree with the characterization of Emiratisation as a form of taxation." Companies, the authors wrote, "hire citizens because of quotas, not because they want to."

Noora Al Bedur argues that the quotas are a form of corporate social responsibility, balanced by the UAE's business-friendly environment. "There are no taxes -- companies come here and reap big profits. Why won't they give our nationals an opportunity to work?"

WIN A CONTRACT

There are perks for complying with quotas -- companies with a good record, especially for giving locals high-level posts, often receive preference for lucrative state contracts. But even companies with the most successful nationalization programs struggle to meet quota levels. At Lloyd's Bank in the UAE, which has won several awards for its Emiratisation programs, 39 percent of employees are Emirati. That's good, but still short of the legal requirement that 48 percent of a bank's work force be UAE nationals in 2010.

The race to fill quotas has led to skewed incentives, the Dubai School of Government's Dyer says. This ultimately hurts locals by not indicating to young job seekers what skills they need to get a job. Companies often end up hiring "ghost employees" whose actual job is completed by a foreign worker.

"The risk is having (nationals) be the regulatory class in an economy they don't really know much about," says Dyer.

Mutawaa, the former banker, says company scams are common on university campuses. "They'll come and say, 'I'm going to give you a training scholarship. I'll give you 3,000 dirhams ($817) a month -- don't show up to work, don't do anything.' As if that's a scholarship! That way they meet their target of UAE nationals in the company, and done deal."

REAL CHANGE OR SMALL FIXES?

There are signs some schemes are beginning to have an effect, particularly in such states as Bahrain and Oman where they have been in place for longest. Oman has required cab drivers and hotel reception employees to be nationals for 20 years, for instance.

There's also change in other states. "Over the last five years, things have changed," says Hassan Al Maraghi, 32, a section head at a local Qatari bank and owner of a small furniture factory. "Now, there are more Qatari engineers, managers, and accountants."

But governments want more. One private foundation in the UAE, Tawteen, has begun to use Emirati nationals in the private sector to mentor youths in training and awareness programs. Kuwait has begun a program to top up with a government allowance the salaries of workers who join private firms.

The worry is that such fixes allow the current flawed system to limp along without the fundamental overhaul it needs.

"Can this continue? That depends on the presence of oil ... Oil is what allows the economy to push on. I think Qatar will be able to squeak by because of the vast gas wealth it sits on," Dyer says. For other countries, the future of fully privatized, post-fossil fuel era economies is still a question mark. Some experts say the only solution is to cap cheap foreign labor and lower wage expectations among nationals.

Banker Khalid al-Mutawaa, for one, was clear where he was headed. "I will move to the government sector, I see it as a duty to my country," he said in August, before pausing with a smile. "You tell me, who wouldn't wish to just sit there and get paid lots of money?"

Within weeks, he had found work with the UAE government's airline authority.

(With additional reporting by Tamara Walid in Dubai, Saleh al-Shaibany in Oman, Frederik Richter in Bahrain, Asma Alsharif in Saudi Arabia; editing by Simon Robinson and Sara Ledwith)