Private sector needs to expand for more job creation
The oil producing companies in the Gulf region should dismantle the current barriers to investors and work to expand the private sector to create jobs in the Gulf for locals, as stated by a leading Qatari bank.
The International Bank of Qatar (IBQ) noted that although the six GCC nations control 45 per cent of the proven global oil wealth, they have are having trouble keeping up with job creation as their populations grow. Public sectors for each country are nearly full to capacity and another drop in oil prices would seriously harm the economies as they are, creating budget deficits.
An IBQ study covering the economies of the GCC nations noted that over 50 per cent of nationals in those areas beginning employment were working within the government.
The stats noted that nationals working in the public sector were in the majority. Almost 50 per cent of the national workforce of Saudi Arabia was employed in the public sector, while Qatar’s public sector employed 88 per cent of nationals, the UAE’s stood at 85 per cent and Kuwait’s public sector was employing 82 per cent of nationals.
IBQ stated that the GCC nations needed to tackle two obstacles over the next ten years, both an increase in job creations and protection against the risk of high budget deficits.
With the public sectors of each nation nearly full to capacity, jobs are not readily available and even more cut backs could occur in the future should oil prices drop, higher public spending decrease and budget deficits begin to show up again.
IBQ noted these challenging areas should cause the GCC member states to put programs into place encouraging private sectors to hire newly landed nationals. Most of the member states have a majority of expatriate workers.
The bank reported that the GCC nations need the private sector to step up and play a large role in local economies in order to create employment for nationals. The private sector needs to have the opportunity to provide public services in place of the government, which means that those governments will need to open up avenues allowing them to do so. There have been some positive changes in this area, but the IBQ feels that much more is left to do.
Another study by a leading bank in Kuwait stated the work of GCC member states towards job creation for nationals would be dampened by the effects of the worldwide financial crisis. This would cause private sectors to put retrenchment policies into place, pushing nationals away and back toward the incentives and benefits offered by the public sector.
As the private sectors in the GCC continue to discharge employees, the preference to work in the public sector will only increase which could damage any recent improvements, according to the National Bank of Kuwait.
For preventative measures the members should look at increasing confidence in their private sectors. NBK made note of the progress in job nationalization that some GCC states have made with set quotas for the private sectors.
It has also been reported that GCC businesses have begun to let employees go or have plans to do so as a strategy for retrenching sets in due to the economies of the world falling and global worries continuing.
Another Saudi investment company’s study stated that investments in the private sector could be stopped by the marked increase in public spending that some nations in the region are implementing to counter the financial crisis.
NCB Capital (NCBC) stated that although the rise in government spending has helped mitigate the economic downturn after the 2008 financial distresses, the increases have also resulted in imbalanced spending that needs to be attended to, according to the Saudi National Commercial Bank affiliate.
The governments of the GCC member states have upped their spending from the 2003 oil boom until now. Official stats show that public expenditures have risen 16 per cent annually in the period from 2003 to 2008 and another 12 per cent rise is expected for the current year, according to the IBQ.
This spending may present more challenges to the GCC countries as they make future decisions regarding the economy and also increase the risk of budget deficits if oil prices drop.
The official budget spending totals for the six GCC member states rose to a record setting level of $269.3 billion (Dh987 billion) throughout 2010, up from the $235.4 billion budgeted in 2009.
This expanded spending was helped by higher oil prices, hovering a little over $60 per barrel in 2009 and expected to reach almost $70 in 2010. These prices per barrel are significantly above the price range of $35 to $50 as expected by the GCC.
The GCC has two major risks. Public sector spending may overshadow private investments and that will be even more pronounced if government spending is not cut back in time, according to the NCBC.
Second of all, the GCC must avoid misallocating valuable resources. The infamous Japanese bridges are one example, but that trend in higher ticketed government spending needs to be altered. The GCC is at a higher risk because of the dependence on subsidies in the water and energy sectors.Paul Holdsworth, Staff Writer, Gulf Jobs Market News