The Elephant in the Room: Kuwait’s Labor Crisis

Kuwait

Politics & Governance

Commentary

Shaikha Al-Hashem & Geoffrey Martin

With the passing of Sheikh Sabah Al-Ahmad Al-Sabah, Kuwait has entered a period of uncertainty and unprecedented challenges. Facing a tougher second wave of COVID-19 cases, a sharp economic downturn, spiraling deflation, a ratings downgrade from Moody’s, and pressures to normalize relations with Israel, Kuwait’s new emir, Sheikh Nawaf Al-Ahmad Al-Sabah, and Crown Prince Sheikh Meshaal Al-Ahmad Al-Sabah hold the hefty responsibility of steering the country out of murky waters amidst a deteriorating economic situation. Due to the pandemic, oil prices are at $40 per barrel, while the state needs $81 per barrel to break even with the current deficit. For the first time in its history, the country is truly beginning to pay the price for its lethargic attempts to move away from oil dependency, with its nascent private sector playing a minor role in Kuwait’s gross domestic product.

One of the main diversification failures has been to reform the domestic labor market. Salaries and subsidies for Kuwaiti nationals in the public sector acting as sunk costs do not reform the economy or increase fiscal solvency, but rather burden the fiscal budget. The implementation of a demographic policy shift has topped policymakers’ agendas since the start of the pandemic and has likely been accelerated by the large foreign labor population that has departed since March. In May, the London School of Economics and Political Science published an initial report sharing concerns on the implications of foreign skilled labor on the future of Kuwait’s economy.

Manipulating the Demographics

Since this last report, the Gulf country is in an even more unfavorable position due to the way in which the Kuwaiti parliament has handled this crisis. Government officials continue to issue hollow proposals that suggest inverting the demographic scales so that 30% of the population is foreign labor and 70% is Kuwaiti nationals. The main proposal is to introduce a quota system for specific nationalities, as well as to label anyone over age 60 without a secondary education as ineligible for residency.

Such a large demographic shift is logistically improbable when one takes a hard look at the structure of the labor market. To illustrate, university graduates and higher degree holders account for approximately 174,000 of the total three million expatriate population, according to official government statistics. That’s approximately only 5% of the entire expatriate population, whereas those with secondary education and diplomas total 378,765, or 12%. Furthermore, any form of national replacement strategy is essentially futile because the majority of expats (approximately 2.5 million) work in menial, low-wage positions, which will not be filled by Kuwaitis or other high-skilled labor. Even when a proposal for a demographic control law was put on the parliamentary floor, it was sent back to committee and deemed unconstitutional by the government cabinet. The government is highly likely to have buyer’s remorse and withdraw quickly from demographic restructuring if and when oil prices increase or public debt becomes more manageable.

Unfortunately, while these discussions are not binding law, many public entities and private businesses have unilaterally instituted cuts of expatriate staff without properly assessing the impact of sudden layoffs. Foreign labor residents across all socio-economic classes are experiencing an unprecedented burden: to decide to hunker down and wait in Kuwait or to return home where there are scant employment opportunities but some semblance of safety. Local media has not helped the situation, with main press outlets capitalizing on negative and false headlines about expats, engendering fear and misinformation. In fact, the current state of confusion, anger, and deep-seeded xenophobia towards expats may have deeper implications for Kuwait’s post-oil development if rapid policy reversals are not introduced.

A Reverse Brain Drain

Precise statistics of repatriated foreign labor is lacking, but news sources claim that the number ranges from 100,000-300,000. Sources in the National Aviation Services claim that 365,000 foreign workers have left since September, and research estimates that the number will be half a million by the end of 2020. This number does not include the estimated 40,000 foreign workers stranded abroad who lost their residency and will likely not be allowed to return.

Interviews with many embassies and business leaders explored how many high-skilled and high-valued workers have left Kuwait. Western countries, which provide many of the highest skilled laborers in the country, provide an important litmus test. This dialogue found that some 982 British nationals had left Kuwait from March through August, approximately 15% of the British community. Of 300-400 German nationals in Kuwait, roughly 40% have left. Sources at the EU commission, Spanish, and Italian communities stated similar estimates. The Australian community shrunk by 40% out of the existing 1,000-1,200 nationals. Other populations that tend to be highly skilled have also shrunk significantly. For example, the Turkish and Korean populations, both of which are directly involved in state mega-projects, have shrunk by 70% (only 3,000 out of 10,000 Turks remain) and 85% respectively. Sources in the Indian business community believe that several hundred highly-qualified nationals have left the country. Many more Indian nationals who are vital to the Kuwaiti economy are leaving slowly, a much greater worry in the long-term as it will be difficult to replace them in the current social climate.

Reasons for departure vary, but a common denominator was due to traumatic experiences during the first months of the pandemic. Many business owners have left their employees without salaries, food, or accommodation since March, which has further deepened resentment and distrust among the entire expatriate population. Whereas labor restructuring will mostly impact Egyptian and Indian communities, the majority of expats feel that their position is insecure irrespective of socioeconomic position or nationality.

There is a fallacy and deeply misplaced belief in the Kuwaiti labor market that it is simply money that buys and retains the right human resources. This claim, however, is false; qualified people migrate to Kuwait because of the quality of life as much as the money, but the current environment is not conducive to the former. For example, consider the German nationals who work in key economic sectors. At least 250 of the approximately 400, or 60%, want to leave despite the fact that their contracts remain untouched.

Even for those individuals whose primary motivation for working in Kuwait is the salary, the economic downturn could lead to more comparable salaries in home countries, negating the need to travel away from home. Foreign skilled workers are already seeing a significant reduction in salaries. One source informed that salaries for doctors in private hospitals have been reduced from 1700 to 900 Kuwait Dinar (KD). In technical and middle management positions in the logistics and supply chain sector, salaries dropped from 1,500 to 600 KD, and for Indian mechanical engineers in the same sector, salaries have dropped to 350 from 720 KD. Many others still have not been paid at all.

The government sector has also been impacted by the foreign labor outflow. In the Ministry of Electricity and Water (MEW), approximately 15 engineers, primarily Indian, Egyptian, Filipino, and Bangladeshi nationals, who were employed in key operational roles have been laid off. This staff was the backbone of Al-Zour South Power Plant and El Sabya Power Station since their commissioning in 1988 and 1998. These engineers are irreplaceable without careful transitioning. While MEW is 300% overstaffed with Kuwaiti nationals, of which only one out of twenty is needed, there are currently no technical staff to replace these laid-off engineers. The impact of this loss is felt across the sector as these staff were key bridges between private sector subcontractors and MEW, coordinating over critical technical questions as well as navigating government tendering processes.

The Education Crisis will Increase Dependency on Foreign Labor

The other concerning issue raised during this research was the impact of labor outflow on education. Though Kuwait was one of the first Gulf States to suspend schools with the COVID-19 outbreak, it is certainly the last to offer any tangible alternative means to education to the more than 450,000 students enrolled in public schools who have been home since March. In public schools, Arab expat teachers outnumber their Kuwaiti counterparts six to one in all the core subjects such as sciences, math, Arabic, and English. Private schools rely on expat teachers, especially schools based on a Western curriculum that are bound by international affiliations with annual fees for recognition and certificates such as the International Baccalaureate or IGCSEs. Between March and August, many thousands of teachers were stuck abroad and private schools were unable to repatriate them. Others have not been paid for months despite completing the academic year and will likely leave at the first opportunity.

Sources informed us that while both public and Western-based private schools have been affected, the real burden is on the Arabic private schools. These schools cater to the blue-collar and administrative/clerical classes of Arab nationals who cannot afford the Western schools. With this specific class targeted by the demographic policy proposal, the private Arabic schools will risk sudden closure.

The underlying consequence of the education crisis is manifold: concerned expats will either return home or seek a place with better education for their children. Blue collar expats will likely send their families home due to the lack of education alternatives should Arabic private schools shut down. But the other ominous issue is that the standard of public schooling that the majority of Kuwaitis receive was already low prior to the pandemic. The indecision from the Ministry of Education left students without proper formal education for a period of 8 months, and the current shift to online learning is falling short from delivering the necessary educational requirements. Therefore, in the long-term, Kuwait will face more labor challenges with poorly educated nationals, resulting in further reliance on imported labor.

The Way Forward for the Kuwaiti Economy

In sum, the government must rethink its Kuwaitization program by introducing merit-based indicators, proper skills training, and testing for nationals seeking employment. In addition, the government needs to retain high-skilled foreign labor by offering job security and defusing xenophobic messages. Nationalization programs amongst the Gulf States have had few positive impacts on stimulating the economies or creating new jobs for nationals. Take, for example, Saudi Arabia, which in 2018 implemented mass deportations of foreign labor, and yet unemployment amongst Saudi nationals remains high. Similarly, Oman’s foreign labor exodus since 2019 has not resulted in increases in Omani employment either. It has become evident that the nature of nationalization programs only fuels entitlement, does not incentivize development, and cannot replace meritocratic employment. Instead, the government needs to emphasize proper labor requirements for all nationalities backed by legitimate studies and real statistics instead of political rhetoric.

Kuwait also needs to improve its bilateral communication with its partners to increase the flow of information to embassies and their respective governments about labor issues. Most foreign embassies seem simply unequipped to handle the crisis due to a lack of both staffing and funding. They need to collaborate more with the local government to ensure that their own nationals are safe and informed.

This shift is especially important for Kuwait now. Due to its fiscally weak position, it needs to pay more attention to its reputation as a destination for highly-skilled individuals as foreign companies and governments will likely have more leverage and negotiating power. This will place Kuwaiti nationals seeking jobs at a disadvantage, especially if the government considers slimming down its public sector. Ironically, foreign labor will likely have salary increases as labor retention and scarcity of skills becomes a pressing issue. Kuwait is already a small and difficult market in which to do business, ranking as 83rd in the Ease of Doing Business Index. Foreign companies will thus be even less likely to invest and embassies will be less willing to facilitate foreign direct investment.

Shaikha Al-Hashem is a PhD student at the European Graduate School, focusing on gender and feminism with an emphasis on Kuwaiti women. Shaikha has experience in strategy and marketing, working in both the private and public sector in Kuwait. She is also a member of the civil society group Soroptimist Kuwait. She tweets @alhashemshaikha

Geoffrey Martin is a PhD student in Political Science at the University of Toronto. He is also an entrepreneur and economic analyst based in Kuwait, focusing on political economy, food logistics, and labor law in Kuwait and the wider GCC. He tweets @bartybartin

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.