The Gulf’s Impending Demographic Dividend

The Gulf’s Impending Demographic Dividend: Youth & Private Sector Development

The Arab Gulf states have reached a critical juncture in which key decisions could determine their economic success. Youth are the largest sector of society and will be entering the workforce imminently. The current age-structure of the impending workforce allows for a rare economic opportunity called the demographic dividend that could be economically rewarding if the correct institutional frameworks and policies are applied. The question remains: have the Gulf Cooperation Council (GCC) states taken advantage of the youth bulge to pursue the demographic dividend? Why or why not? To understand the prospects of taking advantage of a demographic dividend in a rentier economy, it is pertinent to evaluate two keystones of the rentier economies in the Gulf, public-sector employment and the large migrant labor force. By evaluating these two economic characteristics for the two case studies of Kuwait and Qatar, it is apparent that Gulf rentier economies have not yet produced the institutions and policies necessary to convert the youth bulge to a demographic dividend.

Ripe for the Demographic Dividend?

According to the United Nations Population Fund (2016), “the demographic dividend is the economic growth potential that can result from shifts in a population’s age structure, mainly when the share of the working-age population (15 to 64) is larger than the non-working-age share of the population (14 and younger, and 65 and older).”[1] Both Kuwait and Qatar have ripe age structures that are ideal for the emergence of a demographic dividend. Across the GCC, 20.5 million nationals are projected to enter the labor force by 2020,[2] causing either the demographic dividend to come to fruition or high unemployment. One requirement for the demographic dividend is a period of high fertility, causing a youth bulge followed by a period of decreased fertility, and this has been the case in both Kuwait and Qatar. For Kuwait, the government bestowed financial awards for each child a family produced, and this prompted the high fertility rate of the 80s.[3] As a result, both Kuwait and Qatar currently have youthful populations with a majority of citizens under the age of 35[4]. These numbers increased due to females becoming more educated, which resulted in a corresponding decrease in fertility rates by more than half (Arab Human Development Report, United Nations Development Program, 2010).

Across the GCC, the average unemployment rate was 8.7 percent in 2010, higher than the global average.[5] However, this number is most likely an underestimate, neglecting the masked unemployment or underemployment that are in overstaffed, ineffective bureaucracies in the public sector.[6] With the high inflow of expatriates into Qatar and Kuwait’s labor force, the contribution of younger citizens in the private sector are obscured. Expatriates enjoy a wide range of employment opportunities in these states, from low-skilled construction workers to high-skilled professionals. Given the current GCC condition, it is predicted that an additional 2 to 3 million nationals will be unable to secure employment in the near future.[7] In an attempt to resolve this problem, both Qatar and Kuwait launched a nationalization quota system, which caused private sector employers to fulfill their quotas fraudulently by enlisting nationals without actually employing them. Consequently, the gross amount of overemployment in the public sectors, coupled with inaccurate reporting of employment in the private sector, yield misleading GCC unemployment statistics, especially considering the rise of youth entering the labor force.

 High Public Sector Employment

Public sector employment undermines the private sector participation of the emerging youth needed to attain the demographic dividend, and the government needs to play a stronger role in boosting private sector employment in order to achieve dynamic growth. Among the GCC states, Qatar has the highest number of nationals employed in the public sector with a whopping 88 percent, while Kuwait is third with 82 percent;[8] thus, less than 20 percent of citizen are in the private sector. The ASDA’s Burson-Marsteller Arab Youth Survey found that the majority of youth in GCC countries have several entitlements they expect from their governments, among which is a preference for working in the public sector rather than the private sector.[9] Qatar’s National Development Strategy has stated it would increase the proportion of nationals in the private sector to 15 percent, but only a fraction has actually entered the private sector’s workforce.[10]  According to Qatar’s labor force survey, 75 percent of unemployed Qataris attested that they are unwilling to work in the private sector and are only willing to work in the public sector.[11] Similarly in Kuwait, the higher pay in the public sector has led young middle-class Kuwaitis starting families to opt for the security of a lifetime government job.[12] This sense of entitlement is one problem; another critical obstacle to attaining the demographic dividend is the continued mismatch of nationals’ skills and private sector demands. The schools and universities in Kuwait and Qatar are neglecting to teach nationals the skill set necessary to thrive in the private sector, rendering the public sector a more secure alternative.[13]

Any developing economy that aspires to attain a demographic dividend must sustain and manage growth by privatizing businesses and developing human capital. All of the Gulf States have attempted to implement policies to compel the private sector to hire more nationals by setting mandatory quotas for national hires and by levying businesses taxes on their foreign workers.[14] These policies are named similarly across the region, such as the “Kuwaitization” and “Qatarization” plans.  Yet, studies have suggested that a major barrier for Kuwaitis and GCC nationals to working in the private sector is the wage discrepancy between the private and public sectors.[15] In 2013, Kuwait introduced new legislation that required the private sector to reserve 30 percent of its jobs for Kuwaiti nationals, while the government offered to pay their salaries for the following three years.[16] Similarly, Qatarization offers incentives to companies to incorporate more Qataris, and they receive preferential treatment in hiring processes. However, these policies have not resulted in any significant movement of Qataris or Kuwaitis to the private sector; over 80 percent of nationals are still employed in the public sector and, as public opinion has revealed, these trends are not likely to change without more aggressive government policies. Therefore, if current policies continue, the likelihood of the youth bulge translating into a demographic dividend is improbable at best.

From an educational perspective, Qatar has focused more on the human capital development of its youth more than Kuwait. Qatar has recruited top American universities[17] in an attempt to prepare the youth for a knowledge-based economy. However, given the admissions criteria and language requirements, more foreigners study in these universities than Qataris. Another initiative has targeted secondary school education as well. Qatar’s Supreme Education Council (SEC) announced plans to increase the seats in private schools by 10,000 through opening 28 new private schools in an attempt to meet the demands accompanying the youth bulge. Although such an initiative could be worthwhile, it is more important still to apply a targeted approach that links the educational curriculum to the labor market, and this should include employers’ engagement. [18] This has not been the case in either Kuwait or Qatar, which lessens the prospect of attaining a demographic dividend through the participation of nationals. It is essential that youth be trained in the proper skills to become human capital that matches private sector demands, or the demographic dividend will most likely be a lost cause. One approach the leadership has taken to fill that void is by having a large expatriate population working in the private sector.

 Large Migrant Labor Force

 Another important issue to explore is the implications of a large migrant labor force’s impact on youth employment and the prospect of achieving the demographic dividend. The Qatari and Kuwaiti leadership are aware of their high dependence on expatriate labor in the private sector, and that the unemployment can rise as youth enter the labor force. As previously referenced, the government’s continued involvement in public sector employment and unsuccessful policies for Qatarization and Kuwaitization have revealed the government’s unwillingness to compromise on the safety nets of the existing social contract. As a consequence, the GCC governments have turned to migrant labor due to demographic structural imbalance and steady growth in most of their private sectors. As of 2011, 93.9 percent of Qatar’s population was comprised of migrant workers due to their skill shortages[19], whereas expatriates made up 70 percent of Kuwait’s population. In 2012, Qatar created 96.4 percent of its new jobs for migrant workers, and nationals occupied only 3.6 percent of those jobs. [20] Similar trends obtain in Kuwait: “According to the Kuwait Public Authority for Civil Information about 1.3 million expats in Kuwait work for the private companies, 560,000 work as domestic servants, and 134,000 work in the public sector”.[21] Two major challenges come along with this: Gulf nationals are unable to compete with the skill levels and long work hours of the professional migrant force; that workforce is aware of their transient status in the economy, and this has implications for R&D and technological development.

Cheap foreign labor has historically been a comparative advantage for both Qatar and Kuwait during a period in which infrastructure and public services required rapid development.[22] Today, the private sector needs a highly skilled, innovative labor force that can enable Qatar and Kuwait to attain a demographic dividend. The private sectors in Kuwait and Qatar mainly employ cheap labor, which results in low-quality products and services. Another issue is that expatriates must obtain temporary renewable work visas under the kafala system. This system holds individuals or companies accountable for work sponsorships rather than the government. As an elastic labor force, the kafala system creates work ethic in which expatriates work longer hours than citizens to ensure their contracts are not canceled. Although this can increase productivity, it also stymies innovation, continuity, and technological advancement.[23]

Structuring the economy with distorting incentives and low-skilled human capital has had profound consequences for private sector development, and thus for attaining the demographic dividend.  The abundance of low-skilled and transient labor compromises the technological development necessary to spur growth and creates an environment favorable to achieving the demographic dividend. The Qatari and Kuwait youth entering the labor market are unwilling to compete with migrant workers when they can easily opt for public sector employment, with lifetime job security, fewer work hours, higher salaries, and more benefits. Additionally, a large portion of the migrant workers is low- or semi-skilled. The exclusion of nationals from the private economic cycle, current employment patterns also hinder productivity upgrades and moves into more technology intensive production based on higher skills. It is too easy to generate returns by relying on unskilled and semi-skilled labor from the developing world as low-tech, but cheap and easily controlled input”.[24]

Conclusion

Overall, this study suggests that the Gulf rentier economies do not produce the institutions and the policies necessary to convert the youth bulge to a demographic dividend.  More specifically, high public-sector employment and a large migrant workforce greatly compromise human capital, technological development, and in-country investments necessary for achieving the economically rewarding demographic dividend.

Report by Dania Thafer

End Notes:

[1] UNFPA. (2014). State of World Population 2014. P 12. Retrieved from https://www.unfpa.org/sites/default/files/pub-pdf/EN-SWOP14-Report_FINAL-web.pdf

[2] Raghu, M. R., & Sartawi, M. (2012). GCC Demographic Shift: Intergenerational risk-transfer at play. P. 19. Kuwait: Kuwait Financial Centre “Markaz.

[3] Gulseven, O. (2015). Challenges to Employing Kuwaitis in the Private Sector. Labor Market Dynamics in the GCC States. Retrieved August 1, 2016, from http://www.oxgaps.org/files/analysis_gulseven.pdf

[4] Raghu, M. R., & Sartawi, M. (2012). GCC Demographic Shift: Intergenerational risk-transfer at play. P. 8. Kuwait: Kuwait Financial Centre “Markaz.

[5] IndexMundi – Country Facts. (n.d.). Retrieved August 01, 2016, from http://www.indexmundi.com/

[6] Raghu, M. R., & Sartawi, M. (2012). GCC Demographic Shift: Intergenerational risk-transfer at play. P. 8. Kuwait: Kuwait Financial Centre “Markaz

[7] Gulseven, O. (2015). Challenges to Employing Kuwaitis in the Private Sector. Labor Market Dynamics in the GCC States. Retrieved August 1, 2016, from http://www.oxgaps.org/files/analysis_gulseven.pdf

[8] Arab Business. (2010) At 88%, Qatar tops public sector jobs rankings. Retrieved August 04, 2016, from http://www.arabianbusiness.com/at-88-qatar-tops-public-sector-jobs-rankings-340902.html#.V56SGZMrKog

[9] ASDA’A Burson-Marsteller. (2016) INSIDETHE HEARTSAND MINDS OF ARAB YOUTH. (n.d.). Retrieved August 04, 2016, from http://www.arabyouthsurvey.com/en/home

[10] Shabina, K. (2015, December 27). Minister: Qataris to comprise 90 percent of public sector by 2026 – Doha News. Retrieved August 04, 2016, from http://dohanews.co/minister-qataris-comprise-90-percent-public-sector-2026/

[11] Doha News Team (2013) Survey: Most Qatari job-seekers don’t want to work in the private sector – Doha News. Retrieved August 04, 2016, from http://dohanews.co/survey-most-qataris-dont-want-to-work-in-the-private/

[12] Allam, A. “Kuwaitisation: Youth demands action to meet expectations – FT.com”. (2013, April) Retrieved August 04, 2016, from http://www.ft.com/cms/s/0/9fda70fc-a81d-11e2-b031-00144feabdc0.html#axzz4G2mZQaAh

[13] McGinly, S. (2010, August 9). At 88%, Qatar tops public sector jobs rankings. Retrieved August 04, 2016, from http://www.arabianbusiness.com/at-88-qatar-tops-public-sector-jobs-rankings-340902.html#.V6LVIZMrK8o

[14] Assaad, R., & Roudi-Fahimi, F. (2007). Youth in the Middle East and North Africa: Demographic opportunity or challenge. Washington, DC: Population Reference Bureau.

[15] Gulseven, O. (2015). Challenges to Employing Kuwaitis in the Private Sector. Labor Market Dynamics in the GCC States. Retrieved August 1, 2016, from http://www.oxgaps.org/files/analysis_gulseven.pdf

[16] Allam, A. (2013, April). Kuwaitisation: Youth demands action to meet expectations – FT.com. Retrieved August 04, 2016, from http://www.ft.com/cms/s/0/9fda70fc-a81d-11e2-b031-00144feabdc0.html#axzz4G2mZQaAh

[17] These universities include Northwestern, Georgetown, Cornell, Carnegie Mellon, Texas A&M and Virginia Commonwealth.

[18] Jiwaji, A. (2014, October 9). Setting the stage: Shift in strategy required to satisfy GCC skills shortage. Retrieved July 30, 2016, from http://www.bq-magazine.com/economy/employment-economy/2014/10/gcc-skills-shortage

[19] Jiwaji, A. (2014, October 9). Setting the stage: Shift in strategy required to satisfy GCC skills shortage. Retrieved July 30, 2016, from http://www.bq-magazine.com/economy/employment-economy/2014/10/gcc-skills-shortage

[20] Raghu, M. R., & Sartawi, M. (2012). GCC Demographic Shift: Intergenerational risk-transfer at play. Kuwait: Kuwait Financial Centre “Markaz.

[21] [21] Gulseven, O. (2015). Challenges to Employing Kuwaitis in the Private Sector. Labor Market Dynamics in the GCC States. Retrieved August 1, 2016, from http://www.oxgaps.org/files/analysis_gulseven.pdf

[22] Hertog, S. (2013). The private sector and reform in the Gulf Cooperation Council.

[23] Forstenlechner, I., & Rutledge, E. J. (2011). The GCC’s “demographic imbalance”: Perceptions, realities and policy options. Middle East Policy, 18(4), 25-43.

[24] Hertog, S. (2013). P 19. The private sector and reform in the Gulf Cooperation Council.

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