MANAMA: An exodus of expatriates due to the Covid-19 pandemic’s economic fallout and plummeting oil prices could hamper diversification in the GCC, warns Standard & Poor’s (S&P) Ratings.
Population across the GCC countries likely declined by about four per cent in 2020 and is unlikely to return to the 2019 level of 57.6 million until 2023, finds a new report by the US-based firm.
The proportion of foreigners is seen continuing to decline through 2023 relative to the national population, because of subdued non-oil sector growth and workforce nationalisation policies.
GCC governments are increasingly implementing policies to boost nationals’ participation in the private sector, mainly through measures that restrict the hiring of expats.
S&P believes these nationalisation policies could hamper economic growth and diversification if they impede productivity, efficiency, or competitiveness.
Diversification in the GCC may also stagnate in the long term without significant investment in national human capital and improvements in labour market flexibility, the report says.
However, S&P notes Bahrain benefits from a more diversified economy and higher participation of nationals in the private sector.
Dr Omar Alubaydli, an economist with Bahrain-based think-tank Derasat, views the expat exodus is part of a long-run contraction, rather than a purely transient phenomenon stemming from the Covid-19 pandemic.
“The traditional GCC employment model, whereby nationals are virtually guaranteed to have comfortable, high-paying jobs in the public sector, has become unsustainable in all six states due to the decline in global oil prices, and the rise in the population of nationals,” he explains.
A structural change in the regional economy has been necessary for some time, and this has been a key driver in the various economic visions launched, opines Dr Al Ubaydli.
“For the visions to be successful, and for sustainable economic models to be established, the long-term number of expatriates needs to decline, especially in the low-skills category.”
According to him, the region needs to brace for growing pains, as is the case with all transitions.
“These include the time it takes for local education systems to plug the holes left by departing expats, and the time it takes for local business models to adapt to the reduction in the availability of low-cost foreign labour.”
Looking ahead, S&P has emphasised that the GCC’s longer-term economic trajectory will depend on the strength of governments’ balance sheets as well as their willingness and ability to implement reforms that support a dynamic private sector.
Structural impediments in the GCC include skill shortages among nationals, geopolitical tensions, non-tariff trade barriers, restricted financing options for small and mid-sized companies, and shallow domestic capital markets.
The firm sees reforms that improve national populations’ education and skills, the participation of women in the workforce, labour market flexibility, and competition as paramount to unlocking sustainable growth in the region.
Long-term productivity and diversification prospects, and strong GDP per capita trend growth by extension, will likely hinge upon GCC governments’ efforts to invest longer term in human capital while concurrently enabling private sector activity and labour market flexibility, the report asserts.
avinash@gdn.com.bh
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