Public sector still king in the GCC

Public sector still king in the GCC
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Published March 18th, 2013 - 12:15 GMT via

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The GCC private sector is losing
The GCC private sector is losing
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Despite a rigorous private-sector labor nationalization campaign over the past decade (and some initial progress), the Arab uprisings of 2011 drove Gulf Cooperation Council governments to implement policies aimed at preventing the wave of regional revolutions from reaching Gulf shores – but ones which have ultimately reversed and contradicted earlier efforts to shift their citizens to the private sector. The last decade has witnessed great urgency among GCC governments to integrate citizens further into the private sector. This resolve has been primarily propelled by an increasing influx of migrant workers into the Gulf, who contribute to an expat community of nearly one-third of the GCC population.

Moreover, to address unemployment, Gulf governments have created low value-added public-sector jobs, further contributing to a growing web of bureaucracies. As a result, GCC labor ministries have adopted private sector nationalization measures in an attempt to alter demographic imbalances. The policies were also an attempt to depart from the rentier system and reduce oil-revenue dependency for financing most citizens’ salaries. These efforts generally comprise the enforcement of quotas for hiring citizens that private companies have to meet – and penalizing noncompliance.

However, throughout 2011, GCC governments scrambled to minimize potential mass upheaval – as in Bahrain – and introduced policies aimed at placating citizens. These policies were made possible by high oil prices – averaging over $100 per barrel in 2011 – induced by the regional unrest. Once implemented, they further incentivized careers in the public sector, alienating citizens working in the private sector.

Saudi Arabia responded to growing unrest by tapping into its vast oil revenues. King Abdullah attempted to appease the new generation as well as offset high inflation with decrees (on Feb. 23 and March 18, 2011) estimated to be worth $130 billion – about 30 percent of the kingdom’s annual GDP. With unemployment at least at 10 percent (estimated at 40 percent for the 20-24 age group), the king announced aid ($553/month) to the unemployed and the creation of more than 60,000 law-enforcement jobs for the Interior Ministry. A two-month stipend for all students in public higher education was also granted. But the real appeasers were a 15 percent wage increase and a one-time cash payment of two months’ salary to all government employees – about 80 percent of all Saudis.

These policies, which privileged public-sector employees, generated complaints from their private sector counterparts. Recognizing the repercussions, Saudi tycoon Prince Al-Waleed bin Talal (CEO of Kingdom Holding Company) went so far as to match the king’s salary grant for his own employees and encouraged other businessmen to follow suit in support of the initiative.

The emir of Kuwait also pre-empted unrest by announcing in January 2011 a one-time grant equivalent to $3,600 – worth a total of $4 billion – to every citizen, as well as free food staples for 18 months. Coincidently, the nation was also marking 50-year celebrations of the country’s independence – hence the generous bonus was ostensibly presented as a special Golden Jubilee “gift.”

Nevertheless, thousands of public-sector employees – emboldened by the uprisings – went on strike to demand higher wages and more benefits. By February 2011, the government had announced salary increases ranging from 70-100 percent for law enforcement personnel (defense and interior) based on rank. When the government announced salary increases of up to 66 percent in September for employees in the oil sector, labor unions intensified their efforts and went on strike to demand wage increases while the situation was ripe. The government relented, and by March 2012 it had announced a 25 percent public sector wage increase – amounting to higher pay for over 80 percent of the workforce – as well as 12.5 percent increases in pensions.

Although Qatar witnessed no internal pressures during the 2011 uprisings, in September 2011 the world’s richest nation per capita announced a 60 percent salary increase for nationals in the public sector – a staggering 92 percent of the workforce. The emir’s decree hiked the salaries of military officers by an astonishing 120 percent, while other ranks received a 50 percent increase.

The United Arab Emirates was no exception to the benefits announced by the GCC. In November 2011, the president announced that public sector workers – 90 percent of UAE nationals hold government jobs – would see 35-45 percent increases in their salaries. The increases were set to take effect in January 2012 to coincide with the federation’s 40th anniversary and, as the state news agency put it, “to achieve the welfare of the citizens and help them get their ambitions in a stable and comfortable life.”

Other Gulf states – Bahrain and Oman – that witnessed waves of protests and violence were awarded $20 billion in aid from GCC states to deal with their dissent. In the case of Oman, Sultan Qaboos weathered public demands and protests by increasing the “living allowance” of government employees by the equivalent of $260, as well as increasing the pension of civil servants by 50 percent. Furthermore, the sultan announced the creation of 50,000 new government jobs, the establishment of a monthly benefit of $390 for the unemployed, and an increase to the monthly financial allocations to students in public higher education.

In Bahrain, the king announced benefits mirroring other states – such as public sector salary increases, pension increases and a new “Standard of Living Improvement” allowance for low-income employees. However, the kingdom was not successful in overcoming its political crisis given its deeply seeded sectarian divisions.

While coverage of the 2011 Arab uprisings mainly focused on political developments, the GCC adopted measures with socioeconomic consequences contrary to their long-term development goals. The unsustainable nature of these stopgap measures was captured perfectly by the Kuwaiti finance minister upon the government’s approval of salary increases in March 2012 when he warned that public sector wages have risen to 85 percent of the country’s oil revenues and that salary hikes will stifle efforts to incentivize work in the private sector.

The short-term effects are already presenting themselves. Despite high economic growth in the GCC in 2011, private-sector Omani employees were down by 4 percent in 2011 in contrast to 2010. In Kuwait, the number of nationals entering the public sector in 2011 nearly doubled from 2010. A recent study also shows Qataris in the private sector dropped from 4 percent to 1.5 percent over the last 20 years.

Thus, despite efforts to encourage citizens to shift to private sector jobs, the adopted responses to the uprisings of 2011 have only reinforced the culture of state-dependency and the general impression that GCC citizens are better off in the public sector. This will make it more difficult for private companies to entice and retain talented citizens as employees when government jobs offer more attractive incentives: shorter working hours, job security (GCC citizens are rarely laid off), and, of course, increasing wages.

Suliman al-Atiqi is an international affairs analyst from Kuwait. This commentary first appeared at Sada, an online journal published by the Carnegie Endowment for International Peace.

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