The financial crisis in the Gulf and its impact on South Asian migrant workers

Abstract

The financial crisis originated in the United States of America and impacted the Gulf Cooperation Council (GCC hereafter) countries after a time lag. The falling oil prices, contracting trade and declining private investment flows have adversely affected the GDP growth of the Gulf countries, which in turn affected the flow of migrant labour to and from them and remittances from them. In this context this study seeks to: Assess the impact of the recession on key industries in the GCC economies; Assess the repatriation of expatriate labourers; Assess the flow of emigrant labourers and fall in remittances; Assess the impact of loss of employment on the emigrant households’ in the country of origin; and Identify the measures undertaken by various stakeholders to mitigate the adverse effects. The study takes a two pronged approach to the subject. The impact of the global crisis on the GCC economies is first analyzed in terms of the sectors of the economy affected, the changes in GDP growth and employment of expatriate labourers. A Survey of migrants in the destination countries was carried out to assess the loss of employment and earnings and their coping strategies. It was followed by surveys of emigrants and return migrants in the countries of origin in South Asia. Study teams visited the six GCC countries and Malaysia to interview labourers as well as employers in various sectors. The global crisis has affected the GCC economies through falling oil prices, depressed property and equity prices, low investor confidence and reversal of capital flows. The GDP growth in GCC economies spawns large population growth, especially large influx of migrant labourers from South Asia. So a recession is expected to affect the flow of migrants and remittances. The rising oil prices since 2002 brought about large scale FDI flow into the GCC economies, rising investment rates and higher GDP growth rates by boosting the investment in telecom, banking, power and real estate. Private investment flow played an important role in the emergence of West Asia as the world’s largest market in project finance surpassing Western Europe and North America. The rapid growth of the GCC economies in the 2000s initiated increasing concentration of employment in manufacturing, construction and trade, and so attracted a large influx of expatriate unskilled and semi skilled labourers. One estimate put the composition of Indian expatriates in UAE as 50 per cent unskilled workers, 25 per cent semi-skilled and 25 per cent skilled professionals. The large influx of unskilled and semi-skilled workers led to higher rent inflation on top of unprecedented food inflation, attributed to global rise in food prices in the late 2000s. Over a quarter of the population in the GCC countries was spending above 20 per cent of their disposable income on food then. In response, the governments raised the wages of the public sector employees. This might have protected them, but vast segments of workers in manufacturing, construction and trade suffered real income losses. The precipitous fall of oil prices and the large losses suffered by the Sovereign Wealth Funds of the GCC countries had dried up the FDI inflow and credit flow into the Gulf; much worse, the banking sector also was facing a severe crisis with few international banks willing to lend to projects in GCC Countries. The world export demand was not expected to pick up immediately; and trade discriminatory measures were increasing as protectionism was spreading globally in the face of crisis. Added to the adverse economic environment were the not too transparent bank dealings in the Gulf, poor contract enforcement and discriminatory property ownership regimes. The silver lining was the quick rebound of oil prices - current prices surpassed the January 2008 levels- and the improvement in the ‘doing business environment’ in the Gulf countries. The construction boom in the GCC countries had come to a halt with 20 to 30 per cent cancellations, the bulk of which was in Dubai and trade volumes had declined. The phenomenal growth in employment of the past five or six years had come to a halt and about 40 per cent of the workers had been affected. Expatriate workers did not leave in large numbers, but salary cuts were widespread; stoppage of increments, benefits and perks was also reported. As regards the impact of the crisis on the South Asian migrant workers, the databases were poor and the numbers were hard to come by. The numbers mentioned by Indian ministers ranged between 50,000 and 500,000. An estimate of return migrants to Kerala arrived at by the Centre for Development Studies, based on a revisit of the emigrants and return emigrants of their 2008 Kerala Migration Survey, was around 61,000 for Kerala. Applying the methodology of the Kerala Resurvey to South Asia as a whole, the return emigrants from the Gulf were estimated to be 264,000. These estimates were far lower than the official predictions because migrants somehow struggled to stay back and earn to repay the debt incurred to pay for the cost of migration. Hence, the migrants’ loss of current employment did not lead to an immediate return as they would be hunting for various alternatives in which social support networks also played a part. Thus, the number of migrants returning would be lower than those losing jobs, the difference implying that they were in search of employment in the destination countries. The numbers of migrants from Kerala who lost jobs but continued to stay in Gulf were estimated to be 39,000 and those who returned at 61,000; and for South Asia, the corresponding numbers were 170,000 and 264,000 respectively. Despite the crisis and job loss, the demand for expatriate workers continued in the Gulf as was evident from the outflows of migrant workers from South Asia. Except for a 35 per cent fall in numbers from India, the flows in 2009 were comparable to those in 2008. But the direction of flow had changed; UAE was attracting less number of labourers whereas hardly any change was observed for Saudi Arabia. Migrant workers sent home remittances which boosted the economy. India being one of the world’s top remittance recipients at $52 billion (and China at $49 billion) in 2008, the policy makers were worried that remittance flows might decline due to the crisis. But estimates showed that remittances had, in fact, increased by 3 to 25 percent in 2009 in the South Asian countries. Micro level data on remittances from households with an emigrant currently in Gulf confirm the macro findings: about 94 percent of the households reported receiving regular remittances and about 30 percent receiving gifts during the crisis period. No change had been observed in the use of remittances by those households in 2008-09 compared to normal times. But the survey showed that 13 per cent of the emigrants reported loss of job. Nearly half of them had found another job, and a quarter were staying illegally in the Gulf. The work conditions had also changed due to the crisis: 25 per cent of the emigrants reported redundancies, 16 per cent reported postponement of contracts, 20 per cent reduction of wages, 17 per cent heavier workloads and 8 per cent were forced to take annual leave and proceed home. The survey among return emigrants in South Asia who had lost their jobs showed that 73 per cent of them remained unemployed one month after return; but their proportion had declined to 42 per cent at the time of survey. Among the employed, 37 per cent had managed to find regular employment, 40 per cent casual employment and 8 per cent, contract work. The unemployed return emigrants survived on past savings, borrowing, and support from family members. And a few had sold assets to meet expenses. The governments of the countries of origin and destination have taken a few steps to mitigate the hardships faced by the workers losing jobs. The Government of Nepal has announced a plan to meet the cost of migration of those who returned after losing jobs. The Government of Kerala state has announced a rehabilitation package for the Gulf returnees. Some GCC countries have relaxed slightly the visa conditions, allowing those who were thrown out of jobs to stay for longer periods in their country making it possible for them to search for alternative employment. The sponsorship condition has also been relaxed in some cases. Some of these reforms in the GCC countries might not be directly related to the crisis, because they were in the making for some time now in the face of severe criticisms of the work and life conditions of the expatriate workers in those countries even before the crisis struck them.