Approximately 15.1 million expatriates live in Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Expatriates far outnumber locals in three of the GCC states and dominate the private sector in nearly all of them. In Kuwait, for example, about 2.4 million of the country's 3.6 million residents are foreigners, and in the United Arab Emirates, 7.9 million of the country's 8.9 million inhabitants are foreigners.
By law, each foreign worker is required to have a local sponsor or guarantor, also known as a kafeel. The system gives employers expansive powers over employees because expatriates typically cannot change jobs, leave the country or, in some cases, take out loans, rent houses or buy cars without their sponsors' approval. The kafeel will often hold employee passports and can prevent employee travel, withhold salaries and file criminal charges against an employee who quits without the sponsor's agreement.
Sporadic Reforms in the GCC
Several GCC states have touted labor system reforms in recent years. In 2009, Bahrain announced that it was dismantling the sponsorship system and that the government would become the sponsor for expatriate labor. It instituted a plan that ostensibly established the government as the sponsor for foreign labor, but local employers still serve as guarantors for expatriate employees. In theory, the new system allows a foreign employee to change jobs without the employer's consent. In practice, however, the employer can file a case against the employee and thus delay any transfer in employment. Kuwait made similar overtures with announcements of labor reforms in the wake of the 2008 financial crisis and again in late 2010, but significant improvements in foreign labor rights never materialized.
The United Arab Emirates implemented regulations in 2011 that gave foreigners greater freedom to change jobs. The new rules allowed a foreign employee with an expired contract to change employers without having to wait for six months, as previously required — but only if the original sponsor agreed to it and the employee had worked for the sponsor for two years.
Qatar's World Cup Challenge
Qatar, too, has been looking at reforming the country's sponsorship system to balance the need for imported workers with the need to manage and control foreign labor. Already, Qatar has the single highest ratio of expatriates to citizens in the world. Qataris only account for about 15 percent of the country's population; there are approximately 225,000 citizens and 1.7 million foreigners in Qatar, according to U.S. State Department figures.
The reforms to the sponsorship system will pose a major problem for the government's plans for hosting the World Cup in 2022. Importing 1 million workers, managing all their paperwork, arranging sponsorship, handling disputes, job transfers and other issues and completing all the projects necessary for the tournament is a gargantuan task.
Doha is greatly invested in the World Cup because Qatar's identity as an emerging regional leader and power player is tied to the successful hosting of the games. A key to that success will be the completion of an estimated $60 billion worth of stadium and infrastructure projects within the next decade. The government plans to spend $4 billion to build nine new stadiums and expand three existing ones. Doha must also add 80,000 to 90,000 new hotel rooms to satisfy FIFA's requirements for host country room capacity. Additionally, the government plans to add three new expressways, a bridge to cross Doha Bay and a rail system, along with upgrading and expanding other local infrastructure to support the construction efforts.
Qatar will rely heavily on foreign firms to partner with local businesses and government agencies to accomplish these projects within such a short time frame. Most of the unskilled labor will likely come from the Asian subcontinent — India, Pakistan, Bangladesh and Sri Lanka — and from Arab countries like Egypt, with smaller numbers of imported workers coming from China, Libya, Indonesia and the Philippines. Most of the skilled labor will come from Western countries, including the United States, the United Kingdom, other European countries and Australia. Any changes to the sponsorship system will likely affect skilled and unskilled foreign labor rather than domestic workers, who are subject to different labor laws.
Recruiting and retaining vast numbers of highly skilled labor is a constant struggle in the region. Highly skilled expatriates are typically also highly transient. Under the sponsorship system, it is difficult for imported laborers to transfer sponsors, and they will often leave the country rather than risk becoming involved in an absconding case. Moreover, Qatar is facing pressure from international labor groups that are calling on FIFA to ensure that Doha adheres to international labor standards.
Qatar, like the rest of the Gulf region, is loath to upset the balance of power in favor of foreign labor. Like the GCC states that have made incremental changes to their sponsorship systems or labor laws, Qatar will try to manage changes in a way that allows foreigners as little independence as possible. But the impetus for change is coming from all sides and the greater interest for Doha will be ensuring the success of the World Cup, even at the cost of canceling or restructuring the sponsorship system.
Moreover, Qatar is uniquely positioned to make changes without expecting too much resistance from the local population. The country's small population survives largely due to generous subsidies and patronage from the government, and Doha does not tolerate dissent.
Still, some opposition to canceling the sponsorship system exists, primarily from recruitment companies and private sector businesses. These firms are resistant to the system's cancellation because locals typically demand higher salaries, work fewer hours and want more benefits. But Qatar is a dictatorship, albeit a mostly benign one, with a tiny local population. Few would want to risk alienating the government and being labeled a dissenter, especially when so many lucrative government contracts associated with the World Cup project will be available.
Regional Implications
The GCC states are linked in many ways, both formally and informally, and nearly everything one GCC country does affects the others. They cooperate and compete in equal measure and are constantly evaluating their relative positions and rivalries. Their businesses are linked and interlinked, as are their families, cultures, religions, politics and labor issues. For example, Dubai's multiyear development spike triggered a boom across the entire region, including the construction of acres of skyscrapers, theme parks and man-made islands in Abu Dhabi and Qatar.
The ripple effect is also bolstered by the GCC's shared concerns, such as the size of the expatriate population in the region. Many of the GCC states, including Kuwait, Saudi Arabia and the United Arab Emirates, are implementing programs that will transfer locals to the private sector and reduce government payrolls. In the long run, canceling the sponsorship system will render foreign labor less attractive, since it will be more mobile and more expensive, and this in turn will bolster the competitiveness of local labor.
The elimination of the sponsorship system will be both a boon and a burden for Gulf businesses. Initially, the change could increase labor costs as competition drives up salaries, especially for the highly skilled. Eventually, however, it will mean more foreign labor will move around within the GCC countries and fewer companies will have to turn to recruitment abroad. Recruitment options are also likely to improve — something of critical importance for Doha in the next decade. Salaries have come down in Dubai compared with elsewhere in the region, largely because it offers greater freedom for foreign workers, which has in turn increased competition in the labor market. If Qatar follows suit by improving its own competitiveness, salaries will eventually drop there as well.
If Doha makes it easier for foreign workers to change jobs, Qatar will become a more attractive destination for labor at a time when it will also be paying phenomenal salaries due to the construction boom. In order to compete for and continue to attract the high skilled labor they need, other GCC states will also be forced to make further adjustments their labor laws — at the core of which is the sponsorship system.
