Positive Influence of Expats to the Economy of UAE
Nearly five decades ago, the United Arab Emirates (UAE) was among the world’s least developed economies. Currently, its income levels are at the same level with those of the developed economies such as Germany, United States, and United Kingdom. Unlike other developed economies, the UAE successfully leapfrogged, and did not go through the hypothetical phases of development. Its significant oil resources supported by a huge expatriate labor force have permitted the UAE to leap these stages to reach the high mass consumption phase. Since the onset of oil period, the number of expatriate has changed. For instance, in 1975, the population Arab expatriates stood at 26%. This reduced to 19% and 10% in 1985 and 1996 respectively. The change in the composition of the population was because of the changes in the required professions. Expatriates from few nations usually dominate varied sectors of the economy. In most cases, engineers and traders come mainly from Iran, India, and Pakistan while teachers come from Lebanon, Egypt, Palestine, and Jordan. Additionally, house helps come from Sri Lanka and the Philippines. Even though the construction era is complete, the service sector has started to emerge as the key non-oil contributor to UAE economy.
Huge oil revenues have allowed the UAE to short cut the often complex and prolonged process of saving and capital accumulation, which is a prerequisite for economic development.It is important to note that the UAE indigenous population could not have achieved this owing to its small size. Nonetheless, following the discovery of oil and its exports, the UAE experienced significantly high growth rates, a consequence of three factors: increased natural rates among UAE’s indigenous population, a significant inflow of expatriates, who currently represent more than three quarters of the country`s population. Consequently, a small local population, a large expatriate workforce, and significant wealth created by oil have become the primary socio-economic features of the United Arab Emirates.
The labor force in the UAE is two-tiered. At the very top are UAE residents accounting for roughly 10% of the total workforce. Below them is an unlimited supply of expatriate labor (both skilled and unskilled). The UAE has significantly benefited from this expatriate labor; they initiated the country`s economic development in the early 70s and have subsequently entered the country to sustain the momentum of development. The expatriate labor is not only employed in the oil and construction sectors, but also in social, community, and personal services. Unemployment in UAE is considerably low, implying that the country is effectively at full employment. The country is highly urbanized owing to the cluster of transportation, communication, public services, service based industries, and financial markets in the UAE cities.
This paper examines the positive influence expats have on the UAE. Specifically, the political, social, and economic impacts are examined with the goal of determining whether expats should be given the citizenship in the UAE.
The UAE has benefited immensely from the existence of expatriate labor in the country. Firstly, in terms of GDP per capita (purchasing power parity), the UAE is closer to the industrialized European economies. Based on 2012 CIA and IMF estimates, UAE`s per capita GDP stood at approximately $30,000. Over the same period, the World Bank approximations stood at $40,000. The migrant workforce has significantly contributed to the growth of the national cake, considering that they account for the biggest share of the country`s population. Table 1 below indicates historical population growth statics in the UAE from 1950 to 2010
Similarly, Table 2 below compares the population of UAE nationals to that of expatriates over the period 1968 to 1997.
Source of Labor for the Private Sector
In 2010, the UAE government estimated that the country`s total population stood at 8.24 million people, and the indigenous population accounted for only 11.5% of the total. The large expatriate population accounts for approximately 90% of the country`s private sector employment. This implies that without extricate labor, the private sector in the UAE, which contributes significantly to gross capital formation and innovation in the country (UAE Ministry of Economy, 2015), would crumble.
Secondly, average wages in the country have increased substantially because of expatriate labor. For example, available data reveals that on average, low-skilled construction industry workers in the UAE make 14,211dirhams per annum (approximately $4,000), those in social and personal services make 37,677 dirhams per annum, while those in financial services make as much as 84,173 dirhams per year. Although these wages may be low compared to what workers in developed countries such as the United States earn, it demonstrates that despite the high level of immigration in the country, wages are still substantially high. This has resulted in high purchasing power, increased consumption, and investment and ultimately improved economic growth.
Table 3: Median salaries by Industry in the UAE
Source: Department of Economic Development Planning & Studies Division. (2009).
Thirdly, the highly qualified human capital that the UAE attracts from foreign countries is significant benefit to the economy. In part, the country attracts highly skilled employees from developed markets by admitting only those individuals with job offers and a few individuals on attachment. The country also admits skilled employees from developing economies. Such a highly qualified workforce is a significant asset to the UAE economy and its internationalattractiveness.
Moreover, the existence of millions of immigrant workers in the UAE has generated more benefits and fewer costs to Emirati nationals. This is because of a number of factors. Firstly, the locals own a significant proportion of oil and gas resources, and this makes it easy to purchase tradable goods. However, to use the wealth from oil to purchase non-tradable services, there has to be either a significant increase in wages or use of expatriate labor to create trade in the supposedly non-tradable oil sector. For instance, in 2011, UAE oil sector contributed 29% of GDP and it was the source of most revenues for the government owing to the high oil prices then. From a historical perspective, the contribution of oil to the country`s GDP used to be much higher. However, currently, the expatriates have helped the UAE to diversify its economy. The seven emirates are disproportionately endowed with oil resources. Abu Dhabi has most of the oil, while the emirate of Dubai, oil production has been falling. In 2010, Dubai`s share of UAE oil revenues was only 2% of its GDP. However, Dubai has significantly diversified, particularly in financial, travel, tourism, and trade sectors.
Currently, a significant percentage of government revenues in the emirate of Dubai come from fees on foreign business sector. Compared with the other six emirates, Dubai has disproportionately attracted expatriates. Consequently, many of the locals are being subsidized from the taxes levied on expatriates (Ramachandran, 2012). For example, overseas oil companies pay one of the highest tax rates in Dubai of 55%. Additionally, they have to pay royalties. However, it is worth noting that at present, oil is not a major contributor to the GDP of Dubai (Malit& Al Youha, 2013). In 2011, total government revenues from oil and gas stood at $1.4 billion. Other than taxes on foreign oil companies and banks have to pay a 20% tax on any profits they make in the UAE. Furthermore, the entertainment and hotel sectors pay 5% of their revenues as municipality tax for food, rooms, and other services. Alcohol, which is predominantly sold in hotels, attracts a tax of 30% in the Emirate of Dubai (Malit & Al Youha, 2013). These taxes on expatriates and their businesses contribute substantially to government accounts.
Despite the significant diversification of the UAE economy, Emirati nationals are predominantly employed in government, which was previously financed by oil revenues, and now by the increased taxes on expatriates. Fundamentally, the data demonstrates that Emiratis are not employed in the private sector. Emirati personnel in private businesses only account for about 0.3% of the private sector payroll.
Table 4: median salaries in the UAE by nationality
Source: Department of Economic Development Planning & Studies Division. (2009).
To some level, this is a reflection of labor force participation in the UAE, however, the key driver is the existence of well-paying public sector jobs in the country, and the government gives high preference to its nationals. Because of increased salaries in the public sector, Emirati nationals earn higher incomes compared to the rest of the population. Only high skilled expatriates earn more than Emiratis.
Table 5: median working hours and salaries in private and public sectors in the UAE
Source: Department of Economic Development Planning & Studies Division. (2009).
The final economic benefit of expatriates to UAE relates to international competitiveness and labor productivity. Based on economic theory, products and services produced using cheap capital and labor means the final products would attract lower prices and consequently become more competitive in the global markets. However, for a country to be a competitive, the cheap labor must be productive (Department of Economic Development Planning & Studies Division, 2009). Accordingly, competitiveness is a function of productivity-adjusted labor costs as opposed to pure labor costs.The majority of the expatriates are highly qualified making them to be more productive. If the productivity-adjusted labor costs increases, UAE competiveness reduces. One method to measure productivity-adjusted labor cost is by dividing the average cost of labor by the average level of productivity, both variables are measured by UAE dirham.
Table 6: UAE productivity-adjusted cost of labor
Source: Al Awad (2010).
The table depicts productivity-adjusted labor costs for unskilled and skilled labor in the UAE. Generally, a dirham of output is worth approximately around 0.20 dirham of labor cost if social costs are excluded, but 0.26 when social costs are included. If skilled employees are used, one dirham of output equals 0.27-dirham of labor input, excluding social expenses. What this evidence indicates is that unskilled labor can produce at a lower cost. Therefore, the unskilled expatriates in the UAE can produce the same level of output as skilled workforce but at 50% less the cost of skilled employees. Therefore, the UAE`s global competitiveness can be strongly linked to the use of unskilled, low cost expat labor. However, in practice, the UAE economy makes use of both skilled and unskilled expat labor, and this has made the economy more competitive because inefficient firms are pushed out of business, and the remaining private sector business are very competitive and sustainable and create high quality jobs that benefit both more educated Emiratis and foreigners (Al Awad, 2010).
The Social Impact of Expatriates
The expatriates play a vital role in the attainment of the social relationship between the nationals and foreigners. The economic welfare of the United Arab Emirates citizens would not be maintained without accessing international labor. The Gulf nations are exceptional in this way. In other nations, the nation’s especially working class would not allow the importation of foreigners. In Gulf estates, recruiting expatriates is not strictly for profits, “but for attaining an increasing level of utility in the sense of economics. There is an increase in the demand for foreign labor even though the construction era came to an end (Malit & Youha, 2013. Importation of low-level clerks, maids, and servants, unskilled agricultural and informal sector workers shows the level of dependence on foreign attempt for consumptive purposes. The UAE continues to recruit foreign labor because it has the ability to provide for them.
The presence of expatriates in the United Arab Emirates has contributed to an increase in the size of population utilization of resources. Even though there was a reduction in the demand for labor in UAE, there are indications that a good number of male expatriates aged between 15 and 19 travels to UAE in search of jobs. The expatriates in the UAE have resulted in an increase in the number of active employees (Malit & Youha, 2013).
The presence of expatriates in UAE has forced various nations within the region to offer good healthcare services that can be compared with global standards in terms of the quality and quantity if healthcare. This has resulted in a noticeable rise in the standards of health of its citizens so that the standards can be at the same level with those of other nations. The UAE has persistently developed its preventive and healthcare and it has established the mandatory institutions to provide healthcare to its increasing population. Additionally, the Ministry of Health created the Federal Health Agency by Federal Law No. 13 for the year 2019 whose key objective is to build an enhanced healthcare system in all Federal Government hospitals in the nation. Furthermore, the agency is accountable for establishing and managing hospitals to suit the global best practices and standards, and develop the potentiality of healthcare workers in all specializations and fields.
The existence of expatriates in the UAE has contributed to the development of infrastructure for instance, telecommunication networks, highways, networks, and airports. On the other hand, the increased subsidies on welfare goods for example health care, housing, and education have reduced the desire for nationals to take up unpleasant or difficult jobs.
With regard to social welfare, social work in the UAE is considered one of the best internationally and a major right to all citizens which, in turn is viewed as the responsibility of the authorities in the UAE to improve the welfare of all its citizens. The key objective of the authority is to uphold and support the active participation of the public, private, and institutions contributing towards the success of several social activities (Winckler, 2000). The improvements in social activities are as a result of the increase in population caused by expatriates. The country offers a variety of social activities for instance, general culture, folklore, gender issues, and professional organizations. The country has also provided good social services for instance kindergartens and age homes for varied social classes and groups.
Expatriates have also contributed to an improvement in the quality of life for UAE citizens. For instance, in North Africa and Middle East region, UAE is ranked number 1 for providing the best quality of life. This clearly indicates the prosperity that UAE has experienced in the previous years and the outcome of the strategic initiatives by the Government of UAE across all sectors including education, health, economy, and security (Findlow, 2000). UAE was ranked the best because of its civic administration and development, and increase in the growth of GDP together with security and safety, life expectancy, and healthcare services. An improvement in the gross domestic product of UAE has forced the government to offer similar opportunities to its entire citizen in education related matters and hold the right perception that education is the major driver of sustainable growth. The country is trying to improve its education standards to fit that of advanced nations. UAE has further encouraged its citizens to aim at attaining higher education (Findlow, 2000). The UAE education system ensures that all citizens receive similar opportunities. For instance, it offers specialized programs to individuals with special needs in order to attain their objectives. The spread of educational opportunities across the nation is viewed as the most significant attainments in the sustainable development of the United Arab Emirates. Expatriates further contribute to the satisfaction of the increasing needs of the society. This is because they comprise the majority of the UAE population, and they take over all sectors of the economy (Stalker, 1997). Conversely, they are not ruled out in the manner that citizens are, because they do not acquire a UAE social rights and citizenship that follow such a citizenship.
The expatriates in the United Arab Emirates have highly contributed to the political climate in the country. For instance, political stability has been influenced by oil revenues. The end of key economic activities led to underemployment and unemployment hence, expatriates became an issue (Winckler, 2000). The rising number of foreigners became a political challenge forcing the rulers of UAE to nationalize policies in an attempt to secure the future of the prevailing regimes. However, the nationalization process did not result in a decline in the dependence on international labor. This is because most of the expatriates have the relevant skills required in the job market. This policy was not strictly adhered to because of various reasons and they include; the nationals do not have the preferred working ethic in the workforce (Tan, 2013).Additionally, nationals have relevant skills required in technical occupations paving way for foreign labor.
The UAE has experienced considerable improvements at both social and economic levels since it was established. It is also considered an ideal model and a source of inspiration and pride. The entry of expatriates in the UAE after the First World War became a key milestone in the socio-political evolution of the nation. The availability of oil companies influenced political stability in two distinct ways: they supported and upheld the political units that existed under Britain and served as agents of key change (Tan, 2013). The foreign oil companies played a key role in maintaining the political system.
In conclusion, the economy of UAE largely depends on oil, even though the economy was highly diversified in the previous decades. The economy highly depends on foreign workers. It would not have been possible for UAE to carry out economic developments without accessing foreign employees. It is evident that the non-nationals dominate the economy even though most of the development projects were accomplished (Butenschøn, Uri & Manuel, 2000). Expatriates have a positive influence to the economy of UAE. For instance, the presence of expatriates in the UAE has resulted in an increase in per capita and gross domestic product. It has further led to economic development in the region. Exparytriate also provide labor in the private sector hence creating ready market for labor. They have contributed to a rise in wages earned by both nationals and foreigners. With regard to social impact, the expatriate have played a significant role in enhancing the UAEnation to contribute to social welfare and activities. For instance, more healthcare facilities were constructed hence improving healthcare in the region. More schools have also been established to provide education at various levels. The rise in the population of non-nationals has forced UAE to develop and upgrade educational curricula in schools and universities. The nationals are encouraged to attend school and attain similar qualifications like those of expatriates so that they can take up their jobs. The entry of foreign labor in the UAE has resulted in these developments so that the nationals can attain qualifications that match the demand for labor so that they can be able to substitute the large number of expatriates with all its varied specializations.
Furthermore, expatriates have played a big responsibility in upholding economic stability UAE. The above explained positive influence of expatriates to the economy of UAE clearly explains why there is a need for all residents to be given citizenship. This would further economic development of the economy because there will be no repatriation of funds to their home nations. Revenue received by expatriates in form of wages and salaries can be used for investment in various economic activities. The fact that expatriates are social beings is usually hit by the fact that the system is designed for economic beings. The decision to work in UAE is favored by the rising demand for labor, together with the fact that the person in question can depend on personal network.The better work package and availability of other social services and facilities attractforeigners in the United Arab Emirates. Additionally, the UAE is forced to recruit foreign workers because of its small size in population. It is recommended that the UAE should give citizenship to foreigners for economic benefit. On the other hand, the UAE granted citizenship to non-local Arabs with the main objective of increasing the country’s legal citizenship body
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