Migrant Driven Economies
and Changing Labour Demographics:
Evidence from the GCC
by Rashed Albinali
International migration plays an increasingly important role in shaping the global economy. By 2020, there were more than 280 million migrants worldwide.[i] Circular migration in particular is considered to be a win-win situation.[ii] Migrant-receiving economies, in need of labor to fuel economic growth, benefit from increased productivity and migrant-sending economies benefit from remittances. In fact, this argument has been the central tenet of economic development within the Gulf Cooperation Council (GCC) since at least the 1970s. Throughout the second half of the twentieth century, oil wealth was the primary pull force for migrants to the GCC, initially from the Middle East and North Africa (MENA) region and later from South and Southeast Asia. Figure 1 showcases this increase in the GCC’s migrant stock between 1975 and 2020.
The figure above shows that migration to the GCC has increased 8 fold within the period of 45 years, and in doing so, has made the GCC the third largest migratory destination in the world.[iii] The GCC is incidentally also the largest source of money transfers to Asia, providing about three-quarters of almost $100 billion (USD) in annual remittance receipts.[iv] Migration has certainly been a win-win situation for both the GCC and their migrant-sending partners so far, but many continue to question its sustainability; especially in light of the expanding youth population in the GCC, many of whom find themselves either unemployed or unemployable. This has led to a wide range of labor force replacement policies across the region that aim to change the status quo by decreasing the migrant population – which makes up over half the GCC population,[v] and over 80% of its labour force.[vi] The question is, are these policies realistic? This paper aims to analyse and assess the socioeconomic impact of an increasingly expanding youth population on the migrant driven economies of the GCC.
The GCC’s Migrant Driven Economy
The GCC’s economy continues to be a migrant reliant and driven economy for two primary reasons. Migrants have historically either filled high-skilled positions that the GCC nationals were not well equipped for, or filled low-skilled positions that the nationals would not accept. After the oil price adjustment in 1973, considerable oil wealth led to rapid development which necessitated rapid migration to fill the gap between demand and supply of labor in the GCC. Since then, oil prices and migration rates have maintained a strong positive correlation.[vii] Higher oil prices lead to increased migration, driven primarily by government spending on infrastructure projects. Figure 2 demonstrates a similar trend between population growth rates and oil prices.
Oil price fluctuations especially since 2008 however, have significantly impacted migration to the GCC.[viii] Fiscal and/or current account deficits have limited government spending on infrastructure and decreased migrant prospects. To a certain extent, the GCC has also lost some of its attractiveness as a favoured migrant destination due to a combination of both wage stagnation and increased living expenses in the past decade.[ix] The exploitative nature of the region’s regulatory framework of migration (the kafala system) has been also cited as a contributing factor.[x] Some experts such as Calabrese (2020),[xi] argue that this phenomenon has expedited the return migration of a significant proportion of – especially – South Asian migrants from the GCC. Latest regional figures show that Indian migration to the GCC has declined by about 58% between 2015 and 2019.[xii] The Coronavirus pandemic has led to a steeper drop in the migrant population across the region, contributing to a decrease in the GCC’s total population by about 4% in 2020, which is unlikely to recover until at least 2023.[xiii]
It is most likely that this decline in migration is a part of the larger trend displayed in Figure 2 and that the economic recovery following the pandemic will likely be followed by a surge in migration supplied by migrant-sending states that continue to rely on remittance income. In fact, despite trends of return migration, net migration in recent history continued to be both positive and significant in the region (see Figure 1) and the GCC – especially its two largest markets in Saudi Arabia and the United Arab Emirates (UAE) – remains a top destination for Middle Eastern and South Asian migrants.[xiv] Therefore, while it is anticipated that labour shortage in the GCC will persist until at least 2023 and will negatively affect diversification projects in the short term, it is unlikely that this temporary shortage would pose long term ramifications.
Burgeoning Youth Population
The implications of migrant driven economies have not escaped the attention of researchers and policymakers in the region, however; and many have called on national governments to reduce the GCC’s reliance on migrant workers. The demographic imbalance and its sociopolitical implications have historically dominated this discourse. Considerable youth (defined as individuals between the ages of 15 and 24 years old) unemployment ratios within GCC in recent years have intensified this debate, primarily due to inaccurate claims that migrants have in recent years encroached upon the economic opportunity of GCC nationals. In doing so, migrants have breached the unspoken socioeconomic contract upon which the foundation of GCC migration was built. Figure 3 showcases the fertility rate average in the GCC compared to high income economies (to which all six GCC countries belong) and the world.
The GCC averaged considerably higher fertility rates than the world average until 2006, around the time when population growth rates peaked in the region (see Figure 2). Despite a declining trend in fertility rates, these historically high rates have invariably led to an increase in youth populations. Saudi Arabia, for instance, has seen its young population expand by 66% in the past 15 years.[xv] In fact, the young population is expected to predominate in the GCC for the coming decade making up between 25% and 28% of the population, in stark difference to other high-income economies with ageing populations.[xvi] Table 1 compares total unemployment rates and youth unemployment rates across the GCC, high income countries and the world average.
Total unemployment in the GCC is, for the most part, lower than high income and world averages. Female unemployment rates are considerably higher in the GCC than male unemployment rates, but they are not considerably higher than high income and world averages (with the notable exception of Saudi Arabia). Unemployment rates have increased across most GCC countries between 2000 and 2019. Youth unemployment in the region is considerably higher than the total unemployment rate (ranging from 2 to 10 times higher). But a similar trend can also be seen in high income and world averages. In fact, male youth unemployment is lower in the GCC than it is in high income countries and the world (again with the exception of Saudi Arabia). Female youth unemployment is significantly higher in the majority of the GCC than in high income countries and the world. This can be attributed to a lack of job opportunities for women as a result of cultural biases that continue to negatively affect female employability in the region. Structurally high female unemployment, especially among the youth population, calls into question the sustainability of economic development in the region.
Policymakers have responded to intensified calls for migrant reduction by implementing a series of policies aimed at nationalising the labour force, especially in the private sector where the majority of workers are non-nationals. This was a part of a wider solution, which included increased investment in human capital and training, to solve increasing youth unemployment. Yet many experts question the effectiveness of these policies, as enterprises have found different loopholes in which to employ relatively cheaper migrant workers.[xvii] In Saudi Arabia, for instance, there has been a surge in small businesses (defined as businesses with less than 10 employees) because this classification is not targeted by the Saudi nationalisation system Nitaqat. To a large extent, these policies have also ignored the root causes for the dependency on migrant workers, namely the dependency of the private sector on relatively cheap labor and the unwillingness of nationals to occupy labor-intensive jobs.[xviii] Ultimately, nationalisation policies across the region have actually done very little to solve the issue of youth unemployment.
Changing Labour Demographics and Economic Diversification Plans
The most pressing, short to medium-term issue is that high youth unemployment (which elevates sociopolitical risks in the region) as well as declining migration rates can foreseeably stall necessary diversification plans, making it difficult to provide national economies with the necessary support to foster growth. This is made especially difficult because the productivity of government investment in the region is declining. The cost incurred by GCC governments of creating and maintaining 1% of real output growth is becoming increasingly expensive mainly because some sectors, like real estate, are becoming increasingly saturated and are unlikely to yield additional value. In 2018, it took government investments worth 11% of GDP to create and maintain 1% of real output growth, compared to 6% in 2013. This is projected to increase in the coming years.[xix] With increased fiscal pressure, and a declining productivity in government investments, the question is, can governments induce the necessary growth to solve the youth unemployment problem?
It is unlikely that the region will be able to absorb the large proportion of the unemployed youth. The GCC market has simply not matured enough in magnitude to do so. The International Monetary Fund (IMF) predicts that of 4.5 million nationals entering the labour market, 2 to 3 million will be incapable of finding a job. And, ultimately, rapidly reducing migrant workers in the GCC through the implementation of nationalisation plans will only exacerbate the situation because migrants continue to be the main contributors of non-oil GDP growth in the region.[xx] Migrants remain inextricably linked to the GCC economy, working in strategic sectors like construction, transportation and retail. Migrants also provide the bulk of private sector labour productivity. A rapid reduction in migrant workers could stagnate growth in the region, and would not, in turn, increase economic prospect for nationals.
While labour demographics will continue to strain sociopolitical discourse in the region for the foreseeable future, it should not necessarily have long term implications. Fertility rates in the region are already in steady decline. The young population will decrease within the next couple of decades, and by 2050 the median age will increase to 36 compared to 25 in 2010.[xxi] Migrants will likely play a larger role in the long term to support economic growth in the GCC, just as they do today in highly developed, ageing economies like the United States. This might explain, perhaps, why despite nationalisation policies, migration has continued to increase (see Figure 1). It is likely that policymakers realise that the economic benefit of maintaining migration in the long run is greater than the cost of the sociopolitical risks migration might pose. This is largely based on the lived-reality that migrant workers and nationals often do not compete for similar jobs but instead complement each other throughout different sectors and occupations.
The repeal and reform of the kafala system in the GCC have been instrumental in changing the world view of migration to the region. Several GCC countries have even passed legislation that has provided migrants with a path for citizenship. Migration has certainly been a focal point of GCC sociopolitical and economic discourse, but with time we see a changing tide, and a wide-ranging systemic acceptance of migrants as equal partners in the region. Through this partnership, the GCC will be better positioned to open new doors from which both migrants and nationals alike can find economic opportunity.
[i] United Nations Department of Economic and Social Affairs, Population Division, ‘International migration 2020 Highlights (ST/ESA/SER.A/452)’ (United Nations, 2020), https://www.un.org/development/desa/pd/sites/www.un.org.development.desa.pd/files/undesa_pd_2020_international_migration_highlights.pdf.
[ii] Mel Lambert, ‘Making Migration of Human Resources for Health a Win-Win Situation for All Countries’ in International Dialogue on Migration (Geneva, Switzerland: International Organisation for Migration, 2006), https://www.iom.int/sites/default/files/jahia/webdav/site/myjahiasite/shared/shared/mainsite/microsites/IDM/workshops/mhrh23240306/presentation_lambert.pdf.
[iii] Zahra Babar and Andrew Gardner, ‘Circular Migration and the Gulf States,’ in Impact of Circular Migration on Human, Political and Civil Rights, Carlota Solé et al. (eds.), United Nations University Series on Regionalism 12 (Springer, 2016), pp. 45-62.
[iv] Helene Thiollet, ‘Immigrants, Markets, Brokers, and States: The Politics of Illiberal Migration Governance in the Arab Gulf’ (International Migration Institute, November 2019), https://www.migrationinstitute.org/publications/immigrants-markets-brokers-and-states-the-politics-of-illiberal-migration-governance-in-the-arab-gulf.
[v] Williams Jason Essomba, ‘Labor Immigration into the Gulf: Policies and Impacts’ (Sciences Po Kuwait Programme, 2017), https://www.sciencespo.fr/kuwait-program/wp-content/uploads/2018/05/KSP_Paper_Award_Fall_2017_Williams_Jason_Essomba.pdf.
[vi] Zahabia Gupta, ‘Expat Exodus Adds To Gulf Region's Economic Diversification Challenges,’ S&P Global Ratings, 15 February 2021, https://www.spglobal.com/ratings/en/research/articles/210215-expat-exodus-adds-to-gulf-region-s-economic-diversification-challenges-11800970.
[vii] Thiollet, ‘Immigrants, Markets, Brokers, and States.’
[viii] Gupta, ‘Expat Exodus.’
[ix] John Calabrese, ‘India-Gulf Migration: A Testing Time,’ (Middle East Institute, 14 April 2020), https://www.mei.edu/publications/india-gulf-migration-testing-time.
[x] Babar and Gardner, ‘Circular Migration and the Gulf States,’
[xi] Calabrese, ‘India-Gulf Migration.’
[xii] See Table 2 in Calabrese, ‘India-Gulf Migration.’
[xiii] Gupta, ‘Expat Exodus.’
[xiv] Abu Dhabi Gallup Center, ‘Potential Migration and the GCC,’ Gallup, 7 May 2021, https://news.gallup.com/poll/157058/potential-migration-gcc.aspx.
[xv] Abdulrazak Abyad, ‘Demographic Changes in the GCC Countries: Reflection and Future Projection,’ Middle East Journal of Age and Ageing 15, no. 1 (February 2018): pp. 20-24, http://www.me-jaa.com/February%202018/GCC.pdf.
[xvi] Gupta, ‘Expat Exodus.’
[xvii] Essomba, ‘Labor Immigration into the Gulf.’
[xviii] Mohammed Ebrahim Dito, ‘GCC Labour Migration Governance’ [Slides] In United Nations Expert Group Meeting on International Migration and Development in Asia and the Pacific (Bangkok, Thailand: United Nations, September 2008), https://www.un.org/development/desa/pd/sites/www.un.org.development.desa.pd/files/unpd_egm_200809_presentation_dito_gcc_labour_mig_gov.pdf.
[xix] Gupta, ‘Expat Exodus.’
[xx] Dito, ‘GCC Labour Migration Governance.’
[xxi] Abyad, ‘Demographic Changes in the GCC Countries.’