This article analyses the economic implications of the Covid-19 pandemic on Gulf economies, its migrant population, and particularly Sri Lankan labour migrants.
As of May 15 2020, the six Gulf Corporation Council (GCC) countries; namely Saudi Arabia, the United Arab Emirates (UAE), Qatar, Oman, Kuwait, and Bahrain have recorded approximately 118,739 cases of Covid-19 forcing GCC governments to take drastic measures from restricting economic activities to lockdowns to control the spread of the virus. These containment measures and the pandemic-led reduction in oil prices in the world market are likely to have a substantial negative impact on oil-dependent GCC economies in the coming months and years.
The economic pressures faced by the GCC region, in turn, will adversely affect its labour migrants who account for more than fifty per cent of the GCC labour force. As the vast majority of these migrants are from poor developing nations in South Asia, Africa, East Asia and the Middle East which depend on remittances from the GCC, these countries will be severely affected by the financial pitfalls of the GCC. Sri Lanka also as a labour-sending nation to the GCC region will experience hardships, exacerbating the economic issues the country is already facing due to the pandemic.
- Impact of Covid-19 on the GCC economies
Over the past few years, the economic growth in the GCC region has been slowing down. According to the World Bank, GDP growth in the GCC significantly weakened in 2019 due to lower oil demand resulting from the deceleration of global economic growth. With Covid-19 pandemic, the economies of the GCC is facing increasing financial pressures due to both petroleum and non-petroleum sector slowdowns.
The main economic issue faced by the GCC region due to Covid-19 is the unprecedented drastic reduction in global demand for oil. With factories operating far below the optimal capacity and fewer vehicles on the road due to lockdowns imposed all around the world, the demand for oil has experienced the deepest fall in twenty-five years. Due to shrinking demand, by April 2020, the price of an oil barrel reduced to around 20 USD, down from approximately 60 USD at the end of December 2019. This is a severe blow for the oil revenue dependent GCC economies. According to IHS Markit, if the price of a barrel of oil remains at 20 USD, it will result in a loss of approximately USD 554 million per day for the region.
Apart from the oil sector, the non-oil industries of the region have also experienced shocks akin to other Covid-19 affected countries all around the world. Tourism, which is a vital sector of the United Arab Emirates (UAE) and Saudi Arabia has been particularly affected due to travel bans and suspension of flights. The Dubai Expo2020, which was planned to commence in late 2020, has already been postponed to October 2021 affecting UAE’s plans of boosting its tourism and hospitality industry. Also, if the stringent containment methods of Covid-19 persists throughout the rest of 2020, Saudi Arabia stands to lose around 3$ to 9$ billion from Hajj and Umrah pilgrimage seasons. Though Qatar is still on track to host FIFA 2022, ripple effects of the Covid-19 pandemic could hamper the success of the event resulting in financial losses for the country.
According to the World Bank, even with increased government stimulus packages in the region to reduce the economic impact of the pandemic, the growth in the GCC is forecasted to halt in 2020. International Monetary Fund (IMPF) predicts that the GCC will record negative growth in the real GDP in 2020. Qatar’s economy is projected to contract by 4.3%, the highest slip in the GCC region, followed by UAE with 3.5%, Oman with 2.8%, Saudi Arabia with 2.3% and Kuwait with 1.1%. However, the IMF is hopeful that the decline in the GCC economies to be short-lived and will be followed by a rapid V-shaped recovery in 2021.
Covid-19 and the labour migrants in the GCC
Foreign guest workers account for more than fifty per cent of the labour force in all GCC countries. Containment measures taken to combat the spread of Covid-19 and the resultant contraction in the Gulf economies are likely to adversely affect these migrant workers and their dependents in home countries who rely on remittances sent from the GCC.
In the short term, migrants who are most affected by the pandemic are low-skilled workers. Cramped labour camps where the majority of these low-wage earners dwell have become breeding grounds for Covid-19 and hence been placed in isolation in Qatar, Oman, Kuwait and the UAE with entry and exit barred. With lockdowns and other restrictions imposed to combat the pandemic, a significant number of low-skilled workers have lost their jobs and find it difficult to manage their daily expenses and pay for their food or lodgings. With the closure of airports in their home countries and the exorbitant airfares, they have slim chances of returning home as well.
In the medium term, the contraction in the Gulf economies is likely to have adverse effects ranging from mandatory leave, salary cuts, deterioration in working conditions to layoffs for migrant workers belonging to all skill categories. These changes have already materialised in the aviation sector, one of the hardest-hit industries of the region. In March, Emirates asked its pilots and cabin crew to take unpaid leave while Qatar Airways, which was already struggling due to the blockade imposed by some of the other GCC countries in 2017, laid off more than 200 staff with substantial redundancies planned for coming months.
Another sector which is bound to experience difficulties in the coming months is the construction sector, one of the top three industries in Qatar, UAE and Saudi Arabia. The decline in oil revenue will lead to fiscal deficits halting and tightening the budgets of mega construction projects. This will lead to pay-cuts and layoffs of a large number of workers of all skill levels. Due to the trickledown effects of the previous oil slump, which started in late 2014, between 2015 and 2018, approximately 700,000 low-skilled construction workers in Saudi Arabia lost their jobs and had to return to their home countries. The repercussions of the Covid-19 pandemic on construction workers will be many folds severe than the situation in the 2015-2018 period. Apart from the aviation and construction sectors, workers of other industries of the region will also experience difficulties in the coming months due to contracting government spending fueled by the oil shock.
In the long run, the pandemic could result in an intensification of nationalisation efforts in the GCC, reducing the job opportunities available for migrant workers. The nationalisation policies of the GCC which have been tabled since the 1980s aim to safeguard jobs for citizens, increase their labour force participation and ultimately eliminate the reliance on foreign guest workers. Even before the pandemic, there was an increase in nationalisation efforts in Kuwait, Oman and Saudi Arabia fueled by the decline in oil prices in late 2014. In 2019, Kuwait replaced 527 expatriates in supervisory positions in cooperative societies with locals and hired 290 Kuwaitis in place of foreign teachers. With the pandemic, these efforts are likely to be intensified and hastened. In fact, at the end of April 2020, Oman ordered its state-sector companies to replace all expatriate workers with Omanis. These policy changes hint that the pandemic is likely to have a severe long-term impact on GCC labour migrants as well as their dependents in their home countries.
2. Impact of Covid-19 on Sri Lankan migrants and economy
Each year, approximately two hundred thousand Sri Lankans migrate to the GCC seeking better job opportunities, and it is estimated that around seven hundred thousand Sri Lankans currently reside in this region. Jobs in the GCC are essential for Sri Lanka in two ways. Firstly, it helps to cushion unemployment issues in the country. Secondly, and more importantly, remittances from the GCC help to improve the quality of life of beneficiaries and reduce the pressure of trade deficit on the current account balance.
In the coming months, a pandemic-led economic slump in the GCC is likely to reduce job opportunities available for Sri Lankans in the region. This will increase returnees from the GCC and reduce departures exacerbating the pandemic-led unemployment issues in Sri Lanka. Loss of vacancies in the GCC will also negatively affect various job categories that are linked to foreign employment in Sri Lanka such as those associated with travel agencies, medical centres and documentation attestation offices.
The vast majority of GCC migrants are domestic and low-skilled workers whose families rely on the remittances sent. It is estimated that one in every eleven households in Sri Lanka receives international remittances and the majority of these remittances are from the Middle-East. However, lockdowns and pandemic led job losses, and pay cuts in the GCC will reduce the remittances sent by Sri Lankan migrants. Also, since traditional money-exchange and transfer service offices in countries such as Qatar have been temporarily closed as a containment measure, migrants who are unaware or reluctant to use online methods might reduce the remittances they send to Sri Lanka.
Also, since traditional money-exchange and transfer service offices in countries such as Qatar have been temporarily closed as a containment measure, migrants who are unaware or reluctant to use online methods might reduce the remittances they send to Sri Lanka.Cut back on remittances will have a severe negative impact on Sri Lanka’s current account balance. Usually, worker remittances from abroad dampen the huge negative balance in the trade account. In 2019, remittances from abroad which stood at USD 6.7 billion was able to offset the trade deficit by 84 per cent. However, according to the World Bank, Covid-19 led economic issues is likely to reduce worker remittances by around one-fifth of the amount received in 2019, adding pressure on the ailing Sri Lankan economy.
This article was originally published on “ The Migrant “, a blog on Sri Lankan migrants residing all around the world.
Image credit: Mark Dixon (CC BY 2.0 DEED)