The UAE’s Unsustainable Nation Building

The United Arab Emirates ranks among the 10 wealthiest nations in the world, but the wealth is not spread equally among the population of 9 million, 90 percent of which are migrant workers. The country prospered by relying on low-paid migrant workers, many from South Asia who work on short-term contracts. Hefty recruitment and relocation costs, especially for the east skilled workers, put many migrants into debt. “Emirati citizenship is confined to those whose ancestors lived in its seven constituting Emirates before 1925,” explains Riaz Hassan, director of Institute of Muslim and Non-Muslim Understanding, University of South Australia and now a visiting research professor in Singapore. “The country has no system of naturalization or permanent residency.” The exclusionary system is unsustainable in an increasingly transnational world, and he encourages the UAE to transition from a labor-intensive to capital-intensive, high-tech economy requiring less manual labor and more skilled professionals. The UAE fears the loss of Arab culture, but that battle has already been lost. – YaleGlobal

The UAE’s Unsustainable Nation Building

The UAE economy relies on inequality and migrant workers, 90 percent of the population, who come from elsewhere in Asia
Riaz Hassan
Tuesday, April 24, 2018

Slowdown? UAE economic growth dipped to 1.8 percent in 2016, and the government strives for less reliance on migrant labor and more startups like Souqalmal.com, a UAE-based financial comparison site founded by CEO Ambareen Musa
Slowdown? UAE economic growth dipped to 1.8 percent in 2016, and the government strives for less reliance on migrant labor and more startups like Souqalmal.com, a UAE-based financial comparison site founded by CEO Ambareen Musa

SINGAPORE: One of the world’s richest regions is facing several new challenges, from technology to demography, and that at a time as nationalism enjoys a resurgence around the world. The United Arab Emirates has become an economic powerhouse in the Middle East on the back of millions of migrant workers. In 2015, 89 percent of the UAE population of 9.3 million were migrant workers, and an overwhelming majority of these workers was semi-skilled or unskilled from South Asian countries.

In 1971 the UAE was a relatively underdeveloped and poor country with a GDP of around $2.5 billion. In 2015 its GDP had climbed to $370 billion, making the UAE the world’s seventh richest country in terms of per capita GDP. Between 1971 and 2015 the country’s GDP increased by 231 times. One quarter of its GDP is derived from oil-related sectors, and the rest comes from mainly services, manufacturing and construction. Only 1 percent of the Emirati labor force is employed in the private sector and 60 percent in the public sector.

The massive increase in the country’s wealth has been generated by the economic activities of the UAE’s millions of migrant workers, and the main beneficiaries are the Emiratis. In 2015 the UAE’s per capita GDP was $67,616 and the average annual income of a migrant worker was $4355.

External versus internal growth: Foreigners outnumber citizens in the United Arab Emirates (Source: Abudhabi 2)
External growth: Foreigners outnumber Emiratis in the UAE (Source: Abudhabi 2)

Emirati citizenship is confined to those whose ancestors lived in its seven constituting Emirates before 1925. The country has no system of naturalization or permanent residency. Consequently migrant workers have no residency rights. They work on short-term contracts, typically up to three years. Foreigners are obliged to have a national sponsor in what is known as the kafala system. Through this system, the state outsources management and control of migrant workers to non-state actors. The kafala system of labor brokers is allied with the ruling family and Emirati citizens. The foreign workers pay a fee to these brokers who then sponsor the migrants and are responsible for their actions and well-being while they are in the country.

The recruitment process for employment in the UAE tends to be highly exploitative. The migration cost can be as high as a third of the amount that low-skilled workers earn over their contract of two or three years. Many workers incur substantial debt to meet migration costs. According to a 2016 International Labour Organization study, such costs tend to be regressive: Costs fall as workers skills and wages increase. Hence, the maximum burden of the migration cost lands on the semi-skilled and unskilled workers, most from low-income households, as noted in Building Nations With Non-Nationals, a book I wrote with I. Szelenyi and V. Maksimov (Corvina, 2018)

One of the most striking aspects is that the country enjoys ethnic, religious and industrial peace – surprising because a majority of migrant workers hail from societies with long and often endemic histories of ethnic, religious and industrial conflicts like Pakistan. Workers were asked what accounted for these conditions in a recent survey conducted by Szelenyi and Hassan, and an overwhelming 94 percent responded: “Fear of deportation that kept workers aggressive behaviors and ethnic animosities under control.”

Because foreign workers lack residency rights, the fear of deportation is the major mechanism enforcing ethnic and religious tolerance and industrial peace. Only workers with monthly income of more than AED 10,000, or US$27,000, are allowed to bring families, and consequently most workers are single male. Most work upwards of eight hours a day, six days a week and live in overcrowded housing in labor camps far from their place of work. Around 5 percent of workers are professionals such as doctors, engineers and accountants.  Even under such a regime, the experience of a multi-ethnic, multi-religious society increases ethnic and religious tolerance.

The UAE “deportation regime” model probably would not be attractive for advanced industrialized Europe, North America and Australia. Unlike the UAE and other Gulf regimes, which typically draw semi-skilled and unskilled workers, most of the advanced industrialized countries are interested in attracting highly skilled migrants. They offer naturalization pathways for skilled migrants and consequently attract better qualified workers. Temporary migration to the UAE and other Gulf countries prevents brain drain for sending nations while generating a high level of remittances from mainly poorly paid workers. Migration-to-naturalization regimes create brain drain but, given the higher incomes of better qualified migrants, still secure high levels of remittances. With appropriate policies, the system can be a source of capital investments in a world fast becoming transnational.

Migrant workers in Dubai, earning a fraciton of what Emirati citizens earn, board a bus at the end of the workday (Source: The National)
Inequality ride: Migrant workers in Dubai, boarding a bus at the end of the workday, toil for a fraction of what Emirati citizens earn each month (Source: The National)

The main lesson for exclusionary regimes like the UAE’s is that the approach is not sustainable. Such nations need to move from labor-intensive to capital-intensive, high tech economies requiring less manual labor and more highly skilled workers and professionals. The UAE’s labor force nationalization policies are a failure. Only 1 percent of the national labor force is in the private sector because of a lack of appropriate skills required to take on highly skilled jobs. The national population is also shrinking in proportion, experiencing fertility decline, down from 6.9 births per woman in 1960 to 1.8 today, as its relatively affluent population moves into the demographic transition.   

Transition from a deportation regime to a naturalization regime is inevitable. The economic growth in the countries of South Asia – the UAE’s major source of labor for the time being – will offer better working and living conditions at home, especially for the skilled workers. The UAE and other Gulf States will find it increasingly difficult to compete for highly skilled labor without offering workers permanent residency and citizenship.   

The most important policy implications and possibly the most difficult for native Emiratis to accept is that, if the UAE shifts towards an inclusionary immigration regime, the country will cease to be Arabic. The majority of the population, especially due to the size of the non-Muslim Indian population, may not even remain Muslim. Paradoxically, migrant workers have been instrumental in shaping social links between UAE citizens and their rulers: first, by contributing and transforming oil wealth into citizen well-being; second, by laying the foundation of the post-oil economy; and finally by sharing citizen perceptions of migrant workers as competitors in the labor market and a threat to national cohesion. Under pressure from citizens, UAE rulers oppose naturalization of foreign nationals because, with the declining proportion of citizens in the population, non-nationals pose a threat to the national cultural identity by not sharing native values. Emiratis also view migrant workers as a potential source of “working class militancy” for better social, economic and political rights, posing a threat to the Emirati social fabric.

Geographically the UAE and other Gulf countries are a natural hinterland of South Asia. Demography is a corollary of geography. Over time such nations will become multi-ethnic and multicultural with an Arab minority and a South Asian majority. In an increasingly diverse and globalizing world, not only humanitarianism but economic imperatives call for more open borders and inclusionary immigration policies. Irrespective of how difficult it is for the natives to acknowledge, the main UAE cities – Dubai and Abu Dhabi – are South Asian cities.

Riaz Hassan is visiting research professor at the Institute of South Asia Studies, National University of Singapore, and director of Institute of Muslim and non-Muslim Understanding, University of South Australia.

© 2018 YaleGlobal and the MacMillan Center

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