Gulf inflation pushing foreign workers home
Friday, 20 June 2008

Lured by tax-free jobs and cheap living, foreign workers have long gravitated to wealthy Gulf Arab states to earn a better living, but rising costs are now forcing many to go home, reports Reuters.

Inflation has soared to record or near-record levels across the Gulf Arab region, where migrants ranging from high-paid Western executives to low-wage Asian labourers have formed the backbone of oil-fuelled development since the 1970s.

Already pinched by rising rents and salaries, firms are finding it increasingly hard to recruit staff to countries like the United Arab Emirates, the Gulf trade hub where wages paid in the dollar-pegged dirham have eroded the value of remittances.

Inflation helped drive Indian journalist Stanley Carvalho to end a 10-year sojourn in the UAE this year to rejoin his family.

"The cost of living in the UAE, particularly Abu Dhabi, has been rising steadily, led by soaring house rents... Salaries haven't risen commensurately. So... if I had to move my family from India to the UAE, my savings would be meagre," he said.

"Also, as in the case of most Indians, we are hit by the rising Indian rupee against the U.S. dollar. Given the dirham's peg to the dollar, our remittances to India are now lower by at least 8 to 10 percent in value. A double whammy so to speak."

With economic growth of 9 percent, India now creates more jobs at better pay, prompting skilled workers to stay home.

While Gulf Arab economies are reaping a windfall from a near seven-fold surge in oil prices since 2002, analysts say soaring inflation could undercut rapid economic growth.

"The pace of growth of the economy is going to be limited by inflation ... Qatar and the UAE have difficulty bringing in workers from India because their salaries will be eaten away by high inflation and high rent and they won't be able to send money home," said one Middle East consultant.

PRICE PINCH

In the UAE, foreigners comprise over 80 percent of the population, which includes 1.5 million Indians alone. Migrant workers dominate the population in Qatar and Kuwait too.

Manual labourers are feeling the pinch most acutely, their wages now scarcely enough to feed families back home.

Last year, the mainly Indian and Pakistani labourers building the sky-scrapers of Dubai rioted to demand more cash.

Yet inflation, particularly in rents, is making life harder even for Western white-collar workers who came to Dubai to save.

"The price I am paying I could live in central London," said Henry Charles, a Dubai-based British business consultant. "It's eroded the financial incentives to move here. I've had to dip into savings at various times to meet rent cheques."

"It works out for people who get a housing allowance that reflects the rental market but in my case my housing allowance doesn't cover the cost of renting a room in a shared villa," he said.

Expatriate parents say school fees are rising fast too and Middle East employment portal Bayt.com found almost two-thirds of employees in the Middle East and North Africa think their salaries are not rising fast enough to keep up with inflation.

Rental increases have forced Qatar, Oman and the UAE to impose rent caps. The UAE government has also agreed with some supermarket chains to freeze prices on a range of foodstuffs.

Expatriates worry that plans to introduce value added tax across the Gulf by 2012, and talk of a tax on luxury goods ranging from yachts to cigarettes, could tip the balance.

The saving grace for Gulf countries, say expatriates, is that inflation is biting just as hard elsewhere. Even after the credit crunch, British property prices and taxes are daunting to many Britons who enjoy the sun and glamour of Dubai.

"It is getting more expensive. You are not saving any extra money. I pretty much live hand to mouth," said Tariq Ali, a British car salesman who moved to Dubai in 2004.

"On the other hand I could not afford a big flat with a pool and gym in central London like I can here."

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