Asymmetric impact of COVID-19 on employment in the GCC

Aug 11, 2020

Since the onset of the COVID-19 pandemic, global attention has been focused on two main issues, the human and health consequences and the huge cost and loss of economic activity worldwide. In the Gulf Cooperation Council (GCC) the falling oil prices have significantly affected the revenue generation and the economies of these resource-rich countries. Though countries have slowly started to ease the various lockdown measures and open the economies, the impact on employment has been severe and the challenges seem to have been intensified. Thousands of people have been left without work and employment due to the pandemic. However, the impact of this pandemic is not uniform, and workers and employees in certain sectors have been hit harder than those in others. In the GCC this effect is most evident in economies that are fueled by tourism, hospitality, and oil and gas due to the decreased global demand for these resources.  

In 2019, prior to the outbreak of the COVID-19 disease, the unemployment rate in the Middle East was one of the highest in the world. Unemployment and under-employment was especially high among the young and relatively well-educated. The difficult situation in the region has been attributed to a number of events and crises, namely the 2008 financial crisis, the 2011 uprisings, armed conflict and civil unrest, and the 2014 fall in oil prices. In the GCC, attaining employment is made more complex due to certain policies, such as nationalization, rigid laws and regulations, unfriendly banking systems, multilayered documentation verification processes, and over dependencies on the public sector for job creation. With the onset of the pandemic, in the GCC as in other regions, a drop in domestic and external oil and gas demand, a reduction in trade, disruption of oil production, a fall in consumer confidence, and tightening of global financial conditions in particular have created additional challenges. Due to this, key job-rich sectors in the GCC are being severely hit, affecting the jobs and livelihoods of thousands of people.

The employment impact of the current pandemic remains far from uniform, with significant differences between various sectors. The sectors that are identified as “most at risk” include accommodation and food services, manufacturing, hospitability, retail, aviation and travel, and business and administrative activities. These sectors are facing huge output losses both in the region and globally, with inevitable implications on their workforce. In the Arab States, 18.2 million individuals are employed in these most-at-risk sectors, suggesting that almost one-third of the employed population in the region is facing high risks of lay-off.

In the UAE where the economy is mostly driven by oil, tourism, aviation, retail, and construction sectors, many employees have faced job cuts. The country’s main airline has been hit hard as a result of reduced operations due to travel restrictions. As part of the managing mechanism, the airline asked its pilots to take unpaid leave for four months in early March followed by periodic employee lay-offs. As of early July the total number of employees terminated by the airline totals to around 9,000, with more cuts planned. Other carriers such as Air Arabia and FlyDubai have also faced similar cuts in employee numbers. The banking sector in the Emirates has also faced major job cuts. Some of the largest banks in the country, First Abu Dhabi Bank, Emirates NBD, and Abu Dhabi Commercial Bank, have already downsized their employees and could see more job cuts as the economic activity slows down. Following suit, Dubai World, a major investment company that manages businesses and projects for the Government of Dubai across a wide range of industrial, commercial, and trading divisions, has cut 12,000 jobs as part of its restructuring efforts due to COVID-19.

On the other hand, Saudi Arabia, whose economy is resource-driven, also had to reduce the workforce primarily from the oil and gas sector in response to the coronavirus crisis. The Saudi state oil company Aramco started laying off its employees in early June. Though the actual number of the employees who lost their jobs is not clear, according to some business analytics, around ten percent of the total workforce has been laid off so far. Similarly, the Saudi Binladin Group, a multinational construction conglomerate, has also cut thousands of jobs and also includes Saudi nationals in their numbers.

Situated right next to Saudi Arabia, the small emirate of Kuwait has also had to restructure firms in its aviation and energy sectors. Kuwait Petroleum Corporation and its subsidiaries have had to cancel multiple multi-million contracts and tenders, which has led to the end of service for many expatriates working in private and government firms. The government has also announced that it no longer plans on hiring any expatriate workers in the oil sector. Additionally, Kuwait’s national carrier, Kuwait Airways, has laid off around 1,500 employees in order to reduce expenditure as airlines around the world face an uphill battle to reach and generate pre-pandemic levels of demand.

Qatar, the world’s largest LNG producer and the host of the 2022 FIFA World Cup has also had to reduce its workforce in various sectors in response to the financial impact of the ongoing pandemic. Qatar Petroleum, the world’s largest producer of liquefied gas has had to terminate around 800 jobs. The market downturn due to the ongoing pandemic has caused the company to restructure its model, which has led to the elimination of certain jobs and the LNG producer to cut spending by around thirty percent. Already facing losses due to the ongoing blockade, Doha based carrier Qatar Airways has also announced that a “substantial” number of employees have been laid off. According to a leaked internal memo, non-Qatari pilots face salary reduction/cuts of up to thirty-five percent, however, no official statement has been released by the airline so far. 

From the current situation in the region as well as global trends, it is evident that certain sectors have been hit particularly hard due to the economic cost of shutting down, with the most notably affected sectors including hospitality, aviation, and petroleum. On the other hand, workers in sectors, such as healthcare, education, and defense have been at low risk of job loss during this crisis. In fact due to the necessity of accommodating the rising number of COVID patients and expanding the health sectors as well as ensuring the continuity of providing quality education, through online and remote learning, the healthcare and education sectors have seen some substantial growth. Recently, UAE and Kuwait have hired additional health professionals from India and Pakistan in order to enhance medical cooperation and help combat the pandemic. Though many of the pandemic-related initiatives to boost these sectors have been led by investment rather than innovation, workers associated with these industries have been at relatively low risk. 

With worldwide travel coming almost to a complete halt, various airlines all across the GCC have had to lay off thousands of employees in order to stay afloat and not go under severe economic distress. The unforeseen impact of the coronavirus on the aviation sector and the added lockdown measures have also taken a great toll on the hospitality sector. Many hotels have had to suspend operations in order to comply with government regulations, which has brought hotel occupancy rates crashing down. As businesses try to navigate through the strict government protocols and added health procedures, the hospitality sector in the GCC faces a volatile few months as it tries to recoup some income from the highly profitable summer period, as some of the lockdown measures are eased. It is apparent that the travel and tourism sector is expected to face critical setbacks due to the ongoing pandemic, and this showcases a clear trend in how certain sectors are more at risk than others. However, it is important to note that the world has still not yet faced the full economic impact of the ongoing pandemic. Various sectors still face an unpredictable and uncertain future in the upcoming months, and certain sectors may have to evolve or be at risk of becoming another casualty of the coronavirus. 

With the global financial crisis of 2008-2009, unemployment in the region increased by 360 thousand (from 9.53 million in 2007 to 9.89 million in 2010). The unfolding COVID-19 pandemic is likely to have a much more detrimental impact on employment and societies than the 2008-2009 financial crisis. However, whereas the impact of the financial crisis of 2008-2009 was somewhat uniform on various industries, the current pandemic has had a more disproportionately adverse impact, affecting specific sectors and industries more than the others. Before the pandemic, the unemployment rates in the region were some of the worst in the world and the situation has been made more complex with some of the key sectors being greatly affected. Due to the interwoven and integrated economies, these employment issues cannot be resolved by individual efforts and therefore require a shared and multilateral effort by countries in the region and worldwide to combat this borderless crisis. 

 

Article by Bilal Tahir CURA Research Fellow, and Misba Bhatti Research Analyst at CIRS.

 

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