Expelling expatriates may not be the solution for Economic, iiQ8

Expelling expatriates may not be the answer to Kuwait’s deep economic malaise

 

Over the past 15 years the population of Kuwait has more than doubled from 2.2 million in 2005 to 4.8 million at the start of 2020. During this period, the number of citizens grew by 63 percent, from 860,000 to 1.4 million, while expatriates surged by 162 percent, from 1.3 million to 3.4 million. The skewed population growth is certainly a cause for concern to the state, but is expelling expatriates the answer?

On 20 October, in its one-day supplementary fifth session for the 15th legislative term, the parliament passed a series of laws, including one on reducing the number of expatriates in the country. Expatriates, who currently form an overwhelming 70 percent of Kuwait’s total population of 4.8 million, are understandably concerned.

The new law tasks the government with drawing up policies and plans to restructure the country’s lopsided demographic structure, mainly by slashing the number of expatriates in a structured and time bound manner. The law, which received unanimous support from lawmakers, was passed in its final reading after a few amendments were added to the bill. A key amendment, introduced by the government, scrapped a provision in the bill that called for setting nationality-based quotas on the number of foreigners.

The law now stipulates that the government will issue ‘mechanisms’ to deal with the imbalance in the population structure within one year of publication of the law. These ‘mechanisms’ would ensure a ceiling on expatriate workers in the country, while taking into account the need for foreign workers to ensure the unhindered implementation of the country’s ambitious national development plan. The law also assigns the Cabinet to provide the National Assembly with annual reports on progress made in implementing the law.

Months before the law was passed it was debated at length in parliament and in public forums. In a presentation to parliament on the bill in early August, the government conceded that the lopsided population structure had led to a host of negative security, social, economic and cultural consequences for the country. As guardians of public monies and social mores, the parliamentarians can probably pat each other on unanimously passing the population bill.

With general elections set for 5 December, many lawmakers have now headed off to campaign for a seat in the National Assembly on the strength of their achievements in the 15th legislative term of parliament. This would perhaps be an ideal time to take a look at the population bill from a different perspective, and to explore the practicality, as well as the social and economic costs of implementing it.

Let us begin by stating that expelling expatriates is not the answer to Kuwait’s deep economic malaise. The country’s current skewed population structure is not the reason for Kuwait’s continuing economic woes, its falling revenues, or growing deficits. Expatriates are not to be blamed for the absence of economic diversification, or the negligence of human resource development among citizens over the years.

Foreigners cannot be the reason for an inefficient public sector overflowing with unnecessary and often incompetant national workforce; or for an anemic private sector that prefers to hire cost-effective expatriates in place of nationals. And, although they constitute the marginal labor sector, the laborers cannot be held solely responsible for their arrival in the country, they paid unscrupulous visa traders, many of whom are nationals, for the visa to enter the country.

Expelling expatriates will not solve any of the inherent problems of Kuwait; it will not make the economy more diversified, or the national human resources more talented. The public sector will not transform into efficient entities with the removal of foreigners, nor will the private sector become more dynamic and choose to employ nationals. Throwing expatriates out will not even solve the problem of visa traders, as the perpetrators of such nefarious trades will always find some other lucrative illegal means to make money. On the contrary, the expelling of expatriates could worsen the existing economic situation.

More than three generations after the discovery of oil and transformation of Kuwait’s economy and society, the country still remains wholly dependent on petroleum exports for its economic sustenance. In the nearly six decades since Kuwait’s independence, there has been very little economic diversification, and hydrocarbon export revenues continue to constitute around half of Kuwait’s GDP and over 90 percent of government’s income. This near-total dependence on revenue from extraction of a natural resource has defined Kuwait as a rentier model economy.

Rentier economies are characterized by deep and inherent structural imbalances that make it difficult to introduce any serious economic restructuring and diversification or implement needed financial reforms. Since the rent-producing resource is in the hands of the government, and rents kept growing over the years, the authorities opted to maintain the economic status quo, where the government collected the rent and shared it with citizens through a welfare state.

Rentier economies are not compelled to apply free market principles to create an environment conducive to economic growth. Rather than undertake any meaningful diversification of income sources, or lend support to develop a vibrant private sector so as to boost economic growth, encourage competition and generate employment, Kuwait has for decades depended on building and maintaining a welfare state that takes care of all the citizen’s needs, right from the time of their birth to their burial, and in the process ensured loyalty of nationals to the existing political structure.

State largesse over the decades have also led to the growth of a specific rentier mentality among citizens far removed from any traditional concept of work-reward. Instead of relying on income or wealth gained from their productivity or risk bearing, citizens have come to depend on receiving income based on their sense of entitlement by virtue of their birth and nationality.

In support of this notion among nationals, of citizenship becoming a financial asset, the government lent its weight to laws that made it impossible for foreign companies to operate independently or for expatriates to seek employment based on their merit. To do business or work in Kuwait, foreign enterprises and foreigners need to engage or work under the sponsorship of a citizen (kafil). The kafil permits the company to trade in his name, or work under his sponsorship, in return for a proportion of the proceeds, and in some cases, money for the residency visa, both of which amount to another form of rent that is usually found in rentier states.

The downside to all this state largesse and lack of economic diversification is that it has resulted in an unbalanced labor market, with a bloated inefficient public sector, and a private sector that prefers to employ low-cost expatriates hired from abroad in place of locally available nationals. It is no wonder then that in four of the six rentier model Gulf Cooperation Council (GCC) states, foreign residents outnumber citizens in population.

In order to restructure this population imbalance the authorities need to first introduce meaningful economic diversification, which remains key to any sustainable development of the country going forward. To introduce an economic shift away from the current overreliance on hydrocarbon revenues, the government would need to lend full and unconstrained support for development of a dynamic private sector that is able to overcome the current ‘crowding-out’ by the public sector in projects and in providing employment to nationals.

All this would however entail confronting a social, political and economic culture that has evolved and entrenched over the decades since the discovery of oil. It would also involve overcoming political and economic interests with a deep vested stake in maintaining the status quo. Is Kuwait up to this, the answer is a resounding ‘no’. The easier path, as usual, is to blame and expel the expatriates in the hope it will buy some more time. But, for how long?


Source – Times Kuwait


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October 31, 2020 5:28 PM

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