Spearhead Analysis – 17.08.2016
The recent news in the media about the plight of migrant workers in Saudi Arabia has highlighted a potential pressing economic issue. India had a problem with some 3,000 workers in Saudi Arabia who had not been paid their wages and were not being allowed to leave the Kingdom. They were facing harsh conditions with little or no food and water. The Government of India stepped in and negotiations were conducted to either bring the workers home or adjust them in other jobs as well as getting their dues cleared. This news had hardly settled down when a similar story came up about Pakistani workers in Saudi Arabia.
Pakistan’s Foreign Office, estimated that around 8,520 Pakistani workers in just two companies, namely M/s Saad Trading and Contracting Company, Al-Khobar (520 workers) and Saudi Oger Limited (8,000 workers) were currently facing problems in getting their salaries and End of Service benefits. The Pakistan government already bogged down by the Panama issue, opposition long-marches and the real estate debacle, was much slower to respond, and displayed the usual somewhat reactive and apathetic attitude.
Migrant workers play a pivotal role in the economy of Pakistan, earning valuable foreign exchange and remitting it home to their families. These workers often live in cramped and harsh conditions and have to put in long work hours at low wages. They spend a lot to get the jobs and then try to save and remit the maximum funds to their families. In foreign countries, they are at the mercy of their employers and there are many stories of exploitation of overseas workers.
Saudi Arabia has come under increasing financial stress with the plunging oil prices and this has put pressure on its economy. The ongoing war entails a cost and a number of projects and businesses have been faced with shutdowns and/or bankruptcies. With minimal rights the migrant workers are the first to be hit and many have been left high and dry. The Pakistani and Indian workers might be the first victims of an evolving economic catastrophe.
Overseas workers from Pakistan, as a major contributor to the National Exchequer through Remittances, remitted US$19.9 Billion in 2015/16 (vs. US$18.7 Billion in 2014/15), a year-over-year growth of 6.38%. For Pakistan, these remittances are a crucial link in a fragile economic chain. A drop in remittances could hurt the economy, already under strain from stagnant exports, negligible FDI, and a stalled manufacturing sector.
TABLE-1: ECONOMIC INDICATORS AS % OF GDP
As depicted in Table-1, personal remittances have continued to increase as a percentage of GDP, while exports have continued to exhibit a declining trend. Contrary to a widespread narrative, military expenditure as a percentage of GDP has been fairly consistent.
The remittances sent by overseas Pakistani workers declined to $1.32 Billion in July 2016, compared to $1.66 Billion in July 2015, a decline of 20.4%. As per SBP, the inflow of worker’s remittances in July 2016, is 36% lower than June 2016. There is an urgent need to assess if this declining trend will continue as it would have serious repercussions for the economy.
Table-2: REMITTANCES BY COUNTRY
Table-2 shows the emerging trends regarding the share of remittances by country:
- USA down from 16.2% to 12.78%.
- UK down from 15.48% to 10.81%
- Saudi Arabia steady at around 28%.
- UAE steady between 21%-22%.
- GCC steady at 11%-12%,
With around 65% of the remittances contributed by the Gulf Region (UAE, Saudi Arabia, and GCC), a continued low level of oil prices could have a deepening adverse impact on these economies. Given that these countries have growing indigenous populations, which have to be supported by the state or provided viable employment opportunities places an additional burden on them. A decline in business activity and deficit levels could directly impact the migrant workers and Pakistan could stand to lose in terms of remittances and overseas employment opportunities. With better educated and skilled work force available from other Southeast Asian countries, Pakistan workers could be marginalized or forced to take up low paying jobs. This coupled with the fact that there is a growing anti-Muslim sentiment brewing up in USA and Europe, and the fact that UK is facing a post-Brexit downturn, remittances could be impacted from overseas workers through multiple channels.
From Pakistan the major part of the overseas workers are based in the Middle East and Gulf region as shown in Table-3.
Table-3: Registered Overseas Workers as per Bureau of Emigration
Proactive steps need to be adopted to have an alternative strategy in place and government level negotiations need to be initiated with these countries to pre-empt any possible adverse events. The return of overseas workers to Pakistan could create socio-economic unrest in a country already plagued by chronic high unemployment rates and limited employment opportunities. The loss of remittances would reduce the inflow of foreign funds to the government, and impact the purchasing power for a lot of families, which has been fuelling the consumer driven retail economy.
Perhaps it’s time to ponder for a Government that has become adept at sweeping important issues under the carpet and ignoring facts.
(Spearhead Analyses are collaborative efforts and not attributable to a single individual)