As oil states pivot to diversified economies, experts urge supplanting anachronistic labor policies with modern human resource management.
In the next 13 years, Saudi Arabia, the Gulf’s largest economy, intends to increase the private sector’s contribution to GDP from less than 40% to 65%. The target is one of several initiatives contained in Vision 2030, a radical economic and social revamp that Riyadh hopes will steer the economy away from its dependence on hydrocarbon revenues. Other GCC states are also, in varying degrees, attempting similar overhauls of their energy-centric economies.
But unleashing a productivity-led transformation is going to demand wider acknowledgment of the strategic value of human resource management (HRM) for both organizations and the GCC, analysts say.
Indeed, in a survey of Gulf-nation business leaders, Oxford Strategic Consulting (OSC) found they believe that better and more effective HRM would boost profits by 12% per year—adding as much as $14 billion a year to the corporate profits of listed GCC firms. Yet without reforms, anachronistic labor policies could put a brake on the Gulf’s pursuit of economic diversification. Most GCC states retain a kafala system, which obliges foreign workers to be “sponsored” by their in-country employer. Together with complex visa regimes, the GCC could suffer from a lack of labor mobility, a factor successful economies have recognized as crucial to attracting and retaining talent. The consensus is that in a globally liberalized market, employees may view inflexible Gulf contracts as short-term assignments.
OSC chairman William Scott-Jackson, who produced the report “HRM in the GCC: A New World HR for the New World Economy,” tells Global Finance that the system of kafala artificially constrains labor competition, keeps wages low and makes hiring GCC nationals seem more expensive. It also creates a poor dynamic between what should be considered a valuable asset and the sponsor: Expats are employed for their current skills, not as assets to be developed. “We strongly recommend the rapid development of national skills—especially leadership—to increase their competitiveness, while also opening the labor market to allow skills transfers for all professionals,” he says.
A WORK IN PROGRESS
OSC’s report provides some encouragement but also shows how the Gulf lags when benchmarked against international standards. The survey of 1,100 HR and non-HR business professionals in the six GCC states found that eight out of 10 GCC business leaders “strongly” or “slightly” agreed that human resources are important to the future success of their organizations. Even so, its importance is undermined by the perceived effectiveness of HR in the GCC, with only a quarter of HR leaders surveyed rating HR in the region as “excellent” compared with global best practice.
So what needs to be done? The report is clear that HRM practices from the individualized Western culture of industrial relations are frequently “irrelevant, inappropriate or dysfunctional in the GCC context,” OSC’s Scott-Jackson says, “In collective societies, ambition and competition are seen differently and achievement is often shared, if not due to external forces such as fate.”
HRM professionals in the GCC need to align their practices more closely with corporate objectives, according to OSC. There is often a mismatch between what business leaders and HR practitioners consider key issues for their organizations. This disconnect goes some way to explain the historic apathy of some CEOs toward the HRM function.
OSC identifies three recommendations to kick-start HRM in the GCC. First, HR departments should learn to be responsible for building strategic capabilities—key capabilities needed to achieve an organization’s strategy; and second, help leaders to lead rather than trying to do it for them. Third, HR professionals need to understand Gulf Arab leadership and the cultural background of residents and modify best practices accordingly.
Still, HRM is edging toward a more comprehensive role, argues Nairouz Bader, CEO of Envision Partnership, an executive search firm covering the MENA region. “HRM in the GCC is increasingly moving in a strategic direction, focusing on managing talent development, employee engagement and employee satisfaction, as well as managing employee relationships and facilitating outsourced or automated projects,” Bader says.
A separate study by OSC, in conjunction with Henley Business School, found that changes in technology and the ways people engage with organizations offer opportunities for HR to demonstrate strategic value. But with the exception of some thought leaders, the function in general has been undervalued and has lacked the ability to maximize these opportunities.
Dubbed the Fourth Industrial Revolution by the World Economic Forum (WEF), technology continues to upend economies. HRM is becoming even more vital for adaptation to this changing environment. In a report, “The Future of Jobs and Skills in the Middle East and North Africa,” WEF says the GCC is not immune to the upheaval caused by digitization. Paramount will be weaning GCC nationals away from their preference for public sector employment, and repositioning the private sector—which continues to struggle to attract nationals—as an attractive career alternative.
With lower oil prices crimping finances, it is questionable how much longer GCC governments can afford bloated public sector bureaucracies. The United Arab Emirates demonstrates the scale of the problem. WEF says public sector jobs account for 80% of UAE nationals employed and represent the world’s highest central government wage bill (as a percentage of GDP), at 9.8%, nearly twice the world average and four times that of Japan.
WEF forecasts that 21% of core skills needed in the GCC in 2020 will be
different from the skills that were needed in 2015. “There is a relation between lack of talent and training and a lack of business agility,” says Arturo Bris, director of the World Competitiveness Center at the Switzerland-based International Institute for Management Development (IMD).
But it is the potential workplace tsunami from automation that is of most concern to policymakers. WEF estimates that 41% of all work activities in Kuwait are susceptible to automation, 46% in Bahrain and Saudi Arabia, 47% in the UAE and 52% in Qatar. No wonder the issue of innovation leading to higher unemployment is already a prominent debate among Gulf business leaders, especially considering stubbornly high levels of youth unemployment.
At the same time, effective HRM alone won’t be enough without an accompanying shift in mind-set, warns Kai Chan, distinguished fellow in the international business school INSEAD’s Innovation and Policy Initiative: “The day locals value science, reading and learning over fast cars and garish displays of money, then the region will be finally able to handle the looming crisis of unemployment and underemployment.”
Despite concerns about unemployment and the GCC’s ability to harness the skills of its local and international workforce, there are signs of rising productivity. In the 2017 IMD World Competitiveness Ranking of 63 countries, the UAE jumped five places to rank 10th, the highest among Gulf states, followed by Qatar (17) and—appearing for the first time in the rankings—Saudi Arabia (36). With more attention to human capital, the Gulf could strengthen even further.