Labour pains

09 September 2005
In a country where midday temperatures often exceed 50°C, the decision to give open-air labourers a long lunch break was long overdue. It is unfortunate, in the case of the UAE, that it had to be enforced by government decree - contractors face heavy fines if they do not comply with the Labour & Social Affairs directive, issued in early June, that entitles workers to a four-hour break in the summer months. But working conditions are often a casualty in the sort of intensely competitive atmosphere found in the booming economies of the Gulf.

Employers face other demands from the rapidly evolving labour market. Wages are rising fast in many GCC states, as is the cost of living: in terms of rewards, there has rarely been a better time to do business in the region. But, as an exclusive poll of senior business leaders in the region reveals, inflationary pressures are beginning to take their toll.

Confidence remains high, however. The latest Middle East Business Confidence Survey (MEBCS), generated by MEED in collaboration with HSBC and pollsters YouGov from the responses of more than 1,000 businessmen and women throughout the region, coincides with a time of almost unprecedented economic growth. Oil prices have remained comfortably above $60 a barrel in August, with several $70 spikes towards the end of the month as Hurricane Katrina hit the southern coast of the US. Many analysts now agree that a new paradigm has been reached, with prices expected to stay above $40 a barrel for the foreseeable future.

The great wealth being generated from hydrocarbons sales in the Gulf has led to a surge in gross domestic product (GDP) growth in most economies. 'Oil is a major driver, and the liquidity it creates allows increased government spending,' says Randa Azar-Khoury, chief economist at National Bank of Kuwait. 'The spillover into the private sector brings increased confidence and reduced capital outflows from the region, and the combination of these factors with an increasingly favourable geopolitical environment has led to a boom.'

'The regional economy is doing extremely well,' agrees a senior banker at Saudi Hollandi Bank. 'There are swathes of new contracts and major oil, gas, power and water projects all ready for development. The market is very liquid, unemployment is falling and the banking sector is performing extremely well.'

MEBCS respondents generally mirror the positive assessments of the region's economists. On a scale of one to 10, prospects for economic prosperity over the next 12 months scored seven, continuing the upbeat outlook of the last survey in March this year. And although the HSBC-MEED Middle East Business Confidence Index (MEBCI) - based on a combination of the MEBCS and forward-looking economic data - returned a result slightly shy of that recorded in the spring, the indicators were still overwhelmingly positive (see box and MEED 25:3:05, Cover Story).

But rapid economic growth brings with it added risks. Besides concerns about government dependence on the volatile oil market, there are growing fears that the regional equity and property markets - both of which are experiencing astronomical growth - are bubbles waiting to burst.

Inflationary fears are also creeping in. In particular, the heady pace of economic expansion has brought worries over labour shortages and the increased cost of living to the fore. Despite the prevailing optimism of the MEBCS, the responses of those surveyed pinpoint these issues as areas of concern.

Among MEBCS respondents, 69 per cent said their cost of living had risen by more than 20 per cent in the last 12 months, and 26 per cent said it had risen by more than 40 per cent. Gulf states, inevitably, have led the way. 'House rental prices in Dubai are high in comparison to most of the Middle East,' says Steven Coates of UK cost consultant Davis Langdon. 'Bahrain is beginn

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