Until recently, the Middle East could be split between countries with fast-growing economies in need of migrant workers, and others with far more people than jobs, which benefited both sides.

In 2008, the flow of money being sent home by Middle East and North African workers reached record levels. Remittances from Algerian, Egyptian, Jordanian, Lebanese, Moroccan and Tunisian expatriate workers – many of them working in the Gulf – reached a combined total of $27.4bn, three times the sum in 2000.

Egypt benefited the most from migrant remittances last year, with $9.5bn in wages sent home, according to the World Bank. Morocco came second with $6.7bn, followed by Lebanon with $6bn. Among the other significant recipient countries, Jordan was fourth with $3.4bn, Algeria next with $2.2bn, followed by Tunisia with $1.9bn, Yemen with $1.3bn and Iran with $1.1bn.

Globally, the top five recipients of migrant remittances in 2008 were India ($45bn), China ($34.5bn), Mexico ($26.2bn), the Philippines ($18.3bn) and France ($13.7bn).

Diminishing returns

The current global economic downturn means that many Middle East and North African workers are either struggling to hold on to their jobs or are seeing their pay packets shrink. The effect on the countries that rely on far-flung workers sending money back home could be severe, as the contribution of overseas remittances to gross domestic product (GDP) diminishes.

Lebanon is among the countries in the region that are most exposed to fluctuations in remittances, according to a report published by ratings agency Standard & Poor’s in early April: Middle East and North African Countries May Feel The Pinch Of Falling Remittances In The Global Downturn.

In Lebanon, migrant remittances account for 27 per cent of its current account receipts, the highest share in the region. In Jordan, the figure is 19 per cent, in Morocco it is 17 per cent, in Egypt 13 per cent and in Tunisia 8 per cent.

Standard & Poor’s predicts that if worker remittances to Lebanon drop by 50 per cent this year, the country’s current account balance as a percentage of gross domestic product (GDP) will fall by 9.5 per cent, the greatest fall predicted for any country in the region (see chart bottom left).

Lebanon, along with Jordan and Egypt, has relied for decades on the oil-rich Gulf states to provide employment for its workers. According to the World Bank, the countries with the greatest number of foreign workers relative to overall population are Qatar, where 78 per cent of workers are expatriates, the UAE, with a 71 per cent expatriate workforce, and Kuwait, with 62 per cent.

However, Lebanese migrants tend to have a higher level of skills than their counterparts from other countries in the region. This means they can command higher wages than workers from other Middle East and North African countries, and therefore send more money home.

“The Lebanese diaspora has long been a support to the country’s economic and fiscal performance through its deposits in the domestic banking system, its domestic investments, and its purchase of Lebanese foreign securities, including sovereign eurobonds,” says the Standard & Poor’s report.

Whether Lebanese or not, the trend in recent years has been for the value of remittances to rise sharply, from both skilled and unskilled workers. For example, workers in Saudi Arabia, Kuwait and the UAE increased the amount of money they sent home to Egypt almost four-fold in the four years to 2008, to $4.1bn from $1.1bn in 2004. The expectation now is that these numbers will dip sharply.

It is not just labourers that are affected. In the Gulf’s construction sector, wages for managerial-level staff have also been falling as the region’s building boom has come to an end.

In the UAE, average monthly salaries for expatriate project managers dropped from $21,000 in the second half of 2008 to $19,075 in March this year. In Bahrain, average project manager wages fell from an average of $15,070 a month to $12,810 over the same period. Site engineers will also be sending less money home, with their wages in the UAE dropping from an average of $10,750 a month in the second half of 2007 to $9,800 now.

In the region’s largest construction market, Saudi Arabia, project manager wages for expatriates dipped by $1,000 a month over the same time period, with a March average of $12,000.

This drop is less than in neighbouring Gulf states, thanks in part to Riyadh’s commitment to public spending this year.

State spending

Saudi Arabia has launched a large fiscal stimulus package in response to the financial crisis, and many public projects are still going ahead. The country’s budget for 2009-10 includes $127bn in spending commitments, which should maintain demand for workers in the construction industry in particular.

For North African countries, the European economies to the north play a greater role than the Gulf. More than 80 per cent of Moroccan and Tunisians who work abroad are based in the EU, notably in France and Spain.

But like their counterparts in the Gulf, they too have suffered from the downturn, particularly those who had been working in Spain’s construction sector. In the first three months of 2009, Spain reported its worst economic contraction since 1945. Unemployment in the country has risen from 2 million to 4 million in just one year.

In February, a study by the local Catalan Center for Economic Research showed that, among the people who lost their jobs in 2008, 400,000 were migrants.

Moroccan migrants are estimated to comprise about 20 per cent of all foreign workers in Spain, and sent home an estimated $5.7bn in 2007. As a result of the lay-offs, this figure is expected to drop significantly.

This reliance on Europe could mean that Morocco and Tunisia suffer more than their neighbours to the east, who send most of their workers to the Gulf.

Standard & Poor’s says the drop in remittances from the GCC, although inevitable, will be cushioned by the Gulf countries’ ability to continue spending because of their oil wealth.

“We believe that the Gulf states are better placed than most to ride out the global economic downturn, given the significant accumulation of oil wealth over the past five years,” says Farouk Soussa, credit analyst at Standard & Poor’s. “Although we expect that economic activity will inevitably slow down, likely leading to loss of earnings for foreign workers.”

However, others have become more pessimistic in recent months. In March, the World Bank revised its remittance forecasts for 2009. In November 2008, it had predicted that 2009 remittances would drop by 0.9 per cent, with only the worst-case scenario forecasting a 6 per cent fall. The revised figures issued in March forecast the drop will be 5-8 per cent.

“The outlook remains uncertain for remittance flows from the GCC countries,” says the World Bank report. “Both low-income and middle-income countries are expected to see a similar decline – about 5 per cent – in remittance inflows in 2009.

“Although newspapers are reporting a large number of migrants returning home, new migration flows are still positive, implying that the stock of existing migrants continues to increase.”