Out of Service

CAIRO - 15 June 2018: Millions of Egyptians have been working in neighboring Arab countries either to escape domestic unemployment or to improve their income level. However, many will return in the near future either as policy changes deem them being substituted by local labor—which is the case in Saudi Arabia—or as living costs rise in the likes of Jordan and Kuwait.

The threat of Saudization

Under the economic reforms undertaken in Saudi Arabia for their 2030 Vision to diversify the Saudi economy, foreign labor holding jobs in 12 types of retail outlets will be substituted by local ones over three phases starting October, which will take its toll on the tens of thousands of Egyptians working there.

The beginning will be with employees in outlets selling cars and motorcycles, clothes, furniture and household goods. In the following months, the reforms will apply to the segments home appliances, watches and optical shops.

The process will conclude in January 2019, and will include job cuts in bakeries, stores providing medical appliances, building materials, car spare parts and carpet shops, according to a decree issued by the Saudi Ministry of Labor and Social Development in January.

Saudi Arabia holds the largest population of Egyptian expats worldwide, amounting to 2.9 million, according to the Central Agency for Public Mobilization and Statistics (CAPMAS). That number represents 30.5 percent of the 9.5 million Egyptian expats around the world, and 46.8 percent of Egyptian citizens living in Arab countries.

The Saudi government had also implemented measures that included a 100 Saudi Riyal monthly fee on expats and each of their dependents. Such measures aim to reduce unemployment among Saudis to 9 percent in 2020 and 7 percent in 2030, according to an article in the Saudi Gazette. The fees will reportedly go up to 200 riyals per resident and dependent in 2018, 300 riyals in 2019 and 400 riyals in 2020.

Private companies hiring more expats than Saudis would have to pay a fee for each expat worth 400 riyals in 2018, 600 riyals in 2019 and 800 riyals in 2020. The fee outside the private sector is 300 riyals in 2018, 500 riyals in 2019, and 700 riyals in 2020.

Economic reforms in several other Arab countries are also making Egyptian expats’ lives harsher and far more expensive. A case in point is Kuwait, which cut subsidies on energy and water in September, and is set to remove subsidies entirely by 2019.

A value-added tax (VAT) will also be imposed by 2019 in Kuwait, where 500,000 Egyptians live, in Qatar, where 230,000 Egyptians live, in Oman, home to 56,000 Egyptians, and in Bahrain, which hosts 21,000 Egyptians.

Like Saudi Arabia, Kuwait is also seeking to substitute foreign labor by locals in all jobs in the public sector—except for physicians—which led to 3,600 expats of different nationalities being dismissed in June, as announced by the Kuwait Civil Service Commission.

A return to an already saturated labor segment

Deputy Chairman of the General Union of Egyptian Expats Adel Hanafy says that neither official entities nor the Union can estimate the number of Egyptians who would return from Saudi Arabia or other Gulf countries.

He adds, however, that there is no doubt that the numbers of expats returning is rising due to governmental policies to substitute expats with locals, as well as the extra fees set on expats, noting that the majority of Egyptian labor in jobs being “Saudized” would return by the end of Ramadan.

To prevent unemployment among that large group of Egyptians, Hanafy suggests that the Ministries of Trade and Investment secure support and funding for SMEs. He also proposes that the Ministry of Labor conveniently displays the job vacancies offered by employers to facilitate job-hunting for returning expats.

CAPMAS announced last August that unemployment fell below 12 percent in mid-2017 to reach 11.98 percent. On the other hand, Egypt suffers from overpopulation, which hit 104.2 million in September.

World Bank Data indicates that the population of Egyptians working in the services sector during the past four years increased to 49.3 percent in 2017, up from 48 percent in 2014, out of the total number of employed citizens. Many Egyptians expected to be dismissed from their jobs in Saudi Arabia are employed in the services sector, and unemployment rates will likely get quite high as they return.

Although job opportunities may be created annually in Egypt, there could be a mismatch between labor market needs and the available skill-set among the unemployed.

In Egypt, unemployment among citizens with advanced education is 30.8%, while it is 32.7% and 8% among citizens with intermediate and basic education respectively. Since most of the returning expats in the Saudi Arabian case received intermediate education, finding jobs can be a difficult goal to achieve.

Economic expert Hany Tawfik says that their situations would be “difficult” because the domestic economy cannot absorb the majority of them, leading to increased unemployment. “Instead of transferring remittances, they [returning expats] would be part of the subsidies system,” the expert adds, saying that hard currencies entering the country would decrease further, in addition to the decline witnessed from the struggling tourism industry.

Tawfik speculates that President Abdel Fattah El-Sisi may mediate to decrease the number of Egyptians returning from Saudi Arabia.

Commenting on the fact that the majority of this group work in retail, the expert highlights that the Egyptian labor market is saturated on that front. “Sales are activated when the country is in a prosperity phase, and when people have surplus to spend. People do not shop [in stores] any longer; they just go for outings whereas they spend on food and cinema. You go to shops and find them empty. The factors justifying hiring salespeople currently do not exist,” he adds.

Finding solutions

Since many citizens seek work in the services sector despite the shortage of skilled labor in the manufacturing sector, there must be a change in the societal perception of blue-collar workers and an improvement in technical education as opposed to just training, Tawfik argues.

“When the economy is sluggish, the first thing business owners do is eliminate training, so currently we have generations that do not possess [needed] necessary technical skills,” he adds.

Tawfik stresses the importance of making it mandatory for multinationals and foreign firms seeking to operate in Egypt’s Suez Canal Economic Zone (SCzone) to establish training centers for prospective workers. “They would not initially find skilled blue-collar labor to hire,” he adds.

Looking into Egypt’s labor market from a wide, long-term scope, the expert argues that automation is taking place everywhere globally, not just in Egypt. Thus, labor-intensive industries would decrease as the majority of citizens in the labor market would have to shift to the services sector.

Tawfik identifies agriculture, tourism, logistics and software development as the industries that would offer good opportunities to the Egyptian labor force if the mismatch between education and market needs is remedied. This would also pave the way for exporting labor, as Egyptian workers are less competitive in comparison to other nationalities.

Professor of Planning and Public Affairs at the Humphrey School of Public Affairs Ragui Assaad affirmed during a lecture at The American University in Cairo that the promising export sectors are information and communications technology (ICT), agribusiness, renewable energy, and manufacturing in the industries of garments, electronics assembly and pharmaceuticals.

He added that those sectors would be attractive to various labor segments, including women and high-school graduates, suggesting that the state should offer active labor market programs, job matching services, better labor market information, soft skills and employability training.

This should be done alongside improving capital market intermediation to incentivize investment in productive sectors and to eliminate barriers facing SMEs.

“We can be beneficiaries of outsourcing manufacturing and services to the West. We need to do more to be part of these global opportunities,” Assaad said, affirming that the services sector can boost Egypt’s exports.

In parallel, derived demand is negatively influenced by several factors, including insufficient economic growth generating enough good jobs in the economy, the formal private sector not growing sufficiently to make up for the decline in formal employment in the public sector, and a high degree of employment instability and irregularity.

The professor also emphasized the gap between education and the labor market needs. The issue stems from the fact that citizens used to prefer working in the public sector, which requires earning certificates instead of specific skills. In the face of such political pressure to receive high degrees, the state managed to increase seats in higher education institutions, however, that occurred in low-cost areas as opposed to those needed in the market.

The student-teacher ratio is 320:1 in the humanities and 13:1 in engineering. This has led to an oversupply of university grads, leading to 30 percent of them working in jobs that can be filled by high school graduates.