Global Money Transfer Monthly

Middle East - A major remittance sending region

Saudi Arabia is the biggest remittance sending country in the Middle East. With a total outflow of about $17 billion in 2007, the country ranks third globally in terms of outward remittances. Egypt and Lebanon are two major recipients of remittances in this region, with estimated inflow of $9.5 billion and $6.0 billion, respectively, in 2008. One characteristic feature of the Middle East region is that a large number of migrants working in these countries either lack access to or avoid formal or banking channels to send money home. This provides huge scope for the mobile remittances industry to introduce and Global Money Transfer Monthly Middle East- A major remittance sending region expand its services in the region. Although the Middle East, especially GCC countries, has become a major destination for temporary workers, the recent slowdown in these economies, especially in the construction sector, has affected the migrant population adversely in the near term.

Saudi Arabia is the biggest remittance sending country in the Middle East. With a total outflow of about $17 billion in 2007, the country ranks third globally in terms of outward remittances. Egypt and Lebanon are two major recipients of remittances in this region, with estimated inflow of $9.5 billion and $6.0 billion, respectively, in 2008. One characteristic feature of the Middle East region is that a large number of migrants working in these countries either lack access to or avoid formal or banking channels to send money home. This provides huge scope for the mobile remittances industry to introduce and Global Money Transfer Monthly Middle East- A major remittance sending region expand its services in the region. Although the Middle East, especially GCC countries, has become a major destination for temporary workers, the recent slowdown in these economies, especially in the construction sector, has affected the migrant population adversely in the near term.

Migration Trends

The Middle East region is home to about 19 million migrants (including international and interregional migrants) who form about 6.1% of the total population of the region. The migratory pattern varies from country to country, with some having large number of international migrants while others primarily hosting intraregional migrants. In some countries, migrants account for the major share (more than 50%) of Migration Trends population and even constitute 80% to 90% of the labour force. International migrants come mainly from India, Pakistan, Bangladesh, Philippines and Sri Lanka, as temporary workers. This trend increased especially after the second Gulf war, as GCC countries adopted strict norms and deported the intraregional migrants from other Middle East nations. The increase in oil prices during the major part of 2008 and rapid growth in GCC economies also attracted a large number of skilled workers.

GCC countries together form the third largest destination for international migrants globally, after North America and Europe. The region has about 12.8 million international migrants, which accounted for 36% of GCC's population of 36 million in 2005 (World Migration 2008, by International Organisation for Migration).

The number of migrants in the six GCC countries increased to 9.6 million by 2000 and further to 12.8 million by 2005, from about 1 million in 1970. The number of international migrants in GCC States, as a share of their total population, increased at an average annual rate of 0.4% during 2000-05. The UAE witnessed the highest growth in migrant stock over 2000-05, with an average annual net migration rate of 49.6 per 1,000 of the country's population.

Saudi Arabia has the highest number of international migrants in the region, with a total of over 6.3 million migrants (about 3.3% of the global international migration) as of 2005, and is followed by the UAE (3.2 million) and Kuwait (1.6 million). In terms of migrant population, Saudi Arabia ranked fifth globally in 2005 after the US (38.3 million), Russia (12.1 million), Germany (10.1 million) and France (6.5 million).

Although Saudi Arabia has the highest number of international migrants, Qatar tops the list in terms of the share of international migrants (78.3%) in the country's population and is followed by the UAE (71.4%) and Kuwait (62.1%). The UAE, with 4 million residents, of which 3.2 million are international migrants, is heavily dependent on overseas workers who account for 98% of the private sector jobs (as of 2005).

Growth Drivers

The high growth in the migrant stock in the Middle East, especially in GCC, was largely due to the economic progress in the region, driven by the rise in oil prices in recent years. The prosperity in the region led by the oil price rise resulted in huge investments in other industries, especially the construction sector. GCC nations, in particular, have over the years poured large sums of money into the construction sector to improve tourism and other nonoil industries, in a bid to diversify the sources of national income. Dubai, a part of the UAE, has established itself as one of the major destinations for international tourists and corporate entities. Apart from the oil sector boom, there were several other factors that attracted the international migrants to these countries.

These include -

• qThe size of the domestic population in many of the Middle East countries is pretty small; especially so for GCC countries (only 6.1 million in 2005). With a sudden spurt in labour demand, following the oil sector boom, these countries found their domestic populations falling short of industry demand and therefore started attracting a large number of temporary migrants to fill the gap.
• The low literacy and educational levels in the region has also helped in large scale inflow of migrants into these countries as the domestic labour force was often found wanting in overall skill sets required by the local industries. Historically, the percentage of population attaining tertiary education has been pretty low in the Middle East countries.
• The low labour force participation, especially from women, has widened the labour demand-supply gap across the region.
• The reluctance of domestic workers to take up jobs in the private sector was yet another factor responsible for the growth in international migrants stock. In the UAE, for example, international migrants currently account for nearly 98% of the private sector jobs.

Remittances

The Middle East is one of the major remittance sending regions globally. Saudi Arabia is the biggest remittance sending country in this region with outward remittances of about $16.1 billion in 2007. This accounts for more than 10% of the country's GDP. The UAE, Kuwait and Qatar are the other major remittance sending countries in the region, with total remittances outflow of about $13 billion in 2006. According to Arab News, the 14.5 million expatriates working in GCC countries, mainly from India, Pakistan, Egypt and Yemen, have sent remittances of over $30 billion to their home countries in 2008, which constituted about 9% of GDP of GCC countries.

Saudi Arabia has been one of the leading remittance sending nations globally along with the US. The trend in remittances outflow from Saudi Arabia and the US had been similar until 1994, after which the outward remittances from Saudi Arabia saw a downward trend and reached its lowest level of $14 billion by 1999 as the country deported a large number of intraregional guest workers and adopted strict rules to check the high inflow of migrants into the country. However, the outward remittances from Saudi Arabia started to increase after 1999 and reached about $16.1 billion in 2007.

Although the Middle East is better known as a major source of remittances, there are countries in the region outside the GCC nations which receive significant remittances as well. Egypt and Lebanon were two major recipients of remittances in 2008, with estimated inflow of $9.5 billion and $6.0 billion respectively.

Recent trends and concerns

The emerging mobile remittances market in the Middle East

The mobile remittances market has evolved significantly in recent years, with the deregulation of the telecom sector and increased participation of private players across the globe.

The continued inconvenience faced by the migrants, besides high costs of traditional money transfer, is shifting the market towards mobile money transfer. According to the Central Bank of Egypt, more than 50% of the €1.1 billion remittances sent to Egypt from Europe is routed through informal channels owing to the high cost of formal money transfer.

According to the GSMA, the global trade association representing the interests of over 750 GSM mobile phone operators and over 200 manufacturers and suppliers worldwide, the Middle East region currently accounts for about 5% of the total global mobile subscribers, with a subscriber base of about 204.6 million.

Falling oil prices and s lowdown in the region' s economy

The recent fall in crude oil prices, coupled with the global financial crisis, is expected to impact the outward remittances from the Middle East countries in the near term. The international crude prices dropped more than 70% to about $44 per barrel as of 22 January 2009, from a peak of around $147 per barrel in the second week of July 2008. During this period, the banking sector in Middle East countries fell victim to the global credit turmoil, leading to a slowdown in the erstwhile thriving economies.

This, in turn, has affected migrant workers in the Middle East as much as in any other parts of the globe. Consequently, countries like Pakistan and Bangladesh which earned 63% and 52% of their remittances from GCC countries in 2008, are expected to be severely affected as outward remittances from GCC countries are expected to fall about 9% in 2009 after a 37.6% growth in 2008. The construction sector is expected to bear the brunt of this slowdown and many construction projects have already come to a halt in Dubai and other centres of growth in the region.

The continued fall in crude oil prices and subsequent oil production cut by GCC countries is expected to impact the growth of the economy in the GCC region. On 04 January 2009, Director of the Africa and Middle East Department of the Washington-based Institute of International Finance (IIF), George Abed said “Average real GDP growth in the region (Middle East) will slow to 2.5% in 2009 from an estimate of 5.7% in 2008 due to reduced oil production, tighter credit conditions, and substantially lower oil prices.” According to a report published by Migration News, the government revenue for Saudi Arabia is expected to fall by more than 50% in 2009 to about $110 billion due to lower oil prices.

Increasing working age populat ion in Middle East nations

The high growth and increasing share of the working age population in the Middle East nations is likely to pose a challenge for these governments to curb inflow of migrants and create more job opportunities for the locals. The labour force in GCC nations is expected to grow up to 20.7 million by 2020 from about 11.6 million in 2000.

The changing demographic profile may force the government to create more jobs and protect existing jobs for the domestic work force in coming years. However, the degree of participation of the local populace in private sector jobs would largely depend on enhancement of their skill sets through better tertiary education, which in many cases currently does not match with international standards. However, the growth in domestic labour force would certainly reduce the opportunities for international migrants in coming years.

Stricter regulations and Deportation

The rising flow of migrants in this region has created problems such as imbalances in the population structure, high unemployment for the locals and indirect adverse impact (of remittances) on the balance of payments of these countries. Also, many migrants have become a threat to the legal systems of these countries. In July 2008, about 448 Bangladeshis from Kuwait and Saudi Arabia were deported on charges of violating local laws. The overstay of temporary workers is also becoming a major problem in GCC countries as industry players are showing reluctance to recruit new migrant workers in place of the existing ones largely due to the high initial cost involved in employing new migrants and also because of the high technical skill sets achieved by the existing workers over the years.

The high growth in the migrants stock and high dependence on such foreign recruits in the Middle East nations, especially in GCC countries, has raised serious concerns from demographic, social and economic point of view. Such growing concerns have forced these countries to take certain measures to restrict the inflow of migrants.

In 2003, the Saudi Manpower Council proposed that the share of international migrants be reduced to 20% of the country's population by 2013. To achieve this target, the country would need to deport a large number of international migrants especially South Asians, Filipinos and Egyptians, in coming years due to high share of migrants from these countries in the total population of Saudi Arabia.

The two Gulf wars (in January–February, 1991 and March–April, 2003) have brought significant changes in the migration trends in the Middle East as a large number of intraregional migrants, hailing from countries (Palestine, Jordan, Yemen and Sudan) that supported Iraq in the Gulf war, were deported from GCC countries in the post war period. Altogether, more than 1.5 million people fell victim to this exercise and this included about 1 million Yemeni, 200,000 Jordanians, 150,000 Palestinians and 158,000 Egyptians. The large scale deportation from GCC countries led to a fall in the share of intraregional migrants in those (GCC) countries to 25-29% by 2002 from about 72% in 1975 (Source: Kapiszewski, 2004: 123).

Outlook

Over the years, the Middle East region, and especially GCC countries, has emerged as a major destination for migrant workers (from South East Asia and Africa) and one of the major remittance sending regions in the world, accounting for a sizeable chunk of global outward remittances. Saudi Arabia is the biggest migrant receiving country in the region with highest outward remittances of about $16.1 billion as of 2007. The distribution of the migrant workforce within the region has, however, been uneven with some of these countries experiencing huge influx of temporary workers while others witness excess of labour force.

The inflow of migrant workers is expected to continue to rise in future, but the rate of growth may come down, largely due to the steady fall in international crude prices and slowdown in the construction sector. Also, there are growing concerns about the rising share of migrants in the total populations of these countries and the socio-economic impact of such sweeping changes in their demographic profiles. Besides, the governments are taking a pro-active stance to protect the interest of the growing domestic labour force and this may very well restrict the inflow of temporary migrants in the near to medium term. However, the private sector in these countries would continue to attract migrant workers as domestic labour force still lacks the skill sets required for high end jobs.