Are ambitious localisation targets in the Middle East in danger of isolating expats?

Speak to any HR manager in a bank operating in the GCC and they’ll tell you that their focus is on one thing – bringing more nationals into the workforce. But with a lack of skills for key areas among the local population and ambitious targets to increase employment over the next three years, is it a stretch too far?

The target by 2015 is to absorb 4.5 million Gulf nationals into the workforce, according to new research by NCB Capital. This is a relatively intimidating figure in itself, but when you consider that just 5 million GCC nationals are employed in the regional workforce, it looks like a mountain to climb.

In banking, there’s a definite skills-shortage. In the UAE, for instance, nationals comprise 33% of the workforce in the sector. The aim is to increase this by 4% every year until Emiratis make up 40-45% of staff. However, UAE nationals know their worth and have been job-hopping for new opportunities to the point where the Emirates Banks Association has implemented three-year lock-in periods for locals.

In Saudi, where the Nitaqat programme aims to create 1.2m jobs for nationals between 2010-14, banking is ahead of other industries. However, reaching the 49% target could be a struggle for some firms, particularly in areas like investment banking and private equity where expats still make up the majority of employees. Again, banks have struggled to retain experienced Saudi nationals who have been targeted by competitors desperate to boost their local workforce.

"The Nitaqat program has engendered considerable controversy, including widespread suggestions that it will force large numbers of companies to cease operations as they will likely fail to employ sufficient numbers of nationals," said NCB Capital.

A grass roots approach

“The sad fact if we’re mandated to recruit a UAE national for investment banking, private equity or asset management – particularly at the senior end – then we’re chasing a handful of candidates, who are either tired of being pursued constantly by headhunters, or who demand unrealistic packages to move,” says one financial services headhunter in Dubai.

There are now around 12,800 UAE nationals working in the banking sector, but the vast majority of these work in either retail or commercial banking. This is evidenced by the high salaries being offered – as much as $220k for a manager of a large retail branch. In the DIFC – home to most investment banks in the region – Emiratis make up just 1.4% of the workforce.

Unemployment among Emiratis remains stubbornly high – at 14% - but to some extent this can be pinned on their reluctance to enter the more competitive, longer-hour working environment of the private sector.

Banks in the region are making a more concerted push to both recruit and retain nationals. Formal training programmes for large annual intakes of graduates (usually 400 or more) are helping to address the current talent shortfall, but this is a long-term process.

At the Abu Dhabi Investment Authority, for example, all UAE national graduate recruits are offered both in-house training and are required to take the CFA exams. Internationally recognised qualifications like this enable them to compete more effectively with the expat workforce.

The dangers of pushing out expats

The problem with pushing more locals to the private sector is that they will be subject to the machinations of the job market. While cushy public sector roles are effectively jobs for life, banks are more prone to hire and fire tactics.

Firing nationals is politically sensitive, and any expats will be forced out before banks start paring back the local workforce. However, as we’ve pointed to previously, banks have less of an appetite to recruit and this has affected localisation initiatives.

Ensuring wage parity between nationals and expats is one way to ensure that local employees are not targeted for cuts. They’re expensive – in Saudi, NCB’s research suggests that the average monthly salary for a national employee is SAR 3,476 ($926), compared to SAR 1,040 for expats. In Qatar, nationals working in local banks were handed pay rises of  60% last year in order to compete with the public sector.

Expats have long-accepted this pay differential as a fact of life, but they’ve become more demanding of late, asking for 20-30% more to work in Qatar or Abu Dhabi than Dubai, for instance.

The bigger danger for banks, however, is convincing expats to stick around before the succession plans are firmly in place. Faced with fewer employment opportunities, and shaky job prospects, “nervous” expats working in skilled positions are likely to move out of the region, says NCB.

“In places like Saudi, any expat that loses their job is finding fewer and fewer opportunities available to them,” says one financial services headhunter in Dubai. “The first point of call after this would be Dubai, but with the job market so depressed here many decide it’s just better to leave the region.”