Soaring inflation even affects Gulf countries

High Inflation pops the excess & success bubble, driving Immigrant workers away from Gulf countries.

Just as Persian Gulf cities such as Dubai and Abu Dhabi were becoming synonymous with excess and success, the Gulf boom is in anger of going bust. Instead of conjuring images of towering skyscrapers and indoor ski slopes, they are struggling with soaring inflation rates.

Indeed, the Gulf region may want to position itself at the centre of global capitalism, but it will first have to contend with the impact that skyrocketing energy costs and a cooling global economy are having on the local economy.

High inflation is causing concern among policymakers in the Gulf Cooperation Council (GCC), a regional organization that includes Saudi Arabia, Kuwait, Bahrain, Qatar, Oman and the UAE. Inflation in Egypt, the most populous Arab country, hit a 19 year high of 20.2%. Saudi Arabia also saw 30-year inflation high of 9%.

To make matters worse, five of the six GCC members, peg their currencies to the US dollar. As its value drops, their inflationary woes grow, and the sustainability of economic growth in the Gulf is brought into question.

Previously, the prosperity of Gulf States such as Bahrain and Qatar came from the soaring price of oil. But now, rising oil process are spurring further inflation. According to the Central Bank of Bahrain, 50% of the world’s oil reserves can be found in the GCC countries. Over the last 12 months, the price of oil risen dramatically. As a result, Gulf region economies have been growing at a rate of 5 to 7% a year for the last several years.

This price hike is exacerbating the region’s inflation woes. The price of oil creates pressure on the economy and is bound to create inflation.

To combat possible food shortages, some states are looking abroad to lease large tracts of farmland that are more fertile and less expensive to maintain than land in the Gulf region.

The worst affected are non-citizen laborers, who rely on public services to survive. In the Gulf, part of what creates this pressure is the huge influx of manpower to service Gulf countries. The demand for public assistance is growing faster than the government can dole it out.

For some migrant workers, inflationary pressure is less acute because the companies that hire them pay for key items like food and transportation. But inflation remains a significant problem for those whose families back home demand more remittances to meet rising prices.

Our salaries were low to begin with. An Indian national who works as a waiter in Abu Dhabi and earns 500 dirham each month says he is sending all his money back home so that his family can afford food. He used to send 300 to 400 dirham home and keep the rest for transport and medicine.

In the face of such pressures, Gulf States scramble to address the downside of rising oil profit. We have to be careful how we think about growth. This is about people and majority is suffering.

Home states’ success lures back laborers:

The UAE construction industry is facing an acute shortage of construction workforce, as Indian workers prefer to stay home as a result of economic boom and rising salaries.

The Gulf region, struggling with soaring inflation rates, may want to position itself at the center of global capitalism, but it will first have to contend an impoverishment migrant labor force.

Nearly 43% of all foreign workers in the UAE are Indians and a number of them are in the construction industry. Lately, Asian nations have seen economic growth, improved career opportunities and higher wages.

Salaries in India in 2007 were expected to grow at 14% with a similar in 2006. The UAE in comparison saw a rise of 10.7% in 2007, a marginal rise from 10.3% in 2006.

Based on the estimates of 2005 an Indian earning Rs 3,000 to 5,000 in the Gulf could earn twice as much as he could at home by signing up to a contract in the Gulf cooperation council. In 2008, he could earn Rs 10,000 a month in India while wages in the Gulf are the same thus reducing the incentive to work overseas.