News & Events

Hospitality sector in the GCC: Challenges

By: Sara Khoja

Submitted by Firm:
Clyde & Co
Firm Contacts:
David Salt, Emma Higham, Rebecca Ford, Sara Khoja

Across the six member states of the Gulf Corporation Council (GCC) there is an increasing focus by Governments to promote the employment of nationals within the private sector.  For any employer operating within the hospitality industry, such requirements pose particular difficulties, both cultural and practical. 

The vast majority of nationals in the GCC are employed in the public sector (the GCC has according to the ILO, the highest public sector employment in the world) and these are the coveted jobs with higher benefits, remuneration and lower working hours than the private sector.  Many young entrants into the labour force would rather wait for a government job and be unemployment rather than take a job in the private sector.  In a recent Mercer survey in KSA directed at people in their 20's who are yet to enter into permanent or long term employment, many respondents stated that they have not yet been employed, even on a temporary basis and had never applied for a job.

Tremendous pressure has been put on the private sector to employ nationals, especially in KSA where the new nitiquat system and the Hafiz system is compelling employers to employ nationals failing which their operations are effectively crippled as visas for the employment of foreign nationals will not be granted and fines are imposed.

Across the GCC, sector specific quotas are applicable, certain roles are reserved for nationals and in the UAE, specific regulations have been introduced to restrict the termination of UAE nationals. In the UAE, certain roles are reserved for UAE nationals, including the roles of HR Manager, Government Liaison Officer (if an employer has 100 employees or more) and in some sectors Compliance Officer.  Specific year on year sector quotas apply as follows: 4% for banking, 5% for insurance and 2 % for retail.  Since February 2009, there is also a specific procedure required to be followed by employers wishing to terminate a UAE national’s employment; involving notifying the Ministry of Labour prior to issuing notice of termination setting out the reasons for termination, training and support offered to the employee to perform his role without result and the lack of alternative roles to move the employee into and thus avoid termination.  These requirements do not apply in the numerous free zones established within the UAE as the Ministry of Labour does not have jurisdiction in these areas and the free zone authority regulates businesses established within its area. 

Elsewhere in KSA, Bahrain and Oman, a quota to employ nationals will apply to each employer and this is calculated according to the employer’s sector, size, number of employees employed and number of nationals employed within the organization.  There are also reserved roles for nationals, with KSA for example, reserving 40 roles which must be occupied by KSA nationals.  Whether or not other AGCC nationals will count towards an employer’s quota depends on individual AGCC member state legislation; for example other AGCC nationals do count towards the quota requirements under Bahraini legislation.   In the UAE and Qatar they do not.

In many instances the enforcement of these workforce nationalization (as such legislation is increasingly being termed within employment and Human Capital circles) requirements is haphazard.  The immediate impact of non compliance in most AGCC states is a refusal to grant further work permits or residency visas to the non compliant employer so that he is unable to hire more non nationals or renew sponsorship for existing non national employees.  Under the KSA nitiquat system, every employer is categorized according to compliance with the labour laws and specifically with ‘saudisation’ requirements; falling into a red, yellow, green, or excellent category. Employers in lower categories are unable to renew sponsorships for non KSA nationals and employers in the two highest categories can recruit non national employees from lower category employers without requiring the existing employer’s consent for the employee to change sponsors. 

In the UAE a growing practice is for the UAE licensing authorities (e.g. the Insurance Authority) to refuse to renew an employer’s commercial registration or licence unless the employer increases its ratio of UAE national employees to non national employees; in one case requiring an employer to recruit six UAE nationals within two months before renewing the commercial licence.  Employers in the UAE are also categorized according to their compliance with the labour laws and ‘Emiratisation’ requirements, with the penalty for lower categorization being the imposition of higher administrative fees for all applications made to the Department of Immigration and the Ministry of Labour. 

Alongside these measures, governments have also tried to offer a 'carrott' to the private sector by way of government subsidies such as grants to enable employers to pay nationals on the same or a corresponding basis as if the national were employed within the public sector.  Governments have also introduced minimum wages for nationals and a number of measures designed to increase the confidence of nationals in private sector employment.  Notwithstanding the high expectations of many young people, there is also a significant structural problem within the labour forces in the GCC which is that private sector employers have entrenched dependance on low cost labour largely from South East Asia.  It is therefore economically unattractive to employ nationals who demand higher salaries or a 'living wage.'  The best example of this was the decree over a year ago in KSA which stated that only women should be employed in lingerie shops or retail stores catering for women. Retail operators lobbied hard against the measure on the basis that their labour costs would more than double

Joining a service based industry such as hospitality has traditionally not been perceived as attractive to nationals, with many jobs being 'blue' collar and modestly paid. The requirement to wear uniforms rather than national dress and a gap in language skills has also exacerbated the issues.  Often adjusting policies so that depending on the role, national dress can be worn at work, language lessons are given or women are engaged in back office roles, has resulted in successful recruitment programmes and long term strategies for attracting and retaining national employees.