PwC Middle East Economy Watch: OPEC revisits its strategy and Gulf states continue to rethink public sector employment
Source: PwC , Author: Posted by BI-ME staff
Posted: Tue November 6, 2018 1:26 pm

UAE.. In the latest edition of the PwC Middle East Economy Watch, we look at the significant developments that have occurred across the region over the past few months. Public sector jobs for a large proportion of GCC nationals continues to be a challenge.

Richard Boxshall, Senior Economist at PwC Middle East, notes:  "Analysis shows that public spending on salaries in the region, which is high relative to peers, does not correlate with good services (in part because performance is not incentivised) and relatively attractive public sector jobs can distort the private sector labour market."

Gulf states have taken some action to address the existing system of public employment, which is steadily becoming less fiscally viable, costing nearly a fifth of GDP in some states, double the OECD average. Additionally, some states also have underfunded public sector pension obligations. This has driven efforts to direct new entrants to the workforce towards the private sector.

In Saudi Arabia, the "nitaqat" system has advanced Saudization through a range of incentives for employers. Additionally, the National Transformation Strategy, envisaged cutting back public sector employment by 20% and creating 450,000 new private sector jobs by 2020. In Kuwait, the Civil Service Commission is advancing aggressive strategies to reduce expatriate numbers in the public sector; one initiative is requiring that most administrative roles be filled by Kuwaitis.

The UAE's National Agenda 2021 laid out specific KPIs for national employment including boosting the share of the national workforce that is in the private sector to 50%, from just 7%. Although, public sector employment is still preferable so there is little motivation for nationals to move sectors.

This edition considers the impact of the surge in oil prices during the first half of the year which has led to disagreements over strategy within OPEC and a somewhat ambiguous outcome from its meeting in June. However, most countries that were able to, have subsequently boosted their output.

Richard Boxshall says: "We've been witnessing significant developments in the Middle East over the past few months. One highlight for Saudi, as well as other oil exporting countries, is the impact of higher than expected oil prices on public finances, that is expected to boost government expenditure and economic growth."

Oil supply remains squeezed; overcompliance and higher crude prices led to pressure from major oil consumers; as well as the revival in US shale production, which has nearly offset the planned cuts. OPEC now needs to avoid another boom and bust. In July, most countries with an ability to lift output quickly did so. Due to the further dip in Venezuela's output in August, over-compliance returned.

The overall decline in production over the summer helped drive the price up above $80. Even though the price is softening again, the year as a whole is likely to average higher than expected prices and revenues providing a boost to public finances and solidify confidence in economic growth in the Gulf.

Click here to see the full report.

Photo Caption: Richard Boxshall, Senior Economist at PwC Middle East

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