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The aftermath of Gulf War - prospects for Pakistani labour.

Emigration is one of the important features of the labour surplus economy of Pakistan. It has become an important part of its economic policy because, on the one hand, the Pakistani workers working abroad remit millions of dollars which help in the development of the country and, on the other hand, help reduce unemployment internally. Given the under- employment and unemployment in Pakistan, the migration of its workers to the Middle Eastern countries had no obvious unfavourable impact on economic output or growth. Indeed it acted as a safety valve when the country faced serious recession in the late 1970s and early 1980s.

The recent Gulf War had some deliterious effects on Pakistani emigrants. The economy was badly affected by the Gulf War. The oil prices increased sharply and led to increase in the import bill. The mass influx of repatriates intensified the pressure on the domestic job market. Both budget and balance of payments came under severe pressure and inflation accelerated. It seems that boom days are although over, yet chances are there that Pakistani workers may still continue to find jobs in the Middle East. The aftermath of Gulf War has in store a vast reconstruction of Kuwait and Iraq, depletion of their resources, an expected change in the entire socio-economic and political outlook of the Middle Eastern countries and more particularly of the Gulf countries including Iran, and a tough competition for winning the reconstruction jobs. This paper tries to analyse and visualise prospects for the Pakistani labour in this mixed scenario.

Pre-Gulf War Emigration Flows from Pakistan

The 1973 oil price hike stimulated massive investment programmes by oil-rich Arab nations and a surge in demand for expatriate workers. At first the expatriate labour came from neighbouring Arab countries but an eastward shift followed and Pakistan was the most fortunate one to reap the fruits of its contiguity to the region and its socio-cultural and religious ties with the rich Arab nations. Between 1975 and 1979, there was a sharp increase in Pakistani migrant workers. The phenomenon peaked in 1981. Then an economic slowdown in the Gulf due to oil glut diminished the flows from Pakistan. The emigration phenomenon showed a gradual decline during 1982-88 period but seems to have exhibited some recovery ever since. The period from 1983-91 also witnessed spurts of return migration, the last of which was a sudden return of some 80,000 Pakistanis from Kuwait and Iraq due to the Gulf Crisis started on August 2, 1990 when Iraq suddenly invaded and annexed Kuwait.

In 1981, 168,404 Pakistani workers went abroad, a large majority of them were bound for the Gulf area. In early years, till the downswing started, as much as 25% of the increase in labour force in Pakistan was finding employment abroad. The number fell to 142,945 in 1982, 128,206 in 1983, 100,000 in 1984 and reached the lowest mark in 1986 when only 62,641 workers went abroad. There has been a slight upturn with small increases in 1987 and 1988. 69,619 workers went abroad in 1987 and 84,840 in 1988. In 1989 and 1990, 98,703 and 115,520 workers went abroad in the respective years and depicted an upward revival of the trend of emigration.

The down turn in migration had a slow down in economic activity in the Middle East and a fall in these countries' oil revenues because of a fall in the price of crude oil. But other factors also contributed equally to the worsening of the situation and to make the effect more pronounced in the case of Pakistan. The entry of new countries in the Middle East Labour Market, supplying cheaper but at the same time more educated and English knowing labour, has contributed significantly to the downward trend in the migration of Pakistani workers.

These countries, coupled with some western advanced nations, are still the most stubborn competitors of Pakistan in the Gulf labour market in the post-war era. In addition to these factors, the completion of major infrastructural and construction projects, demand for labour shifted towards skilled categories including maintenance workers and supervisory staff rather than unskilled and semi-skilled categories of workers. Pakistan was not able to snatch out the pattern of migration quickly to meet the changing requirements of Middle East. All these factors, combined together, led to the decline of Pakistani share of the total migrant labour in Middle East from 46% in 1982 to 23% in 1986.

It is evident from the trends of emigration from Pakistan in 1989 and 1990 that, of the total workers going abroad, 90% normally go to the Middle East, with Saudi Arabia claiming, on average the major share or nearly 58% followed by Abu Dhabi at about 18.5% of the total.

The occupational distribution of the migrants from Pakistan shows that a predominant majority (75%) comprises of production workers. Professional, administrative and clerical workers constitute about 5% of the total emigrants. Nearly 42% of the workers so far went abroad from Pakistan constituted unskilled or semi-skilled.

Apart from reducing pressure on labour market the emigration provided substantial foreign exchange earnings in the form of workers' remittances to the country. In 1982-83, a peak level of $ 3 billion was reached which was nearly 50% of the total export earnings of the country. These remittances provided much needed relief to the foreign exchange position especially when the imports had increased manifold on account of high prices of oil and soaring inflation abroad.

Employment and foreign exchange remittances are the two most important features of overseas migration of workers. The migration led to shortages at one time, particularly of skilled workers. There was a time when there were not enough welders left in the country and few important projects under construction i.e. a refinery and fertilizer, suffered badly on account of shortage of skilled and semi-skilled workers. This led to government sponsored programmes for vocational training simultaneous with the growth of a large number of private training institutions in the country. The Government's Policy emphasis on training of personnel under the umbrella of the National Training Board (NTB), constituted in 1980, and the Provincial Boards under it also contributed significantly towards producing skilled persons in the country.

Inspite of these trends and their effects, the Middle East is still being seen as the only safe haven for the Pakistani labour as it is believed that this region will continue to be dependent on imported labour for some time although the skills sought will shift, particularly from construction to service industries. But new opportunities may also open up to the new and highly sophisticated skills. The end of the Iran-Iraq war, the end of the Gulf War, some prospects of peace in Afghanistan, labour shortage in Hong Kong and Japan's debate about opening up its economy to migrant labour provide some of the good and hopeful prospects for the Pakistani labour's absorption abroad. Most important of all these hopeful aspects is the reconstruction activities in Kuwait, Iraq and Saudi Arabia which requires a detailed and separate analysis to see what prospects lie for the Pakistani labour in the aftermath of the Gulf War.

Gulf Region, New Perspective/Prospects for Pakistani Labour Force\Gulf War and Its Impact on Pakistan

The importance of the Gulf region for Pakistan is well recognized. About 70% of home remittances emanate from this region and more than 1.4 million Pakistanis are estimated to be working there. The share of Pakistan's trade in the region is over 15%. This region is the major source of supply of crude oil and petroleum products and main market from the export of Pakistani products.

Pakistan, being closer to the war-torn region, is one of the most seriously affected countries by the Gulf crisis. The war had a multi-dimensional effect and its economic fallout in Pakistan has been reflected in many counts; reduced inflow of aid, investment and capital; disruption of trade; oil crisis decline in home remittances and problem of un-employment in the wake of influx of its workers abroad, particularly in Kuwait, Iraq and Saudi Arabia.

The remittances of Pakistan have fallen, at the same time a large number of its workers in the Gulf had to return home and face the problem of un-employment. A sizeable trade of Pakistan has been with Gulf States which too stands reduced due to war.

After occupation of Kuwait by Iraq in August 1990, Pakistan has been deprived of over $100 million annual remittances from Kuwait alone. The war has reduced remittances from other countries e.g. Saudi Arabia, UAE, etc. The Gulf region is also an important area of operations for PIA and the National Shipping Corporation as about 30% of their revenues emanate from this region. The operations were badly affected. The suspension of regular flights to the region have also caused a loss to the Postal Department of Pakistan. The impact of the Gulf War on Pakistan's economy can be summarized as follows: a) Increase in prices of oil estimated to

have an additional burden of over $700

million for the current financial year

alone. b) Home remittances during the current

year are estimated to decline by about

100 million US dollars. c) It is estimated that the current account

deficit during 1990-91 will increase due

to factors connected with the Gulf crisis

and its aftermath. d) It is estimated that on account of Gulf

war Pakistan's exports may be lower

than the original target. e) The government had to spend over Rs.

500 million on the repatriation of

Pakistanis from Kuwait. f) As many as over eighty thousand

Pakistanis returned from Kuwait alone.

Returnees from other countries of the

region are not accounted for. This has

caused further un-employment


In view of these challenges, the government had to adopt certain measures to combat the problem. Kuwait was the main supplier of petroleum products and with its occupation by Iraq alternate arrangements were made to meet the requirements. Oil refining facilities in Kuwait were damaged and it will take sometime to resume supplies. Alternate arrangements were therefore lined up to import these products on a longer term basis.

Contrary to the above aspects, some genuine hopes could also be pinned by Pakistan. Returning Pakistanis who brought their savings with them resulted to

eventually enhance the foreign exchange position in the country, and provided investment opportunities in small and medium scale industries through these savings.

In the new and further situation, it is expected that, apart from labour force, Pakistani products may also find ready market in the Gulf. Pakistan has proven good quality mineral water which can be exported substantially. Similarly, high value added processed food items may also find market in the Gulf. Pakistan may find an attractive market for its construction materials and manpower, especially skilled and highly technical categories needed for the reconstruction of the war-ravaged countries of the Gulf Region.

Limits on Overseas Employment in the Gulf Region

The seven month occupation by Iraq provided Kuwait with an opportunity to modify sharply its expatriate-dominated demographic structure as the foreign workers fled after. The Kuwait Government announced that it would limit its population to one million so that the natives could be in a majority. Reducing reliance on foreign labour has therefore become a strategic necessity after the Iraqi invasion, plans to nationalise jobs were, however, launched a long time ago.

Despite the spread of education and training at government costs, and despite hectic job nationalisation plans, foreigners continued to dominate the labour front. All this is now likely to change, with Kuwaiti citizens being asked to perform all kinds of key jobs. Reliance on foreign workers may be reduced as a strategic necessity. The invasion highlighted the sensitivity of having foreigners, however trustworthy, in crucial communication, banking, oil and investment fields.

The fact that the Kuwaitis under-went rigorous military training in the Saudi desert and played an active part in the war of liberation is seen as illustrating a new awareness among the younger generation and old ones alike. The process has already got under way with Kuwaiti banks organising training courses for exiles and authorities announcing similar plans in various specialisations. The shortage of workers created by the flight away of the expatriates has prompted Kuwaiti authorities to launch plans for training citizens.

Kuwait's partners in the Gulf Cooperation Council (GCC) Saudi Arabia, Bahrain, Qatar, Oman and the United Arab Emirates (UAE) are also suffering from the same problem and have launched campaigns to train their respective nationals. But such efforts were hindered due to low indigenous populations and tendency for most nationals to opt for the private sector.

American firms have so far won a majority of the rebuilding phase in the Emirate following the Gulf war. British firms had won 22 per cent of the contracts for the urgent phase. Contracts had also gone to companies from Norway, Sweden, France, Italy and Switzerland.

Kuwait has sold part of its huge overseas assets to finance the Gulf war effort and support its refugees and has thus curtailed its development potential. Kuwait's exiled government has contributed more than $20 billion to the US-led coalition forces. It is also paying monthly wages to each of the exiled Kuwaiti families. More than 400,000 Kuwaitis fled their homes since Iraq invaded their Emirate on August 2, 1990.

Labour and industrial policies in almost all Gulf countries will undergo drastic changes in the light of Kuwait's bitter experience. The Iraqi invasion could prove catalyst for a sweeping reorientation.

The key to economic recovery in Saudi Arabia, as in all the Gulf Arab economies which rely so heavily on state spending for growth, is government finances. Saudi Arabian Government was already facing a state budget deficit forecast of 25 billion Riyals before the Gulf crisis while Saudi's had to bear extra costs for the Operation Desert Shield and the buildup of huge US-led coalition forces on Saudi territory.

Extra Gulf war costs included 13.5 billion dollars toward US war expenses, at least six billion to help regional states affected by the war, and possibly well over 12 billion for weapons and munitions costs. Added to this were untold amounts for reconstruction of war damaged areas, insurance and compensation, which could push the total to 40 billion dollars and beyond.

Financial burdens created by the war may force Gulf Governments to spend loss on development, paving the way for greater role by the private sector. Gulf states have already slashed expenditure since oil prices began to fall in mid 1980s. This led to a slowdown in growth as economic activity depends mainly on government spending. Encouragement of the private sector to contribute more to the national economy is expected to be among the GCC's priorities in the next stage.

After a long period of a boom in the Gulf, business sharply shrank in mid-80s due to a decline in oil earnings and the completion of the bulk of the programme to build roads, airports, desalination plants, schools, hospitals and other infrastructure. Such projects are estimated to cost Saudi Arabia, Bahrain, Qatar, Kuwait, United Arab. Emirates and Oman more than $150 billion in the past decade. The private sector's heavy dependence on public spending and government monopoly of major industrial and services projects were the main reason for its slow expansion.

In 1975, the private sector's share of GDP was 30 per cent. It rose to 60 per cent in 1990, simply because the drop in government expenditure promoted the private sector to become self-reliant. New financial obligations by Gulf states could affect spending on development projects. GCC states had to pay billions of dollars towards the allied war effort in the region and were expected to pump large sums in to post-war reconstruction and security measures. There is widespread expectation that oil prices will fall further to further drain coffers that received only $50 billion in 1989 compared with about $200 billion in 1980.

Gulf economies, in the post-war era are also expected to slow down in the face of heavy security burdens.

Growth in the GCC was among the most rapid in the world during the oil boom of late 1970 and early 1980s spurred by massive government spending on development. The GCC states of Saudi Arabia, Kuwait, Qatar, Bahrain, Oman and the United Arab Emirates (UAE) spent more than $150 billion in infrastructure projects in the past decade. But a decline in oil prices and output, coupled with the Iran-Iraq conflict, sharply depressed business, leading to a long period of recession.

The decline in oil revenues, which form nearly 80 per cent of their income, created deficits in GCC budget and they had to shelve several projects. What can be seen of a decline in oil prices and obligations by GCC states, towards the Gulf crisis, will affect government spending. Gulf economies, in the post-war era are also expected to slow down in the face of heavy security burdens. The above details will show that there are some real constraints ahead for the Pakistani emigrants to seek employment in the Gulf countries. Although Kuwait plans to reduce the number of foreign workers to half the pre-war level, the move appears aimed mostly at Palestinians, Jordanians and Yemenis.

It is anticipated that the next wave of expatriates might find a new attitude among their hosts. A generation ago developing countries lacked skilled nationals to fill top jobs and the means to train them, but now the situation seems to have reversed. Meanwhile, official statements about massive job opportunities in Kuwait aroused false hopes among the unemployed people and served as a free publicity to overseas employment agencies which immediately started grabbing money by registering job seekers with an initial fee of one to two thousand rupees. Besides the limit on population increase, the level of wages offered will affect the employment opportunities for Pakistanis in Kuwait. During the pre-war period Pakistanis were the most expensive Asian workers. They faced tough competition from workers from Philippines, Thailand, India, etc.

Future of Emigration

Every slump has a built-in re-birth of an economic boom. It is argued that after the Gulf war, the process of rehabilitation and reconstruction may be initiated in a big way and Pakistan will have a better prospect for capitalizing the emerging opportunities. The immediate task in the devastated Kuwait may be physically rebuilding a nation almost from scratch. Although the immediate threat of Iraqi aggression has been checked, the six Emirates of the Gulf Cooperation Council (Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Oman and Bahrain) will remain vulnerable for the foreseeable future. The need to call in help from 28 nations to counter Iraqi aggression underscored the failure of the Council to provide self-defence. Hence their requirements for defence personnel from Pakistan.

Rebuilding Kuwait will still be one of the biggest reconstruction jobs in history. At present, attention is focussed on programmes to restore power, water and sewerage, some road and air facilities, and to explore ways of saving the burning oilfields. The second phase will restore basic structures of state, including government ministries, hospitals and transport system. Complete rebuilding may however take years.

Support during the war is clearly a barometer for deciding who will get the cream of the reconstruction contracts. The United States, in the forefront of the liberation of Kuwait, is clearly in the forefront of the reconstruction also. The Kuwait government did ask for United States government assistance.

There is an all-round realisation that both Kuwait and Iraq need massive reconstruction and to a limited extent the eastern zone of devastated Saudi Arabia and Riyadh. Iraq will need skilled personnel for running its oil industry. 75 to 80 per cent of Iraq's oil refining capacity had been destroyed. 50 per cent of Iraq's power generating capacity was destroyed or damaged and most of the country's water purification and sewerage systems were wrecked. Several other industrial sites, such as sugar mills, fertiliser, food processing and cement plants and iron and steel works were also hit by bombs. Iraq's roads and bridges were badly damaged too. There is a great deal to do on infrastructure and on refineries and pumping stations.

Despite the catastrophic state of Iraq's economy now, the country has a wealth of natural assets, which may be well for its recovery. Iraq has vast areas of under exploited agricultural land, a comparatively well-educated population and oil reserves estimated at around 100 billion barrels. Iraq is an oil exporter and has the power to generate revenues of its own.

A new phenomenon of brain drain has touched the Middle Eastern region. Hundred of thousands of skilled Arab professionals are moving to the West. To an estimate, more than 470,000 Arab professionals moved to the West between 1985 and 1990, and the exodus is likely to get new impetus after the war in the Gulf. Key professionals on the move include doctors, engineers, pharmaceutists, bankers, teachers and scientists, as well as skilled labourers. Some Arab states have formed strong links with industrialised countries by importing foreign expertise and sending out local talent. Many scientists had left because of economic and social instability resulting from the political situation in the Arab region.

Economic growth and development of Iran during the years after the Iran-Iraq war have been influenced by several deterring external and internal factors, the most important of which are the decline of oil prices and foreign currency revenues and problems relating to the increase in population.

The Five-Year Development Plan of Iran (1988-93) envisages a total investment outlay of some rials 26452 billion at 1988 prices. The growth in fixed capital formation will be about 11.6 per cent annually. The share of total investment outlay in the GDP, that has declined considerably in recent years, will increase 14.5 per cent in 1988 and 17 per cent in 1993. The Plan aims at creation of 894000 employment openings during the Plan period, reduction of the employment in service sector from 47.2 per cent to 45.5 per cent in the last year of the Plan, increasing the per capita productivity by 5.2 per cent per year, increasing the ratio of technical and expert manpower from the present 9.6 per cent to 10.7 per cent by 1993. Pakistan to cope with the Situation

The new scenario in the Gulf and other areas of the world demands that Pakistan should not lose the opportunity. It seems imperative that comprehensive study to assess the needs of labour importing countries and the conditions of employment now prevailing there may be undertaken at this stage. The Labour Attaches with Pakistan Embassies in the Middle East can help greatly in making this study feasible.

At present the Pakistani workers who are mostly unskilled and semi-skilled are facing tough competition from the workers of South East Asian countries. This is the consequence of merely trading in manpower without creating a system of training of workers who would be readily acceptable abroad. In Pakistan, there is a very small base for training and skill formation.

In order to meet the needs of the new economic structure that may emerge in the Middle East countries as a result of the recently concluded war, the major thrust of Pakistan's manpower export policy must be towards the export of skilled workers. Accordingly, programmes for training workers in trades likely to be in demand in the Middle Eastern countries need to be intensified. Regular campaigns and visits to the main employers in the Middle East, especially in the Gulf, may be encouraged. Pakistani firms may actively compete to win turnkey projects in the Middle East alone or in joint ventures with firms from other countries.

The National Engineering Service of Pakistan (NESPAK), has signed agreement with the Iranian Firms for cooperation in the water and power-sector. Joint ventures with Iranian companies may be promoted to export more manpower. Pakistan's private sector should contribute more in the reconstruction of Kuwait. Companies should directly negotiate with foreign countries for sub-contracts. Pakistanis could offer services in the sectors of manpower construction and maintenance. Excellent opportunities exist in the areas of water desalination, plant maintenance, over-head wires, pipelines, transmission lines, transformers repair and maintenance, hospital supplies and hotel maintenance, oil refinery maintenance, telecommunications, port and ship handling, airport facilitations, transport and transport workshops. There is a total vacuum in the transport sector.

The unemployed graduates, doctors, engineers etc. who compete for jobs abroad advertised through various agencies fail to succeed owing to lack of experience. On the other hand, government/semi-government/autonomous bodies are overstaffed with people having all sorts of experience and most of them can get the jobs abroad on their own or through the registered private agencies, thus creating vacancies for the unemployed ones. The policy of the Government needs to be revised according to the need of the time and the employees of the Government departments may be liberally allowed to seek jobs overseas on their own.

In view of the sudden turn in the Gulf states from pursuit of economic development to mobilization of defence capabilities, there are short and long term prospects of job loss in the Gulf countries. At the same time, there are possibilities of deployment of Pakistanis in the defence related activities. Pakistan already has some force in Saudi Arabia. Agreement should be made with the Gulf countries to send them young men for joining the defence forces.

The ability of a country to respond to overseas market opportunities would depend very much on the flexibility or mobility of its labour force since foreign openings tend to be limited to a selected set of occupations. With nearly two decades of emigration, Pakistan should be prepared to maximize benefits from future flows of labour. The concerned agencies should help in training a suitable labour force that may prove decisive in a more competitive future environment.

A comprehensive data base should be developed so that migrants and returnees plus the funds they remit can be better monitored. So far, there have been significant information gaps in this data. It is imperative that the return of migrant workers and putting their savings to better personal and national use should be facilitated by the concerned agencies. Noting that workers willing to risk the unknown overseas are likely to be entrepreneurially minded, returning migrants should be encouraged to set up their own businesses or put their saving into other productive investments. For example allowing returnees to import the tools of their trade or providing special loans would spur new enterprises.

The so far trends showed migrant workers savings to be high, with a large percentage of remittances going toward renovation or construction of housing and increased consumption of food items, clothing and consumer durables. Incentives should be provided to migrants to send home their savings via formal channels rather than illegal or informal ones, which tend to dilute revenue. Migrant workers will be attracted to formal channels if they are efficient, simple and profitable. Low banking fees, premiums on exchange rates and liberal foreign exchange regulations help cut out black marketers and back-alley transfers.

The rehabilitation programme should cater to the requirements of all kinds of returning migrants. The migrants on their return need assistance not only to get settled economically but also to deploy their accumulated savings productively. The schemes and programmes for rehabilitation should include: * Setting up of a separate cell to collect

and analyse information on

qualifications, skills, work preference

and accumulated savings of the

returnees. * Placement system for returning

migrants, which should include

provision for returning of workers and

organizing short-term entrepreneurial

training for interested returnees. * Identification and preparation of

profiles of technically and

commercially viable projects which

the returnees could undertake with

the help of their own investible surplus.

Bahrain has played the role of an important off-share banking centre after the demise of Beirut. The off-share banking units in Bahrain are now feeling uneasy because Bahrain is strategically the most vulnerable and the weakest point in the region having hardly any defence capability. Banks in UAE and other Gulf countries are also feeling the pinch. The Government of Pakistan may establish an off-share banking centre in EPZ Karachi on the lines that Turkey has done in Istanbul. Pakistan has bankers of international repute who can help make it a success.


Since 1973, the Middle Eastern countries have assumed a special significance for Pakistan's economy as the ever since flows of Pakistani labour to this region have had a positive and a soothing effect on the socio-economy of Pakistan. Emigration eased the internal unemployment pressures, helped to reduce balance of payments problem and eased, to some extent, the mal-distribution of incomes.

The new situation created in the Middle East, particularly in the Gulf countries, including Iran, after the recently ended Gulf war has generated a mixture of hopes and despair for Pakistani labour to migrate in the future days. Where massive reconstruction may invoke innumerable job demand from abroad, there is in store a tough competition waiting for the Pakistani workers who are placed in a rather disadvantageous position because of many factors like English language, comparative wage factors, etc. At the same time, the GCC members are planning to reduce guest labour and develop their indigenous labour to avoid foreign dependence. The war has cost these countries enormously and a reordering of the future course may divert their investible resources towards security expenditures. There are short and long-term prospects of job loss in the Gulf countries for the Pakistani labour. It is therefore imperative for Pakistan to reorient its policy towards emigration of its labour force. Special efforts are required to train better quality workers and liberalise emigration regulations.
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Author:Hussain, Nazir
Publication:Economic Review
Date:Jan 1, 1992
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