Remittances put burden on UAE economy
The high remittances of expatriates from the UAE, running into several billion dirhams annually, impacts negatively on the country's GDP and balance of payments, a government report has said.
Remittances by expatriates in the UAE totalled $4 billion (Dh14.6 billion) in 2004, representing 15 per cent of the $27 billion (Dh99.1 billion) that was remitted from the six GCC countries.
"The remittances of expat labour to their countries are on the rise, posing a threat to the national economy.
"The depletion of local liquidated currencies are pumped into other countries' economies, definitely serving those economies," said a study by the Abu Dhabi Chamber of Commerce and Industry (ADCCI).
"The remittances have a negative and direct impact on the UAE's GDP since the percentage of remittances to GDP is estimated at 4.5 to 5.3 per cent between 2000 and 2004."
The highest percentage was 7.2 in 1996.
Statistics show that of the $27 billion remitted in 2004, remittances from Saudi Arabia were the highest at $16 billion (Dh58.76 billion), or 63 per cent of GCC remittances.
The UAE came next (15 per cent) followed by Kuwait, Oman, Qatar and Bahrain (22 per cent).
The report points out that the nature of the UAE economy and its structure is such that the country is dependent on the expatriate workforce.
Some 65 per cent of this labour is unskilled and daily-wage workers who are employed mainly in the construction and contracting sector.
"It is this labour that transfers 70 per cent of their income to their home countries annually."
Historically and even currently the UAE's labour market has been dominated by Asian workers who comprise 75 per cent of the workforce.
Not surprisingly, 90 per cent of the Asian workers live here without their families and their expenses are limited to basic requirements and specific essentials.
They transfer a large chunk of their monthly income, ranging between 90 to 95 per cent, to their families back home.
"In spite of their low incomes, the large size of this labour force doubles currency remittances," says the report.
A breakdown of the expatriate labour force's composition shows Indian workers represent 52 per cent while Pakistanis constitute 10 per cent and Arab labour between 11 and 15 per cent.
The remainder (non-Asian and non-Arab) represents 3 per cent and comprises mainly Europeans, Americans and Africans.
"The Western labour is educated and characterised by high skills. They earn high salaries and transfer 80 to 85 per cent of their income to their countries.
"They live mostly individually, without their families."
Arab workers are educated and skilled and spend the larger part of their salaries on their families and their spending is higher than that of Asian families.
Expenditure on education, health and entertainment is high for some expat families, especially Arabs, who spend Dh5,000 to Dh8,000 per month, a high percentage of the expat Arab income.
"It mostly constitutes 95 per cent of their monthly income. Remittances by Arabs range between 5 and 15 per cent maximum and this compares little with remittances by Asians."
Recommendations by the chamber
To curb the outflow of remittances by expatriates from the UAE, a study by the Abu Dhabi Chamber of Commerce and Industry has come out with the following recommendations:
- The UAE must set up a proper investment mechanism to encourage expats to keep their savings in the country as long as possible and to invest them in local financial plans.
- Special residential areas should be set up for low-income expats to encourage them to bring their families and reduce the percentage of remittances. Visa rules should also be liberalised.
- Financial and investment policies should be devised for financial markets and banks that would attract expat funds for investment in the UAE.
- The local investment environment should be made attractive to retain local resources and earned income.
- The investment base should be expanded and expat labour urged to participate in setting up some investment plans.
- The hawala system should be controlled to prevent the abuse of the system.
- Foreign and national investment should be encouraged, and a system instituted to ensure nationals benefit from the privatisation process.
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