The Middle East continues to be an important geography for many multinational companies as they seek new opportunities for business growth. Gulf Cooperation Council (GCC) countries, particularly the Kingdom of Saudi Arabia (KSA) and United Arab Emirates (UAE), are among the strongest growing economies in the world, with 2025 GDP growth rates projected at 5.5% and 4.6%, respectively.
Middle Eastern governments are focused on a long-term plan to diversify their economies. They are investing billions of dollars in restructuring and development programs, and private-sector and multinational organizations recognize this as a unique opportunity. In fact, many already are actively involved in these programs and are increasing their presence.
This increase in economic activity is attracting talent from around the world who can provide the necessary skills, expertise or sheer labor-force power to realize the region’s ambitions. Currently, foreign nationals in the six GCC countries represent up to 95% of the total workforce (Figure 1).
| Total population (in millions) |
Foreigners (in millions) |
Foreigners as a percent of total | Foreigners as a percent of the workforce | |
|---|---|---|---|---|
| Bahrain | 1.5 | 0.8 | 54% | 78% |
| Kuwait | 4.6 | 3.1 | 67% | 85% |
| Oman | 4.7 | 1.9 | 40% | 77% |
| Qatar | 2.9 | 2.5 | 88% | 95% |
| Kingdom of Saudi Arabia | 36.9 | 13.4 | 36% | 76% |
| United Arab Emirates | 13.1 | 11.1 | 84% | 90% |
The most significant population — 13 million foreigners — is in Saudia Arabia and represents 36% of the total population (or 76% of the working population). While work process improvements may reduce the need for foreign workers in the future, today there is little to suggest that the GCC will significantly drop its reliance on foreign workers any time soon.
The GCC’s foreign workforce is mainly composed of citizens from neighboring countries. The largest groups are from India, Pakistan and Bangladesh. These three markets provide about 70% of all foreign workers in the UAE and 50% in the KSA.
In addition, Egypt has 1.5 million nationals in the KSA and 0.5 million in the UAE. Other significant populations include:
It is estimated that less than 3% of all foreign workers are Western nationals.
| India | Pakistan | Bangladesh | Egypt | Yemen | Philippines | |
|---|---|---|---|---|---|---|
| Kingdom of Saudi Arabia | 1.9 | 1.8 | 2.1 | 1.5 | 1.8 | 0.7 |
| United Arab Emirates | 4.8 | 2.1 | 0.9 | 0.5 | — | 0.9 |
| Total | 6.7 | 3.9 | 3.0 | 2.0 | 1.8 | 1.6 |
Employees usually switch jobs for personal reasons. A meaningful salary increase and new career opportunity often is enough for people to think about changing employers. If the job offer comes from an organization in another country, other factors come into play, including:
Unsurprisingly, the largest groups of foreigners in the Middle East are from countries with significantly lower pay levels. The relative pay premiums are quite different between laborers/ support staff and professional positions.
Figure 3 lists countries that have the largest combined expatriate communities in the KSA and UAE. Additional countries are included for reference purposes.
| Home market | Median market pay rate, as a percent of home market |
|---|---|
| Pakistan | 844% |
| Egypt | 519% |
| India | 450% |
| Philippines | 346% |
| Bangladesh | 287% |
| Indonesia | 281% |
| Jordan | 214% |
| Turkey | 144% |
| Italy | 54% |
| France | 51% |
| United Kingdom | 50% |
Clearly, pay levels for manual workers in KSA and UAE differ significantly in comparison to workers’ home markets. For India and Pakistan, the guaranteed salaries in KSA and UAE are 8.4 and 4.5 times the Middle East levels, respectively. Although some benefits may be lost and living costs are higher, the tax-free income makes these GCC markets very attractive.
Manual workers from many Western European nations have little to no reason to move to the Middle East, as they enjoy high salaries and social security benefits in their home countries. Relocating would mean a roughly 50% reduction in their pay. Also, local employers have little reason to pay the premiums needed to attract well-paid Western European manual workers.
Among knowledge workers, Middle East market salaries have reached levels that are attractive — even for well-paid Western talent. This is especially true for middle-management roles, where tax-free guaranteed pay can be 150% to 200% higher than gross salary in their home countries (Figure 4).
| Home market | Median market pay rate as a percent of home market, at the ‘professional’ level | Median market pay rate as a percent of home market, at the ‘middle manager’ level |
|---|---|---|
| Pakistan | 581% | 468% |
| Egypt | 521% | 581% |
| Bangladesh | 386% | 325% |
| Philippines | 353% | 326% |
| India | 271% | 297% |
| Indonesia | 317% | 277% |
| Turkey | 156% | 191% |
| Jordan | 153% | 181% |
| Italy | 132% | 199% |
| France | 116% | 176% |
| United Kingdom | 104% | 149% |
As a consequence, we see an increased representation of ‘western’ expatriates amongst the mid and senior level roles.
Because the local labor markets attract talent from countries with vastly different home salary levels, GCC markets are forced to test the principle of paying the same salary for the same job. Additionally, local nationals often command higher market premium stemming from a combination of requirements for hiring local nationals and a relatively limited local talent pool.
GCC countries have legal requirements that enforce employment quotas to increase the hiring of local nationals. These localization targets differ by country as well as industry. As a result, employers often hire locals at a higher cost compared to available foreign workers. For example, the minimum pay for local nationals in KSA raises the starting salary to a level that often is 200% higher than that of low-paid foreign workers. Pay differences are especially noticeable in manufacturing and industrial sectors. Hiring foreign workers from low-paying countries can save a company up to 70% in costs. Such savings are too significant to be ignored and are crucial for industries that rely heavily on manual laborers and have low profit margins. However, prioritizing profit may clash with Saudization quotas.
The GCC is challenged to create a pay and sourcing strategy that meets legal requirements of minimum employment quotas for local nationals, aligns with pay principles, and maintains long-term business profitability.
The GCC has the highest proportion of foreign workers compared to any other region or major economy in the world. This leaves many global and regional leaders unprepared to manage associated talent and pay challenges. Despite specific nuances, there are certain steps organizations can take and questions to consider.
01
Consider broader compliance needs and business goals, along with several questions:
02
Enhance decision-making data by going beyond basic market-practice and pay-level comparisons. Consider premiums by function, location of the talent source and the cost implications of different sourcing strategies. Be willing to adjust pay premiums according to your talent and strategy.
03
CEOs often say that human capital is their most valued asset. If this is true, then the skills and experience of your workforce are the currency to unlock this value.
04
By global standards, pay levels in the Middle East are relatively high, particularly at the middle and upper levels. This allows organizations to select candidates from a broader international talent pool.
Companies often avoid discussing their pay strategies and policies because they either are poorly defined or applied inconsistently. In the Middle East, there often is a lack of focus or experience in dealing with the unique challenges of labor diversity and pay issues.
A well-considered approach can clearly define the right pay strategy and boost effective communication with employees. In addition, many studies indicate that fair pay enhances employee satisfaction and retention.
The dynamics in the Middle East offer opportunities to ensure employees feel valued and respected. Addressing salary concerns thoughtfully can lead to positive outcomes. And, by understanding these unique dynamics, organizations can “pay their way” to effective management.
