Omani government efforts to generate employment opportunities for its citizens increasingly rely upon reducing the number of foreign residents in the country. The Ministry of Manpower extended a six-month ban – initially launched in January 2018 – on expatriate work visas in 87 professions and then widened the scope of affected professional roles in November 2018. Government statements suggested that the ban produced more than 26,000 jobs for Omani citizens. However, this supply-focused manner of local employment generation comes at a high cost for expatriate residents both in Oman and across the Gulf states where similar policies are implemented.

High unemployment rates remain a key factor underlying Omanization policies, a broad labor reform agenda intended to improve the quality and quantity of jobs available for Omani citizens. The World Bank estimates youth unemployment among Omanis at 49 percent, highlighting the urgency of employment initiatives in the sultanate. Citizens constitute approximately 60 percent of the country’s population, and Omanis between the ages of 15 and 29 represent 44 percent of the local population.

Traditional approaches for mitigating unemployment issues in the Gulf – namely increasing public sector wage bills by absorbing citizens into government jobs and granting generous social benefits for citizens – are not long-term, viable solutions for Oman. The country’s projected budget deficit for 2019 represents a weighty 9 percent of gross domestic product, and the government plans to finance 86 percent of the deficit through local and foreign borrowing. Therefore, Oman has favored new policy measures that further manipulate labor markets to benefit national job seekers.

Certain policy measures aim to make the country less attractive to expatriate residents. For example, the government will hike medical exam fees for expatriates by 200 percent in February. The Ministry of Housing also announced that non-Omanis holding land in specific areas of the country must transfer their property to Omani citizens within two years following Royal Decree 29 of 2018. The decree further restricts real estate availability for Gulf nationals and other expatriates, both of which can legally own property in select areas and under certain conditions.

Other initiatives permit the Omani government to more closely monitor private sector hiring practices and control staffing processes. As part of efforts to employ between 40,000 and 50,000 citizens over the next five years, the Ministry of Manpower rolled out a new “traffic light” system, which uses red, yellow, and green symbols to monitor employers’ compliance with Omanization policies across the country. The system allows the government to flag companies for workforce audits and freeze hiring processes.

In addition, the government increased Omanization quotas in the industrial, tourism, and travel sectors. Other segments of the economy can expect tougher labor regulations in the near future: Firms operating in the logistics sector must boost their Omanization rates to 20 percent in 2020, up from 14 percent in 2017. Unlike other Gulf Arab states wherein free zones allow firms to evade workforce nationalization requirements, Oman only permits partial labor exemptions within free zones, thereby reducing the ability of firms to circumvent Omanization policies.

The inclusion of construction-related roles within the expatriate hiring ban contributed to a 13.69 percent drop in the number of foreign construction workers during the 12-month period ending in October 2018. The government also expanded the scope of its expatriate hiring ban to include roles in private sector educational institutions. Employers in many sectors across the country will find it challenging to fill gaps in their workforces. Industry stereotypes, social stigmas, and lower wages often discourage Omanis from filling lower-end positions, whereas many Omani job seekers lack the qualifications required for middle-management roles.

Stricter labor policies could lead to broader ramifications for human capital and financial flows across the region. The number of expatriates in Oman decreased by 96,000 between January and July 2018. Indians, Bangladeshis, and Pakistanis account for a disproportionately large portion of the approximately 2 million expatriates in the country. Remittance outflows from Oman, which fell 4.8 percent between mid-2016 and mid-2017, are expected to have declined even further in 2018. Similar labor trends in other Gulf Arab states mean that expatriates cannot easily relocate to neighboring countries.

For example, Saudi Arabia levies two “expat fees”: expatriates must pay 100 riyals ($27) per month for each dependent – the fee increases by 100 riyals annually – and firms are subject to additional fees based on the ratio of foreign employees to total staff. A campaign launched by the Ministry of Interior in November 2017, which targeted expatriates violating labor and residency laws, led to an exodus of hundreds of thousands of foreigners. Yet the departure of 234,000 expatriates from Saudi Arabia in the first three months of 2018 coincided with increasing unemployment rates among Saudis, illustrating the complex nature of supply-side labor reform initiatives. The extension of work expatriate visas from one to two years, as announced on January 9 by the Ministry of Labor and Social Development, reflects a recognition that rapid labor reforms can serve as obstacles to private sector growth.

Meanwhile, Kuwait’s government requested the formation of a national committee on demographic management. The committee’s primary task would involve a reduction in the expatriate population by 1.5 million over the next seven years to achieve a demographic balance between Kuwaiti citizens and foreign residents. Under the proposed plan, Kuwaitis must replace 10 percent of expatriate employees in the public sector and 5 percent in the private sector each year.

The United Arab Emirates has adopted a slightly different approach to labor reforms. On November 24, 2018, the Cabinet approved a long-term visa system that permits investors, entrepreneurs, specialized professionals, and promising students to acquire five- and 10-year visas. However, some experts argue that the reforms exclude the majority of the UAE’s expatriate residents and predominantly benefit affluent and highly educated foreigners. Indeed, investors and entrepreneurs must demonstrate a minimum investment of $1.4 million to receive a five-year visa. This demand-focused approach links the visa process to proven investments and high-potential professionals. The UAE’s small local population, which constitutes just 8 percent of the total workforce, and reputation as the region’s entrepreneurial hub, affords the government greater flexibility when developing labor policies.

While the UAE has loosened restrictions on a narrow selection of expatriates, other Gulf Arab states have tightened labor and immigration restrictions on foreigners. Short-term measures to replace expatriate workers with Gulf Arab citizens are likely to affect long-term economic growth and diversification processes, but the precise impact remains uncertain. Wealthier Gulf Arab states with small local populations would do well to closely monitor how strict labor policies pan out in Oman and Saudi Arabia in 2019.