x Abu Dhabi, UAEWednesday 24 January 2018

Rising wages in India and Philippines may hit UAE

Rising wages in Asia mean Gulf companies may face difficulties hiring foreign labour.

Job losses related to the regional economic downturn eased bottlenecks in the labour market.
Job losses related to the regional economic downturn eased bottlenecks in the labour market.

Companies across the Emirates could be forced to raise salaries as a result of wage increases in India, the Philippines and other Asian markets.

Accelerating inflation is putting companies in India and elsewhere under pressure to edge up wages to satisfy workers.

"Sustained higher wages could affect the region's ability to attract new workers in the medium to long term," said Marios Maratheftis, the head of western hemisphere research at Standard Chartered.

Workers from India and the Philippines have been an integral part of the region's development, including in construction and the services sectors.

Companies recruiting low and semi-skilled staff have already had to pay more to hire from abroad in recent years as wages and conditions improve in workers' home countries.

Job losses linked to the downturn in the region helped to ease bottlenecks in the labour market.

Signs are emerging, however, that firms may begin to face pressures once again.

Salaries in India are expected to rise 12.9 per cent this year, up from 11.7 per cent last year, according to a survey by Aon Hewitt this month. Chinese salaries may rise 9 per cent, with those in the Philippines increasing 7 per cent. Wages are moving up in line with faster economic growth.

The minimum wage for low-skilled Indian workers arriving in the UAE was last month raised by between 40 and 50 per cent (to what), under an agreement with the country's government. More than 5 million Indian expatriates live in the Gulf, with a significant number employed in construction. A significant number of the eight million Filipinos working abroad are based in the Gulf.

The UAE building contractor Al Shafar General Contracting has already pushed up pay in recent years because of higher wages in India and more competition among other Gulf states.

"We are having to offer higher salaries, more incentives and other benefits like overtime pay," said Bishoy Azmy, the company's chief executive.

The pressure to raise wages is likely to intensify, say economists.

"Sectors in which the Middle East has strong demand for foreign labour … are growing rapidly in India, so over the longer term there is a risk that the Middle East will find it harder to attract labour from India," said Anjalika Bardalai, the India economist of the Economist Intelligence Unit.

Higher pay in Asia is not expected to feed through into a significant rise in inflation in the Gulf, however.

Interest rates in the region remain low as policymakers in dollar-pegged economies track monetary policy of the US Federal Reserve.

The consumer price inflation (CPI) rate in the UAE is forecast by the IMF to reach 4 per cent this year.

By contrast, India, China, the Philippines and other Asian economies have already raised rates in an effort to tame galloping CPI. India's CPI rate jumped to 9.4 per cent in the nine months up to December last year.

The fastest inflation in a decade led to thousands of workers from across the country in February to protest about rising prices and low wages.