x Abu Dhabi, UAEFriday 19 January 2018

Sponsorship reform will help local economy

The country's current sponsorship system is a weight on the economy's efficiency and ability to innovate.

The Minister of Labour, Saqr Ghobash, said this week that while the sponsorship system in the UAE will not be abolished, the nation should consider changing many of its practices. 

Mr Ghobash is right and not only because workers in this country would benefit from reform. The country's current sponsorship system is a weight on the economy's efficiency and ability to innovate. While concerns for workers' welfare are obvious, the impact of the sponsorship system on local companies' bottom lines is also compelling. Many businesses report that they would rather hire workers from abroad, with all the costs that this entails, than recruit workers from the UAE.

How can this be? Difficulties with non-objection certificates and competitors that place work bans on former employees mean that there are high costs in terms of time and inconvenience for companies trying to hire locally. Recruiting workers from a continent away can be cheaper than navigating though a sea of red tape. While labour laws were designed in part to make it difficult to transfer from job to job, this was supposed to help employers, not hurt them.

It is also in the best interests of the UAE and its economy to keep the talents of workers whose skills it has helped to develop in the country. "It is expensive to train workers to fully understand how business works here," said Mohammad Khalfan, a businessman in Dubai. There is a certain type of knowledge that can only be developed from living in the UAE and learning its customs, laws and practises.

A cycle of having employees work for three years only to return to home - and be replaced by someone with little institutional or cultural knowledge - is inefficient. An efficient labour market depends on competition, not just between individuals competing for jobs, but among firms competing for the services of individual workers. A lack of competition in the labour market keeps wages and productivity low. And as Mr Ghobash noted this week, low wages are a deterrent to Emiratis joining the workforce.

But it is entrepreneurs who are perhaps the most disadvantaged. As Sultan Al Qassemi has noted in these pages, there are already many barriers to starting a new company in the UAE; the sponsorship system is a major added impediment. Small companies may have big ideas, but they are unlikely to have big budgets to recruit workers from abroad, or to hire someone with enough expertise to navigate employment laws. It is difficult to imagine how the country can have a knowledge-based economy without more entrepreneurs and without fundamental reforms to its sponsorship system.