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Remittance risks and skills training
It is becoming increasingly evident that remittance inflow from Middle Eastern countries is likely to be adversely affected. Bangladesh sent a record 832,000 people abroad in 2007, most ofwhom chose to go to the oil-rich Gulf countries after skyrocketing crude prices led to a construction boom in the Middle East. Bangladeshi migrant workers are mainly exported to the Middle Eastern countries along with a small percentage (6-7 percent) to Southeast Asia. According to a Danida report, a majority of the migrant workers that go to the aforementioned regions are unskilled workers, employed, mostly as menial labourers and construction workers.
In fiscal 2006, approximately 63 percent of remittances came from Middle Eastern countries, followed by the US and UK, which sent around 29 percent combined. Also in 2006 (the most recent data available), UAE was the number one destination country for Bangladeshi migrant workers, followed by Saudi Arabia. Therefore, considering that a majority of remittances come in from the gulf region, a slowdown in their economies, will most likely adversely affect remittance inflow.
After previously insisting that the oil-rich Persian Gulf region was fully insulated from financial troubles abroad, the Emirates' Central Bank made $13.6 billion available on September 22 to ease credit problems, echoing the bailouts in the US and other EU countries. Already, some bankers are saying it is not enough.
Spiralling oil prices -- six years of high oil prices -- dramatically increased demand for cheap labour in the Middle East, as construction and infrastructure developments increased. However, oil prices, that reached an all time high of $147 in mid July this year, started declining due to the dwindling global demand driven by the US recession prices have fallen by more than 50 percent since June, to its lowest level in 21 months to $54.67 a barrel at the beginning of last week Effects of the dramatic fall in oil prices have already seeped into the Gulf s booming real estate sector and construction industry, which is expected to weigh heavily upon demand for unskilled labour.
The chart below from Fitch Ratings details the breakeven oil prices in the Gulf States. These numbers have risen in recent
years, but not with exploration and extraction costs, but with higher country-level program expenditures causing higher oil prices to be required to balance their budgets.
Bahrain has the highest breakeven price of the group, followed by Saudi Arabia.
Dubai's six-year property boom appears to be over, with asking prices for some homes falling as much as 19 percent in October from the previous month. Earlier, there was a lot of speculative building in Dubai as developers often got bank loans to put down 10 percent on a property that had not yet been built, only to flip it for a huge profit to another buyer, who would do the same thing, and on and on. 1 hat was easy to
do when housing prices were surging so fast that some properties multiplied tenfold in value in just a few years. However, under current circumstances, some of Dubai's more extravagant building projects are likely to be dropped if they do not already have financing lined up. The credit crisis could also reduce demand from buyers, who will have a harder time getting mortgages.
Dubai stocks have taken a pounding, driven down by property and financial shares. The Dubai Financial Market finished last week down 62.7 percent, year to date. Shares in Emaar Properties PJSC. the region's largest developer that is partly a government-owned developer and is building the world’s tallest skyscraper in Dubai, finished down almost 79 percent from its 52-week high in January. Furthermore, according to a Reuters' press release. Damac Holding. Dubai’s largest private property developer, declared last week that it will be cutting 200 jobs, or 2.5 percent of its workforce. The downturn in Middle Eastern
economies, that employs a significant manpower base from Bangladesh, will certainly slow the pace of growth of the country's manpower exports and consequently remittance inflow.
In fact, recent Bangladesh Bank remittance figures already show some signs of slowing according to central bank data, remittance inflow from Saudi Arabia fell by 4 percent in September from the previous month Also, as stated in a November 4 Financial Express news article, in October, the number of overseas jobs came down to 76,000, some 22 percent less than the highest monthly figure in June.
In fiscal 2008, 17 percent of remittances came in from the US alone, the second highest after Saudi Arabia. After the UAE in third, the UK is the fourth largest remittance country for Bangladesh with just over 11 percent. It is clear that discretionary spending in both the US and the UK is collapsing with perhaps the largest vulnerability being in the Indian restaurant sector.
While the risks for manpower exports to decline by more than $ 1 billion in 2009 from this year's total, the long-term prospects remain bright In a detailed 2006 report. Danida suggested that Bangladesh's manpower exports could reach $30 billion by 2015. However, to capture the market, we have to invest in human capital through education and training. Most Bangladeshi migrants are young, male, unskilled, aged between 15-30 and poorly educated. Only 10-20 percent are certified vocationally trained and less than 10 percent general college graduates are exportable, framing has become a necessity with the structural shift towards activities demanding higher skill and emergence of automation. With the current deficiency in vocational training, training Institutions serving targeted labour pool such as mason, cleaner, fabricator, carpenter and garment operators or even nurses which can create higher value-added manpower exports. The recently unveiled National Skills Development Council is a welcome step in the right direction.
The writer is the managing partner at Asian Tiger Capital Partners and can be reached at ifty islam@at-capital.com.Budget balance (X of GOP) Breakevw Brant price (USttt 2007 2008e 20091 2008* 20091
Abu Dhabi 25.5 31 3 6.6 31 40
Kuwait 40 6 27 8 13 6 42(21)a na
Saudi Arabia 16 9 24 5 4 0 50 54
2 2 5 2 2 2 74 70