BAC was quoted in a labour market survey of the construction sector in Emirates 24-7 earlier this week. The article can be viewed online here.

BAC’s Commercial Manager was quoted in The National newspaper earlier this week in a story about the gradually improving situation in the recruitment market. The article can be viewed online here.

An opinion piece by BAC’s Commercial Manager about our recent market survey and possible future market trends was published in yesterday’s Emirates Business 24-7. You can read the article online here.

Last week we released the results of our company survey. This was well reported in Emirates Business and on several online news sites. The report was also covered on City 7′s Inside Business program, which can be viewed online here.

The summary of findings was as follows:

Employers in the UAE and GCC are significantly more positive about hiring and the business environment than at this time last year, according to a corporate survey conducted by BAC Middle East. The survey was sent to individuals with significant involvement in or responsibility for the HR and recruitment processes of their organisation. The responses were gathered from over 250 UAE and GCC-based companies from all major sectors, ranging from blue chip multinationals to leading local firms and SMEs. The responses indicated a general sense of cautious optimism and improving employer sentiment.

Attitudes towards the business environment were positive overall. 59% of respondents described themselves as “fairly optimistic” about the year ahead, with 31% and 5% describing themselves as “optimistic” and” “very optimistic” respectively. This is a significant change from last year’s survey in which pessimism was more commonly reported than optimism.

In terms of the outlook for employment, 54% of respondents stated that they expected their organisation to undertake some hiring this year, up from 37% in 2009, while 35% indicated that they will “possibly” engage in recruitment in 2010. Only 11% of respondents ruled out any hiring in the next 12 months: a significant reduction from 27% last year.

The gradual return of employer confidence was also indicated by the 52% of respondents who anticipate an increase in their local staffing levels in the year ahead, up from 36% in early 2009. Only 6% of surveyed companies predicted a reduction in their staffing levels, down from 9% last year. Siobhan O’Reilly, Recruitment Manager at BAC Middle East, commented on these results:

“The general mood amongst employers is much improved from this time a year ago. While firms remain cautious relatively few of them anticipate definite hiring freezes or further redundancies. No-one is getting carried away but there is a sense that the most difficult period is now behind us.”

Despite the more positive sentiment amongst employers, they expect the market to remain heavily client-driven and are even more confident than last year regarding the balance of power in the labour market. Only 23% of those surveyed expect skills shortages in 2010, down from 32% last year; while two-thirds expect the balance to shift even further in favour of employers. As a result, 76% of respondents expect ‘no significant change’ in general salary levels over the coming year, with only 21% anticipating any increases.

“It will be very interesting to see how employers’ perceptions change over the course of 2010,” said Siobhan O’Reilly. “The general expectation seems to be that the market will remain highly client-driven and may even move further in that direction. However, we are starting to see early signs of candidate shortages in some key areas and the return to growth could result in acute skills shortages more rapidly than anticipated. Of those candidates who were made redundant in 2009, a significant number have either already found alternative employment within the region or have made the decision to relocate, thus reducing the pool of locally-available talent. We do not anticipate a return to the candidate-driven market of early 2008 but clients should probably not expect labour market conditions this year to follow the same pattern as 2009.”

Daniel Ough and Dubai Eye very kindly invited me back onto their weekly careers slot last week. The podcast is now online if anyone would like to hear it. Simply follow the links to ‘Dubai Today’ and go to the January 10th podcasts.

Mercer have released the results of a recent survey on the regional labour market and they are generally very positive. The headline figures that caught our attention were the following:

About 56.4 per cent of the surveyed companies are planning to increase their workforce in the coming year. Of these, one in five said they will increase their workforce numbers by at least 20 per cent. (…) Most firms surveyed (87.2 per cent) said they have no plans to reduce headcount in 2010.

These figures tie in with the increased sense of optimism in recent months. 2009 has been a challenging year, but we are increasingly confident that 2010 will be a better year for our clients and candidates.

BAC is quoted in Emirates Business 24-7 twice today. The first article is related to prospects for the Middle East recruitment market compared to other regions, while the second relates to the potential impact on this region of tax changes in the UK.

In recent weeks we have been asked by some international clients for our opinion on the business prospects for Dubai, the UAE and the GCC region in the wake of the recent furore regarding Dubai World’s debt. Despite the hyperbole of some sections of the international press, the reaction of our clients has generally been calm and considered. Of all our current vacancies for companies in Dubai and the region, only one has been directly impacted by recent events. In our opinion this is because a huge amount of de-leveraging has already occurred in the UAE economy this year and the new economic realities have largely been factored in by local and regional companies.

Our judgement is that the more extreme journalistic interpretations have rested on some crucial misunderstandings. The first is an assumption that the Dubai economy consisted purely of a real estate and construction bubble. Given the scale of the development in recent years this is understandable, but it crucially misses the other sectors of the Dubai economy which pre-date the real estate phase and serve as the real basis of the economy. A number of commentators have not adequately assessed the role of Dubai as a trading, distribution and commerce centre within the wider region.

The second misunderstanding is the assessment made on where Dubai is in the recovery process. A number of commentators have interpreted the Dubai World situation as the sudden onset of an economic adjustment; whereas the process has actually been underway for a year and is being worked through. The debt and organizational restructuring of the concerned entities will be a difficult process, but are occurring against the backdrop of a resurgence in the core economic sectors mentioned above. We have seen this manifested in a gradual but steady improvement in the recruitment picture since the lowest point during the summer.

Another common error in reports has been the assumption that Dubai’s situation is in some way unique or unprecedented. Admittedly there was an unsustainable boom in the Dubai real estate sector, but it should be noted that this was only one of many serious asset bubbles that formed leading up to the credit crunch and the scale of Dubai’s debts are minuscule in comparison to the writedowns and credit losses already sustained globally. It should also be pointed out that Dubai’s sovereign debt is actually at very low and manageable levels. The problems are primarily related to non-sovereign debt: the debts of parastatal companies where an important element of caveat emptor must apply, especially as Dubai World’s founding law clearly stated that there was no sovereign guarantee on any issued debt or obligations.

As William Buiter, (recently-appointed Chief Economist at Citigroup), has put it:

I don’t see what the big deal is.  Dubai has experienced for most of this decade the craziest construction boom seen in the Middle East since the construction of the Great Pyramids.  That boom turned to bust – as booms invariably do.  Property developers tend to be highly geared and very procyclical in their revenue flows and access to the capital markets.  During construction slumps they drop like flies.  Because the property sector is risky (ask Donald Trump), its creditors tend to get better interest rates than the sovereign rate.  Dubai is no exception to this rule.  If you earn a risk premium during good times, you should not moan when the borrower defaults from time to time when the going gets tough. (…) The debt of the Dubai World Group and of Nakheel was not Dubai sovereign debt or sovereign-guaranteed debt. (…)The government of Dubai is under no legal or moral obligation to provide an ex-post guarantee of the debts of the Dubai World Group and Nakheel.(…) Fortunately, property companies don’t fall into the systemically important category.  Their collapse is painful for their shareholders, creditors and, if the local labour markets are weak, their employees.  They are not, however, systemically important.  Their collapse will not threaten the delicate fabric of financial intermediation. 

Even if one does take into account the full extent of all sovereign and parastatal debt, Dubai’s debt-to-GDP ratio is not an international outlier. The nervousness of international markets had a lot to do with an uncomfortable awareness of this fact. To quote William Buiter again:

Public debt to GDP ratios are rising everywhere, and are likely to top 100 percent of annual GDP by 2014 in the US, the UK and in the Euro Area.  Structural public sector deficits and primary government financial deficits are at unsustainable levels in many countries, including France, the UK and the US.

In summary, having been operating in the UAE and the region for 30 years, we freely admit that 2009 has been a very challenging year. However, we remain confident that 2010 will see an improved business climate. There are a number of factors which we believe will allow Dubai to emerge from these difficulties with a more streamlined and productive economy. As a business destination it continues to enjoy the advantages of a relatively flexible labour market; low levels of tax and regulation; and excellent infrastructure and transport links. It remains a highly commercial and business-friendly environment in a resource-rich and wealthy region. From a debt management standpoint it does not face the issues of an aging population or high dependency ratios. In addition, as the economic distortions caused by the real estate boom are gradually worked through, the decline in living and business costs has made Dubai far more competitive again from a cost standpoint, after the rapid wage and price inflation of previous years threatened to make the city unaffordable for new business ventures. We are not denying that challenges still remain, but some perspective needs to be maintained.

BAC was quoted in Emirates 24-7 last week on the topic of staff turnover  and the level of risk-aversion amongst candidates. The full article can be found here.

The declaration of the private sector Eid Al Adha holiday for Thursday 26^th November caught a number of people and companies by surprise. There did not seem to be a standard policy response amongst the companies that we deal with. Some companies closed their offices on the Thursday only; others on Thursday and Sunday; while a number of companies were open on the Thursday but closed from Sunday through Tuesday this week. This situation puts both companies and employees in a difficult position. Employees feel aggrieved if they believe that they have not received their full due of public holidays, while employers are torn between trying to maintain company morale and avoiding the loss of valuable potential business.

The UAE Labour Law is actually quite specific on the number of public holidays applicable for the private sector: Article 74 stipulates a total 10 days of public holiday per year. The difficulty arises when the dates of the holidays fall on a weekend as the Labour Law is largely defined in terms of a 6 day week with Friday as the standard weekly rest day (Article 70), despite the fact that a 5 day week is now followed by the majority of companies as per international norms. In addition, if the declared holiday period falls on a Friday, there is no allowance made in lieu.  This means that depending on where events fall in the week, the amount of additional public holidays actually enjoyed by employees can vary greatly from one year to the next. A possible solution to this would be to amend the Labour Law as follows:

“Each worker shall be entitled to official leave with full pay, in addition to their standard weekend as defined in their employment contract, on the following occasions (…) For the avoidance of doubt, if the event in question falls on the employee’s standard weekend, the additional leave shall be granted on the day(s) immediately following the weekend.”

Obviously this is only a suggestion and this is a decision that can only be made by the relevant authorities, but perhaps this might be a workable system for the future.