Sunday, February 25, 2007

McKinsey interviews Minister of the Economy Lubna Al Qasimi

Full interview here (free reg.req.). Some extracts:
The Quarterly: Many outsiders see limits on foreign ownership and the UAE's agency law as outmoded and unnecessarily restrictive. What plans do you have to change this? (Under the current system all foreign companies producing and selling goods, services, or both in the UAE must do so through a UAE-owned partner.)

Sheikha Lubna: What we've done is to launch a study looking at sectors where we believe the contribution comes solely from foreigners, or at least very little from locals. So with that in mind I think parts of the law might undergo change. Depending on the sector and the Emirate, foreigners might be allowed to hold controlling shares in these ventures. Having the agency law, however, does not mean that we have excluded all foreigners from majority ownership. The whole idea of creating the 23 free zones and special economic zones throughout the UAE was to offer 100 percent foreign ownership.
The Quarterly: How concerned are you about the unemployment rate among nationals and the extent to which foreigners dominate the labor market?

Sheikha Lubna: The UAE is, perhaps, the only country in the world where foreigners dominate the private sector, both as employers and employees. In almost all countries that allow immigration, the rule is that foreigners are only allowed to take up jobs when suitably qualified nationals are not available.

Expatriate workers will obviously continue to play a vital role in our economy, but it is unacceptable that 22,000 nationals are either unemployed or underemployed. The private sector therefore cannot be left unregulated. Hence the Emiratization program, which establishes a quota system for nationals in certain sectors. The strategy will only succeed in the medium to long term, though, if adequate educational and training programs are geared toward creating skills among nationals to suit the demands of the private sector....
The Quarterly: What are the major risks for the UAE over the next three to five years?

Sheikha Lubna: Number one is obviously the political stability of the region. Anything that happens to one of our neighbors has implications for us. We are all investors in and exporters to Lebanon, for example, so when it was brought to the ground, the efforts of the past ten years were completely demolished.

I've talked about labor in another context, but when you have such a mix of people they sometimes bring their political problems with them. So far the UAE has been very good at managing these differences, but that doesn't mean we should just take it for granted.

I don't think the price of oil will threaten the development of the UAE economy—the inflow of FDI shows it is working—but a more concerning issue is inflation triggered by the high oil prices and booming economy.

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Blogger EclectEcon said...

I would guess that the expected marginal benefits of job search are quite high and the expected marginal costs are quite low for nationals -- a sure recipe for a high natural unemployment rate.

3:12 AM  

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