Yemen and the GCC: Benefits of Labor Market Integration

From the coast of the Red Sea to the western edges of Oman, Saudi Arabia is constructing a 1,100-mile patchwork of sandbags, fences, and electronic detection systems along its border with Yemen. The kingdom is rightfully concerned about its southern neighbor, which presides over a deteriorating security situation and the world’s second-largest stockpile of weapons — a combustible combination. Thousands of drug smugglers and arms traffickers have slipped across the border into Saudi Arabia, which has witnessed a recent spike in terrorist attacks launched by Yemen-based militants.

By sealing its border with Yemen, Saudi Arabia pursues its immediate security interests but fails to address the root causes of instability in Yemen — where nearly half the population lives below the poverty line. Rather than inhibiting the cross-border movement of Yemeni citizens and workers, Saudi Arabia should work to better integrate Yemen and its labor force into the region’s economy. Indeed, Saudi Arabia and the Gulf Cooperation Council (GCC) states can play a crucial role in stabilizing Yemen, and the Arabian Peninsula more broadly, through increased labor market integration.

Saudi Arabia has historically held its doors open for Yemeni workers, who entered the kingdom without visas and provided a source of cheap labor for the oil-rich country. The kingdom hosted more than a million émigré Yemeni workers during the 1980s. However, when former Yemeni President Ali Abdullah Saleh failed to condemn Iraq’s invasion of Kuwait in 1990, Saudi Arabia and the neighboring Gulf monarchies expelled their Yemeni workers. Nearly one million Yemenis returned to their homeland, but the government’s inability to absorb the deported workers triggered a subsequent economic downturn and contributed to the 1994 civil war.

Once again, Yemen is faced with a new wave of expelled workers as Saudi Arabia deals with an employment crisis at home. Approximately 200,000 Yemeni workers have already been deported since March, and on November 4, planned government raids on businesses and shops brought eerie silence to the streets of Riyadh. As the crackdown continues, the flood of repatriated nationals could plunge Yemen into deeper economic crisis.

However, it is not too late to get Yemen back on the road to recovery. The GCC must help by welcoming Yemeni workers into its labor market. Although it may be an unpopular move due to security concerns, labor market integration in the Gulf will bring long-term prosperity and stability to the region. Europe’s recent experience with economic integration demonstrates the positive impact of labor mobility on new member states’ economies and political systems.

Fifteen years after the fall of the Berlin Wall, eight former communist states in Central and Eastern Europe — the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, and Slovenia — entered the European Union (EU). During that period, the prospects of EU integration had attracted considerable foreign investment and incentivized policymakers to carry out democratic and market-oriented reforms based on the Copenhagen Criteria. The criteria stipulated that candidate countries must build stable democratic institutions that guarantee the rule of law, human rights, protection of minorities, and the existence of competitive market economies. Over time, the economies of the post-Soviet states improved — unemployment fell, living standards rose, and budget deficits shrank. Democratic institutions also began to emerge. Today, as Western Europe suffers from an ongoing financial downturn, Estonia, Slovakia, and Slovenia are helping to bail out their western neighbors.

Drawing lessons from the EU enlargement process, granting Yemeni workers access to the GCC labor market could help jumpstart economic recovery in Yemen and stabilize the broader region. First, the inflow of remittances could save Yemen from its looming economic collapse. According to the Sheba Center for Strategic Studies in Yemen, Yemeni expatriates sent home around $1 billion in remittances in 2010. Yemen’s deputy finance minister, Jalal Omar Yaqoub, estimated that remittances could generate twice the combined benefits from foreign aid, free trade, and debt relief. Bypassing corrupt and bureaucratic channels, remittances sent home directly can support families and improve their financial welfare.

Second, the GCC can provide job opportunities for Yemeni workers in the private sector. In Yemen, around 35 percent of the population remains jobless, and the youth unemployment rate is close to 50 percent. Moreover, the country is dealing with a host of existential challenges, including food insecurity, water shortages, and extreme poverty. To lift Yemen out of this cycle of scarcity, the GCC must help by extending work visas and permits to Yemeni workers, who exhibit linguistic and cultural affinity with their GCC neighbors and are willing to work in low-wage jobs that are traditionally filled by non-nationals.

Some in the GCC have expressed concern about importing Yemeni labor at a time when GCC countries are contending with high unemployment rates among nationals. According to the International Monetary Fund (IMF), roughly 30 percent of Saudi young people were jobless in 2012, and fears of a disgruntled populace have pushed Riyadh to increase the quota for Saudi nationals to fill private sector jobs.

Although the kingdom is contending with its own employment crisis, absorbing additional laborers from Yemen will not harm its economy. On the contrary, Yemeni workers, who typically fill low-skill jobs that Saudi nationals do not desire, have historically provided an abundant source of cheap labor that boosted growth in the Saudi private sector. To achieve sustained growth, GCC markets need to generate jobs for their own job entrants. But they also need to fill job positions in sectors that are unpopular among GCC nationals, such as construction and agriculture.

Finally, the GCC can follow the EU model and use its labor market as leverage to push for necessary institutional reforms in Yemen. For instance, Saudi Arabia and other GCC members could encourage the Yemeni government to establish clear business regulations and laws that criminalize bribery. They could also push Yemeni policymakers to institute a government ID system to strengthen border security. Not only can the ID system alert security officials if traffickers exit or enter the country, it can also facilitate tax collection and allow GCC employers to conduct background checks on their potential hires. The institutional reforms that tackle both economic and security concerns will inevitably attract investments from countries in the Gulf, especially those that host a substantial Yemeni diaspora population.

Saudi Arabia and the GCC know all too well that a failed state in Yemen is a threat to regional security, which is why in 2011 the GCC helped Yemen achieve a political settlement and rescue it from the brink of a bloody civil war. Now, the GCC is hesitant to lend a hand when it comes to addressing Yemen’s socioeconomic woes. By fencing the border and expelling émigré Yemenis, Saudi Arabia is alienating its impoverished neighbor and exacerbating the current crisis. Instead, Saudi Arabia and the GCC should bolster Yemen’s economy by integrating its workers, as Gulf security is ultimately contingent on an economically stable Yemen.

Abdulwahab Alkebsi is the regional director for MENA and Africa at the Center for International Private Enterprise (CI
PE).