Markaz publishes report on policies to involve Kuwaitis in private sector

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Markaz publishes report on policies to involve Kuwaitis in private sector 26 - Jun - 2012

In the third publication of its “Towards Sustainable Economic Development” series, Kuwait Financial Centre K.P.S.C. “Markaz” has recently published a policy research titled “Policies Towards Involving Kuwaitis in the Private Sector.” The research explores the best means to involve Kuwaiti work force into the private sector as it systematically analyses successes and limits of past Kuwaitization policies from an economic and administrative perspective.
 
 
 
Mr. M.R. Raghu, Head of Research at Markaz said: “The third report of our economic policy series tackles the significant issue of Kuwaitizing the private sector. Some 25,000 young Kuwaitis join the labor force every year. It is obvious that the government will be unable to absorb all new entrants in the long run. An increasing share of Kuwaiti jobs will have to be created by businesses.”
 
 
 
Mr. Raghu pointed out that, “Markaz has initiated its economic policy research in cooperation with  IFRI, a leading Paris-based research institution that specializes in energy studies; also, we commissioned studies with policy research scholars from the London School of Economics and from Princeton University in the United States.”
 
 
 
 
 
 
 
The report brings together the Kuwaitization perspectives of all key stakeholders: government, businesses and Kuwaiti citizens, aiming to find solutions that are politically acceptable and sustainable for all three. It also makes use of the experience of all other GCC countries in labor market reform and nationalization policies from several strategic cases.
 
 
 
Markaz’s report also stresses the urgency to find an effective Kuwaitization solution, noting that the implications of the issue extends to the long-term fiscal health of a country where most national employment continues to be provided by the government at an ever-increasing cost; the challenge to make Kuwaiti nationals partake in and direct their country’s economic development and diversification process; and the future of the often tense relationship between the local private sector and the citizenry.
 
 
 
The report delves in the issue to provide the following core findings:
 
 
 
·         As wages, work conditions and labor rights make public sector employment more attractive for Kuwaiti employees, and make the employment of expatriates more attractive for employers in the private sector, Kuwaitization of private employment is undermined from two sides. Unless this structural tension is resolved and the gaps in labor cost and conditions are narrowed between different segments of the labor market, market forces will undermine Kuwaitization, be it openly or informally.
 
 
 
·         Past attempts at Kuwaitization have often neglected these underlying market forces and have aimed at Kuwaitization “by decree”, most notably through the imposition of national employment quotas in different sectors and professions. While these have led to some increase in the share of privately employed nationals, they have also led to shirking, “phantom” employment, the emergence of informal markets and an uneven and inefficient distribution of costs across companies.
 
 
 
·         The government’s more market-oriented policy solution, namely the provision of subsidies for privately employed nationals seems to have contributed significantly to narrowing the earnings gap between public and private employment, while avoiding the firm-level interference in labor markets that has made quota rules such a problematic tool that does not account for the labor market’s supply and demand as well as the productivity of its human resources.
 
 
 
Moreover, the Markaz report concludes with the following policy recommendations:
 
 
 
·         Both supply of and demand for skilled national labor can and should be improved, but this will require policies that go beyond labor market regulation strictly speaking and involve a reform of both public sector employment and national migration policy.
 
 
 
·         In the future, the Kuwaiti government should consider a move away from “Kuwaitization by decree” towards a more incentive and price-based Kuwaitization policy. This could combine fees and subsidies in a more comprehensive and systematic fashion, ideally by levying lump sum fees on foreign labor to finance subsidies for national labor.
 
·         A larger-scale renegotiation of the distributional bargain in Kuwait should be considered. While it would be politically impossible (and arguably morally problematic) to significantly reduce the distribution of oil rents to Kuwaiti citizens, the channels of distribution should be reformed so as to disentangle public employment from rent distribution.
 
 
 
·         The State could disentangle public employment from rent distribution through the guaranteed provision of an unconditional “citizens’ income” to all Kuwaiti adults in exchange for a drastic reduction of public sector recruitment. Such a form of direct distribution would be fairer, more transparent, easier to administer, better for the quality of public administration in the country and much less distortive of labor market and education incentives for nationals.
 
Markaz has stepped in with the initiative of conducting research in public policy in collaboration with leading experts in this area, amidst high global oil prices, which renders the need for formulating credible public policy that focuses on sustainable development a key initiative. Markaz believes that such initiatives will enable Kuwait through a sustainable development path by introducing economic substance that aims to advocate public debates and address the formidable social transformation of the region as the GCC region rarely had serious advice on public policy matters – other than commercial advisory studies.
 
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About Kuwait Financial Centre “Markaz”
 
Kuwait Financial Centre K.P.S.C. 'Markaz', established in 1974 with total assets under management of over KD 888 million as of March 31st, 2012, is the leading and award winning asset management and investment banking institution in the Arabian Gulf Region. Markaz is listed on the Kuwait Stock Exchange (KSE) since 1997 under ticker Markaz.