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Dubai's competitive edge at risk due to high labour cost |
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3/4/2006 8:34:46 AM |
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DUBAI — The high cost of employing foreign labour in Dubai presents a serious challenge for the emirate's competitive advantage in the region, according to several businessmen and executives interviewed by Khaleej Times.
The revised visa processing fees structure introduced in July last year by the cabinet decision number 19 has added to the burdens of entrepreneurs, and increased the cost of setting up a business in Dubai compared to other regional players.
The code stipulates that companies in Dubai are classified into 3 categories A, B, and C, according to their compliance with the emiratisation quota decreed by the Ministry of Labour.
For corporations of scale, the amounts required to set up a successful business model in Dubai can be massive, given the fact that the labour market in Dubai is relying almost completely on imported talents and skills.
The picture is even gloomier when it comes to small and medium businesses, as some are forced to tap the illegal labour market, while others resort to deducting the cost from the labourer's package.
There can be no doubt that visa processing fees constitute a major source of revenue for the government in the short-term, given the fact that on average there are some 20,000 visas of different types and categories processed every day. However, in the longer run, Dubai can be loosing ground to other ambitious regional players.
According to a source in the Naturalisation and Residency Department, the employment visa or permit accounts for almost one fourth of the number of visas processed every year.
The department, which issues employment visas or permits to foreign nationals seeking to work in the country, after the approval of the Ministry of Labour, collects nominal charges, whilst the bulk of the charges go to the Ministry of Labour.
"In today's global economy, competition necessitates cost effective business models, and if we are to compete on regional and international levels, we need to thoroughly revise many traditions," a businessman told Khaleej Times suggesting that the government can require a company to deposit a minimum amount of capital to be able to employ or import labour.
"This is quite common in many places of the world seeking foreign investments, but what is not so common is such high charges for employing people, it negates free market practices," he added.
Other businesses seek the solution in automating processes, hence cutting the labour costs. Nevertheless, the majority is hurdled by such fees, which even limit their prospects of expansion.
"If this country needs to diversify sources of income by encouraging non-oil sectors such as tourism, real estate, or manufacturing, a serious consideration of these fees is crucial," said another businessman.
Another irritant, according to the business community, is the halt of issuing new visas to garment factories employing workers from the Indian sub-continent, which has dealt a major blow to the sector.
In general, the garment manufacturing business is going through a very bad phase, with only 10-15 per cent making profit, while the rest are recording losses. Some smaller players are said to be on the verge of folding up and leaving, while others are questioning the logic behind setting up a business in such expensive place.
This was echoed by another businessman, involved in a different industry. One of the owners of a large local business house, which has diversified interests in Dubai, said that his company has been barred from bringing Pakistani workers for one of its enterprises, and was encouraged to hire Filipinos instead.
"They (the Ministry of Labour) call it diversification of cultures, but as far as the company is concerned, we cannot hire a skilled Pakistani national and have to employ a Filipino worker and teach him the whole stuff, which is both time and money consuming," he lamented.
A source in the Labour Ministry commented that the new structure was fair enough and if companies complied with it, they would not have problems. He said: "Some employers are just playing this card to justify non-payment to their labourers."
Administered by the Federal Ministry of Labour, labour law in the UAE is loosely based on the International Labour Organisation's model. The UAE Law No 8 of 1980, as amended by Law No 12 of 1986 (the Labour Law), governs most aspects of employer/employee relations, but more recently there were calls to further enhance and liberalise the labour market in the country, to meet the criterions qualifying for the successful conclusion of international free trade agreements.
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