Inflation and talent shortages drive up wages but increases could ease with influx of Western expats

Private sector salaries in the Persian Gulf region have increased by an average of 11.4 per cent over the last year, according to a recent salary survey.

The study by GulfTalent.com, a Middle Eastern online recruitment firm, found the United Arab Emirates (UAE) had the highest increases from August 2007 to 2008, at 13.6 per cent, followed by Qatar at 12.7 per cent.

Salaries in Oman increased by 12.1 per cent, while average increases in Bahrain were at 10.5 per cent, Kuwait saw increases of 10.1 per cent and Saudi Arabia had increases of 9.8 per cent.

All six markets saw higher pay increases than last year. However, most of the increases were below the projected rates of inflation for 2008. The one exception is Bahrain, where the average salary increase of 10.5 per cent is marginally higher than the nine per cent inflation rate forecast for the country this year.

Across the region, the frantic pace of growth in the construction and energy sectors escalated demand for engineers, who received the biggest average pay rises. This was followed by finance professionals in second place, largely due to the rapid expansion in the banking sector.

The study found salary increases were driven by talent shortages and the increasing cost of living, particularly in housing costs. Following global trends, food prices have also soared this year, helping bring double-digit inflation to virtually all the Gulf countries.

Large salary increases for public sector employees and increasing salaries in India, the Gulf's main source of expatriate professionals, also contributed to the region's high salary increases.

According to the report, the region’s ongoing war for talent is forcing employers to adjust not only their salaries, but also their working practices.

Many companies with six-day workweeks, including many in the construction and retail sectors, have switched to shorter five-day weeks in an effort to improve staff retention. The trend is expected to continue towards further consolidation of the five-day week, bringing the region inline with much of the rest of the world.

2009 Outlook

Most human resource managers surveyed by GulfTalent.com reported aggressive recruitment targets over the next 12 months, and the majority expected 2009 salary increases to be similar to those in 2008.

The study cautions that beyond the next few months, the upward pressure on pay rises may start to ease — depending on the strength of the American dollar, the depth and severity of the expected downturn in Western markets, and the extent to which the downturn spreads to developing economies, including India.

Given the current economic gloom prevailing in the US and Europe, the report highlighted the possibility of a flood of Western-based professionals to the region, including those of Arab or Muslim origin. Employers’ ability to benefit from this trend would vary, however, depending on the sector, location within the region, and management’s ability to attract and absorb a Western talent pool, said the report.

Source: http://www.hrreporter.com/loginarea/members/viewing.asp?ArticleNo=6411