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Restructuring labor force for New Kuwait 2035
December 23, 2017, 4:50 pm

Faced in recent years by a growing youth population and unprecedented fiscal constraints, the government is increasingly acknowledging that restructuring the national workforce is critical to growth and sustainability of the economy in the years ahead.

A new study finds that implementing effective labor reforms on their own can bring about significant fiscal savings and other benefits to the government, while also developing a labor force more adapted to the needs of a 21st-century marketplace in an increasingly competitive global arena.

The study, titled’ Increasing Private Sector Employment of Nationals in the GCC; Labour Policy Options to the Rescue’, was compiled by Tri International Consulting Group (TICG) — a tri-party joint venture formed by Kuwait Investment Authority, the first sovereign wealth fund in the world, Kuwait Fund for Arabic Economic Development, the first Arab international development institution and Oliver Wyman, a global management consulting firm.

The report, which provides in-depth insight into the labor market challenges affecting the GCC economies, highlighted the need for suitable policy measures that achieve a more balanced labor market for nationals across the public and private sectors. Combining short-term palliative measures alongside broader long-term labor reforms will bring substantial fiscal benefits for Kuwait, as well as other GCC states, said the report.

The study suggests several measures that governments can pursue, including increasing attractiveness of private sector to young nationals; enhancing the employability of youth in the GCC; and promoting key skills that a young national labor force will need to have in order to improve their competitiveness in the marketplace.

The report found that in Kuwait, around 23,000 nationals enter the labor force every year. Historically, over 80 percent of them have chosen  to enter the public sector, favoring the job security it provides, as well as other benefits, including higher salaries from entry-level, lower working hours, less demanding job environment and several other perks 

To reduce the pressure exerted on government finances by a large public sector workforce, there needs to be a concerted effort to transition Kuwaiti nationals towards the private sector. According to the report, this transition into the private sector will not only reduce the burden of public wage bill to the budget, but also provide the government with more leeway to reform its economy towards greater sector diversification.

“Labor market reform is now a key pillar in Kuwait’s Economic and Financial Sustainability Plan, and we see ample opportunities for Kuwaiti nationals to shift into the private sector through short-term initiatives by the government,” said the report’s co-author Jeff Youssef, General Manager at TICG and Partner, Oliver Wyman Middle East.

“Sustaining high levels of human capital productivity and a flexible and dynamic labor market, which can adapt to technological change, is fundamental for global economic integration among Kuwaiti nationals. This requires an extensive and far-reaching reform plan across the labor market, the economy, and the education system,” added Mr. Youssef.

Authorities in Kuwait are aware of the importance of introducing needed labor reforms and of its integrality to Kuwait’s development strategy, New Kuwait 2035. The strategy, which was launched in January 2017, acknowledges that the country’s already bloated public sector cannot continue to absorb the annual influx of young nationals, and that the private sector will be critical to providing suitable employment and a rewarding career to youth in the long run.

Currently, around 85 percent of Kuwaitis in the labor force are employed in the public sector with only 15 percent joining the private sector. Latest data from the Public Authority for Civil Information (PACI) show that at the end of 2016, out of a total workforce of 445,480 in the public sector, 317,169 (71%) were Kuwaitis and 128,311 (29%) were expatriates. Meanwhile, in the private sector, Kuwaitis accounted for only 57,956 (4%) of total employees while the number of expatriate employees stood at 1,421,263 (96%).

This severely lopsided nature of employment among nationals in the public and private sector is increasingly becoming unsustainable. In its recent report, the International Monetary Fund (IMF) noted that less than 25 percent of Kuwaitis entering the workforce in the future will be able to find government jobs. Reiterating this view, the World Bank, which is collaborating with the Ministry of Education in Kuwait to enhance the country’s educational sector, has urged authorities to increase the pace of improving school curricula and teaching modalities, so as to ensure Kuwaiti youth remain competitive in a fast-paced global economy. 

The government has in recent years been encouraging the private sector to increase job opportunities for national manpower, and has also been providing training opportunities for young Kuwaitis to gain requisite skills needed to make them employable by private firms. State funding is also being used to create an ecosystem that supports entrepreneurship and facilitates the growth and development of startups.

In 2013, the government established the National Fund for Small and Medium Enterprise Development (NFSMED) with a capital of KD2 billion to finance up to 80 percent of capital requirements of enterprise projects submitted by Kuwaiti nationals, subject to a maximum of KD500,000 per project. In a further bid to encourage entrepreneurship among youth, the Manpower and Government Restructuring Program also agreed in October 2016 to pay salaries equivalent to similar public sector posts to all Kuwaiti entrepreneurs setting up small and medium enterprises through the NFSMED.

While it is hoped that measures adopted by the government will encourage a young cadre of nationals to start their own business, even more important to the success of New Kuwait 2035 will be reshaping attitudes among young Kuwaitis to employment in the private sector.

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