Saudi Arabia's Deportation Of Foreign Workers Will Exacerbate Middle Eastern Economic Weakness

Senior Fellow Emeritus

As Saudi Arabia struggles with high unemployment among men, the kingdom has launched a deportation campaign characterized as the Middle East’s largest in recent history. According to comments made by Saudi Arabia’s Interior Prime Minister Prince Mohammed Bin Nayef, the kingdom has already expelled over 60,000 workers and sources outside the kingdom estimate that an additional 2 million workers could follow.

What is doubtful is whether this sweeping labor market experiment can lower unemployment rates in this Middle East kingdom of 29 million people. It is highly unlikely that Saudis will take the menial jobs now occupied by foreign workers. While U.S. and European expatriates dominate high-skilled jobs, the overwhelming majority of foreign workers in Saudi Arabia are low-skilled, working in domestic services, cleaning, and agriculture. South and Southeast Asians from developing nations such India, Pakistan, Philippines, Bangladesh, Indonesia, and Sri Lanka fill these jobs. From the Middle East, foreign workers come from Egypt, Yemen, Jordan, and Lebanon, also developing countries.

What is not doubtful, however, is the negative economic impact that the Saudi kingdom’s extensive deportation of foreign workers will have on the economies of emerging nations. Foreign workers send enormous amounts of money back home to their families and communities while they work abroad. Saudi remittances going to developing nations constituted $27.5 billion in 2012, just under U.S. Official Development Assistance (ODA) to all poor countries of $30.5 billion. Saudi Arabia is the second highest sender of remittances after the U.S. at $103 billion, with Canada following in third place at $15.7 billion.

Remittances have been a little-known lifeline to the world’s most disadvantaged. The least appreciated of financial flows to the developing world, they are the second highest after private capital investment, and are over one and one-half times greater than government aid from all developed countries.

For a long time, remittances were simply a line item in balance of payments tables. With the globalization of the economy and greater movement of labor worldwide, the monies that migrant workers send back home are now being counted. These massive financial flows help households purchase basic goods, pay for education and healthcare, fund businesses, and create jobs that reduce poverty abroad. Remittances are even being used to securitize loans for entrepreneurs starting new businesses in emerging economies.

On the macro level, remittances are a vital source of foreign exchange for governments, as they help finance developing countries’ current account deficits, thus improving their balance of payments and credit ratings.

One of the most resilient financial flows, remittances fell less than other flows after the global recession of 2008. Moreover, they regained their positive momentum the following year and continued to grow. Remittances from developed to developing countries are expected to grow at an average rate of 8.8 percent in 2014.

The New York Times has called remittances to Latin America, “the largest and most direct poverty reduction agent in the region.” World Bank research has verified the positive impact on poverty reduction. Now that development agencies and governments are paying attention to these resources, programs to lower the cost of sending remittances have taken hold. Corporate and government initiatives that match migrants’ contributions to local development projects in their home countries are also underway.

The global development community is soon approaching the 2015 U.N. Millennium Development Goals, the ambitious targets for achieving economic and social progress in developing nations. It is no wonder that policy makers are planning to make remittances and migration an integral part of the post 2015 development agenda.

It makes sense for Saudi Arabia to take a closer look at its labor policies. The high unemployment rate in the kingdom will not be significantly lowered by expelling low-skilled foreign workers. The $27.5 billion sent from foreign workers in Saudi Arabia to help their home countries prosper, however, will be significantly lowered, if not eliminated.