Manufacturing in the GCC
Oil has given the Gulf economies a very unique structure, which complicates comparisons to traditional economies. In particular, hydrocarbon income has played a large role in creating labor forces wherein nationals constitute a minority, a rare occurrence. An additional GCC idiosyncrasy is the small proportion of nationals that perform manual labor in manufacturing plants, despite the large contribution of the industrial sector to the economy (over 50% of GDP), which is primarily driven by petrochemicals. There are several reasons for Gulf nationals’ dislike of manual labor, among them the Bedouin culture, which confers low social status upon those who practice such activities.

In the period before the current oil price crisis, nationals had many alternative job opportunities open to them, especially white collar work in the public sector, which allowed nationals to avoid the industrial work that they tended to hold in low regard.

However, the current economic climate is forcing the Gulf societies to restructure their economies, with an emphasis on creating job opportunities outside the public sector. In their Economic Visions, each of the GCC governments is trying to develop its non-oil industrial sector, as they look to go through a mini-industrialization phase that almost all wealthy countries had to go through, including the US, and the original industrializor, the UK.

Among the other occupations that Gulf nationals have shied away from—due to the abundance of financially and physically comfortable government jobs—is entrepreneurship, as humans typically prefer to avoid the inevitable risks one faces when launching an innovative project, especially those who are not wealthy enough to shield themselves from market turbulence.

In many cases, Gulf nationals work as entrepreneurs on the side, using it as a complementary source of income to the guaranteed remuneration associated with a public sector job. Given that the Gulf economic visions seek the transition to a knowledge economy, and an increasing role for innovation in the economy, the GCC countries should be pushing their citizens toward entrepreneurship.

What are the key considerations for prospective industrial workers and entrepreneurs? Economists Christopher Blattman (University of Chicago) and Stefan Dercon (University of Oxford) recently published a paper titled: “Occupational Choice in Early Industrializing Societies: Experimental Evidence on the Income and Health Effects of Industrial and Entrepreneurial Work,” wherein they discussed an experiment that they conducted in Ethiopia. They cooperated with five manufacturing companies to gain a better understanding of the occupational choices of normal citizens.

The paper started by citing the traditional advantages associated with blue collar work, specifically job stability, the opportunity to gain new skills and experience, and sometimes superior remuneration. The authors also mentioned the disadvantages, including health risks, and possibly the need to withdraw from fulltime education due to time constraints, which hurts long-term income. In contrast, flexibility of work hours is considered an advantage of entrepreneurship, which facilitates studying in parallel to earning a living.

In the experiment, the researchers enrolled 1,000 unemployed people who had applied to one of the five collaborating manufacturing companies. In a third of cases, which were determined using randomized control, a factory job was offered to the applicant. In the second third, the applicant was offered the opportunity to participate in a training program for new entrepreneurs, and they were also given a substantive financial grant to start their own project. The final third were offered nothing.

The goal of offering assistance to entrepreneurs was to facilitate start-ups. Existing studies point to the existence of many young people in developing countries who are able to launch and manage small commercial projects that allow them to subsist, but are capital-constrained, and are lacking knowledge about the basic starting steps.

The two authors expected the young applicants to prefer factory work for the aforementioned reasons, and thought that entrepreneurship would be no more than temporary relief during periods of unemployment.

In fact, the opposite emerged, as the youths successfully made use of the entrepreneurship opportunity, realizing an income that exceeded what the factory was offering. Further, entrepreneurs exhibited superior health outcomes than the factory workers, who suffered from a variety of physical pains brought about by the arduous nature of the manual work. This pushed many to quit their factory jobs a short time after starting, while others used blue collar work as a way of making a living when no alternative was available, or during periods of lean entrepreneurial earnings, caused by the ups and downs of the market.

In the case of the Gulf economies, the experiment highlights the importance of tackling the barriers to small-scale youth entrepreneurship. There is a potentially pivotal role for private efforts that complement government ones, such as the Bahrain Youth Pioneer Society’s “Chance” program, which aims to tackle the informational barriers faced by young prospective entrepreneurs.

The research also draws attention to the importance of long-term health considerations when the GCC countries evaluate potential industries, rather than basing decisions exclusively upon short-term economic factors.

August 2017
« Feb