Savings of expatriates in the GCC countries are very important to the economies of their countries through remittances. They are also important to the Gulf economies, especially since remittances are considerably increasing year after year as a result of the increasing number of expatriates and high living standards in the GCC.
A decade ago, a call was made to find the necessary channels to attract a proportion of these savings and invest them in the GCC countries in an attempt to reduce remittances that increase at an annual average of 10-12 per cent. Statistics show that remittances stood at $55 billion (Dh201.96 billion) last year, against $40 billion (Dh146.88 billion) registered in 2008, and thus it would be vital to re-inject part of these transfers into GCC economies.
Although some of these approaches were embraced, such as allowing expatriates to work in the Gulf stock markets and easing restrictions on real estate investing, other approaches still hold some reservation.
In 2003, the idea of establishing retirement funds for expatriates was introduced.
The World Bank came after almost 10 years to put the same proposal last week, calling on the GCC States to establish such funds, which are considered effective investment institutions in many countries in the world. Since the new proposal comes from the World Bank, perhaps it will be welcomed nowadays, as it comes from a UN institution that seeks to provide advices to its member countries.
Although this step is important if taken, it is a must to learn from the experiences of retirement funds and the official pension and social security institutions operating in the GCC States at present, where the experience of 10 years pose great importance to the proposed institutions. The existing GCC pension funds continue to work thanks to the generous government support, noting that some of which suffer from chronic actuarial deficit because they lack clear investment vision, some even do not have such a vision.
Accordingly, the proposed regulations for expatriates cannot work in the same currently followed method, otherwise it will constitute burden on the annual budgets of the GCC countries, thus requiring more professional perceptions concerning the work method of these funds, which are supposed to embrace the same method followed by the private sector, so as to help stimulate the financial and investment sector and the overall development in the GCC countries.
In principle, there is a need to harness the savings of expatriates working in GCC to serve the issue of development and reduce remittances by opening up more investment channels to attract these savings, including small amounts, by the establishment of pension and social insurance funds for foreign workers in the GCC.
At the same time, it is must to adopt new principles by these funds to avoid shortfalls associated with those existing at present, particularly the absence of investment policies, which are necessary to develop financial capacity and avoid chronic actuarial deficit.
This simply because retirement and social insurance institutions are social assistance entities, but developmental institutions that can play an essential role in the development of capital markets and contribution to the setting up of projects that help increase growth and create more jobs.
Such development aspects are still completely absent from the activities of GCC pension funds, and even the limited activity carried out by some of these funds in capital markets during the second half of the past decade was characterised by the spirit of speculation and led to raising some stock prices artificially, causing indispensable losses to these funds.
This happened due to the absence of transparent and clear investment vision, therefore it is necessary to embrace such investment policies based on sound and professional grounds and far from conflicting interests, which affected the interests of some funds in the past, necessitating the state intervention to save them.
Regarding the proposal submitted to the World Bank, the Gulf private sector can take up this task dictated by the stage of development of the GCC States which requires utilising the financial capacities of both citizens and expatriate residents to boost the development process with new investments that would contribute to increasing growth rates, implementation of more development projects and creation of more job opportunities-demand for which is on an increase in the GCC.
Yet, the GCC’s private sector can take part in this mission, with the support of the Gulf State by providing it with the needed facilities and the multi-faceted non-financial support.
