DUBAI — The 12 per cent inflation, mainly due to high rental fees, seen for this year in the UAE and the rising cost of living that exceeds pay increases made annual salaries climb to 10.7 per cent this year compared to 10.3 per cent in 2006, according to a study released yesterday by GulfTalent.com, a regional internet recruitment portal.
The study, Gulf Compensation Trends 2007, said that aside from costly living expenses, sustained economic growth and intense competition for talented workers among companies were key drivers of pay rises in the Gulf states, particularly Qatar and the UAE.
It also said the continuing fall of regional currencies pegged to the weakening US dollar (against the euro) was eroding the value of compensation packages for European expatriates in the six-nation Gulf Cooperation Council (GCC).
Noting that salaries in Kuwait have been competitive, with the latest appreciation of its currency at three per cent, against those in its neighbours since it abandoned the US-dollar peg, the study said this "may intensify the pressure on other GCC countries to follow suit". It quoted 41 per cent of UAE-based expatriates surveyed as saying that they made no savings on their income, which is the highest in the Gulf, due to high rent levels and increasing prices of commodities over the last few years.
But having attractive career opportunities and modern infrastructure and facilities, the UAE has remained popular prompting employers to attract a number of professionals and skilled workers from around the globe. The country's commercial capital of Dubai is the favourite destination, mainly due to many job vacancies and a liberal society.
"This is allowing UAE-based employers to continue to attract and retain professionals with below-inflation pay rises, albeit with greater difficulty than previously," said the study.
Based on 18,000 professionals and interviews of businessmen and human resource managers in the Gulf, the study also said that construction, banking and energy were the sectors enjoying the highest pay rise in the region while healthcare and education registered the lowest increases.
It said that engineers and finance employees received the biggest pay rises across the GCC region, followed by human resource professionals.
"Historically under represented in the region, the HR function has recently been catapulted to the frontline as Gulf-based employers grapple with the challenge of attracting, developing and retaining staff," it said.
It noted that the 15 per cent pay rise for public sector employees in Oman helped the country register the biggest jump in salary increases to 11 per cent from 5.6 per cent. It said that recent government decision to allow expatriates to change employers has likewise prompted companies to increase salaries.
The pay rise in Bahrain jumped to 8.1 per cent from 6.4 per cent while Kuwait's was almost the same at 7.9 per cent compared to eight per cent last year, the study said. Wages in Qatar, on the hand, rose by 10.6 per cent, which is lower compared to last year's increase of 11.1 per cent. In Saudi Arabia, salaries increased to 7.7 per cent this year as against 6.5 per cent in 2006.
The study said that solid economic growth and rising salaries in India, which is the main supplier of workforce to Gulf countries, as well as the easing of rules on expatriates changing employment in some GCC countries also contributed to pay increases in the region.
"With government controls no longer protecting employers against staff attrition, many are forced to raise pay levels to retain their employees," it said.
It stressed that the lack of skilled workers has stunted the growth of many companies as they turned down new business opportunities or missed the delivery of new projects.
It warned that this could limit overall growth in the non-oil sector and hamper the region's plan to diversify investments to other industries such as tourism and manufacturing.
"The long-term impact for the market could be to impede growth of start-up companies, lead to smaller companies merging with larger enterprises and discourage new entrepreneurial ventures," the study stressed.