Gulf countries urged to improve labour standards as construction investments surge

In a new report, the International Labour Organization (ILO) has rebuked governments in the Middle East for low labour standards, particularly in the construction sector.

Oil-rich countries of the Persian Gulf are taking on megaprojects that employ millions of expatriate workers and cost billions of dollars. The ILO said that despite some improvements, low oil prices have resulted in delays in payments to workers and unsafe work conditions.

The 40-page report, Exploratory study of good policies in the protection of construction workers in the Middle East, comes at a time when a group of new leaders are taking over in the Middle East. Many of them are trying to make their mark by launching major construction projects. Countries of the oil-rich Gulf Cooperation Council (GCC) - Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Bahrain and Oman - are investing heavily in labour-intensive projects such as sporting stadiums, educational institutions, condominiums and even new cities.

Qatar is hosting the football World Cup in 2022 and has started major projects that include an underground rail system and a series of hotels and high-rise buildings. The country says it is spending $500m a week on major infrastructure projects ahead of the tournament.

Prince Mohammed bin Salman

Prince Mohammed bin Salman

In Saudi Arabia, the new Crown Prince Mohammed bin Salman has kickstarted a plan to build a $500bn mega-city, called NEOM, extending into Egypt and Jordan.

Egypt’s Abdel Fatah Al-Sisi is building a new city with huge buildings and hotels, called The New Administrative Capital.

The construction sector in the GCC alone surged 30 per cent in 2017, according to a study by the Dubai-based MENA Research Partners, pushing the sector’s current projects to an enormous $2.6tn. 

Despite surge in construction activity in those nations, the ILO report states that laws to protect labour are still inadequate.

“There needs to be commitment on the part of the governments to improve the workers’ lot. Not just to pass laws but to ensure that they are enforced in a fair and just manner

Selvamalar Alagaratnam, Senior Vice-Chair of the IBA's Employment and Industrial Relations Law Committee

The report says low-skilled workers ‘face risks relating to flawed recruitment, late payment of wages, dangerous working and living conditions, and may have limited access to effective dispute resolution'. It warns that construction workers are vulnerable to exploitation, including forced labour.

Construction companies are resorting to extensive subcontracting and to outsourcing through labour supply companies. This has kept workers distanced from the original contractors, and subcontractors cannot often get paid until the main contractors collect payments first. That mechanism has resulted in major pay delays for workers at the bottom of the supply chain. This has also opened up workers, mostly from developing nations in Africa or Asia, to interruptions when a supplier goes bankrupt or when there’s a dispute over payment.

Saudi Arabia has seen several protests by construction workers over non-payment or salary delays. Saudi companies such as Jabal Omar Development Company and Binladin Group have been hardest hit with labour protests over the past three years.

Because of low oil prices, Riyadh started state spending cuts late in 2015. Many Saudi builders who work on government projects were forced to delay payments for workers. Like in Saudi Arabia, most construction businesses in the countries of GCC depend heavily on the government for their cash flow.

Jill Wells, author of the ILO report and Senior Policy Adviser at Engineers Against Poverty, says better legislation solved similar problems in other countries. ‘Abolishing such “pay when paid” systems, as has already been done in the United Kingdom and other countries and adopting other innovative solutions such as a ring-fenced project bank account which allows subcontractors to get payment after completion of work, can offer a safeguard for workers, helping to ensure they are paid on time,’ she says.

The report notes some positive developments but says they do not go far enough. Qatar and Kuwait both introduced wage protection systems in November 2015. Seven months later, Qatar reported that 1.5 million of the 1.7 million migrant workers in the country moved to the new system. Doha also developed penalties such as fines, visa restrictions, and possible prison terms for managers whose companies do not follow the new system.

Qatar Rail stipulated that 80 per cent of workers on its projects must be directly employed by the contractor or the main subcontractor, a measure that shortens the supply chain. Qatari company QDVC also reports cases where, as a main contractor, they have directly paid the salaries of subcontractors’ workers, when the subcontractor failed to do so. 

Saudi Arabia has adopted a similar wage protection system, but it only applies to companies with at least 3,000 workers, meaning coverage leaves out hundreds of thousands of other workers.

The problem in Saudi Arabia, the largest GCC country in terms of population in particular could worsen given the government’s push towards even more austerity measures. During previous downturns and oil price slumps, Riyadh used to give advance payments; a practice that is not happening now.

Rights groups estimate that there are some 24 million foreigners working in the 6-nation GCC bloc.

The ILO recommends that the GCC countries pass legislation requiring all public-sector clients to pay tier one contractors within 30 days of the valuation date and charging automatic interest on late payment. The organisation also called for rapid adjudication to resolve disputed items in payment applications and ensure freedom of association for migrant workers, as well as worker representation at company level.

Selvamalar Alagaratnam, Senior Vice-Chair of the IBA's Employment and Industrial Relations Law Committee, agreed with such advice but said she wasn’t sure the freedom to organise would benefit workers in the Middle East. ‘I am ambiguous about whether freedom of association will help. From local experience, migrant workers are reluctant to get involved in unions,’ she says.

She stressed the need for no-cost legal action if workers want to through a mechanism whereby an aggrieved worker can make a complaint or commence an action, under a process that is speedy and inexpensive.

‘In Malaysia, there is almost no cost involved if a worker commences an action,’ says Alagaratnam, who practises law in Malaysia.

Alagaratnam noted that laws will have little impact if governments do not push them. ‘New laws or structural reforms will be worth nothing if there is no political will to ensure that such changes are enforced in an effective manner,’ she tells Global Insight.  ’There needs to be commitment on the part of the governments to improve the workers’ lot. Not just to pass laws but to ensure that they are enforced in a fair and just manner, without fear or favour.’

Patrick L Benaroche, Vice-Chair of the Employment and Industrial Relations Law Committee of the IBA, believes the priority should be to look holistically at rights in the region.

‘Before we can credibly address labour rights, we need to make sure that fundamental human rights are being respected for these workers,’ Benaroche says. ‘It is a hierarchy of needs, and without minimising the need for labour reform, I think we need to consider whether the environment in that region first requires more fundamental reforms such as respect for the rule of law, freedom of expression, access to justice, etc. While labour law reform will help, it won’t be sufficient in my view.’