MENA LABOUR MARKETCONFIDENCE INDEX ‘14

Findings from the MENA Labour Market Confidence Index and Why It Matters to You?

A Joint Research Initiative by Informa and The Talent EnterprisePage 1

A Special Report by Informa Middle East & The Talent Enterprise The MENA Labour Market Confidence Index 2014 represents the voice of over 1250 organisational and HR leaders from across the region expressing their views some of the key indicators of employment, wages, youth employability and nationalisation. Conceptualised and led by Informa, the region’s leading organiser of quality conferences and training, and The Talent Enterprise, the region’s premier human capital think and do tank, this flagship study is the first and largest of its kind, unmatched in scope and scale, in gathering opinions from experts from across the region.

We are grateful for your participation in this first MENA Labour Market Confidence Index and are proud to present the main findings to you. We also look forward to your continued support as we move forward with next year’s analysis and working with you as partners in steering our direction forward as we progress in this most exciting of times to shape the future of work in this most exciting of regions.

The talent landscape across the region is being dramatically transformed at a scale and pace of change that is unprecedented in the region’s history.

The region is currently facing some extraordinary opportunities and challenges in its labour markets. With its projected levels of economic growth, an unprecedented increase in

its youth population, some of the fastest rates of increase amongst female participation in the workplace in the world and dramatically changing patterns of immigration, the region is currently a laboratory for labour market reform. Most governments continue to invest in their education systems and to transform their employment sector in efforts to diversify their economies towards those fueled by their human resources.

‘The dynamics of demography in the Arab Region have created some of the most intense pressures on labour markets observed anywhere in the post-World War II period.’ – World Bank.

We launched the MENA Labour Market Confidence Index at this point because we feel that there is no bigger business and policy issue in the MENA region right now than how we successfully unlock the talent of our growing workforces. We also believe that not only is this a pivotal point in the region’s ongoing development, but also because our workplaces and labour markets are dramatically different than elsewhere in the world. Hence, we cannot continue to import ‘best practices’ from other parts of the globe, without taking into the region’s economic and socio-cultural perspectives. We need more regional research and data to have the information and courage to make our own decisions.

The unique features of the MENA labour markets underlie its future economic progress. It also single-handedly impacts the strategic priorities, decisions and choices being made by policy-makers, business leaders, HR professionals and all those living and working in the region.

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KEy ChARACTERISTICS of ThE GCC’S LAbouR MARKET

Source: Unlocking the Paradox of Plenty, Motivate Books.

Our collective choices and actions as organisational and HR leaders underlies the economic progress and future development of our nations.

As people professionals, we need to make different choices and create a new legacy. Today, many organisational and HR leaders are dealing with more complicated, challenging questions than the ones faced by our predecessors. Instead of focusing on traditional ‘personnel’ issues, these new questions address core business issues: Where should we build a new plant in Saudi Arabia in order to enable us to increase our employment of nationals? Should we hire more males or females in our new facility? What is my best source of talent? Why is our turnover rate in Qatar so high? How do I continue to make sure that my expatriate workforce is delivering their best levels of productivity, despite the growing priorities to focus on local talent development in Abu Dhabi?

Without doubt, our effectiveness as HR professionals depends on an integrated and holistic view of labour market trends and how its impact on how we attract, engage and retain talent.

Answering questions like these require new data and fresh thinking. Importantly, it calls for a deeper understanding of the overall labour market and economic trends in addition to better understanding your own organisation.

Being an HR professional is no longer good enough. Today’s business and indeed HR leaders have to think more like an economist - as someone who studies and directs the allocation of finite resources. In a more competitive, globally networked economy, talent is one of those scarce resources. This is even more so in labour markets of our region.

The key in today’s market for talent is differentiation in terms of your people strategy and employee value proposition. Attracting female employees to work in your Al-Kharj plant or ensuring Emirati nationals choose to stay with your organisation in a market characterised by intense competition depends on how well you understand your labour market, and how strongly you can adapt your people practices and policies to speak the right language to your target constituency.

The Middle East talent landscape will continue to evolve and policy makers and organisations that keep abreast with the on-going transformation underway will stand to gain immensely. A largely reactionary approach would prove to be ineffective as governments and employers will struggle to keep up with the rapid change which has already begun.

1. overall outlook: An Indication of Confidence

Number in Focus: 45%* *of organisations believe that the overall growth outlook has improved for the better in the past 12 months.

In the first ever survey of labour market sentiment across the region, organisational and HR leaders from across the region showed a clear indication of confidence with regards to both the overall economic outlook in their countries as well as the growth prospects within their organisations, with approx. ~45% believing that things have improved for the better in 2014!

This is a clear sign of the overall economic buoyancy across the region and a generally expansive outlook, especially after the recovery of the region from the global financial crisis as well as the Arab Spring. Though each country in the region was impacted by both events either directly or indirectly, the changes have been far more seismic and pervasive on our labour markets with regards to a renewed focus on economic diversification and localisation.

Counter-intuitively, despite these, approx. 2 of every 10 organisations believe that the level of employee motivation and engagement has become worse than last year.

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oVERALL LAbouR MARKET SENTIMENT in 2014

More than 75% believe that the region’s labour legislation and regulatory environment is progressive, clear and supportive towards employment.

your country's Labour legislation and regulatory enviornment towards employement

Progressive / Clear / Supportive

unfriendly / Vague / unsupportive

25%

75%

Approximately a third of all GCC-based organisations also indicated that the overall outlook has significantly improved over the past 12 months. The UAE led the list with regards to showing clear signs of optimism, much of which could be attributed to the Expo 2020 win. Interestingly, the feelings were consistent in both Dubai and Abu Dhabi. This was followed closely by Saudi Arabia & Oman.

In terms of industry, Hospitality, Retail, Travel & Transportation are most optimistic, with enhanced growth prospects across the region in preparations for large global events within the next decade, expansive government budgets and economic recovery. The Public Sector and Construction are also expansive, whilst Manufacturing remains stable in terms of its relatively stable in comparison to the previous 12 months.

oVERALL LAbouR MARKET SENTIMENT by CouNTRIES in 2014

oVERALL LAbouR MARKET SENTIMENT by INDuSTRy in 2014

2. Recruitment outlook: Cautious yet Expansive

Number in Focus: 421,250+++ *projected number of new employees to be hired in the GCC in the next 12 months, based on responses just from the survey.

Though majority of the organisations voted for moderate and cautious recruitment strategies, the 1251 organisations surveyed estimated a whopping ~half a million new hires in the year ahead.

CuRRENT hIRING STRATEGy

12%

hiring freeze or down-sizing

Moderate & cautious expansion

68%

Rapid expansion& growth

20%

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AVERAGE NuMbER of PRoJECTED hEADCouNT INCREASE by CouNTRy in 2014 - 2015

AVERAGE NuMbER of PRoJECTED hEADCouNT INCREASE by INDuSTRy in 2014 - 2015

3. Employability outlook: one Size Does Not fit All

Number in Focus: 72% *of employers who believe that is relatively easy to source entry-level candidates.

One of the most critical sources of talent for organisations across the region is the quality and availability of entry-level candidates to support the ambitious growth plans and the feedback on the quality of entry-level graduates remained mixed.

oVERALL QuALITy of ENTRy-LEVEL CANDIDATES

National

Expatriate

15%

3%

Below Average

68% 17%

39%

58%

Average Excellent

OVERALL QUALITY OF ENTRY-LEVEL CANDIDATES

There is clearly a lot to be done in fostering work readiness and building critical employability skills to prepare the younger generation for the workplace. This urgently necessitates closer alignment between education and the world of work, and for all key stakeholders to work closer together in matching the supply and demand side of talent. We need to make the most of the demographic endowment available to us. There is only a limited window of opportunity. With over 60% of the population under the age of 30 years in the region (IFC, 2011), the number of children and youth is at an all-time high across the Arab World. According to the UNDP (2010), this “has resulted in the most rapid growth in the number of young people in the region’s modern history”. The talent of young people, and the youth bulge they collectively represent, offers the greatest productive opportunity since the discovery of oil and gas in the middle of the last century. However, having a young working age population is a necessary but not a sufficient condition for enhancing productive capacity required to drive economic growth. Their energy and aspirations need to be channeled in the right direction in terms of developing their skills and providing positive work opportunities.

Small: Less than 1000 Employees Medium: More than 1000 but less than 10,000

Large: More than 10,000

AVERAGE NuMbER of PRoJECTED hEADCouNT INCREASE by SIZE of oRGANISATIoN IN 2014 - 2015

Small

288549

Medium

1510

Large

One of the most compelling findings from the 2014 index was the balanced viewpoints of respondents in terms of current recruitment strategies and projected headcount increases. It is clear that the MENA region’s labour markets are maturing and becoming more complex in their movements. Some geographies, industries and positions are clearly “hot” at the moment, with a scarcity of productive talent

available for recruiters, whilst other areas are languishing, or at best remaining stable. Simple averages in terms of pay and benefits across industries and geographies are increasingly inadequate as a means to describe the complexities of our highly segmented labour markets across the MENA region, where local factors are the main determinant of the talent landscape faced by HR professionals.

Healthcare led the way in terms of expectations of increased headcount, followed closely by Construction and Hospitality, all 3 industries which have been traditionally dependent on expatriate labour as a major source of employment. Saudi Arabia, Kuwait and Northern Emirates in the UAE indicated clear signs of expansion as well. All three of these geographies are increasingly focusing on accelerating regulatory amendments to support nationalisation, reducing their historic reliance on foreign workers. This potential imbalance between supply and demand will make the attraction and retention of talent more challenging in the year ahead and beyond. Also challenging, is the focus on cost control, making it difficult for recruiters for those hot industries, locations and positions to be able to attract and retain experienced national and expat workers.

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AVERAGE NuMbER of PRoJECTED hEADCouNT INCREASE by CouNTRy in 2014 - 2015

Alarmingly, youth across the region are facing an early mid-career crisis with those under 25 and between 25 to 34 years of age showing the lowest levels of engagement and motivation amongst all age groups. This has a direct impact on their performance, productivity and contribution to their jobs.

A very interesting trend is that the top 5 skill and development requirements seem to be rather distinct for national and expatriate entry-level candidates, with the exception of teamwork and collaboration. Education and job relevant skills, effective

communication work ethics and time management seem to be top priority for local talent, whereas technology, leadership and life skills seem to take precedence for expatriate talent, while they show up as lowest priority for national talent. This clearly indicates that a one size fits all approach to graduate development is no longer good enough. It may also indicate a further segmentation, rather than integration, of the region’s labour markets between the types of target jobs and development pathways offered to nationals and to expatriates.

4. Learning & Development outlook: Invest in Growth

Number in Focus: 35%* *plan to spend upto USD 5,000 per employee in terms of their L&D

HR leaders from across the region continue to prioritise investment in learning and development for their employees. However, many report a need to strike a fine balance in terms of having an inclusive development strategy to ensure on-going personal and professional development of all employees, with an increasing proportion of L&D budgets being allocated to local talent specifically.

According to research conducted by The Talent Enterprise on employee engagement in the GCC, learning and development as well as career growth remain the top drivers for workplace motivation for talent in the region, along with inspiring senior leadership. Hence, we expect to see an on-going trend on investments in L&D over the next few years. However, there is pressing need to shift away from the reliance on traditional, classroom based training to workplace and outcome focused learning, using the flipped classroom or 70-20-10 approach. Also, currently, there continues to be trend on a large proportion of training budgets being spent on entry-level induction, national or graduate programs and senior and executive leadership development. However, there is a glaring gap in building the technical and people capacity amongst mid-career professionals, supervisors, managers and so on, who can in turn coach and mentor their teams.

Approximately 25% of organisations increased their training budgets compared to last year, and projected L&D spends vary by type and maturity of organisations across the region.

IMPACT oN L&D buDGETS

PRoJECTED L&D SPEND PER EMPLoyEE

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5. Rewards outlook: A balanced View

Number in Focus: 9%* *average projected salary increase for 2014-2015

The outlook on rewards, salaries, bonuses and benefits indicates a ‘wait’ and ‘watch’ approach, with a majority of employers indicating no significant increase in budgets in the next 12 months.

Salary increase projections also remained quite balanced across all levels of seniority at an average of 9% keeping in mind merit based pay as well as cost of living adjustments.

PRoJECTED AVERAGE SALARy INCREASESfoR 2014 - 2015

ouTLooK oN REwARD buDGETS foR 2014 – 2015

Interestingly, despite the overall expansive and buoyant outlook in the region, the average level of reported attrition was 8% across all markets and sectors, with approximately 86% of companies reporting less than 15% turnover. However, the ‘risk of attrition’ remains fairly high, especially in the more competitive labour markets like UAE and Qatar and some industries and roles which will be facing imminent skill shortages, such as healthcare and technical roles in engineering, design, project management and so on.

AVERAGE ATTRITIoN REPoRTED by oRGANISATIoNS IN 2014

6. Top hR Priorities: Nationalisation & Employability Top-of-Mind

Number in Focus: 72%* *of business and HR leaders clearly indicated that nationalisation is a top priority.

Along with a continued focus on talent acquisition, nationalisation and the need to develop critical employability and work-ready skills for the younger generation were clearly prioritised as the top human capital priorities. Organisational leaders clearly expressed a need to work more closely with educational stakeholders as well. Interestingly, employee engagement, performance and cost effectiveness were lower down on the agenda – is this a direct outcome of the high growth labour markets or an indication of the current maturity and evolution in our HR practices?

Within nationalisation, employers clearly indicated a need to define longer term, more sustainable strategies. There is clearly a trend towards a term we define as Nationalisation 2.0TM which is characterised by a fundamental reboot of the current approach to localisation, i.e. a shift from attracting talent based on a quota-driven approach, towards meaningful, genuine and enduring talent advancement. This requires an increasing focus on developing skills and competencies, rather than a quantitative focus on filling jobs, as has been the case in the past. It’s about

finding the ‘right’ job in line with the aspirations and capabilities of the individual and not just any job.

ToP 3 MoST IMPoRTANT AND ToP 3 LEAST IMPoRTANT hR PRIoRITIES

MoST IMPoRTANT

Recruitment & Selection20%

Nationalisation72%

Building Employability Skills for Entry-Level Graduates and

Working Closely with Education Providers

45%

LEAST IMPoRTANT

Focusing on Peformance & a Differntiated Talent Strategy

24%

Engaging our Employees25%

Operational Effectiveness and Cost Management

25%

ToP ThREE NATIoNALISATIoN PRIoRITIES foR 2014 – 2015

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7. Conclusion: An optimistic outlook for 2015We often paint the entire region with one broad paint-brush, and though there is definitely some universality in the opportunities and challenges that exist from the Maghreb to the Mashreq, each nation has its own growth trajectory.

Although Dubai, Bahrain and Oman may have taken the lead with regards to diversifying their economies, largely driven by a need for innovation due to their smaller oil endowments, other places are accelerating fast. Manama and Dubai compete as world-class financial hubs and Saudi Arabia continues to boost its manufacturing base. Doha is known for its education sector and Oman for its tourism industry.

The view across the talent landscape of the MENA region from our inaugural 2014 study is an expansive one. Not only is the supply of labour growing, thanks to a young and rapidly growing local populations, along with the continued interest and availability of expatriates, but so too is the demand for labour. The expansion in confidence is felt most keenly within the GCC (and specifically in the UAE, Qatar and KSA) and within the Retail, Hospitality, Transportation, Real Estate & Healthcare sectors. These geographies and industries are buoyed by the most positive general economic conditions and also by the major investment announced as a result of the awarding of the Expo 2020, World Cup 2022 and the extensive labour market reforms, especially within Saudi Arabia respectively.

However, the caveat to this positive outlook is that confidence is ephemeral – hence the reason for establishing this annual review of labour market sentiment across the region. Our experience has shown that things can change quickly, whether driven by falling energy prices, political instability or potential uncertainty about the enduring legacy of major world events in the region. What will the Labour Market Confidence Index be saying about the talent landscape in Dubai 2021 or Qatar 2023 for instance?

We will have to wait and see. For now, 2015 will bring a continued expansion in labour market confidence, driven by a continued sense of urgency on the part of governments to accelerate the transition towards establishing knowledge-driven economies. Investments in education, and employability in particular, will expand, as will the proportion of government expenditure specifically directed towards supporting a boost in labour market efficiency and driving greater productivity in the workplace.

An increased focus on expanding headcounts for the commercial and semi-private sectors, whilst continuing a much more rigourous budgetary control, will demand that HR teams need to be more innovative in attracting and securing top talent. This means that seeking more efficient, effective and economic methods to recruit, select and develop talent will be the prime concern of people professionals across the region. Unlocking the national workforce’s talent will continue as a top priority.

In addition, it is also clear from this study, that there are many differences across the talent landscape of the MENA region. This most clearly translates into your varied expectations on the growth of pay and benefits across the region. The degree of variability

across geographies, occupations and industries demonstrates a heterogeneous ‘mosaic’ pattern emerging across the region. Some regions across the region (and indeed within some of the individual nations) demonstrate little or no growth expectations. For instance, the differential expectations within the UAE between Abu Dhabi and the Northern Emirates are significant. Within organisations and industries, we also see significant variability, with pay premiums for top talent in growth industries. Increased government interventions in the regulation of labour markets will also continue to disaggregate local talent landscapes, with double-digit total pay increases predicted for top talent with the right intersection of geography, industry, organization, biography and capability. It is clear that a reliance on broad-based, “spurious” averages of 4% or 5% are no longer sufficient or accurate, as your responses indicate that the contours of the region’s talent landscape are far more varied. From a technical perspective, the simple mean averages ignores the high standard deviation across the highly segmented labour markets in our region.

ouTLooK foR 2015

12%

Cautious Same as thisyear

51%

optimistic& growth

42%

In this inaugural MENA Labour Market Confidence Index, we have examined the opportunities and challenges which face us as organisational leaders and HR professionals in navigating the talent landscape of the MENA region. We have spent some time considering where we have come from and how we ended up where we find ourselves today. More than 150 years ago, nobody had considered that Japan would develop a unique approach to work, its own management model, which would enable it to become, and arguably remain, amongst the leading manufacturing and technology producer in the world. There is no reason why we can’t develop a distinctly Arab or Gulf approach to human capital management which will build an enduring and meaningful competitive advantage for the region going forward. During the twentieth century our region became renowned for its endowments of fossil fuels. In the twenty-first century it needs to become more recognised for the capabilities of its human resources, if it is to continue the transition towards economic diversification.

In order to be successful in this endeavour, we need the confidence to develop our own approaches, addressing the challenges and unlocking the paradox of plenty lying before us. We need to question orthodoxies and ‘best practices’ imported from elsewhere. A copy paste approach is no longer good enough. We need fresh thinking, based on our own judgment, experience and research from our unique regional context. We need to base our actions on local evidence gathered in the MENA region. This is the key contribution of the MENA Labour Market Confidence Index – in providing a platform for analysing and understanding these trends as a means for building an evidence-based platform for enhancing confidence in the people profession.

If the future direction of economic growth in Saudi Arabia will be in manufacturing or retail sectors for example, more and more Saudi’s must be encouraged to make these career choices and seek appropriate qualifications. Abu Dhabi needs to focus on its

core sectors such as healthcare, education and aviation in terms of aligning educational skills with employer demands and Dubai is clearly seeing a trend towards increasing its service delivery via sectors such as retail and hospitality.

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Innovation is not easy and the courage to think and act differently within the people profession will be key to achieving the promise of the future. In many ways, the future of our profession is going to be about developing more resourceful human beings, versus a focus on the traditional human resources. The “al kitab”, policy - driven approach to HR will continue to be a necessary, but not a sufficient condition for successful talent management in the future.

The first step is to understand more about our strengths and develop an ambitious but enduring action plan which will work for each of us in our own unique circumstances. The second step is to commit to the courage to act, to innovate and to contribute to the ongoing debate. In doing so, we should also have the expectation that genuine change and development will not be easy, either in the way we work as individuals, the way our organisations operate or in determining the direction of future policies. It will take hard work, concerted efforts, sacrifices and the wisdom to learn positively from temporary setbacks whenever they are experienced. We hope and expect that this study will map these trends as they emerge across the region in the years ahead.

Our future actions include how we look to initiate a genuine two-way conversation to improve positivity and productivity across the MENA region. How we build better bridges between education and employment and deliver a more sustainable alignment between pay and productivity in the region. We also need to be realistic and not shut our eyes to the variability of HR practice across the MENA region, which operates across the broadest spectrum anywhere in the world. In many ways and in many workplaces, the priority HR actions are human rights in nature and not human resources.

What steps we take to improve employment opportunities for our next generation of national talent, for the region’s women, for expatriates, to favour the development of more successful, independent commercial organisations, including opening our economies to greater competition and encouraging flourishing small businesses, towards promoting the future growth and sustained economic vibrancy of the MENA region.

Across the MENA region our collective financial resources are enabling us to invest in building the physical infrastructure we need for the future. However, financial resources and physical infrastructure are not sufficient alone to build an enduring economic future for our region. We now need to prioritise similar levels of development in our collective human capital, develop the talent landscape and invest in strengthening our collective psychological capital so that both can work together more effectively and deliver sustainable growth based on greater people productivity. Our region has witnessed a remarkable and accelerated economic revolution in the last century. We now need to deliver an even faster, deeper and more successful psychological revolution in order to secure the promise of a shining example to the rest of the world in the rest of the century ahead.

All the ingredients are in place for a future based on the talent and enterprise available to us within the MENA region. We trust that this inaugural study has taken you further forward for finding the right recipe for you and your organisation. We thank you for your contributions to this 2014 report and look forward to your active participation in next year’s MENA Labour Market Confidence Index.

THE MENA Labour Market Confidence Index is a joint initiative by Informa Middle East and The Talent Enterprise.

The HR Summit and Expo is the Middle East's largest show dedicated to HR professionals in the region. Running for more than a decade, the show has grown to become the ultimate platform to feature the latest innovation, strategies, insights and international best practices by the most influential and respected HR leaders and practitioners from around the globe.

The Talent Enterprise is the region's leading 'think' and 'do' tank dedicated to the elevation of human capital in the region. We advise our clients on their most critical employability, nationalisation, assessment, talent management, leadership development, employee engagement and performance opportunities. Our approach to human capital is fresh, evidence-led, innovative and practical.

Authors of the Report David Jones, Managing Director, The Talent EnterpriseDavid is the Managing Director of The Talent Enterprise, and with a background in labour market economics, David has over 23 years of work experience spanning consulting and line HR in Europe & the Middle East. He is the co-author of the best-

selling book titled ‘Unlocking the Paradox of Plenty’. David was previously the Chief Consulting Officer with Aon Hewitt MENA region and has held senior HR leadership positions with Emirates Airlines and Dubai Civil Aviation. He is a senior advisor to policy makers and organisational leaders. David can be contacted at david@thetalententerprise.com.

Radhika Punshi, Consulting Director, The Talent EnterpriseRadhika is the Consulting Director at The Talent Enterprise. As an HR professional and organisational psychologist, she has lived and worked in the GCC region for over 14 years. Her prime focus is on nationalisation and local talent development, with an

emphasis on gender and youth inclusion. With an Ivy League education and two Masters Degrees in Organisational Behavior and Psychology, Radhika is the first person from the MENASA region to be awarded a degree in Positive Psychology. She is a frequent commentator in the regional media and speaks regularly at conferences across the world. Radhika can be contacted at radhika@thetalententerprise.com.

A Special Thanks We would like to thank Ramy Bayyour, Priyanka Ravindran & Yasmin Helal from Informa Middle East in their tremendous support during this study. Also, a special thanks to Gauri Gupta, Prasanjit Sarkar and Surbhi Sawalka from The Talent Enterprise for collecting and analysing the data from this flagship report. The data was collected online in August & September 2014 and includes a sample of 1251 respondents from across the MENA region.