Construction shrinkage in Gulf risks remittance

As the Gulf region faces slowdown in loan growth and real estate activity caused by fallout from the global financial crisis, leading players of the region’s most booming construction industry reported a shrink in real-estate activities, putting jobs of millions of migrant workers, mainly from India, Pakistan and Nepal at risk.

According to reports, leading contractors have already started shedding jobs or have begun reviewing their jobs policy due to slowing demand of both commercial and residential complexes in the region.

Yes, hiccups seen in the construction industry in the Gulf is a serious threat and it looks like policy makers seem to have failed to sense gravity of the impending fallout in the domestic economy, says Ganesh Gurung, a leading expert on Nepal’s migrant workers. Gurung further added that if the construction industry in the Gulf region shrinks further due to the deepening global financial crisis, it will have a serious impact on Nepal’s remittance income, which has been the lifeblood of the economy.

At a time when everyone is looking at India to gauge possible impacts of the financial crisis in Nepali economy, the government needs to be watchful that the financial crisis is making its way to Nepal via the Gulf route, Gurung added.

Government figures show 70 percent of the 700,000 Nepali workers abroad are currently engaged in the various construction activities mainly in the UAE, Qatar and Saudi Arabia. Though the government doesn’t have country and sector-wise remittance figures, unofficial estimates put remittances sent by  constriction laborers from the Gulf last year at Rs 50 billion last year. This is 35 percent of the total remittance that Nepal received.

According to the Nepal Rastra Bank (NRB), the central bank of the country, Nepal received Rs 142 billion in remittances last year and it expects the amount to cross Rs 150 billion this year.

Any decline in the remittance income, which has been a major contributor for healthy consumption even during distress  growth era, will put a lot of pressure on Nepal’s already fragile economy, says Radesh Pant, president of the Nepal Bankers’ Association. Pant further says it will take at least three more months to clearly gauge the impact of the slowdown in Gulf’s construction industry on Nepal’s remittance income. Since Nepal’s economy is not well-integrated with the global economy like that of India’s, it is obvious that the impact will be felt late, probably after three months, Pant added.

According to international news agencies, leading property developers in the Gulf region have already started reviewing their real-estate projects. Private developer Damac Holding recently announced that it was cutting 200 jobs while Emaar Properties EMAR.UD, the UAE´s largest publicly traded developer that is behind the construction of World’s tallest  tower, also said it was also reviewing its jobs policy. In another development, Emirates NBD ENBD.DU, the largest bank in the UAE, meanwhile, has halted retail lending to foreigners employed by top Dubai property firms over fears a slowdown could jeopardize their jobs and income.

Saudi Arabia leads the construction industry in the Gulf where the value of projects has now touched $1.9 trillion. The Gulf’s biggest nation now accounts for 25 percent of all construction projects in the Gulf Cooperation Council (GCC) countries, according to MEED, the region’s premier business intelligence service.