Progress Towards Omanization: Implications From A Psychological Contracting Perspective
Refereed paper
Swailes, Stephen; Al Said, Loay; Al Fahdi, Saleh
Abstract
Replacement of foreign labour with local labour is central to national HRD strategies found in the Gulf States and elsewhere. This paper presents the findings of discussions with senior Omani government officials and private sector managers looking at progress towards localisation and at the further actions needed. The main findings are that the employability of locals remains a key supply side problem and employers’ preferences for expatriates remains a key demand side problem.Psychological contract theory is used to position a discussion of employability development.
Key words: Oman, localization, psychological contract, private sector, employability.
Introduction
Localization policies - the replacement of foreign workers with skilled and qualified local labour - are a feature of economic development in the GulfStates and this paper reviews progress towards localization in the Sultanate of Oman. Omanization, along with diversification (away from oil revenues) and privatisation (to reduce the role of the State and to focus the State on ‘strategic direction and policy)has been one of the three cornerstones of Omani economic policy since the launch of Vision 2020 in 1996 (EIU, 2009a, MNE, 2010). Localisation strategies in the region are inevitable given the context of rising population, increasing unemployment, improving general levels of health and expanded education systems. If high unemployment is to be avoided it is essential that qualified people leavings schools, colleges and universities are absorbed into the local labour force. The paper begins by summarising previous research into localization in the Gulfregion before summarising economic development in Oman. Findings from discussions of progress towards localization with officials and managers are then presented. Barriers to Omanization are identified and implications for future progress are derived from interpretation of findings from a psychological contracting perspective.
Localization
Localization (nationalisation) strategies are now firmly embedded in Gulf Cooperation Council countries to tackle present and potential unemployment problems (Forstenlechner, 2010; Girgis, 2002; Harry, 2007). At an operational level they share a common approach of imposing quotas of local employees onto employers in different sectors and occupations. Specific literatures have emerged on Saudization (Al Dosary and Rahman, 2005; Al Shammari, 2009; Mahdi and Barrientos, 2003; Sadi and Al Buraey, 2009), Emiratization (Al Ali, 2008; Godwin, 2006; Rees, Mamman and Braik, 2007), Kuwaitization (Al Enezi, 2002; Salih, 2010) and Omanization (Al Hamadi, Budhwar and Shipton, 2007; Al Lamki, 1998, 2005).
Bahrain, Oman and Saudi Arabia have seen the most intensive efforts, ahead of Qatar, the United Arab Emirates and Kuwait, and the World Bank (2004) reports that only Oman has taken steps to control employment in the public sector which, given national income surpluses from oil revenues, can be expanded by the State to absorb qualified locals. This particular tactic has been seen in Kuwait (Al Enezi, 2002) and the Saudi government is accused of turning its public sector into a ‘vast social welfare system’ by hiring locals for non-existent jobs to tackle unemployment problems (Al Dosary and Rahman, 2005). However, if left to market forces (and thus heavily influenced by employers) progress towards Saudization is likely to be much slower given employers’ preferences for expatriate labour and strong local preferences for public sector jobs (Al Shammari, 2009). Furthermore, attempts to push Saudization ‘forcibly rather than through reasoning and persuasion’ has led to low motivation among government trained local employees (Sadi and Al Buraey, 2009, p.83).
Omanization
Economic and social development have advanced rapidly in recent years. The total population grew to 2.9 million in 2008 with 31% expatriates. Of the 2.0 million Omanis in 2008, 35% were under 15 and 38% were aged 16-29 demonstrating the youthful composition of the population and emphasising the imperative to provide jobs and to develop the employability of young Omanis.
Although foreign labour has been essential to build national infrastructure the need to integrate qualified and skilled local labour into the economy has been long recognised (Sultanate of Oman, 1991). In the 1990s the government supported this policy by compensating employers for up to 18 months for employing and training locals and employment law introduced in 1991 protected Omanis working in the private sector. That same year a Vocational Training Authority was created and linked to the implementation of National Vocational Qualifications. Although abolished in 1997 and its remit was transferred to a new Ministry for Social Affairs, Labour and Vocational Training (Wilkins, 2002). The Ministry of Manpower was created in 2001 to support Oman’s social and economic objectives. Key functions include; policy making, framing laws and regulations, licensing expatriate, providing training, matching market needs and maintaining a labour market information system.
Schooling in Oman begins at age six and, although there is some drop-out, most young people persist with their education and sit examinations for a General Education Diploma at 18. Sixty one thousand students took the Diploma in 2008 of whom 83.6% passed. Higher education is served by one state university (Sultan Qaboos) and 24 private universities and colleges. In addition there are colleges of applied science, banking, health studies and five vocational training centres. The numbers of students at these institutions is around 100,000 (see Appendix I. Assuming courses are on average of two or three years duration then the annual output of graduates from higher education is around 40,000(see also EIU 2009b).
However, despite having one of the fastest growing post-secondary education systems in the world the number of college and university graduates each year already exceeds the numbers of jobs available through economic expansion and natural labour turnover (Al Barwani, Chapman and Ameen, 2009). The World Bank (2004) reported that governments in the Middle East have acute challenges in creating and providing jobs for those who have benefitted from intermediate and higher education for whom the threat of unemployment is high. Conversely, unemployment is lower among those people without higher levels of education and who are not qualified to work in the public sector although the wage levels and conditions that they experience may be poor.Given the youthful nature of the Omani population, this situation is tightening and pointing-up the importance of local employment strategies. A confounding factor is concern about declining future oil revenues and the ability of the State to fund further and higher education as generously as it has done (Chapman, Al Barwani and Ameen, 2009).
Omanization targets are published by the Ministry of Manpower and different targets are set for a wide range of occupations and occupational levels (see Appendix 2). Targets are adjusted, sometimes downwards, to fit the prevailing economic situation and outlook. Since early 1998, organizations that meet their Omanzation targets have been awarded a ‘Green Card’ which gives them preferential treatment from the Ministry. Such treatment involves, for example, faster approval of applications for expatriate labour permits. The government also operates a ‘Sanad’ programme aimed at supporting Omanis aged 18-40 who want to start their own business with loans of up to 5,000 OR.
The two most notable examples of successful Omanizaton are found in banking and in the national airline. Al Lamki (2005) reported 90% Omanization in the banking sector and this was linked to the fact that financial institutions have existed for longer, the nature of much of the work suits female employment and there have been clear strategies by banks and the airline to employ local labour. The two sectors are also important parts of the national infrastructure and it seems likely that they were prioritised for reasons of national security and symbolism.
Omanization levels for 2008 in the Civil Service and Public Corporations reached 85.5%. Although technology-oriented public departments such as aviation and health continue to rely on expatriates to fill some posts the public sector is approaching saturation in terms of local employment and it is unlikely to get any bigger. Overall levels of local employment in 2008 in the main private sectors were; banking 91%, oil and gas 75%, insurance 58% and hotels 43% (Ministry of Economy, 2009).Of the 147,000 Omanis working in the private sector, 76% earned less than 200 OR per month with an overall average of 217 OR per month (about $560). Existence on such low wages often necessitates close family structures with family groups living under one roof to spread accommodation costs and to ease the burden of care for children and the elderly.
The picture thus painted is one where expatriates vastly outnumber locals in the private sector and of relatively low wages for locals. Given the economic and social background to localization and the relatively low levels of research into localisation strategies in individual countries (Rees et al, 2007), further research into the progress of Omanization is needed. The main questions guiding this research were1) how do senior government officials and private sector managers see progress towards Omanization, and 2) what further actions are needed to assist Omanization processes?
Method
The focal informants for this study were drawn from the government departments responsible for Omanization policy and leading private sector employers. High level access was negotiated and an interview protocol was developed to cover issues surrounding Omanization with participants. Interviews were conducted with representatives from the Ministry of Manpower, Ministry of Social Affairs, Labour and Vocational Training, Ministry of National Economy and the Ministry of the Civil Service. All interviewees were with senior officials with responsibility for vocational training and human resource development up to and including the rank of Minister. In total, eleven interviews were conducted in the four ministries. To obtain private sector perspectives, interviews were conducted with managers responsible for human resource development in 14 private sector organizations chosen for their active involvement in the Omanization process. Sectors included banking and finance, petrochemicals, air transport, retailing, automotive supplies, consumer electronics, engineering, shipping, and hotel management.
The first step was to negotiate access to interview a Minister to clarify official policy on Omanization before conducting the main body of the research with other officials and the private sector. The final interview was with a Director General in another Ministry and was used to explore issues raised in the main phase of the research. Although generic lists of barriers to localization are available (eg, Bhanugopan and Fish, 2007), the approach taken here was to let the factors specific to Oman emerge from the data rather than impose an analytical framework at the outset (Miles and Huberman, 1984). Transcripts were produced immediately after each interview and analytical notes were produced as the research progressed. Provisional coding was continually revised as new material was generated and by the 24th interview no further revisions were emerging from the data. At this point interviews with managers stopped and a final interview with a Director General was arranged to review findings.
Interviews took place on the basis that they remain confidential to protect identities. Research of this kind in the Gulf region remains sensitive as it is socially undesirable to appear to be critical of government or its representatives. This is particularly important for government employees and,in respect of this convention, direct quotations from government officials are not shown here nor do we imply any criticism of government policy or organizations in this paper. Rather, our guiding philosophy is to report research into a strategically important area as a contribution to assisting national policy and the development of people.
Progress towards Omanization
Progress towards Omanization is discussed below and is structured around the four main themes to emerge from the data; public sector attractiveness, scepticism, remuneration and employability.
Public sector attractiveness
The high level of Omanization found in the public sector is attributed to the general preference of Omanis to seek jobs in administrative or managerial positions and in government (see Al Lamki, 1998). Shorter working hours, longer vacations and perceptions that public management carries sought after status continue to add to its attraction. There is a strong social norm around commitment to family more so than an organization hence shorter hours and longer vacations develop a strong psychological attraction. It was also suggested that there is a general dislike of jobs involving manual labourbut this, we suggest, stems from its historical association with low pay. Where pay levels are higher, for example in oil and gas production, local labour is not so averse to taking manual work.
Scepticism among private sector managers
As noted above, two sectors in particular employ high proportions of locals; the national airline OmanAir and banking (Al Lamki, 2005). The banking sector in the Gulf has existed for longer than other sectors and is relatively well placed to recruit talented Omanis. Banking and the national airline also have a strategic importance to the country that calls for high levels of localisation for reasons of security and independence. However, some negative attitudes towards Omanization were found as illustrated by this comment:
“The officials behind Omanization are not fully aware of the actual conditions of trade, economy, company management systems and operation of private sector enterprises. Their interference into the nuances of work may cause a lot of harm for the whole enterprise, especially if it operates internationally. It creates some chaos which these officials might not appreciate. They tend to think that Omanization is simply the forcing of Omani personnel into a company or just the employment of Omani staff into a vacant position, though they know that there are no qualified Omani individuals to occupy that post. In other words, in the process of Omanization they simply care for numbers only”. (Private sector manager)
This sentiment suggests that some employers see the drive behind Omanization as a ‘numbers game’ first and skill development second. At this stage of its development, Omanization is still focussing on filling junior positions much more than senior positions. This can be explained in terms of risk avoidance as businesses cannot put themselves at risk by putting inexperience into positions where it can do harm. To perpetuate the situation, managers in senior positions can use their position power to withhold information and opportunities from juniors to protect their positions or to favour other expatriates.The reference to interfering with the nuances of work connects to complexity theory explanations of change which see different organizations as presenting different levels of receptiveness to it (Houchin and MacLean, 2005). If organizations areseen as an outcome of interactions among sets of complex processes then the level of success of localization in an organization is influenced by practices that are already present and operating.
Remuneration
There was a high level of agreement that remuneration levels in the private sector presented difficulties for localization particularly in small and medium sized enterprises where salaries can be much lower than in public or large private organizations. Aggravating this is the situation under which, even at low wages, SMEs can easily hire expatriates as the local wage levels may be higher than found in the expatriates’ home countries (in Oman’s case typically India, Bangladesh and Pakistan).Given that wages for most outside the oil and gas sectors are generally low there is a tendency for employees to switch employers to gain small wage increases. However, this effect is not solely confined to low paid workers,
“The Company's policy is always based on supporting the citizen based on his/her present situation. For example, some employees are paid less than OR200 per month. This minimum wage class has served the country well, and they keep working for the company despite the attraction from other companies. As for high- or middle-ranked key positions, the policy did not serve the country well. Some of these workers, for example, work for about 3 months or so and then move to another employer. This seriously affects the flow of work in the company. Hence, I wish that a strong policy is put in place to stop these violations”. (Private sector manager).
Faced with this situation, some large private companies have reshaped their pay practices to respond better to the pressures ofOmanization. One of the banks reported that high turnover of Omanis with low tenure was tackled through a redesigned reward system. The extract points to a problem for employers brought about by the ease with which new starters can move from one employer to another. In a context of localization there is a balance to be considered reflecting the investments that employers put into employing local labour and economically viable tenure. Restricting ease of movement, however, seems an unlikely development in localization policy.