LABOR SHORTAGES, RISING WAGES

C O N F I D E N T I A L SECTION 01 OF 02 MUSCAT 000254

SIPDIS

SENSITIVE
SIPDIS

STATE FOR NEA/ARP, G/TIP, DRL
DEPARTMENT OF LABOR FOR JRUDE

E.O. 12958: DECL: 04/02/2018
TAGS: PGOV PHUM ECON ELAB ETRD KMPI MU
SUBJECT: LABOR SHORTAGES, RISING WAGES

REF: MUSCAT 153

Classified By: Ambassador Gary A. Grappo for Reasons 1.4 b/d.

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SUMMARY
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1. (SBU) Summary: Demand for labor in Oman's booming
construction and service sectors exceeds supply, and
companies increasingly are raising wages to recruit and
retain employees. Workers are taking advantage of the market
by frequently switching employers to increase their salaries
and other compensation. The tight labor market even is
improving conditions for Oman's low-skilled expatriate
workers, some of whom report incremental gains in their
monthly compensation. End Summary.

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A "WORKERS' MARKET"
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2. (C) Executives in leading construction and service sector
companies tell poloff that they are facing a "workers'
market," in which demand for labor at all skill levels
exceeds supply, despite an increase in the number of
expatriates who have come to Oman for employment (reftel).
Companies are competing with each other for scarce labor,
executives say, and wages are rising as a result. Dr. Rashid
al Ghailani, General Manager of Human Resources at Galfar,
one of Oman's largest construction companies, informed poloff
that the company has been forced to increase wages to remain
competitive in the market. He said that Galfar raised
salaries for Omani employees by 30% in 2007, increased the
compensation for some skill positions by 20% in early 2008,
and is planning an additional across-the-board raise of 20%
on April 1.


3. (C) The wage increases are necessary, he explained, not
only to recruit new workers but to retain current employees.
Ghailani said that Omani and expatriate workers regularly
switch employers to leverage higher compensation packages,
adding that 20-30% of his new recruits leave the company for
one of Galfar's competitors within the first six-months of
their employment. (Note: In 2006, the government removed the
requirement for expatriate employees to obtain a "no
objection letter" from their sponsors before being able to
pursue another job in Oman, making it significantly easier
for expatriates to switch employers. End note.) He remarked
that he continuously struggles to keep recruitment levels
higher than the rate of attrition, and that throughout 2007,
his attrition rate among expatriate employees approached 30%
of new recruits. Among Omani employees, the rate often was
as high as 70%.


4. (C) Ghailani told poloff, for example, that his company
recruited 100 heavy vehicle drivers in January and February
2008 - a skilled group of workers that is essential for the
company to fulfill its construction contracts. During the
same period, 92 drivers left the company to take jobs
elsewhere, 64 of whom had been with the company for more than
six-months. Even though he was able to replace the
departures with new recruits, Ghailani said the company
suffered losses in efficiency and incurred additional costs
to train the new drivers - a benefit that eventually makes
the workers more attractive to Galfar's competitors. "We are
not a training institute (for the rest of the industry)," he
grumbled, adding that further wage increases may be necessary
to aid retention.

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EVEN THE BOTTOM BENEFITS
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5. (C) Contacts contend that low-skilled expatriate workers
also are in high demand and, as a result, compensation
packages are slowly rising at the bottom levels of
employment. Mohammad al-Rawahi, Administration Manager for
the cleaning, gardening and pest control company Oman
International Group (OIG),told poloff that his employees -
80% of whom are South Asian expatriates who earn as little as
35 Omani Rials (USD 90) per month - increasingly are
demanding more money to compensate for the decline in the
value (especially in relation to their home country
currencies) of their earnings paid in dollar-pegged Omani
Rials (OR). The company has been slow to respond, he
commented, because it is locked in long-term, fixed-price
contracts that assumed low labor costs. As a result, Rawahi

MUSCAT 00000254 002 OF 002


said, he regularly loses employees to hotel and business
clients who are in the market for trained cleaners and
willing to offer his workers higher wages.


6. (C) Other companies in the cleaning sector are facing
similar labor pressures. An employee of the cleaning company
Kalhat, one of OIG's primary competitors, told poloff that
many employees have left Kalhat to work for other companies
that pay more, and that some even have returned to India in
the expectation of making more money at home while avoiding
exchange rate risks. He stated that in some cases, Kalhat
has retained workers by paying them special allowances as
high as 20 OR/month (USD 52) to augment their base salary of
35 OR. (Note: Allowances permit a company to increase a
worker's monthly compensation without affecting the rate of
overtime or leave pay, which is tied to base salary. End
note.) The supervisor further told poloff that he has heard
that Kalhat may be considering an increase of 5 OR/month (USD
13) in the base salary of its lowest skilled employees, a
move that likely would affect wages throughout the industry.

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COMMENT
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7. (C) Comment: Contacts anticipate that Oman will face a
deficit in labor supply for the foreseeable future due to
expected strong growth in key sectors like construction and
services, and that workers likely will continue to command
higher wages. Company executives say, however, that there is
only so much that the Omani market will bear. The black
market for labor, populated by illegal immigrants and
laborers, provides employers with a pressure-relief valve and
a pool of workers to meet some of their demand (reftel). So
far, Oman has avoided major strikes or other labor
disruptions over compensation, but wage rates could
increasingly become a source of friction as inflation and the
declining value of Oman's dollar-pegged currency erode
workers' real earnings.
GRAPPO