Issue 30- On Migrant Workers, Gold Recycling, and Pay Hikes

In today's Finshots brief, we will discuss

• Saudi Arabia's decision to change a controversial labour law
• Why gold recycling in India has gone up
• What kind of pay hikes Indians can expect next year

More dignity for foreign workers

It hasn’t been a great year for fossil fuels. Oil companies have had to deal with a sharp decline in demand because of the coronavirus, whilst also battling a collapse in prices due to the tussle between oil-producing nations. As a result, Saudi Arabia, which has thus far relied on the black gold to drive its economy, is looking to diversify. And one way to do that is to boost the private sector by incentivizing foreign talent to come and work in the country. But unfortunately, the kingdom’s 7 decades-long Kafala system might get in the way of these ambitions.

So what is this system all about?

Well, it all started in the 1970s, when Gulf countries like Saudi Arabia, Qatar, and the UAE were experiencing an economic boom. They temporarily needed a large number of people to help build infrastructure and provide services for their citizens, and they turned to foreign workers for the same. To facilitate the movement of these workers, the countries came up with a sponsorship system wherein the migrant worker’s immigration status would be completely dependent on an individual employer (the kafeel) during the employment period. And so, the Kafala system was born.

And though it gave employers an easy way of hiring and dismissing temporary migrant workers, it was a raw deal for the workers themselves. Under this system, they cannot enter the country without a kafeel’s sponsorship, nor can they leave it without his permission. They can’t even work somewhere else unless the kafeel agrees to let them go. There have been a lot of cases where kafeels have illegally confiscated workers’ passports and then forced them to work inhumane hours on meagre wages. And since migrant workers who refuse to work for their kafeels automatically become fugitives from the law, they are left without options.

The Kafala system has resulted in hundreds of thousands of workers simply running away from their employers and becoming undocumented; unable to live within the country or exit it. And the system is adversely affecting Saudi Arabia’s economy as well. Unemployment is on the rise as private employers opt for cheap, exploitable foreign workers to meet their needs instead of hiring locally. In fact, in the second quarter of this year, citizen unemployment went up to 15.4% - the highest on record.

Bottom line is, the Kafala system is not doing anyone any good- especially the 10.5 million migrant workers who comprise one-third of Saudi Arabia’s population. And so, the Kingdom is finally looking to do something about it.

Starting March next year, Saudi Arabia will remove certain restrictions on foreign workers. Workers will no longer need their kafeel’s approval to change jobs or leave the country. Runaway workers will no longer be deemed outlaws, and a procedure for ending their contract will be established instead.

According to Farouk Soussa, an economist at Goldman Sachs, increasing labor mobility will compel companies to improve wages and working conditions in order to retain their workers. As Soussa said, “While initially this will mean greater costs for employers, the ultimate outcome will be increased productivity and a greater willingness on the part of Saudis to work in the private sector.”

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Gold Recycling

Gold recycling happens when people sell the shiny yellow metal for cash. According to Somasundaram PR, managing director of the World Gold Council in India, there are usually 3 reasons why people recycle gold. They do it because gold prices are high, they do it to buy another asset, or they do it in situations when they are in need of money, but don’t think getting a loan is a viable option.

Well, in the July-September quarter, Indian consumers recycled the most gold in 8 years. The amount of the metal being sold rose to  41.5 tonnes compared to 36.5 tonnes during the same period last year. And Somasundaram says this isn’t just because of attractive prices. After all, customers will still lose out because of things like impurities and making charges. And as such, it’s highly possible that all this recycled gold is a sign of financial pressure on households.

In fact, this would be perfectly in line with past trends. You see, people turn to gold to raise money whenever financial crises hit. During the Asian financial crisis of the late 1990s, gold recycling rose by 19%. The 2008 global financial crisis spiked the rate to 25%. And so, it’s safe to assume that something similar is happening now.

Pay Hikes Ahead

With sudden remote working requirements, widespread layoffs, and rampant pay cuts, it’s been a tough year for India’s workers. But now, there seems to be a glimmer of hope on the horizon. According to a survey by Aon spanning across 1000 companies and 20 industries, Indian workers’ compensation is set to increase by an average of 7.3% as compared to 6.1% in 2020 - which was the lowest since 2009. And 87% of companies are ready to offer increased pay to their workers, though this will vary across industries.

Companies operating in sectors like IT, pharmaceuticals, and e-commerce are expected to give bigger hikes as their businesses were least affected by the pandemic. In fact, some of them are riding higher than ever before. On the other hand, employees working in sectors like hospitality, real estate, and retail will have to taper down their expectations as any revival for them is still a far way off.

But all in all, things are definitely looking up. As Nitin Sethi, a partner at Aon said, “Business and HR leaders made hard decisions in the second and third quarters of 2020 and are now betting on the green shoots of improving consumer demand. They see the need to invest in talent as a critical part of their recovery and growth prospects."

Diwali shopping Bonanza

As the festival of lights approaches, mobile phone companies are going all out to capture a larger share of India- the world’s second-largest smartphone market. And so, brands like Apple and Huawei are releasing almost a hundred new models. Know more.

Lowering Losses

Despite having no revenues from its core movie exhibition business in the second quarter, PVR has managed to narrow its losses. A lot of this has to do with rent waivers that the multiplex chain managed to get from most of its landlords. Read more.

Drastic Measures

Due to coal shortage and agitation by farmers, the Punjab State Power Corporation Limited (PSPCL) has resorted to cutting power for around 4-5 hours in villages and 1-2 hours in cities. Learn more.

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-Written by Vedika Agarwal and Akshay Tater.