Graphic by Asyrique Thevendran/TheGazelle

The Kafala System in the GCC

Kafala, or sponsorship in Arabic, is a system that regulates the dynamics between citizens and expatriate workers in the GCC countries. Although it is ...

Mar 15, 2014

Graphic by Asyrique Thevendran/TheGazelle
Kafala, or sponsorship in Arabic, is a system that regulates the dynamics between citizens and expatriate workers in the GCC countries. Although it is common to hear of the kafala system in regards to migrant workers, the system also applies, though in a slightly different nature, to foreign investors.

What is the kafala system?

In order for a foreign party to set up a business in the UAE, they must enter into a partnership with an Emirati local-business sponsor who retains at least 51 percent of the business at hand. This sponsor can be either a national citizen or a corporate body in which all of its board members are citizens. Though the sponsor is not obliged to participate economically in the venture, they are forbidden from sharing profits based on proportionality of ownership. It is customary for the firm to then pay an annual fee to their Emirati counterpart. In certain cases it is possible to have total ownership, but in these cases it is compulsory to appoint a UAE “national sponsor” as a local service agent.
Though seemingly more intrusive, the kafala system is applied to migrant workers based on the same premise: that of an Emirati-citizen sponsor. The national sponsor for these workers, be it a firm or citizen, sponsors the migrant worker’s visa; the employees need a no-objection certificate from their sponsors in order to resign. Upon termination of a contract, workers must leave the country, usually for two to three years, before returning under a new sponsor. In practice this creates a relationship in which the worker is tied to the sponsor and thus immobile within the labor market.

An Economic Perspective

Here the kafala system engenders a low level of competition among the firms who demand labor. Because a worker cannot transfer between firms in search of better pay, employers can suppress wages. Wages are suppressed across the board for all types of workers; a study published by Soto and Vazques-Alvarez found that the returns on experience and on-the-job training as well as education and skill are negligible. Because workers are locked in a situation in which they cannot demand higher salaries due to market immobility and a subsequent lack of leverage, any experience or advantage they might have does not translate into better wages. Moreover, in the case of both workers and companies, national sponsors are allowed to extract significant rents from both capital and labor with minimal or no investment. The sponsor does have some responsibilities, however, such as paying for the recruitment of the worker to the GCC country and assuming full legal and economic responsibility of the worker once in the GCC country.
Though most of the attention the kafala system receives focuses on its effects regarding workers, some literature has emerged on its efficiency. In the study mentioned above, Soto and Vazques-Alvarez compared firms that used the kafala system to operations in the free-zones of Dubai that are not subjected to it. Firms are not subjected to the property conditions, and workers are able to move to other firms within the free zone. If conditions are not favorable at a given firm, they can leave for another one.
Soto and Vazques-Alvarez found that firms in free zones “have higher average labour productivity, they also pay much higher wages and they tend to invest more in both physical capital and training of their workers.” Their research attributed lower worker productivity to the lack of incentives for workers to increase their output and little reason to invest in education and know-how. Another finding is that firms face a risk not found when investing elsewhere: An Emirati sponsor can overrule any decisions made by the board of directors. As a result, firms tend to expect higher returns in the short term, and thus we see higher investment based on short-term gains instead of investment in long-maturity projects.

The Legal Side

A problem that arises with the immobility of labor is the ease with which sponsors can withhold workers’ payments while demanding longer hours. Although these practices, as well as the withholding of passports, are illegal in all GCC countries, the kafala system creates a dependence on the sponsor that makes it difficult for workers to speak out and difficult for the government to regulate businesses.
In the face of these abuses and international pressure from both NGOs such as Human Rights Watch and other countries, several GCC countries have changed their legislature to ensure more rights were given to workers.
In Aug. 2009 Bahrain was the first GCC country to repeal the kafala system. Labour Minister Majeed al-Alawi likened the kafala system to slavery. Workers have since been sponsored by the Labour Authority and are allowed to change employers and resign with prior notice.
To a lesser extent, other GCC countries have followed suit in establishing legal rights and protections for workers. Just Here has created a comparison between countries and the rights of workers.
                 Sponsorship Law
Exit Permit
 — In 2009, Bahrain adopted the strongest sponsorship reforms in the region by permitting migrant workers to change employment without their employers’ consent and in the absence of allegations of nonpayment of wages or abuse. 2009′s legal reforms allowed migrant workers to change employment after meeting certain notice requirements and provided a 30-day grace period to remain legally in the country while they seek new employment. However, these positive changes do not apply to domestic workers. —
Not Required
 — In Qatar, expatriates are allowed to work only under sponsorship. Once sponsored, the employee can not work for another employer unless a special permission has been granted.
Sponsorship can be transferred to another employer only after agreement from the existing and new employers. The right to change sponsors is not mandated by law and is left to the discretion of sponsors.
If the employee has not been granted a release letter or No Objection Certificate (NOC), he would be required to leave the country for a minimum of two years before returning to work for another employer. —
 — UAE Laws require foreign nationals to be primarily sponsored by a UAE national (citizen), except in the case of domestic workers, where foreign nationals can be sponsors too. Businesses are able to sponsor their employees mainly because a UAE national is a partner, owner or a majority shareholder of the business-sponsor (this might differ in the free zones).
As a general rule, a labour ban is still imposed on all expatriate employees in the UAE who are working in the private sector when they want to change from one employer to another if they left the current employer without having completed a minimum of two years service. The ban could be for six months or a year.
But the ban can be lifted if the new employer offers the candidate a higher position and a salary equal or above the salary set by the ministry against his or her qualifications. —
Not Required
Saudi Arabia
 — Saudi Arabia’s sponsorship system, requires all migrant workers to have a Saudi citizen as their sponsor who is usually the employer. The sponsor is responsible for their visa and legal status.
In April 2012, Labour Ministry had proposed abolishing the kafala system by transferring immigration sponsorship to newly created recruitment and placement agencies, but later retracted its decision. —
 — Under Article 3 of Kuwait’s Private Sector Labour Law, an expatriate worker must obtain a work permit issued by the Ministry of Social Affairs and Labour, under the sponsorship of a Kuwaiti entity. The law also states that a release is required from the sponsor for the work permit of an employee to be transferred to the sponsorship of another Kuwaiti entity.
According to recent reports, the Ministry of Social Affairs and Labour has established the Public Authority for Labour Affairs in a bid to abolish the sponsorship system for private sector labour force. The authority would be directly responsible for all matters concerning private sector employees, including recruitment of expatriate labour forces and managing employer-employee relationship. —
Not required
 — Under the Omani Kafala system, migrant workers are not allowed to change employers without their sponsors’ consent. Otherwise the worker is considered as an illegal resident in the country according to a law issued in 2003.
If the worker’s service period was less than two years in Oman, there must be a release letter from the former sponsor indicating that he (the sponsor) has no objection to the employment of that worker by any other employer without being subject to the two-year restriction.
For a migrant worker to change his sponsorship to a new sponsor (employer) while still inside the country, there must be a release letter from the former sponsor and approved by the Directorate General of Labour. —
Not required

Life Under Kafala

Despite the human rights abuses and the failure to meet international standards of workers rights, as reported by organizations such as Human Rights Watch, the number of migrant workers on the region continues to rise. In a paper published by Georgetown University, Andrew Gardner explains that because of the family and social dynamics at play where the workers come from — primarily  Southeast Asia — it is often not the choice of the worker to go return to a Gulf country but the family’s. Gardner also explains how the multiple stages to get a worker into a GCC country make regulation harder and obscure information.
Another reason for the increase of people traveling to the GCC for work is lack of information of the conditions they might face. In some cases, Gardner says, brokers, who have the most direct link to workers in their home country “provide one of the most visible links in this chain, but they are often working with poor information about the working conditions in the Gulf.”
But despite being deceived in terms of salary levels, working hours and type of employment, the wages workers obtain the in Gulf are still considerably higher than those in their home countries.
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