January 12, 2009 / 9:05 AM / 9 years ago

In Dubai slowdown, remittances under pressure

<p>A foreign worker sleeps on the sidewalk near a construction site in Dubai, United Arab Emirates, in this November 13, 2006 file photo.Ahmed Jadallah/Files</p>

DUBAI (Reuters) - Shalu, a 33-year-old Indian, paid 50,000 Indian rupees ($1,000) to an agency which shipped him to a construction job in Dubai on what was to be a three-year contract. Last December he was laid off after just one year.

His company told him and about 250 other workers the work had dried up.

As signs of a deep downturn in the Gulf state's once-buoyant property market multiply, those migrant workers who aren't forced to return are having problems sending money home, and their declining remittances may be a significant drag on the economies of South Asia.

Shalu, who asked to remain anonymous to protect his chances of future employment, had been sending funds back to his wife and six-year-old son, but is now trying to put together the cash for another agency fee to try his luck in Saudi Arabia.

"It's a big problem," he said by telephone from his village in Kerala, India. "They gave me sudden notice and no release (to find other work)."

A lavish trade and tourism hub in the United Arab Emirates, Dubai is a prime destination for unskilled workers, many of whom spend hours on dusty construction sites, live in cramped desert labor camps and earn about 1,500 dirhams ($408.4) a month.

There is no current official data on the number of migrants but Human Rights Watch estimates there are three million from India, Pakistan and Bangladesh in the Gulf Arab state, the vast majority of them in the construction sector.

The laborers, mostly from South Asia, swarm over building sites for landmarks such as the Burj Dubai, the tallest building in the world, and Dubai's seemingly endless high-rises.

In return, the pay offers a better standard of living for families back home or a chance to put away savings.

The World Bank says remittances from the region, the lifeblood for millions in South Asia and the developing world, could decline by 9 percent in nominal dollar terms this year, compared with a rise of 38 percent last year.

Global remittance flows stood at $283 billion last year, up 7 percent from the year before.

<p>Construction workers relax on the beach in Dubai's Marina area in this December 26, 2008 file photo.Steve Crisp/Files</p>

Workers in the Gulf Arab region sent 21 percent of total global remittances to South Asia last year, with their funds accounting for 63 percent of inflows to Bangladesh and 52 percent of funds to Pakistan.

"There has been a fall in the number of migrant Indians employed abroad," said Anshuman Jaswal, an analyst at research firm Celent in Bangalore.

He said remittances would remain depressed through 2009 and early 2010, putting pressure on the Indian economy and making it more difficult for it to achieve growth targets. Remittances make up about 3 percent of India's GDP.

<p>A worker fixes steel girders on a bridge pillar at a road construction site in Dubai in this June 19, 2006 file photo.Devadasan/Files</p>

DEEPENING SLOWDOWN

Even before the financial crisis rattled Gulf Arab economies last autumn, the world's biggest oil-exporting region faced a decline in crude prices that steepened by year-end.

The slowdown has prompted delays or cancellations of projects in Dubai and beyond.

Last Thursday Nakheel, the government-owned developer of offshore island projects like The Palm and The World said it was talking to banks about financing sub-developers as some were having trouble making payments.

Analysts say the UAE faces a more abrupt slowdown than its neighbors as job cuts batter demand in the property and service industries.

A higher rate of cancellations will spur more redundancies in unskilled labor, said Roy Cherry, vice-president of research at investment management firm Shuaa Capital.

"Six months ago ... there was a shortage of labor and contractors were aggressive in trying to gain that labor, to train it, and bring it here. Today, they won't have to do that. they might have to cut back on labor."

(Additional reporting by Rina Chandran in Mumbai)

Editing by Sara Ledwith

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