Kafala: the Hidden Engine Driving Gulf Economic Development

Indian migrant workers in the Gulf. source: Iain Masterton / Alamy Stock Photo

 

Abstract

The kafala system, central to the Arab Gulf States’ (AGS) economic structure, ties migrant workers’ legal status to their sponsors, leading to significant exploitation. This article explores the system’s historical roots in British colonial practices, its current implementation, and its socio-political consequences. Initially established to manage labor migration, the kafala system expanded with the oil boom, making AGS heavily reliant on migrant labor from South Asia. Despite reforms in Qatar and Saudi Arabia aimed at improving labor conditions, issues like employer control and inconsistent implementation persist. The dual labor market marginalizes migrants while ensuring political stability for ruling elites through welfare benefits for citizens. The global dimension underscores mutual dependence on remittances, vital for the economies of labor-sending countries like India and Pakistan. This article highlights the need for meaningful reform to address systemic exploitation and create a more equitable labor system in the Gulf. However, the analysis relies on secondary sources and a broad focus, which may overlook specific local variations and the latest developments in individual AGS.

Introduction

The Arab Gulf States (AGS) are renowned for their impressive economic and infrastructural development all around the world, yet this development has been due to a continued reliance on imported labour (AlShebabi 2015). Today, AGS are the largest recipients of inward labour migration in the world, with the proportion of foreigners in the labour force varying between 76% (Saudi Arabia) and 95% (Qatar) and with most migrants coming from South Asia (Baldwin-Edwards 2011; Hanieh 2015; Ulrichsen 2016; Statista 2024). The kafala system, the sponsorship-based immigration framework which regulates this great number of migrants, is central to the economic structure of the AGS, yet it remains a subject of intense debate and criticism. This system, deeply rooted in colonial practices, binds migrant workers’ legal status to their sponsors, creating an asymmetrical power balance between employers and their employees. This article delves into the historical origins, current state, and socio-political consequences of the kafala system in the Gulf, with a focus on recent efforts for reform and high-profile scandals that have brought global attention to the issue.

Defining the Kafala System

The kafala system is a legal framework that governs the relationship between employers and migrant workers in the AGS. Under this system, a migrant worker’s legal residence and employment are contingent upon sponsorship by a citizen or a company in the host country. The sponsor, or kafeel, assumes responsibility for the worker during their contract period. This arrangement often ties the worker’s ability to enter, work, and exit the country to their sponsor’s approval, creating significant power imbalances and opportunities for exploitation (AlShebabi 2019; Diop et al. 2015).

The kafala system’s roots can be traced back to British colonial administration in the Gulf. Before the discovery of oil, the Gulf economy relied heavily on the pearl industry, with labor migration being largely unregulated. The British, aiming to manage this workforce efficiently, established a system where pearl diving boat captains were made legally responsible for the migrant workers, they brought in. This laid the groundwork for the modern kafala system, which was later adapted by AGS to handle the significant influx of labor needed for the oil industry (AlShebabi 2019; Hamadah 2022). Migrant numbers quickly grew after the discovery of oil: from high-skilled experts and consultants, to low-skilled oil and construction workers and domestic servants, imported labour has been helping to fill the many jobs locals did not want, or were unable to fill themselves (AlShebabi 2015; Diop et al. 2015; Longva 1997). The British encouraged extensive oil extraction, providing financial incentives to local rulers to secure exploration rights, which deepened the region’s dependence on oil revenues and foreign labor (Halliday 1974). This economic boom necessitated a large, flexible workforce, leading to the widespread adoption of the kafala system to manage migrant labor from South Asia and other regions (Girod and Walters 2018).

Socio-Political Consequences

The socio-political landscape of the Gulf states has been profoundly shaped by the kafala system and the unprecedented influx of migrant labor. The reliance on foreign workers is argued by Baldwin-Edwards (2011) and AlShebabi (2015) to have been a conscious decision made by political elites not to educate and train native workforces for economic development and ensure a lack of political consciousness among the workforce. As such, it has allowed ruling families to maintain political stability and control by providing generous welfare benefits and public sector jobs to their citizens, thereby ensuring their loyalty (AlShebabi 2015). Citizens are thus largely employed in well-paying government positions, while migrants dominate the private sector, creating a dual labor market split between public/private sectors and citizens/expatriates (Matsuo 2019; Ulrichsen 2016).

This division has significant implications for social cohesion and political participation. By excluding migrants from civil society and limiting their rights, Gulf states have created a highly stratified society where citizens benefit from the state’s wealth, while migrants remain marginalized and vulnerable. Oil revenue allocation policies and international migration combine to establish a system that is unique to the AGS, where ethnocracy has stabilised authoritarian regimes by creating great disparities between citizens and migrants who are already under the control of their local sponsors (Khalaf 2015; Longva 1997; Matsuo 2019). The absence of a strong, politically active working class among citizens further entrenches the power of the ruling elites, who use oil revenues to secure their positions and suppress potential dissent (AlShebabi 2015).

The Global Dimension: Mutual Dependence

“Without migrants, the economies of the AGS simply would not exist” (Matsuo 2019: 17). Over half of the population of Gulf states are migrants, the private sector is almost entirely staffed by migrant workers, and citizens lack the required skills to sustain the economy or do not want to work in jobs seen as foreigner jobs such as the ones in the service sector (AlShebabi 2019; Baldwin-Edwards 2011; Hanieh 2010; Vora 2015). Still, this dependence is a mutually reinforcing one: just as the Gulf economies depend on cheap foreign labor to sustain their growth, the home countries of these migrants, primarily in South Asia, rely on remittances sent back by their expatriate workers (Ehteshami 2013). These remittances are crucial for the economies of countries like India, Pakistan, and Bangladesh, supporting millions of families and contributing to national development (Rajan and Oommen 2020; Ulrichsen 2016).). In the Indian state of Kerala, where half of the contract labourers in the AGS originate, interaction with AGS through migration and remittance flows has alleviated poverty, promoted development, changed class structure and social hierarchy and influenced religion (Ehteshami 2013; Lawson 2012; Rajan and Oommen 2020).

Economic downturns in the Gulf, such as those caused by fluctuations in oil prices or the COVID-19 pandemic, can lead to job losses and reduced remittance flows, impacting the livelihoods of families back home. The pandemic, in particular, highlighted these vulnerabilities, as many migrant workers faced job losses, wage cuts, and difficulties in returning to their home countries due to travel restrictions and lockdowns (ILO 2020). Despite the risks and vulnerabilities associated, the labor-exporting South Asian countries have developed migration policies that encourage their citizens to seek employment in the Gulf, despite the known risks and challenges associated with the kafala system. This creates a continuous flow of labor, perpetuating the cycle of dependence and exploitation.

Recent Scandals and Global Attention

The kafala system has come under increasing scrutiny due to numerous reports of labor abuses and high-profile scandals. The 2022 FIFA World Cup in Qatar, for instance, highlighted the dire conditions faced by migrant workers. Reports from Amnesty International (2022) and Human Rights Watch (2022) documented unpaid wages, unsafe working conditions, and the inability of workers to change jobs or leave the country without their sponsor’s permission. These revelations sparked global outcry and calls for reform. In response to international pressure, Qatar implemented several labor reforms, including establishing a minimum wage, allowing workers to change jobs without employer consent, and improving dispute resolution mechanisms (GCO 2020). However, the implementation of these reforms has been uneven, and many workers continue to face significant challenges.

Other Gulf states, have also made efforts to reform their labor laws. In the UAE, the government has introduced measures to improve labor rights, such as wage protection systems and better dispute resolution mechanisms. However, these measures have not fully addressed the underlying power imbalances and many workers still face harsh working conditions and limited legal recourse (Gulf News 2021). Saudi Arabia, a proponent of nationalization policies, announced similar reforms in 2021 under the Labor Reform Initiative, aimed at allowing greater mobility for migrant workers. These changes included measures to enable workers to transfer jobs and exit the country without employer approval, and to improve contract transparency (Human Rights Watch 2021).

Efforts to reform the kafala system and promote labor nationalization have been met with limited success. Despite initiatives to increase the employment of nationals in the private sector and improve labor conditions for migrants, entrenched economic interests and popular resistance have hindered meaningful change (Diop et al. 2015; Hamadah 2022). The private sector continues to rely heavily on migrant labor due to cost advantages and the reluctance of citizens to take on low-skilled jobs perceived as inferior (Hamadah 2022; Kamrava 2012).

Conclusion

The kafala system, deeply rooted in colonial history, remains a critical component of the Gulf’s economic structure. While it has facilitated rapid development and economic growth, it has also led to significant human rights abuses and socio-political challenges. Although reform is necessary and is being actively pursued by the AGS’ governments, significant changes seem unlikely in the near future, and the mutual dependence between the AGS and South Asian states will continue to reinforce each other as the AGS continue on their path of economic development.

 

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