Is the Gulf headed for a labor crisis?

LONDON, England (CNN) -- The Gulf nations are experiencing a major construction boom, as their leaders make definite steps to encourage development.

Kuwait, one of the latest countries to show signs of a surge, is already an attractive prospect for contractors. Low income tax on foreign firms and the creation of the GCC common market are enticing companies to work in the country.

In conjunction with this, the Kuwait Petroleum Company has released a large amount of land to be used for the construction of 16,000 new, low-cost homes, and a railway and underground system has been proposed to strengthen the nation's infrastructure, both of which make it ripe for development.

However, Kuwait, along with the other burgeoning Gulf states, is staring down the barrel of a labor crisis and a series of rising costs that are threatening to stunt the construction explosion.

Azad Hossain, the deputy head of contracts and chief quantity surveyor for Gulf Consult, told ArabianBusiness.com: "Kuwait should have been a haven for investors with unbeatable golden opportunities, but the spiraling prices in housing have raised the government's worries of fueling inflation in recent months."

But the problems aren't restricted to Kuwait, as prices on everything involved in the Gulf construction industry shoot up.

In January this year, Construction Week reported on the rising prices of raw materials, including essential building ingredients such as cement and steel, and, of course, there is the very large problem of rent increases on accommodation for the laborers.

Freddy Lama, the managing director and owner of Nova Electromechanical Contracting Company, based in Abu Dhabi, outlined the problem in ArabianBusiness.com: "Costs have risen due to high rents and inflated costs of operation as well."

"Due to the unavailability of office or adequate residential space, rents have shot up and this has added to our day-to-day operation costs. Abu Dhabi in particular is facing a pressing shortage of office and residential space. At least in Dubai, if you're willing to pay the price, you can find a functional place. But both situations are driving costs up"

But easily the biggest problem that faces these fertile markets is the shortage of cheap labor that is beginning to hit the Gulf -- as Arabian Gulf Chapter vice-president Adbulmajeed Al Gassab put it in Bahrain's Gulf Daily News this week: "The golden days of cheap labor from Asia for the Gulf contractors are gone."

The economic surge in countries such as China and India, both of which have been good sources of cheap professionals and unskilled workers for the Gulf in the past, is a major factor in the shortage.

"Now, with the Asian economy booming, especially in India, such workforces are paid heavily back home and they are not keen on working in the Gulf," Al Gassab went on to explain.

This puts the region over a barrel, since contractors there rely heavily on manual labor, as Chris O'Donnell, CEO of Nakheel told ArabianBusiness.com.

"There's too many people, not enough technology. Contractors here utilize labor to a great extent because it's relatively inexpensive but that's not going to last. With the labor shortages around the world we are going to have a big problem in Dubai," he said.

A big part of the problem seems to stem from the weakness of the dollar, and therefore the comparative strength of other world currencies.

The Rupee has risen recently and is currently trading at slightly more than 40 to the dollar, making the pay packet in India decidedly more attractive than it was 12 months ago.

Without the lure of more money in the Gulf, workers from India are inclined to stay at home, unless contractors can tempt them with a series of incentives that must surely include a rise in wages.

Gurjit Singh, executive director of property development at Sorouh Real Estate, told ArabianBusiness.com: "Laborers will become a limited resource."

"Where you could have 10 laborers in the past, maybe you will only have five. Contractors will need to ensure their long-term sustainability by offering them a career path, good wages and living conditions."

The ultimate result of this could be a rise in the cost of labor, and an overall increase in the price of the Gulf's growing demand for development.

The industry is bracing itself for shortages, but at the moment it is clear the region wants to expand, and it seems unlikely that labor issues will stand in the way.

Although Kuwait is taking to it much slower than its neighbors in the GCC, the nation is set on the path of development, despite the range of factors which may make it more difficult. E-mail to a friend