Labour costs to rise

With free trade deals coming along not too far from now, labour prices in the Middle East are expected to go up in the short term.

It is expected to happen soon, but since the process has been going on since 1988, one can hardly blame the two sides for proceeding cautiously in order to make sure that their interests are met.

The two sides are the Gulf Cooperation Council (six nations, GCC for short) and the European Union (27 nations, EU for short) and the agreement they are working on is essentially a free trade agreement. While the proposed free trade agreement between the GCC and the EU would be quite different from other free trade agreements such as the North American Free Trade Agreement (NAFTA), at the same time it would facilitate trade without tariffs between countries on both sides.

Combine that free trade agreement with the GCC Common Market of labour between the six member nations and what happens is an initial increase in labour cost that is expected to dissipate over time.

Denis O'Connor is the General Manager of Abu Dhabi Commercial Properties, and he said as much in an interview recorded by AME Info. He stated point blank that the free trade and GCC Common Market agreements would result in an initial rise in the price of labour, which in turn would cause costs for property developers to skyrocket as labour tends to be the most expensive part of a building contract already.

For places such as Dubai which are already well behind on construction of their supply side in order to keep up with ballooning demand, this is not exactly good news. For people that have already invested in Dubai or are going to invest soon in the property market, this is probably good news as the slowdown in the creation of additional supply will cause inflation to go higher than it already is.

The free trade agreement, when it is enacted, is expected to be the mitigating factor over time that brings the cost of labour down, but as of yet there is no indication as to when the free trade agreement will be finalized.

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