Employers across the Emirates are facing pressure to raise housing allowances as accelerating inflation puts a strain on household incomes.
It comes as a double blow to employers as allowances also come under scrutiny in the face of double-digit rent rises in parts of the country.
A survey carried out by the consulting firm Mercer found that 24 per cent of employers in Dubai aim to increase schooling allowances for their employees in the coming year, with 19 per cent of employers in Abu Dhabi planning to do likewise.
This compares with the 13 per cent of respondents in Dubai and 7 per cent in Abu Dhabi that increased tuition allowances in 2013, Mercer announced as part of its Spot Survey on Housing and Schooling Allowances Increases in UAE report.
Mercer reported in February that 24 per cent of companies in Abu Dhabi and 41 per cent in Dubai also planned to raise housing benefits.
Inflationary pressures have been building as rising demand, improving consumer confidence and a rampant housing market puts pressure on prices.
Housing and utilities prices increased by 4.49 per cent in Dubai year on year to February and 1.5 per cent in Abu Dhabi, according to statistics authorities in both emirates.
Hamad Buamim, the chief executive of Dubai Chamber, warned in January that increasing real estate prices would negatively affect Dubai’s competitiveness.
“Looking at our annual employer surveys there was barely any change in schooling allowances from 2011-13,” said Mercer’s Nuno Gomes. “Employers have been resistant to change, but we’re increasingly seeing them become more active and engaged with this issue.”
While more companies are planning to increase school allowances in 2014, the planned increases fall short of the amount offered by those employers that did increase allowances last year, Mercer found.
On average, in 2013 increases were 15 and 16 per cent in Dubai and Abu Dhabi respectively, whereas in 2014 forecast increases are 12 per cent in Dubai and 10 per cent in Abu Dhabi.
“The inflationary trend is one that we definitely see increasing going forward, especially in Dubai, with the main driver being an increase in the cost of housing and food,”” said Alp Eke, a senior economist at National Bank of Abu Dhabi.
Dubai’s private schools regulator said last month that private school fees in the emirate would rise in September for the first time in two years, by between 1.74 and 3.48 per cent.
Increases in school allowances are likely to be concentrated among employers currently paying below the market average, said the head of talent and reward at a large Dubai-based employer who did not wish to be identified.
“If an organisation is currently paying below average levels they may look to increase their allowances to come in line with the market average. For us however we’re paying slightly more than average, so we’re going to hold our rates for now and see where the market is towards the end of the year.”
Companies will have little choice but to increase allowances for schooling and education if the UAE’s economy continues its brisk growth, said Mr Gomes.
“We’re not seeing any change in the schooling system to contain increasing fees. As the economy grows there will be more children of school age coming here, which schools can take advantage of.”
But changes in employee pay and compensation will often lag behind increases in the cost of living, meaning that wholesale salary increases may be some way off, according to Harish Bhatia, unit manager for Hay Group in the Middle East.
“When the market was booming in 2007-08, housing allowances trailed behind; it was only a few years later when they actually increased.
“Rents today still haven’t reached the levels they were, so allowances are only likely to go up if we see sustained increases over a few years.”
jeverington@thenational.ae
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In numbers: PKK’s money network in Europe
Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010
Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille
Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm
Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year
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TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013
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A foster couple or family must:
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
COMPANY PROFILE
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