DUBAI, 1 October 2007 — The United Arab Emirates recorded a 10.7 percent growth in private sector salaries while Saudi Arabia marked a 7.7 percent hike, according to a report released by a leading recruitment firm.

“Gulf Compensation Trends 2007,” released by GulfTalent.com, said that private sector salaries across the GCC increased at an average rate of 9.0 percent over the last year. Intense competition, public sector pay rises, depreciating US dollar, and growth in Asia are key driving forces behind Gulf pay rise, the report added.

Oman registered the biggest jump, from 5.6 percent last year to 11.0 percent this year, driven in part by a 15 percent pay rise for public sector employees. The government’s decision earlier this year to allow expatriates to change employers has dramatically increased staff attrition rates, further adding to the pressure on firms to increase salaries.

The UAE and Qatar, which are experiencing double-digit inflation this year, remain near the top of the rankings. The pay of UAE professionals increased by 10.7 percent against 10.3 percent last year, while in Qatar wages rose by 10.6 percent, marginally lower than last year’s figure of 11.1 percent.

Bahrain pay accelerated to 8.1 percent from 6.4 percent last year. Kuwait was virtually unchanged at 7.9 percent against 8.0 percent last year, while Saudi Arabia saw an increase to 7.7 percent from 6.5 percent the previous year.

In Saudi Arabia, employers continue to face stiff domestic competition for Saudi talent, as well as regional competition for expatriate professionals. With a fast growing population, residential rents are also coming under pressure, increasing at an average rate of 10 percent.

The participation of Saudi women in the workforce appears to be gathering momentum, with a growing number of Saudi women showing interest in having a career and more companies setting up facilities to be able to employ them. It partially eases the pressure on companies in meeting their Saudization targets, without the need for very aggressive pay hikes.

Across the GCC, sectors enjoying the highest pay rise were construction, banking and energy — consistent with the last two years’ results and reflecting the sectors’ continued strong growth. Healthcare and education registered the lowest increases.

Among job categories, engineers and finance staff received the biggest pay rises, followed by human resource professionals in third place. Historically under-represented in the region, the HR function has recently been catapulted to the front line as Gulf-based employers grapple with the challenge of attracting, developing and retaining staff.

The study highlighted continued economic growth and intense competition for talent as key drivers of pay rises, along with spiraling living costs in parts of the region, particularly Qatar and the UAE, as well as large pay rises awarded to government employees in some GCC countries.

It also showed that the continuing depreciation of dollar-pegged regional currencies was diminishing the value of Gulf compensation packages for European expatriates, putting further upward pressure on salaries. Kuwait’s decision earlier this year to drop the US dollar peg and the subsequent 3 percent appreciation of its currency are increasing the competitiveness of Kuwaiti salaries relative to its neighbours and may intensify the pressure on other GCC countries to follow suit, it said.

Other drivers of pay increase highlighted in the report were continued economic growth and rising salaries in India, traditionally the main supplier of expatriate workforce to Gulf countries, as well as the easing of laws in some GCC states regarding expatriates changing employment.

The survey further revealed that, as the supply of skilled staff from traditional markets such as India and Egypt diminished, many employers were looking to new sources such as China, Eastern Europe and Latin America. At the same time, staff shortages were forcing companies to outsource more of their operations or to switch to other processes and technologies that are less manpower-intensive.

GulfTalent.com’s study was based on a survey of 18,000 professionals in the six GCC countries, as well as interviews with regional business leaders and human resource managers.