2018 SALARY INCREASES IN THE UAE

Salary increases in the UAE are for some inexplicable reason, often shrouded in mystery and secrecy.

Some salary surveys for the region are published however for 2018, the proposed salary increases range between 2.5% to 5.0%; cognisance must be taken of the fact that the implementation of VAT and lower housing costs does render it difficult to assess what could be considered a fair and equitable salary increase. Further, one must bear in mind that these surveys were conducted before the spike in the inflation rate over the first two months of 2018.

There is of course a scientific methodology which can be employed to derive a judicious salary increase – one that is equitable to all stakeholders.

The departure point of the methodology is to forecast future inflation. In the graph below we have enumerated historic inflation in blue and Axiomatic’ s projected future inflation rate in red:

The average projected inflation rate, for the UAE, for 2018 is 4.0%.

Having determined the average expected inflation rate for 2018 at 4.0%, the next step in the process is to establish the quantum of the real increase. A real increase is defined as the increase after inflation has been taken into account. As an example, if the salary increase is 7.0% and inflation is 5.0%, then a 2.0% real increase has been granted.

The quantum of any real increase is determined by several factors, the most important being:

  • The “normal” real increase in developed countries is lower than in less developed or emerging markets. For example, this year we anticipate a 1.0% real increase in developed markets and a 4.5% real increase in emerging markets. Our current predictions for real increases in some selected countries/regions are shown below:

 

  • The real salary increase is impacted by unique economic conditions (such as Brexit in the UK) or low growth. If growth is low, this essentially translates to companies experiencing difficult trading conditions where financially, they cannot afford to grant a real salary increase.

Currently, economic conditions are difficult in the UAE. Despite an anticipated increase in tourism revenues, we believe that the continued depressed oil price, lower consumer spending and subdued trading conditions will result in meagre growth of 2.6% in 2018.

Given the projected low growth rate, we believe that a 0.5% real salary increase is equitable. Completing the analysis indicates the following outcome:

For more information please contact Brett Hopkins on +27 11 305 1945 or brett@axiomatic.co.za