CROWN PRINCE LEADS LABOR MARKET REFORM WORKSHOP

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 001489

SIPDIS

E.O. 12958: DECL: 09/27/2014
TAGS: PREL PGOV ECON ELAB BA
SUBJECT: CROWN PRINCE LEADS LABOR MARKET REFORM WORKSHOP

REF: MANAMA 1390

Classified By: Charge D'Affaires Susan L. Ziadeh, Reasons 1.4 (b) and (
d)

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Summary
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1. (U) On September 23, Crown Prince Sheikh Salman Al Khalifa
and the Bahrain Economic Development Board (EDB) held a
widely publicized public workshop on labor reform. A
politically potent issue, it was the first time the
government openly addressed the employment challenges Bahrain
faces. A McKinsey and Company report commissioned by the GOB
was the basis for much of the discussion. It cited a jobless
rate of 12 to 16 percent and recommended labor reform that
would create incentives to hire Bahraini workers instead of
expatriates. The Crown Prince has promised labor reform as
part of a comprehensive "national economic plan" and we
expect this to be one of a series of both public and internal
government consultations on reform. End Summary.

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Straight Talk on Labor Reform
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2. (U) On September 23 the Crown Prince's Court and the
Bahrain Economic Development Board (EDB) held a workshop on
labor reform, led by the Crown Prince himself. At the
workshop the Crown Prince promised a comprehensive "national
economic plan" that would include labor and education reform.
He also pledged that any new labor policy would not be
implemented without consultation with and notice to the
private sector. This has been billed as the first in a
series of public and private government consultations on
labor reform.


3. (U) The press widely covered the event and the workshop
was aired on Bahrain TV along with two documentary films on
the plight of Bahrain,s poor and unemployed. One well known
commentator remarked in his editorial column that the
openness with which the workshop was conducted and the frank
nature of the discussion made it seem more like an opposition
event than one put on by the government.


4. (C) Given the politically sensitive nature of
unemployment, it is not surprising that the Bahrain Monetary
Agency (BMA) has never published official unemployment
figures for Bahraini citizens. They do publish the number of
employed annually, but that figure does not differentiate
between Bahraini and expatriate workers. Using those numbers
the jobless rate would be at 5 to 6 percent, a rate that does
not comport with reality. It was the Crown Prince who in
2002 was the first high-level government official to publicly
admit that Bahraini unemployment was closer to 15 percent.

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McKinsey,s Report Becomes Baseline
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5. (U) Much of the discussion on September 23 focused on the
analysis and recommendations of a McKinsey and Company report
commissioned by the EDB and the "Workshop Pre-Reading"
summary of the report distributed before the workshop.
McKinsey,s report estimates Bahraini unemployment at 12 to
16 percent, a fall in average real wages of 19 percent over
the last ten years, widespread under-employment, and low job
satisfaction. The report also warns jobs must be found for
the 100,000 new workers they expect in the market during the
next decade.


6. (U) The report calls current reliance on the public sector
for employment unsustainable, cites the need for a
comprehensive reform, sees the private sector as the engine
for growth, and says the first step is to make Bahraini labor
more attractive to the private sector. The report criticizes
current GOB labor policies, saying that barring expatriate
workers from changing jobs has created a pool of low-wage
expatriates willing to work long hours for less in order to
stay in Bahrain. The report also criticizes the GOB's
"Bahrainization" policy, which requires companies to hire a
target number of Bahraini employees. The policy achieves the
goal of more Bahrainis employed but also has more serious
negative consequences including unneeded "ghost workers" and
government micro-management of the labor market.

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The McKinsey Reform Plan
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7. (U) Recommendations for labor reform discussed at the
workshop focused on the need to introduce incentives to hire
Bahraini workers. McKinsey,s plan would put quotas on the
number of expatriate workers and impose employer paid entry
fees (adjustable based on market demands) that could
effectively raise the cost of recruiting expatriates by 100
percent by 2009. Fees collected would go into an account
that would be used to train Bahrainis. Bahrainization quotas
would be removed and expatriates would be permitted to move
freely from job to job in the market. (Note: The Crown
Prince told the Ambassador, per reftel, that the monthly fee
would be about USD250 per month, and all expatriate workers,
including household help would be affected. End Note.)

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Comment
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8. (C) The workshop was important as the opening salvo in
what should be a series of public and private consultations
to help the government get reform right. While we clearly
cannot take credit for the Crown Prince,s energetic efforts
at reform, the implementation of the recently signed Free
Trade Agreement (FTA) does provide Bahrain,s leadership with
some cover as it makes necessary but hard choices.

9. (C) In starting with labor reform the Crown Prince is
tackling an important political issue and acknowledging that
the creation of a highly skilled work force is crucial to
Bahrain,s future. However, banking on the idea that an
increase in the price of expatriate labor will not
significantly impact the pocketbooks of a Citibank or Chevron
enough to discourage them is risky, particularly as Bahrain
bids to compete for foreign investment in a vibrant regional
market. These reforms will have to be part of a strategy
that includes significant investment incentives. The reforms
also do not address who will take on the low-wage work in the
absence of expatriate workers nor the dissatisfaction
expressed by Bahrainis with the jobs they now have.
ZIADEH