LOFTY GOALS FOR ECONOMIC REFORM IN BAHRAIN

C O N F I D E N T I A L MANAMA 000443

SIPDIS

STATE FOR NEA/ARPI DBERNS
STATE PASS USTR JBUNTIN
COMMERCE FOR ITA/MAC/ONE LOUSTAUNAU AND HOFFMAN

E.O. 12958: DECL: 03/14/2015
TAGS: ECON PREL PGOV BA
SUBJECT: LOFTY GOALS FOR ECONOMIC REFORM IN BAHRAIN

REF: 04 MANAMA 1489

Classified By: Ambassador William T. Monroe for reasons
1.4 (b) and (d).


1. (C) Summary. Crown Prince Salman opened the second of
three "national economic plan" workshops February 24. He
said Bahrain needs to position itself as an international hub
for foreign investment. A McKinsey representative told a
crowd of 180 public and private leaders that with "sweeping
economic reforms" Bahrain could almost triple its GDP,
increase the employment by 55 percent, and double per capita
GDP. A survey conducted by the Economic Development Board
(EDB) and the Bahrain Chamber of Commerce and Industry (BCCI)
detailed a different set of issues that business people view
as the greatest impediments to economic growth. While
supportive of the need for reform, business leaders are
questioning the GOB's ability to engage seriously with the
private sector and implement a reform program. End Summary.

--------------
Economic Reform a Must
--------------


2. (U) In his capacity as EDB Chairman, Crown Prince Salman
opened the February 24 workshop by urging Bahrainis to set
high standards for economic growth. He stated that despite
the many challenges ahead, ambition, will-power, and
cooperation will bring economic prosperity to Bahrain. It is
in Bahrain's best interest, he declared, to position itself
as an international hub for foreign investment. This was the
second of three planned workshops aimed at addressing the
GOB's "national economic plan." The first workshop, held in
September 2004, addressed labor reform; the February 24
workshop covered economic reform; and the third workshop,
planned for later this year, will focus on educational
reform.

--------------
McKinsey Findings
--------------


3. (U) McKinsey and Company Middle East Manager Kito De Boer
said at the conference that between 2005 and 2010, Bahrain
could increase its real GDP to $27 billion (from $11.3
billion),create 150,000 new jobs (from a base of 274,636),
and double average personal income (from current per capita
GDP of $16,900 on a purchasing power parity basis) if
economic reform initiatives were adopted. McKinsey
recommended initiatives that include: creating a
"fast-track" for high-priority and high-dollar projects;
setting up a professionally managed board to direct
state-owned companies and oversee privatization efforts;
promoting tourism infrastructure investments; and
establishing a zoning committee.

--------------
Business Reactions
--------------


4. (C) A survey of 650 companies encompassing 15 sectors,
conducted by the EDB and the BCCI, cited the major
impediments to economic growth as: capital and land
shortages; red-tape complicating the process of obtaining
basic utilities; inadequate enforcement of legislation; and
high government interference and favoritism. Prominent
businessman Samir Nass told Econoff that he questioned the
GOB's ability to turn theory into reality. Crown Price Chief
of Staff Shaikh Mohammed bin Isa Al Khalifa, in an effort to
address this sort of skepticism, told the Ambassador February
27 that the Crown Prince's office would personally oversee
implementation efforts. We note, however, that there has
been no public announcement in this regard.

--------------
Comment
--------------


5. (C) Considering the lofty economic goals set out by
McKinsey, the recommended reforms -- fast-track investments,
privatization, tourism, and zoning -- are surprisingly
pedestrian. While undoubtedly beneficial, most believe that
these steps would not by themselves lead to a tripling in GDP
over 5 years. This may be part of the overall strategy --
declare almost unattainable objectives while really striving
to improve the mechanics of doing business. In the meantime,
the private sector focus continues to be more on the
controversial labor reform package (septel).

MONROE