CROWN PRINCE PROMOTES LABOR REFORMS

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 000616

SIPDIS

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

E.O. 12958: DECL: 04/25/2015
TAGS: ECON PREL PGOV ELAB BA
SUBJECT: CROWN PRINCE PROMOTES LABOR REFORMS

REF: 04 MANAMA 1489

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

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Summary
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1. (C) Crown Prince Salman attempted to ease public fears
over proposed labor reforms by announcing March 25 that the
GOB would implement reform slowly and gradually. The Bahrain
Chamber of Commerce and Industry (BCCI) Chairman announced
soon after that the private sector felt more comfortable that
the reforms would not be imposed unilaterally. Despite the
BCCI assurances, lingering resentment in the business
community remains over the perception that the private
sector's input was not given enough consideration by the CP.
A major overhaul to the current labor law is expected to
reach parliament sometime this year, while separate
legislation to create a Labor Market Regulatory Authority
(LMRA) and a Labor Fund is with parliament now. The Economic
Development Board (EDB) publicly warned, in press reports
April 24, that unemployment could increase drastically if the
reforms are not implemented on schedule. Widespread
opposition to extending the fee-based system to cover
housemaids pushed the EDB to revise this application of the
reforms.

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Crown Prince Reaches Out
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2. (C) In an effort to ease fears that proposed labor
reforms would harm the commercial environment, the Crown
Prince was quoted in a March 25 Bahrain Tribune article as
saying, "we will move gradually according to an agenda that
is rooted in the reality on the ground and which seeks to
improve the situation carefully and thoughtfully, but also
seriously and determinedly, without deviating from the
objectives." The Crown Prince told the Ambassador April 11
that he has been meeting with political blocs in the
parliament to gain support for the reforms.

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Private Sector Reaction
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3. (C) In response to the CP's remarks, BCCI Chairman Khaled
Kanoo said March 29, "The commitment for a labor market
reform project based on a wide consensus has allayed concerns
that the plan would be imposed unilaterally." Despite this
public acknowledgment, BCCI Second Vice-Chairman Esam Fakhro
told P/E chief April 13 that many in the private sector still
feel bitter. He said the GOB did not give enough credence to
private sector views and feedback despite the fact that it
will bear the burden of implementation.


4. (C) GOB officials in the Ministries of Finance and Labor
focus on the future goals of the labor project: they
envision a high-tech service sector society with decreased
reliance on labor inputs. The private sector, however,
concentrates on the short to medium term impacts as Bahrain
transforms from its current low-cost labor model. Shura
Council member and BCCI member Khaled Al Maskati told EconOff
that he was concerned over the potential impact of the fees
to be assessed on expatriate workers. In order to avoid a
potential shock to the economy in general and to small and
medium sized companies in particular, Al Maskati said the
fees should be implemented on an incremental basis. Chairman
of the Bahrain Businessmen's Association Khaled Al Moayyed
also noted his concern over the fee structure in a
conversation with the DCM. He said he would have to pay an
additional $70,000 per month in labor costs, for his
businesses, under the new system. Many embassy contacts fear
the fees will negatively impact foreign direct investment and
the viability of many Bahraini companies.

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Labor Market Legislation Coming to Parliament
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5. (C) Government contacts tell us that amendments to the
existing labor law should be introduced to the parliament
sometime this year. In conjunction with the labor law
reform, the GOB is also developing a Labor Market Regulatory
Authority (LMRA) and a Labor Fund. The LMRA aims to provide
the analysis and research to policymakers as they develop
plans to create jobs and spur economic growth. It will have
a market intelligence unit to collect and analyze trends.
The Fund will be responsible for investing revenues raised by
the levies on ex-patriate workers. The primary use of the
revenues will be support for training Bahraini workers, but
an additional proposed use would be soft financing for and
equity sharing in various projects. Al Absi noted the
Ministry of Labor is involved in a massive public relations
effort to explain labor reform and the Fund to the private
sector.


6. (U) The press covered an EDB report April 24 saying that
the number of unemployed Bahrainis could reach 70,000 by 2013
if labor reforms are not implemented on schedule. (Note.
Estimates for current unemployment are 16,000-20,000, or
13-16 percent of the labor force. End Note.) Per the
report, 70 percent of new entries to the labor force over the
next decade would not be able to find employment and the cut
in the average salary for Bahrainis could equal 11 percent.

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Exemption for Housemaids
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7. (C) Al Absi told Econoff April 13 that all Bahraini
households will be allowed to sponsor one housemaid without
paying any fees, but households sponsoring additional maids
must pay fees for them. The household workers system was
broken out from the new labor regime because of strong
opposition from Bahrainis. Many Bahrainis employ housemaids.


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Comment
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8. (C) The proposed legislation represents a wrenching
change for an economic system based on inexpensive foreign
laborers. The CP's new focus on selling the reform project
to both the private sector and parliament represents belated
recognition that even the best plans need buy-in from
relevant actors. With this and other pieces of legislation,
the Bahraini leadership is still finding its way on working
with parliament and other stakeholders. While the business
community is pleased with the CP's new tone, it remains
concerned about the financial impact of a fee-based system
for foreign workers. The CP's office believes it has the
political muscle -- and wisdom -- to see through its labor
reform initiative. Whether this is true remains to be seen.
MONROE