US embassy cable - 04MANAMA1489

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