US embassy cable - 05MANAMA443

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. 
 
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Economic Reform a Must 
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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. 
 
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McKinsey Findings 
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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. 
 
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Business Reactions 
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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. 
 
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Comment 
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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