US embassy cable - 05MANAMA616

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