In January 2008, an open letter to King Hamad bin Isa al-Khalifa was published in a Bahraini newspaper protesting at the obstacles to reform in the government.

That alone would be a noteworthy development in most Gulf countries, but what made the letter even more significant was that it was written by Sheikh Salman bin Hamad al-Khalifa, the crown prince and chairman of the Economic Development Board (EDB), which is spearheading the country’s reform programme.

The letter was the first part of a calculated move to take control of the kingdom’s economic policy-making apparatus away from Bahrain’s long-serving prime minister, Sheikh Khalifa bin Salman al-Khalifa, who was widely seen as the main obstacle to reform to which the letter referred.

In his response, King Hamad warned that government officials resisting change would be swept aside. Later the same month, he promoted Sheikh Salman to deputy supreme commander of the Bahrain Defence Force. Sheikh Salman also expanded the EDB’s board of six cabinet ministers and 10 other members to include 16 ministers, a move that gave him complete responsibility for the kingdom’s economic development.

With his position bolstered, Sheikh Salman has gone on to launch a series of far-reaching policy initiatives through the EDB in the 18 months since his letter appeared.

The most significant was the launch in Oct-ober 2008 of Vision 2030, a mission statement setting out a long-term strategy to roll back the position of the state in the economy and to use the private sector to drive the kingdom’s economic development.

“We have reform initiatives in more than 10 ministries at the moment and they are all moving”

Sheikh Salman

It was followed in April this year by the publication of the National Economic Strategy, putting in place a framework for how government ministries will deliver Vision 2030. The strategy sets out 138 initiatives that need to be implemented by ministries, including key performance indicators that will be used by the EDB to monitor progress.

“We compile a report and I hold them accountable if they don’t perform,” says Sheikh Salman. “And I raise that with the prime minister and the king.”

Sheikh Salman’s approach is akin to that of a management consultant trying to force through change in a corporation. He says that just the promise to measure the ministries’ performance has been the key to removing many of the obstacles to reform. “People knew that they were going to be held accountable for their lack of performance,” he says. “It is that simple. We are moving forward with a great sense of momentum. We have reform initiatives in more than 10 ministries at the moment and they are all moving, some faster than others.”

The ministries are having to become more efficient to meet their new targets, but the economy as a whole also needs to improve. Bahrain has been pursuing a diversification drive for more than 30 years, compensating for its limited oil resources by developing manufacturing, financial services and other industries.

Strategic success

It is evidence of the success of this strategy that the kingdom’s economy has performed relatively well through the global financial crisis of the past 12 months.

“We have suffered relatively little in this global economic downturn,” says Sheikh Salman. “And we are projecting that our economy will still grow this year, although perhaps not at the dizzying heights of the past seven years. We know it won’t be 8 per cent and we know it won’t be negative; maybe around 4 per cent.”

The changes in the economy carried out to date have raised fears among some locals that there will be a growing disparity in wealth between the kingdom’s business elite and the working classes. Sheikh Salman says he is aware of this concern, but disagrees with the view that it is an inevitable consequence of his free-market reforms.

“For most of the 20th century it was not the case,” he says. “We lived in free-market systems, at least the West and parts of the East and other nations did, and the gap did not grow. It was relatively stable. It was only with massive deregulation towards the end of the century that that sort of income gap developed.

“We are not talking rampant capitalism here. It is often too easy to pigeon-hole reform as one system versus another, when of course it is much more complex. Building in a system of protection for the weakest in society is just as important as developing a competitive, open economy that rewards the most industrious and productive.”

One of the most challenging issues to ensure that the weakest are not left behind in Bahrain is access to housing. Despite a five-year construction boom, the kingdom is still facing a chronic housing shortage – a result of private developers focusing on building profitable luxury properties rather than low-cost housing.

“Housing is probably the number one issue on people’s minds in the country today”

Sheikh Salman

In April 2008, the Bahrain Centre for Human Rights sent a report to the UN’s Office of the High Commissioner of Human Rights claiming the kingdom was facing a housing crisis. According to government figures, up to 40,000 families are registered with the Works & Housing Ministry for low-cost housing loans or state accommodation.

“Housing is probably the number one issue on people’s minds in the country today,” says Sheikh Salman. “One of the main new initiatives that we will be focusing on towards the end of this year, and well into the next, will be developing a model for public-private partnerships [PPPs] for the construction of low-cost housing for those most in need.

“We want to make it competitive and we want to make it just, so that people most in need have access to it. And we want to make it sustainable. So we are not just trying to encourage people to start with unreasonable subsidies and then pull them away.

“What is likely to happen is that development companies will be invited to tender for the construction of low-cost housing in all areas of Bahrain, and the government will provide a guaranteed fund to cover defaults.

“We will offer concessions for certain sizes and number of housing units. Developers will be given attractive land to develop these homes and then sell them to the public, based on their best belief that the demand exists.”

Building homes

This plan is likely to lead to the construction of tens of thousands of new homes.

“If you look at the numbers, there are 40,000 applications for low-cost housing loans or state accommodation,” says Sheikh Salman. “If you factor in that some people are buying existing homes, then a reasonable targets for us to achieve in the next 10 years is somewhere in the region of 20,000 homes.”

It is a challenging target but Sheikh Salman insists that despite the tightening of the credit markets and the region-wide fall in demand for mortgages, the government will be able to deliver all the housing PPPs that are needed. He points to its experience in the utilities sector, where it has developed an independent power plant (IPP) and an independent water and power plant (IWPP), to support his case.

“We have already rolled out PPPs in other areas,” he says. “We oversaw the first greenfield IPP and then an IWPP. We wanted to demonstrate that we could generate savings. What the consumer wants, and the government, is more value for their dinar.”

While many other Gulf countries have followed similar strategies to develop their power and water sectors, other reforms championed by the EDB are far more novel for the region, not least the changes to the labour market, which are being watched closely by other governments.

In 2008, Manama set up Tamkeen, an agency to run education and training programmes for Bahrainis. Its work is funded by a levy on businesses that employ expatriate workers. For every foreign employee, the employer has to pay BD10 ($26.50) a month to the Labour Market Regulatory Authority, which then passes on the money to Tamkeen.

The tax has attracted opposition from companies in Bahrain, although the government has tried to lessen its impact by easing other employment laws, such as allowing private firms greater flexibility in employing foreign workers without strict localisation quotas. At the same time, visa rules tying workers to particular employers have been dropped.

Sheikh Salman has a stark message for companies that complain the reforms make it difficult for them to retain workers that they have spent money on recruiting and training.

“To them I say ‘welcome to the developed world’,” he says. “That is what happens in the UK. It is what happens in the US. It is how it is in just about every other labour jurisdiction that has a shred of conscience and political accountability.”

Regional interest

The labour reforms have received considerable interest from other governments in the region. “Every single Gulf labour ministry has called our labour ministry to enquire about this,” says Sheikh Salman. “They are asking: What have been the effects? What have you noticed? How easy has it been to implement?”

But while the reforms have been broadly accepted in Bahrain, Sheikh Salman accepts that they might not suit all of its neighbour—ing countries.

“This is something that you cannot do half-heartedly,” he says. “You either do labour reform or you don’t. And obviously I am on the side that believes it is imperative, not only from an obligation and human decency point of view, but also for the benefit of our own citizens.

“If our small and medium-sized companies are only creating jobs for what are, in effect, indentured servants, we will never provide an economic future for our citizens.”

But Sheikh Salman’s tough stance on opposition to his reforms does not mean he is not prepared to listen to those in Bahrain who may want to do things differently.

“We are doing a lot of consultation with the private sector,” he says. “We passed prob-ably one of the most controversial public policy reform initiatives in the region: labour reform. And that was after a great deal of consul-tation – more than 500 separate meetings with policy-makers, individuals and institutions. Some of them agreed, some didn’t. Some were reserved for quite some time, some still have some concerns about how the money is being spent. But the reform has gone through.”

Progress made over the past 18 months makes it unlikely that Sheikh Salman will feel the need to write any more open letters to the king complaining about obstacles to reform.