Sheikh Mohammed bin Essa al-Khalifa on Bahrain's economic ambitions

29 October 2009

The chief executive officer of Bahrain’s Economic Development Board discusses the progress being made towards turning the kingdom’s Vision 2030 ambition into a reality

“Very few people get a chance to change the direction of a country,” says Sheikh Mohammed bin Essa al-Khalifa, chief executive officer of the Economic Development Board (EDB), the state body that is leading the reform of the Bahraini economy. “We are in a lucky position, but there is also a lot of responsibility.”

This is perhaps an understatement. In the time since its inception in April 2000, the EDB has devised plans to completely overhaul the way Bahrain is run. With the Vision 2030 development plan, launched in October 2008, it has mapped out a strategic direction for the next 21 years, including an ambitious aim to double household income. Along the way it has created waves both nationally and throughout the region.

After success with the partial privatisation of Bahrain Telecommunications Company (Batelco), and creating a single regulator for the banking, insurance and capital markets sectors in the form of the Central Bank of Bahrain, the EDB turned its attention to education and labour reform.

Reform process

“When the EDB was set up it was around the same time that the king [Sheikh Hamad bin Isa al-Khalifa] started political reforms in Bahrain and developing democracy and the parliamentary elections,” says Sheikh Mohammed.

“The EDB was established with a clear -mandate that democracy must be better for people, and they must feel an economic dividend from all these reforms. Development must serve a purpose and we need to make sure the man on the street benefits from what we do.”

The board has also had to ensure that government ministries support the objectives set out in the Vision 2030 masterplan, particularly when it involves significant changes to the way they operate. The Education Ministry, for example, has had to shift from measuring its performance based on inputs such as student-teacher ratios, which are fairly easy to control, to more complex outputs, such as the quality and employability of school leavers and university graduates.

“Change is always difficult and should be treated carefully,” says Sheikh Mohammed. “Nobody can disagree with goals that aim to improve the standard of living. The debate comes when you start trying to implement policies to achieve the vision.

“The response from the ministries in Bahrain has been better than I expected. Part of the reason is because we did not go and tell them how to do their job. We said ‘these are the goals, this is your responsibility. Tell us how you want to achieve them’.”

Given Bahrain’s relatively limited natural resources, Sheikh Mohammed says it is important for the kingdom to “unify its efforts and make sure everyone is aligned behind a common goal.”

Much of the EDB’s efforts have concentrated on measuring the quality of results rather than the amount of money being spent on resolving a problem. “We want to move from measuring how much we throw at a problem to how much progress we are making at solving it,” says Sheikh Mohammed.

“Most countries measure GDP [gross domestic product] per capita. We wanted to make this measure much more personal and measure average take-home pay. So for every Bahraini who [today] makes BD1,000 ($2,652), by 2030 we want them to be taking home BD2,000.”

The EDB’s strategy for achieving this goal relies on the creation of a free labour market, rather than subsidising its citizens even more, as many of its richer Gulf neighbours do.

“We used to have a system where the local was protected under the law and businesses couldn’t hold him accountable, couldn’t fire him and he would only work for a certain amount of money,” says Sheikh Mohammed. “This is versus an expat who had very few legal rights, was twice as productive, and would work for half that of a Bahraini. There was no rational reason why somebody would want to employ a national.”

“Development must serve a purpose and we need to make sure the man on the street benefits”

Sheikh Mohammed bin Essa al-Khalifa

By replacing this system, Sheikh Mohammed hopes to force the local labour force to become more competitive.

“We have a new labour law in the last stages of parliament now that treats Bahrainis and non-Bahrainis equally,” he says. “The competition for talent helps competitiveness grow, and helps Bahrainis grow stronger because they have to earn their jobs.”

More training will be needed to improve the quality of the Bahraini workforce. In July last year, the Labour Market Regulatory Authority (LMRA) began collecting BD10 a month from businesses for every foreign worker they employed. The levy is being used to fund training services for Bahrainis to make them more attractive to employers.

These reforms have been the most controversial of the EDB’s initiatives so far. Private sector firms, particularly those in the labour-intensive construction industry, have protested against the levy, calling for it to be dropped.

“We have created a nice little issue throughout the Gulf with what we have done here,” concedes Sheikh Mohammed, adding that to describe the measure as having received some criticism is “an understatement”.

Open society

Bahrain has a reputation for being more open than many other Gulf states, and criticism of government policies is nothing new, not least from the majority Shia population, who often claim to be discriminated against by the more powerful, minority Sunnis.

“We have an open society with the freest and most vibrant political scene in the Gulf,” says Sheikh Mohammed. “People have a right to protest and then go back home, that is something we are proud of and is one of our strengths. It is not a weakness.”

He claims that resistance to the levy is easing. “People are already starting to see the benefits,” he says. “At first it was viewed as some sort of tax, and naturally people resisted it, so the uproar was expected. But people are starting to talk more positively of it.”

Other Gulf governments have been closely watching the labour market reforms being put in place by Manama. Both Qatar and the UAE have said that they are considering similar measures to give workers more freedom to switch jobs, and Kuwait has already put forward its own proposals.

“What people do not realise is that the labour ministries in the GCC have been talking about this for a very long time,” says Sheikh Mohammed. “Yes we started it, but I think that just helped tip the balance towards getting political support to get the ball rolling.”

The next major labour market reform on which the EDB is embarking is to pensions payments, to create a level playing field between the public and private sectors.

“We have an open society with the freest and most vibrant political scene in the Gulf. It is a strength”

Sheikh Mohammed bin Essa al-Khalifa

“Our goal is to unify the pension benefits between the public and private sector so in the future people will ask ‘where can I have the best chance of a career and contribute the most? – whether it is in the public sector, private sector, or maybe both.”

Although some of the EDB’s initiatives have been controversial, the global econ-omic -slowdown has only reinforced the rationale for such reforms, according to Sheikh -Mohammed.

“With oil at $150 a barrel and real estate prices increasing rapidly, people tend to get lazy,” he says. “But one thing that has come out of this slowdown is that it shows how important diversification is. And as the world is falling apart, it helps to know where you are going. Vision 2030 came at the right time and I think it has actually enabled us to increase the pace of reform.”

Other governments in the region have also been trying to diversify, but for some economies, such as Dubai, this has simply led to money being poured into real estate to the exclusion of most other sectors.

“Real estate is not diversification per se,” says Sheikh Mohammed. “The companies that use real estate are diversification.

“It is important to ask who these projects are for. I had an investor in my office in 2005 who said ‘if you give me an area of land about 20 square kilometres, I will build you a city for 200,000 people’. This made me start thinking, who are these things for? Why do we need to do it? But the flip side is that you do need real estate to achieve diversification.”

Real estate

Diversifying Bahrain’s economy will require more real estate projects such as the Bahrain Financial Harbour, which has given a boost to the local finance sector by providing the modern infrastructure Bahrain had been lacking. Even in the construction industry, which tends to rely on large numbers of low-skilled workers, Sheikh Mohammed says there are opportunities to create better-paid positions.

“We are trying to improve productivity in the construction sector,” he says. “So, for example, rather than employing 50 people to dig a trench, we employ two and give them a JCB and pay them the wage of 10 people.”

“One of our big focuses is education, and through that we need to make sure we give everyone equal ability and equal opportunity. Everyone who is willing and able to work can get a job and build themselves a better future.”

Despite the successes of the EDB to date, Sheikh Mohammed is aware that the hardest part of the Vision 2030 strategy is probably in the future.

“The biggest challenge now is execution and follow through,” he says. “It is all very well and good to have a nice vision, but turning it into reality is the difficult part.”

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