Bahrain: The Long Road Ahead

Demographics

Bahrain’s population has grown steadily in recent years to reach an estimated 1.2 million people, according to the Washington-based IMF. Foreign workers comprise roughly 51 per cent of the population, predominately through the presence of blue-collar workers from South Asia, the Philippines and other Arab states.

This influx of expatriates attracted concern before the onset of the global financial crisis, with Bahrain leading calls for a five-year residency cap for unskilled workers in the GCC. The issue was shelved in the wake of the downturn and the subsequent ‘Arab Spring’ turmoil in the wider region.

Sectarian tensions in Bahrain bubbled to the fore in 2011, when the majority Shia population took to the streets to demand democratic reforms in the Sunni- ruled state. The uprising was fuelled by Shia complaints of unequal access to lucrative state jobs, housing and healthcare. The government denies such discrimination exists.

More than 30 people died during the clashes, according to the government, which led a brutal clampdown in 2011 aided by Saudi troops. Scattered protests have continued since then, amid failed attempts to reconcile the state and its Shia- dominated opposition. Fresh talks began in February in a bid to resolve the crisis.

With a restive population, Bahrain has ramped up spending on social housing and other development projects. More than BH114.8 million ($304 million)
of capital expenditure to end-2014 is earmarked for spending on housing, healthcare and education, in addition to grants from other Gulf countries. The government in 2011 also pledged to create 20,000 public sector jobs.

Geopolitics

Bahrain’s strategic importance is reflected in its close ties to the US and Saudi Arabia. It is seen as a gateway to Saudi, the GCC’s wealthiest economy, and the kingdom has a vested interest in its stability. Bahrain is also regarded as an ally in Washington’s standoff with Iran, given that Manama is the base for the US Fifth Fleet.

Bahrain’s domestic woes have tested its ties with the West. The government has faced pressure to engage in political and social reforms, and to renew dialogue with the Shia-dominated opposition. The largest opposition party, al-Wefaq, walked away from reconciliation talks in July 2011, saying they were not carried out fairly, and its engagement has since been patchy.

In the months since the uprising, the government has implemented a number of changes to the police and judiciary, including overhauling security practices and increasing powers for the elected parliament.

In May, moderate Crown Prince Salman al-Khalifa was appointed as Bahrain’s first deputy prime minister, seen by many as a sign the government is softening its stance on reform.

Opposition figures, however, say these measures still do not go far enough, as they fail to address the ruling family’s grip on power. It remains to be seen whether the latest round of talks will prove successful.

Political tension has also taken a toll on Bahrain’s economic reforms. Championed by Crown Prince Salman, these were once hailed as being among the region’s most progressive. The changes aimed to slash the Gulf state’s dependency on foreign labour by creating a skilled local workforce, to diversify the economy and to lessen Bahrain’s reliance on oil receipts.

As part of these plans, Bahrain scrapped its sponsorship scheme for foreign workers in favour of charging firms a set fee for every expatriate on heir payroll. This money is used to fund job training for locals, overseen by the government agency Tamkeen.

The process aimed to create a free labour market, where nationals had the skills and education to compete for both private and public-sector jobs.

Central bank data shows nearly 87,000 Bahrainis were employed by the private sector in the third quarter of 2011, accounting for 17.4 per cent of workers. Nationals hold 87 per cent of government roles, representing 37,141 jobs.

Bahrain’s private sector will be the engine of job creation as oil supplies dwindle. While the national unemployment rate is lower than that seen in other Gulf states, at around four per cent, the stakes for its disaffected youth are high.

It’s a source of comfort that Bahrain’s business fundamentals are still in play. The factors that made Manama a finance and trade hub – the quality of its workforce, low overhead costs and the access it provides to other regional markets – remain attractive to multinationals.

This reinforces the need for the country to reach a political settlement in order to attract investment and accelerate its economic growth.