The Kingdom of Bahrain plans to embark on a unique journey to
labour market reforms that are likely to impact the entire GCC
region. Mehre Alam travels to Bahrain to feel the pulse of the
policy initiative, the timeline, the issues, and the perspective
2006 is the month for speed merchants in Bahrain. That’s when the
Bahrain Formula 1 Grand Prix event is slated. And, in the same
month, or probably the next, or sometime later this year, the
Kingdom might embark on its most ambitious reform initiative: Labour
A project initiated by Bahrain’s Crown Prince and Economic
Development Board (EDB) chairman, HRH Shaikh Salman bin Hamad Al
Khalifa, it’s arguably one of the most radical reform initiatives
ever attempted by a Middle Eastern country. The gist of the labour
market reforms is based on the key findings of a study conducted by
McKinsey on reforming Bahrain’s labour market. The study was carried
out at the directives of the Bahraini Crown Prince. Bahrain’s Labour
and Social Affairs Ministry, the Interior Ministry, and EDB
co-ordinated with McKinsey in carrying out the study.
(EDB) chairman, HRH
Shaikh Salman bin
Hamad Al Khalifa
The initiative looks part of a grander scheme. Bahrain is clearly
going the whole way. Only recently, the Council of Representatives
(lower house) -- in a landmark development for trade unionism in
Bahrain -- approved a draft law that bans unfair dismissal for trade
union activity. There, clearly seems to be a method to these
Explains Dr Jasim Husain Ali, Head, Economic Research Unit,
University of Bahrain: “Labour market reform initiative is part of a
wider reform initiative. There are three elements here: labour
reforms, economic reforms, and educational and training reforms. We
started with labour market reforms because labour is a critical
issue in the country. Many thought we should have started with
economic reforms. But since unemployment is a big problem in the
country, the authorities decided to start with labour market
In a way, the labour market reform initiative was inevitable. And
the question really was ‘when’, rather than ‘whether!’. Consider
some of the concerns staring straight at the face of the Bahraini
Concern One: Over the next decade, nearly 100,000 Bahrainis will
enter the labour market, requiring the Kingdom to provide three
times more jobs than it did in the past decade. And the Kingdom’s
current economic model will not be able to provide enough jobs for
Bahrainis, as the historic reliance on public sector employment is
no longer sustainable.
Concern Two: Bahraini salaries have been falling for the past 15
years and will slip further if nothing is done. The average wage for
Bahrainis was Bahraini Dinars (BD) 420 in 1990. It had declined to
BD352 in 2002, and is predicted to drop down further if the Kingdom
fails to take remedial steps.
Concern Three: Bahrainis are not wanted by the private sector, which
is more comfortable hiring expatriates.
Says Economic Development Board vice-chairman Dr. Zakariya Hijris:
“Bahrain must shake off the bad habits of the past to create real
job opportunities. It has for too long structured its economic
growth on reducing labour costs, rather than increasing
Basic Idea: Labour Market Governance
So, what exactly is the basic idea behind the labour market reform
initiative? Quips Dr. Jasim: “The idea is to make Bahraini nationals
the “employees of choice” in the private sector. This is the first
major goal. And for that, the procedure is to apply fees on
companies for hiring expatriates. Make the expatriates more
expensive. The second goal is to allow free movement of expatriates
in the job market.”
WHAT LABOUR MARKET REFORMS WILL DO:
• Help lift falling wages
• Create more jobs
• Spur growth of economy
• Liberalise the labour market
• Enhance skills of Bahrainis
Labour Market Authority
The policy reform package, in fact, has been designed to be both
robust and flexible in order to quickly and seamlessly respond to
changing market conditions. The robustness and flexibility of the
system are fostered through the creation of a new regulatory body,
the Labour Market Authority (LMA). This body will play two roles.
One, it will develop labour market policy and two, it will act as a
one-stop shop to manage labour market administration.
Within the scope of developing policy, the LMA will become the
consolidator of all labour market data. By doing this, the LMA
ensures the consistency, quality and usability of market
information. It also ensures that policy development is closely
aligned to market information and, thus, reflects the needs and
changes of the labour market.
Now, the money raised through the proposed labour fees will be
collected into a Labour Fund to be used for specific purposes,
including supporting the locals in securing private sector jobs and
investing in the private sector to assist in adjusting to the new
To ensure this, the fund will have several key features. First, it
will be accounted for and administered separately from the normal
government budget as an independent fund. Second, it will be
professionally managed to ensure appropriate returns and judicious
planning. Third, its governance structure will involve key
stakeholders, who will be able to participate in the
decision-making. Fourth, the management and use of the funds will be
transparent so that it is clear to all stakeholders how the funds
are being used so that decision makers can be held accountable for
their decisions. Finally, mechanisms will be established to provide
an added level of comfort that the funds are in fact being used in
A Kind of Tax?
Is it a kind of tax to be imposed on the private sector? “Yes it
is!” says Dr. Hussain M. Al Mahdi, Chairman of Gulf Global
Consultancy and a leading economist and thinker (See interview). “As
of now, an employer needs to pay BD110 to bring an expatriate, which
includes the training levy, work permit and the tax for new work
permit. What McKinsey has proposed is that the private sector pays
an additional BD75 every month as fees. So the total comes to BD185
per month. It is also proposed that companies pay another BD25 per
month for renewal. The total cost for hiring an expatriate in two
years will now come to over BD2,400. This is very high.”
Agrees Dr. Jasim: “It’s a kind of tax. But many countries have this
system where they consider hiring expatriates a luxury. We in
Bahrain have calculated that every expatriate costs the government
BD40 ($115) a month. This covers things like health, use of roads,
electricity, water, security etc. There is a cost to be paid on
behalf of the Bahraini society to hire expatriate labour force.”
But, has this model been tried out anywhere else? The answer is yes.
Hong Kong, Japan, most of Europe and North America, Singapore,
Indonesia, and Malaysia, all have some sort of fee and/or quota
system to regulate the inflow of foreign labour. In fact, Bahrain
and the other Gulf countries have among the world’s most lax
regulations on in this regard.
Here is another eye-opener example: In Southeast Asia, countries
with labour costs significantly higher than neighbours have
attracted bulk of foreign investment. Philippines, Malaysia, and
Hong Kong have labour costs 30-90 per cent less than neighbours,
Singapore and South Korea, but still attract far less foreign
Bahrain’s Competitiveness in Region
Will this reform affect Bahrain’s competitiveness in the region? The
question has been uppermost in the minds of many. In fact, the
companies relying heavily on low cost expatriate labour will be the
ones affected most by the proposed reform policy. But then, this
segment currently accounts for only 10 per cent of foreign direct
investment (FDI) flows into Bahrain. And then, almost 90 per cent of
FDI flows into Bahrain are in sectors like real estate, banking and
finance, and communications and transportation (Source: EDB). None
of these sectors rely on low cost labour.
Minimum Wage Versus Reforms
What about enforcing minimum wage as a superior alternative to the
While it is true that many successful economies use a minimum wage.
However, those economies have far fewer expatriates in their labour
markets. In addition, the minimum wage tends to be set at a level
that provides a safety net for only a small percentage of the labour
force (an average of 7 per cent across several OECD countries)
rather than as a means of improving the welfare of a large portion
of workers (Source: EDB). Now, it will have two implications:
• If Bahrain were to enforce a standard minimum wage across both
Bahrainis and expats, 80 per cent of the proceeds of the wage
increase would accrue to expats (Source: EDB).
• A differential minimum wage – one for Bahrainis and a lower one
for expats – would simply entrench the existing cost differential
between Bahrainis and expats, further hampering the ability of
low-skill Bahrainis to compete with expats for private sector jobs.
Consequently, Bahrainisation targets would become even more
important to securing Bahraini employment, but would be increasingly
difficult to enforce. Bahraini unemployment would not be improved.
GCC favours a re-look at
massive expat population
GCC Secretary-General Abdul Rahman
Al Attiya is on record having said that the overwhelming
presence of foreign workers in the Arabian Gulf has become a
national security issue. “The GCC countries need to look at
the massive presence of expatriates basically as a national
security issue, and not merely as an economic matter,
particularly in light of global changes and international
conventions,” he said at the opening of a twoday GCC labour
ministers meeting in Manama last year.
Concern Over Bahrainisation
There is a general apprehension with regard to Bahrainisation. What
happens if private companies stop recruiting locals once the reforms
are implemented? According to the EDB version, equalizing costs
between expatriates and Bahrainis through the use of labour fees and
other policy levers will allow Bahrainis to compete with expatriates
on a level-playing field. As long as Bahrainis are able to
demonstrate the required work ethic, good attitude, and basic
skills, employers will not have a cost incentive to hire expats, the
EDB contends. Private sector employers will instead have a strong
incentive to find Bahrainis to employ before hiring expats.
Moreover, the proposed policy package includes a series of
employment programs that will subsidize Bahraini employment through
wage subsidies, better matchmaking between employers and prospective
employees, and basic job readiness training. Employers will hire
Bahrainis because it makes good business sense, EDB contends.
Besides, during the transition period, Bahrainisation will not be
eliminated all at once to ensure that Bahrainis do not experience
Says Dr. Jasim: “One thing is for sure, the labour market is not
going to stay the same. We also have cases of misuse and
mistreatment of expatriates. Many of them are not being treated
properly; they are not getting salaries on time; many are living in
shabby conditions. But once the labour market reforms come into
effect, those exploiting the expatriates will be denied the chance
to do so. Expatriates will have the freedom to change jobs.”
However, the expatriate angle is turning out to be a real challenge.
Already, there are murmurs of protest. According to a report
published in a Bahraini daily, expatriate workers have been excluded
from the purview of the labour law for private sector and that
articles related to them have been removed from the labour law bill.
This has prompted Bahraini human rights activists and trade unions
to mull challenging the draft law prepared by the Ministry of
Says Dr. Jasim: “There are no hard feelings against expatriates
here. Bahrain would always need expatriates. The only question is:
to what extent, and how many? As of now, 57 per cent expatriate
figure is relatively high for Bahrain.
“Locals constitute only 43 per cent of the labour force in Bahrain.
Now, this is abnormal in the sense that we have this problem of
unemployment here. Unemployment among locals stands at around 14 per
cent. This certainly is a serious problem for the country.”
And he adds: “For skilled expatriates, there will always be the
demand. For the un-skilled expatriates, it may not emerge a very
friendly situation. If the situation is not remedied, we will only
be inviting problems.”
Bahrain is all set to venture into un-chartered territory. The
journey, however, has got a bit delayed. “It should have been
implemented in the beginning of January 2006. However, it is being
delayed because of disagreements among the concerned parties,”
informs Dr. Jasim. “It might be launched on July 1, 2006. Otherwise,
it may get delayed until January 1, 2007,” he adds.
There is some curiosity about the status of the proposals now. “It
is with Bahrain’s Parliament, which has to approve it. Right now,
lobbying is being done to influence the voting of the MPs. We are
all awaiting the outcome, but it looks like the MPs are going to
approve it,” asserts Dr. Jasim.
Dr. Jasim further adds: “Many in the business community are not
happy with the proposals. They contend that allowing expatriates to
move freely in the job market will only cause problems. In hiring
expatriates, they undertake certain costs. Now, suddenly,
expatriates will be free to change jobs. Then, what’s the point of
spending money on them, employers say. They are also apprehensive
that company secrets can be traded. And, companies will try to
attract the best of talents by offering them better salaries. Then,
they are not happy with the very idea of increasing fees for hiring
What could be the stand of the MPs? “Well, they may demand some
changes. They might say that the fee for hiring expatriates should
not be so steep. There could be some attachments (conditions
attached to that),” predicts Dr. Jasim.
Isn’t it a tightrope walk for the authorities? Sums up Dr. Jasim: “I
think the authorities are very careful. They will not antagonise the
business community. They want to go slowly. In fact, one suggestion
is to implement it in certain sectors of the economy, like the
financial services. They may delay its implementation in the
construction sector until the very end as it employs a heavy
population of expatriates.”
Timeline is crucial for such an initiative. “In all likelihood, the
proposals are going to be passed in March or April,” Dr. Jasim makes
a guess. “At the end of the day, if the private sector is not
pleased, some of them might even think of relocating to some other
GCC mulls six-year job cap
According to media reports, the Council of Labour and Social
Affairs Ministries of the GCC has proposed that a maximum
limit of six years be put on unskilled expatriate workers
staying in member states. The proposal is reportedly being
studied but no decision has been taken yet.
In the end, it’s not only the Bahraini market that awaits the
outcome. The entire region waits with bated breath for Bahrain’s
labour market reforms to roll out. For, the path-breaking route will
be keenly observed. It will surely serve as a guide for others.
Already, countries in the region are showing interest. Informs Dr.
Jasim: “As far as I know, Saudi Arabia’s Labour Minister has shown
interest in our labour market reform initiative. The UAE too has
shown interest.” And then, the fact is, companies in Bahrain are
already doing very well. There is even talk of value added tax (VAT)
in the Gulf. Tariffs are being removed, thanks to FTAs. Times are
changing in the Gulf. And at a fast pace as well! n
Too Many Expats!
• Expatriates make up 88 per cent of the workforce in the
UAE, 83 per cent in Qatar, 81 per cent in Kuwait, 72 per
cent in Saudi Arabia, 55 per cent in Bahrain, and 54 per
cent in Oman, according to official figures in the Gulf
• Expat workers exceeds 10 million, or up to 70 per cent of
the GCC's labour force, a figure that a Bahraini economist
describes as "frightening".
• Expat workers come mainly from Asia (especially the Indian
subcontinent) and from the Arab East. Mostly, Asians tend to
work as domestic help or as manual workers, while Arabs are
employed in administration and government positions.
• Over the past few months, thousands of low-paid Asian
workers have staged protests, some violent, in Kuwait,
Bahrain, Qatar and the UAE for not receiving salaries on
UAE: Changes in six-month
ban; citizenship mooted
A rule banning expatriates in the UAE from transferring
their visas to another sponsor unless they left the country
for six months has been lifted. The ruling, issued in April
by the Naturalisation and Residency Department (GNRD), is
replaced by a new decision allowing people to change jobs -
but only in the emirate where they already work - without
facing the six-month ban. However, there will be no change
in sponsorship transfer rules, which demand workers obtain
their sponsor's permission before changing jobs or face a
six-month ban from the UAE.
In another development, the
UAE’s Minister of Labour and Social Affairs, HE Dr. Ali bin
Abdullah Al Kaabi, last year proposed granting UAE
citizenship to expatriates of high caliber and highly
skilled professionals who could be key contributors to
national development. “Why don’t we avail of highly skilled
professionals for our economic needs. We should attract them
and even grant them nationality to benefit from their high
qualifications,” the minister had said.
Kuwait: Driver's licence
only for graduate expats
Expatriates in Kuwait must be university graduates and draw
a salary of not less than US $1,370 a month in order to
obtain a driver's licence, Kuwait’s interior ministry
announced in November last year. The new rules are designed
to reduce the number of vehicles on the roads with a view to
limiting problems on road and traffic congestion.
Expatriates seeking a licence must also have legally lived
in the country for at least two years, according to the
ministerial decree. The decision also aims at encouraging
low-income groups to use public transportation. Previously,
expatriates with a monthly salary of about US$850 were
allowed to apply for a driver's licence.
aimed at correcting market anomalies’ - Interview with Dr. Hussain M. Al Mahdi,
Chairman of Gulf Global Consultancy and a leading economist
and thinker, holding crucial positions in Bahrain’s economic
bodies on the issue of labour market reforms – its genesis and
New Page 1
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