FT Report:Talk of reform but still much to do
By Andrew England Published: November 9 2009 17:47 | Last updated: November 9 2009 17:47
Next month, as Bahrain marks the 10th anniversary of rule under King Hamad bin Isa al-Khalifa, the feelings of Bahrainis will be decidedly mixed.
Some will celebrate and point to development projects, greater freedom of speech and labour reforms as illustrations of progress on the small island state, which has carved out a reputation as one of the Gulf’s most open business destinations. Others will look back on the past decade with a grimace as the hope for political and social changes they clung to in the early years has turned sour.
Like other Gulf states, Bahrain has sought to use the 2003-2008 rise in oil prices to develop infrastructure, raise living standards and diversify its oil-dependent economy by attracting new industries and developing the private sector. In Manama, the capital, the signs of modernisation are conspicuous as gleaming multi-story buildings rise up on land reclaimed from the sea.
In one new building, officials at the Economic Development Board (EDB) map out a 2030 vision, which they hope will double household income and reduce the state’s dependency on oil. Bahrain claims to be the most diversified Gulf economy but oil still contributes about 75 per cent of government revenue even though hydrocarbons account for just 14 per cent of gross domestic product.
It is estimated that annual household income is around 15,500 dinar ($41,100) per family, but the government is conducting a review to produce a more accurate figure. Bahrain hopes to build on its reputation as a financial centre, its proximity to Saudi Arabia and its relatively well-educated population compared to others in the region.
But as the country seeks to modernise and find its place in an increasingly competitive region, surrounded by wealthier neighbours pursuing similar goals, it is blighted by an age-old problem that shows few signs of abating – a bitter sense of discrimination among the Shia majority.
The Shia are estimated to account for 60 to 70 per cent of Bahrain’s indigenous population but are ruled by the Sunni al-Khalifa family. This makes the kingdom unique in the Sunni-dominated Arab Gulf, and Shia have long complained of economic and political marginalisation. It is a situation many argue remains unresolved.
Government officials, however, seek to play down talk of discrimination and instead suggest the criticism is a sign of Bahrain’s democratic credentials. They say education, labour and economic reforms – led by Sheikh Salman, the crown prince, and the EDB he chairs – will benefit all and address the socio-economic ills that fuels much of the Shia anger.
“Eight years ago if you drove through the villages, half of the roads weren’t paved – 90 per cent of the roads weren’t paved. Today, 90 per cent are paved,” says Sheikh Mohammed bin Essa al-Khalifa, the EDB’s chief executive. “Things have got better. Can you do more? Yes. I’m the one who is always pushing to do more.”
Bahrain does have areas to build on, including its reputation for being one of the most liberal Gulf states with a favourable investment climate boosted by lower costs than neighbouring Dubai. It is also further ahead with economic diversification than others, with financial services accounting for around 27 per cent of GDP and a regulatory regime that is touted as among the best in a region that lacks transparency.
So far, the kingdom has survived the global economic crisis relatively unscathed. Some projects have been delayed and jobs have been lost, particularly in finance and construction, but the country is still expected to achieve positive growth this year. This is partly because oil represents a far smaller proportion of the nation’s $21.9bn GDP than its neighbours, but also because its real estate sector developed at a less spectacular pace and so did not fall as sharply. But with oil expected to run out in 10 to 15 years according to some estimates, Bahrain faces myriad hurdles as it looks to find its niche, raise living standards and avoid being eclipsed by neighbours.
Officials say the EDB is still identifying sectors that will take the kingdom through the next stage of development.
They talk of a knowledge-based economy and leveraging its proximity to Saudi Arabia and Qatar as a transport and logistics hub. But they still have some convincing to do.
“In spite of an impressive track record of innovation and resilience, Bahrain seems to be a bit lost,” says Jarmo Kotilaine, chief economist at NCB Capital. “Right now the approach seems to be try a little bit of everything, but where is the Bahrain idea? Why Bahrain rather than other countries?”
He says the “Bahrain formula” needs to be more crisply defined to differentiate it from the rest of the Gulf.
Finding the right future economic model could go some way to appeasing frustrated Shia, observers say, with small groups of youths regularly taking to the streets to protest their lot.
“They have to come up with something in the near term because it will take so long to overcome the social challenges the Shia face,” says a western diplomat. “The important thing is the crown prince has become more powerful and is committed to economic liberalisation. As for political liberalisation – it can’t be rolled back but I’m not sure how far he wants to push it.”
During the 1990s Bahrain was plagued by violence that saw hundreds of Shia detained and others forced into exile.
When King Hamad succeeded his father in 1999 he inspired optimism that things would change by introducing political reforms. He put a new National Charter to a referendum that led to the reconstitution of parliament for the first time since the 1970s, released political prisoners and allowed exiled Shia leaders to return from overseas.
There have been two parliamentary elections since – rarities in the Gulf – although politicians grumble that the National Assembly is toothless. Still, activists have more freedom to speak out against the government and the allegations of torture and arbitrary arrests that dogged the 1990s have subsided, if not completely disappeared.
But Shia activists complain that discrimination has become more institutionalised, with Shia representation in high-ranking government jobs falling – there are just two Shia who are full cabinet ministers. Government critics – Sunni and Shia – also accuse the government of granting citizenship to Sunnis from other countries in a bid to counter some of the Shia’s demographic dominance.
In contrast to the capital, Shia villages dotted around the island are made up of scruffy apartment blocks and flat-roofed houses that are often dirtied by graffiti lambasting the government and ruling family.
“The only hope will be when the government changes its policies,” says Jalal, who lives in a Shia area in Sitra, an industrial area to the east of the island.
When King Hamed visited Sitra at the beginning of the decade, the neighbourhood’s Shia wanted to “lift him up” into the sky, such was their optimism, Jalal says. But now “there’s anger. He promised and has not stuck to his word.”
The picture is muddied by ruling family politics.
Observers agree that Sheikh Salman’s influence has increased, while that of Sheikh Khalifa, the veteran prime minister, has waned.
But the crown prince’s focus is deemed mainly to be economic, while political issues, particularly the treatment of Shia, is thought to be under the influence of Sheikh Khaled, another ruling family member who is head of the royal court.
And few expect further political reform any time soon – even though failing to address Shia frustrations risks jeopardising economic progress.
“There are enough people in the regime who can manage the [Shia] problem. We just want to see it happen soon. If not ... the worst case scenario more likely is the cycle of low-level violence with Shia youth will happen more often and last longer,” says the Western diplomat.
“And at some point Western bankers will send their families home and before long it’s not as attractive as a banking hub. It undermines everything, if you don’t manage it you cannot move forward.” Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web
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_______________________________________________________ Education: New university combats entrenched attitudes By Abeer Allam
Published: November 9 2009 17:47 | Last updated: November 9 2009 17:47
At Bahrain Polytechnic, a lecturer displays a controversial Ralph Lauren advertisement, in which a model’s waist appears smaller than her head and asks students how they would avoid a similar marketing debacle.
For further education in the Arab world, this is a fresh approach. Formal lectures and rote learning are the dominant teaching methods in public universities rather than the development of problem solving skills or practical knowledge.
But in the red and blue buildings of Bahrain Polytechnic, which was launched last year, teachers from New Zealand, Australia and the UK now offer pragmatic instruction in fields such as accounting, marketing and logistics for the first time.
The university, which has 900 students, and expects 2,000 next year, is a focal point of the government’s National Education Reform, which aims to equip students for the needs of the workplace, rather than allowing them to accumulate academic credentials from hours in the classroom.
“We spoke with industries, searched jobs advertised in engineering and we developed a programme that Bahrain desperately needed,’’ says John Scott, chief executive of the school.
Bahrain is an island nation of around 1m people. Up to 100,000 Bahrainis will enter the workforce in the coming decade. In spite of government efforts to reduce employment from 16 to 4 percent, jobs remain elusive.
Unemployed men have joined street protests to demand jobs from the government.
But employers complain that few Bahrainis possess the skills they require, particularly technical or language skills, even with university degrees – in spite of numerous accounting programmes, up to 90 per cent of accountants are foreigners.
As many as 20 per cent of schools and 40 per cent of vocational training institutes are failing their students, according to an October report by the country’s newly established Quality Assurance Authority for Education and Training (QAAET).
“Education must be at the beating heart of national plans for the future,” Crown Prince Salman bin Hamad al-Khalifa, told delegates at an education conference last month. “It is in the interest of the country and the national economy to ensure a steady supply of skilled and qualified workers.”
Bahrain spends up to 11 per cent of its budget (BD4.2bn) on education. But spending on glamorous buildings and expensive programmes, sometimes costing as much as 20 per cent of the national budget, has produced unimpressive results in the Arab world, says a recent report by the UNDP.
In Bahrain and other Gulf states, oil wealth has created a culture in which nationals feel entitled to jobs, regardless of skills. While the problem in Bahrain is less acute – many Bahranis work as taxi drivers or shopkeepers – many trades such as plumbing and nursing are filled with foreign workers.
It is a mindset that Bahrain Polytechnic is trying to change. “We try to develop a culture that they are primarily responsible for their own future, not us,” says Mr Scott. “We also work with industry, which has to provide proper work environment.”
Key sectors with significant gaps include accounting, tourism and services, translation, conference organising and transport and freight logistics.
Other reforms include a teacher training programme, secondary school vocational training and the Quality Assurance Authority that periodically reviews academic standards.
Tamkeen, a BD66m fund established last year, helps fund the career development of university graduates, particularly for potential accountants.
Unlike in other Gulf states, Bahrainis make up 70 per cent of the country’s bankers, but the number of prestigious jobs does not match the demand from underskilled graduates. But with such expectations, it is hard to imagine Polytechnic students settling for a manual job.
The school, which currently runs two-year diploma courses, has had to promise to add a four-year degree to appease parents and students unimpressed with the lesser credential. School officials hope the mindset of students and employers will eventually change, but the reform process is still in its early stages.
Aside from the training, however, students see other advantages to studying at the Bahrain Polytechnic: “It is backed by the crown prince,” says Khalid al Khawaja, 19, a business student.
“I am sure they will find jobs for us.” http://www.ft.com/cms/s/0/1b6205d6-ccbd-11de-8e30-00144feabdc0,dwp_uuid=e80c109e-ccc3-11de-8e30-00144feabdc0.html
+++++++++++++++++++++++++++++++++++++++++++++++++++++++ Economy: Awards don’t pay the bills By Digby Lidston
Published: November 8 2009 23:18 | Last updated: November 8 2009 23:18
Like an eager student, Bahrain likes to collect awards. The past few months have seen the kingdom judged “20th best country for ease of doing business” (World Bank), “the best country for business in the Gulf” (Forbes), “the freest economy in the Middle East” (Heritage Foundation) and “fifth most stable macro-economic environment in the world” (World Economic Forum).
Each accolade is accompanied by a glowing press release – and Bahrain could do with the praise.
As the smallest economy in the Gulf, Bahrain has often felt left behind by its neighbours, unable to muster the huge oil and gas revenues of Saudi Arabia or Qatar and outflanked by the rapid growth of Dubai as a trade and services hub.
By the same token, it has also avoided the worst of its neighbours’ excesses.
After realising in the 1960s that its oil reserves were in decline, the government set about encouraging new industries, building up a small but thriving banking centre and a modest manufacturing base.
And with hydrocarbons accounting for around 14 per cent of gross domestic product, the lurching oil prices of the past year have affected Bahrain’s macro numbers less than energy producers such as Saudi Arabia and Kuwait. Equally, it has avoided the speculation that brought the Dubai real estate market crashing to earth.
The International Monetary Fund forecasts the real economy to grow by 2.6 per cent in 2009. More bullish figures from the country’s Economic Development Board put that figure closer to 3.8 per cent, even though this is well shy of the 6.1 per cent growth of last year.
“Bahrain has managed to muddle through the crisis better than most. One of Bahrain’s key advantages is the nimbleness it owes to its small size and diversity,” says Jarmo Kotilaine, chief economist at NCB Capital.
Yet the chaos of the past 12 months has also given Bahraini policy makers food for thought.
Crude oil, which the kingdom imports from neighbouring Saudi Arabia and refines for export, still accounts for about 75 per cent of government revenues. And there is a growing realisation that an over-large financial sector could leave the economy unbalanced and exposed to instability elsewhere in the region.
“Two years ago, we expected the financial sector to grow at a very rapid rate; today, our attitude has changed,” says Sheikh Mohammed bin Essa al-Khalifa, chief executive of the EDB. “We have always adopted a demand-led model of economic growth. The financial sector will continue to be important, but the economy has to evolve over time.”
Rather than drift with the tides, however, the government has decided to give the economy some sense of direction. To this end, it launched its Vision 2030 in October last year. “It came at an opportune time,” says Sheikh Mohammed. “It is good to have a target to focus on as we go through challenging times.”
The planned Bahrain of two decades’ time is not dissimilar to the island kingdom of today, albeit with a heavier reliance on high-tech and service industries, an extensive public transport system, a better educated workforce and, more importantly, a wealthier one. A key pledge of Vision 2030 is to double household income, though how that is achieved, and on what basis it is calculated, remain nebulous.
Bahrain enjoys a comparatively high per capita GDP of $18,250, but its wealth is skewed heavily towards a small middle class.
The kingdom’s poorer, largely Shia communities face shortages of low-cost housing and poor employment prospects – the average private sector salary is only BD305 a month, according to the Labour Market Regulatory Authority.
Labour reform is a key plank of Vision 2030, and the area where there has been most notable progress. Tamkeen, a labour fund that derives its BD66m budget from a tax on foreign workers, is already training nationals entering the job market and those looking for a step-up in their career. Unlike many wealthier Gulf states, where local Arab populations are a middle-class veneer over a working base of expatriate labour, it is not uncommon to see Bahrainis stacking supermarket shelves and fixing cars.
“Provided they can maintain their edge, then human resources are a real asset,” says Tony Mallis, chief executive of Sico, an investment bank. “More than 70 per cent of my staff are Bahrainis, and they are extremely bright and well-trained. That’s not something you would say elsewhere in the Gulf.”
In other areas of the economy, the cogs are only just beginning to turn. A national economic strategy, a six-year programme intended to screw down some of the high-minded sentiments of the vision into working practice, was approved by the cabinet in February. “It will be a gradual process, as we streamline the civil service and swing them behind the programme,” says Sheikh Mohammed.
In a region that has become used to grand gestures, from the purpose-built economic cities of Saudi Arabia to the skyscrapers of Dubai, Vision 2030 leaves many commentators wondering how Bahrain can compete against its neighbours. Transport, light industry, technology, finance and tourism all offer the potential for economic growth, but there are few industries where Bahrain stands above the rest.
Ultimately, says Sheikh Mohammed, the country’s strength lies in its diversity, rather than individual talents. “We need to be more nimble and we need to adapt, but our fundamentals are the quality of our workforce and the quality of our services. We want a balanced economy.” The open question is whether that is enough to ensure the accolades keep rolling in. Copyright The Financial Times Limited 2009. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.
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++++++++++++++++++++++++++++++++++++++++++++++++++++ Politics: A sham or a transition to democracy? By Andrew England
Published: November 9 2009 17:47 | Last updated: November 9 2009 17:47
With a year to go until Bahrain’s next parliamentary elections, the nation’s opposition parties are already grappling with an internal debate that accompanies every Bahraini poll.
The question: should they or should they not participate in a process they condemn for being flawed – a façade, critics claim, that is held up to the west as a sign of Bahrain’s democratic credentials but which in reality has little impact on the ground.
Proponents of participation argue that it is better to attempt to reform the system from within, with hopes of pressuring the government to make amendments to the constitution to give parliament more power and to redraw constituencies that they claim favour the Sunni minority at the expense of the Shia.
They also say that media coverage of parliament allows them to raise social issues such as the need for more housing and allegations of discrimination against the Shia.
“At least you can expose the government from within their house,” says Abdul Jalil Ebrahim, a parliamentarian with the al-Wefaq movement, the main opposition in parliament. “From day one we knew the game, but we have to fight.”
On the other side of the debate, howev