Country Report Bahrain April 2011

Economic policy: Foreign labour fees are suspended

In mid-April the prime minister and the crown prince made a joint announcement saying that the levy that employers normally pay for each foreign worker they employ would be suspended for six months to help ease the burdens businesses were facing. Usually employers have to pay a monthly fee of BD10 (US$26.50) for each foreign worker, which is collected by the Labour Market Regulatory Authority (LMRA), which then channels most of the funds raised to Tamkeen, another government body that provides training for Bahrainis. The fees are part of a programme of labour-market reforms introduced by the Economic Development Board over the past few years in an attempt to begin narrowing the gaps between foreign and local workers in terms of both cost and skills. Bahrain's nationals are more willing to work in private-sector jobs than most other Gulf nationals but it is still the case that the vast majority of private-sector jobs are held by foreign workers, who are much cheaper to employ and in many cases have more marketable skills. The EDB, a body chaired by the crown prince, has overarching authority for economic policy and has focused its work on labour-market reforms, education reforms, broader business-environment reforms and overseas investment-promotion. It has sometimes faced resistance from entrenched interests in the local business sector and it was forced to water down the labour fees from an original proposal (which would have meant higher fees) in the face of objections from the construction sector, which is accustomed to paying very low wages to foreign workers that have few rights. Some of these firms may lobby for the six-month suspension to be made permanent.

The prime minister and the crown prince also directed the LMRA and the Ministry of Labour to streamline the visa-issuance procedure in order to help firms that are recruiting new foreign workers (which some firms are now doing to replace local staff fired for protesting). They also ordered the Ministry of Finance to clear any unpaid invoices, said that the awarding of government contracts should be speeded up and urged the Central Bank of Bahrain to work with local banks to boost lending to the private sector, as part of efforts to stimulate the economy. Nonetheless, the continuing state of martial law and the persistence of travel advisories will remain a hindrance to business. In the longer term there are concerns that Bahrain's reputation as a stable financial hub has been badly damaged, making it harder for it to compete with Dubai and Qatar.

© 2011 The Economist lntelligence Unit Ltd. All rights reserved
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