Bahrain Feature: The Stalling of Economic Reforms (Hammond)

Andrew Hammond reports for Reuters:

Bahrain's economic reforms --- once hailed as the most ambitious in the Gulf --- seems to have stalled as hardliners in the Sunni ruling family who see Shi'ite protesters as a threat to the state bring the programme under their wing.

Hawks within the Al Khalifa family asserted themselves after a pro-democracy protest movement led by the majority Shi'ite population erupted last year following successful revolts in Egypt and Tunisia.

They swept aside a political dialogue with opposition parties offered by Crown Prince Salman, introducing a period of martial law, detaining thousands and staging military trials.

But they also turned their attention to the economic reforms that the crown prince had championed since his father King Hamad took the reins in 1999, proceeding to reinstall the Gulf state's parliament to end a 1990s uprising led by majority Shi'ites.

The idea of those reforms was to reduce reliance on foreign labour through comprehensive job training for Bahrainis, attracting investment to a financial services hub and creating a viable economy that could survive the dwindling of its oil resources --- and resultant reliance on neighbour Saudi Arabia.

Saudi Arabia shares ones of its oilfields with Bahrain, providing around 70 percent of the budget revenue in a country of over 1.2 million people, including 660,000 foreigners.

"The idea was that through incremental political liberalisation and simultaneous improvement of citizens' economic conditions, Bahrain could solve the problem of chronic unrest seen in the 1990s under the king's father," said Justin Gengler, a Bahrain researcher based in Doha.

But the authorities, in which Prime Minister Khalifa bin Salman, Royal Court Minister Khaled bin Ahmed, and his brother Khalifa bin Ahmed who heads the army are powerful, have put a brake on political reforms demanded by protesters.

They appear to have taken control of economic reform and scaled back its ambitions too.

Their view, Gengler says, is that historically disenfranchised Shi'ites who stood to gain the most from the reforms have proven through the street mobilisation to be a security threat to the Al Khalifa-led state.

Stalling the reforms has involved replacing the heads of key institutions and altering their remits. And the process has the added advantage of reinforcing patronage networks stemming from resources under the control of powerful figures in the state. 

'PURGE' OF REFORMERS?

Analysts as well as Bahrainis and foreigners working in some of those institutions, and who requested anonymity for fear of repercussions, pointed to a series of telling shifts that indicate new directions in economic reform.

The head of the Economic Development Board (EDB), who is a confidante of the crown prince, was removed in March and the body which was the most influential player in economic policy - hosting weekly ministerial meetings --- has been reduced to an advisory body without executive power.

Senior officials have been removed in the Labour Market Regulatory Authority (LMRA) and job training and labour fund Tamkeen, which together oversaw labour market reforms that took taxes from firms on the basis of how many foreigners they hired and used them mainly to train Bahrainis for work.

The LMRA chief, a Shi'ite, was removed after callers on state television during last year's crackdown accused him of discrimination against Sunnis. The government has stopped collecting Tamkeen taxes on businesses and wants to reduce the percentage set aside for job training.

There have also been personnel changes at sovereign wealth fund Mumtalakat, Bahrain Polytechnic - which some fear will reduce its student intake - and the Bahrain Teachers College.

The government Information Affairs Authority was not able to arrange interviews with officials in the LMRA and Tamkeen, but Jamal Fakhro, deputy head of the upper house of parliament, said economic reforms were still on track.

"The LMRA is still there and there are no changes in regulations. The idea is to make the Bahraini a more attractive individual for employers. We are increasing the cost of visas for foreigners and using that money to develop Bahrainis," he said.

"I'm not worried: reform could be even quicker now. New initiatives will come directly from the cabinet instead of the EDB. I don't see that things will go south - the money is there, the will is there, and the need is there."

He said the LRMA head had ended his term of office, rejecting claims of sectarian motives to his departure, and he said Tamkeen would resume collecting labour fees from July.

But many worry about the sidelining of the crown prince.

"The only thing that remains in the crown prince's hands is his scholarship programme, which is based on merit and is not sectarian or tribal, and the Formula One Grand Prix," said one well-placed Bahraini observer who is close to official circles.

Prince Salman brought the Grand Prix to Bahrain in 2004, but it has failed to attract investment and create jobs as envisioned, while becoming a lightning rod in April this year for the protest movement.

Though the scholarship programme has not fallen victim to anti-Shi'ite sentiment, some Bahrainis say it is not getting the same attention from state media and company sponsors as before. And some prominent family firms seen as soft on the uprising have also lost government contracts to staunch loyalists.

"The sense is that political and security issues are taking precedence over any economic reform," said Farouk Soussa, Middle East chief economist for Citigroup.

"The government's energies appear to be focused more on restoring stability and dealing with the political fallout of the unrest we have seen over the last 18 months."

Hits to the crown prince's development projects could backfire on the street. Impoverished Shi'ite villagers have formed the kernel of a protest movement that has continued unabated despite nearly three months of martial law last year.

EDB officials have been proud of efforts over the past decade to end marginalisation of many Shi'ite villages with no proper paved roads and other services.

"There is a huge difference in recent years in villages where there was no development at all and there is political space for them too," one government official said.

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