Thursday, February 22, 2018

Bahrain: Another Vision

February 22 2011

Excerpt from Al Manakh 2: Gulf Continued
By Digby Lidstone

In the autumn of 2008, as the first ripples of global recession spread across the Gulf, Bahrain announced its Vision 2030 plan. It was not the first Middle East country to draw up a blueprint for long-term development. But in the words of Sheikh Mohammed bin Essa Al-Khalifa, Chief Executive of the Bahrain Economic Development Board, ‘it came at an opportune time’.

With oil prices falling from an all-time high in July 2008 to a seven-year low a few months later and stories of debt defaults, redundancies and investment scandals flooding the newspapers it was a good time to establish where the Bahraini economy was heading. Vision 2030 was not intended to pilot the nation through the storm. Yet its clear appraisal of every issue from road traffic to healthcare, as well as its basic targets, provided much needed clarity in a time of confusion.

Vision 2030, developed with the help of PricewaterhouseCoopers, is not an urban planning document per se. Rather it is more of a social strategy. The central aim of the vision is to create ‘an economy that raises a broad middle class of Bahrainis who enjoy good living standards through increased productivity and high-wage jobs’. Yet many of the plan’s provisions relate to the future development of Manama and its outlying urban areas.

Bahrain is currently ranked 32nd in the world for quality of infrastructure by the World Economic Forum’s Global Competitiveness Index. Vision 2030 maps out how it can reach the top 20 by 2014. To this end a land-use document has also been sketched out which prioritizes certain areas of Bahrain for transport corridors, utilities and housing, etc. in an attempt to manage the urban growth. An overhaul of Bahrain’s road network is already under way including extending the southern highway that runs from the new deepwater port at Hidd along the southern side of Manama. In order to relieve congestion in the north of the city work will begin on a light rail project by 2011.

The main thrust of Vision 2030, however, is on economic and social reform with the aim of doubling the average household income over the coming two decades. Unlike its neighbors Abu Dhabi, Kuwait and Dubai, Bahrain has a sizeable underclass of nationals. It is common to see Bahrainis driving taxis and stacking supermarket shelves, jobs which in other Gulf states would be in the hands of migrant workers from Asia. Furthermore, while the Bahraini average income level is healthy on paper, amounting to about $41,000 per household, the distribution of wealth is heavily skewed in favor of a small middle class.

These circumstances have in turn fomented social and political tensions. Bahrain is the only country in the world in which a Shia Muslim majority population is ruled by a Sunni minority. While Shia citizens account for approximately 70% of Bahraini nationals, they hold only 13% of high-ranking public posts according to the Bahrain Centre for Human Rights – a figure it says has fallen from 25% a decade ago.

Immigration has further marginalized many of Bahrain’s poorer, mostly Shia communities. Official figures show more than 460,000 foreign workers were employed in the kingdom in July, representing about 77% of the workforce. The total population of Bahrain currently stands at about 1 million; more than half are expatriates. The hiring of foreign nationals from countries such as Syria, Iraq and Pakistan to work in the security forces stokes resentment among low-income Bahrainis for whom such government jobs are highly attractive.

The fragmentation of Bahraini society can be read in the topography of the kingdom. A first-time visitor travels from the airport in Muharraq by bridge into Manama on the main island of Bahrain. Skyscrapers stand sentinel at the entrance to the capital. The distinctive twin spires of the World Trade Centre and the green bookends of Bahrain Financial Harbor are symbols of the wealth brought by the rise in oil prices between 2003 and 2008.I Further along Manama’s northern coast is the modern area of Seef, an up-and-coming district of shopping malls and office blocks, most of its land reclaimed in the past decade from the sea.

The contrast with the Shia villages on the northern coast just beyond Seef is stark. Rutted streets are lined with shabby breeze block houses daubed with anti-government graffiti. Black scorch marks stripe the roads running through villages such as Diraz and Karbabad, the scars of barricades made from burning tires. On most weekends riot police from the Interior Ministry stand watch outside the villages at night with shields, batons and tear-gas ready. Teenagers taunt them and set fire to rubbish bins on street corners.

The nightly protests ebb and flow with the seasons and the political mood. A typical high-water mark is National Day in December which is celebrated by some as a day of national unity and by others as Martyr’s Day, a memorial to those killed in past protests. Yet compared with the 1990s, when violence flared on both sides, these demonstrations are comparatively tame affairs today. Public demonstrations are permitted, unlike in many Arab states.II The government has also curbed arbitrary powers of arrest and adopted a more conciliatory tone towards its Shia citizens.

It is now a year into the Vision 2030 program and not everyone is happy. For a start, the reforms are focused on improving areas such as logistics and financial services, that is the fields in which Bahrain officials think the kingdom can excel, rather than traditional industries such as fishing which was a main source of income for poorer households in the past. Those same nationals are now priced out of low-income jobs by the rising food and house prices of recent years, yet are unable to make the leap into more highly paid professions.

A tax on expatriates, introduced in 2008 to fund training schemes, has also proved unpopular in some quarters. Fishermen say it penalizes them for hiring low-cost foreign workers; most dhows are now crewed by people from the Indian subcontinent. Building contractors, who similarly operate on tight margins and depend on cheap labor from abroad, are also opposed to the scheme.

Local fishermen, who once dominated the economy of Bahrain until the discovery of oil in the 1930s, have other gripes with authorities. The continuous reclamation of land off Manama’s north and east coasts, as well as artificial island projects such as Amwaj Islands (off the north-eastern tip of Muharraq) and Durrat al-Bahrain (a $6 billion development to the far south of the main island), has decimated local fish stocks. The resolution in 2001 of a territorial dispute with Qatar saw Bahrain awarded ownership of the Hawar Islands by the International Court of Justice, but Bahrain lost many of its traditional fishing waters in return.

Along with the dearth of decent job opportunities, a lack of affordable housing is one of the most common complaints among less wealthy nationals, and one that has repeatedly driven young men onto the streets in protest. Bahrain needs about 80,000 new low-income and social housing units by 2020, according to consultants CB Richard Ellis.

Bahrain has looked to private developers to be part of the solution. Cheap land and incentives have been offered to developers willing to supply low-income housing, and many of those investors are beginning to see Bahrain’s housing shortage as an opportunity rather than a problem. For example, parts of the $3.2 billion Diyar al-Muharraq development have been reconfigured to offer low and middle-income housing. Financiers are also beginning to take an interest in the local housing market. The past year has seen several funds set up offering mortgages for lower-income families.

Banking is a particular strength of the Bahraini economy. Thanks to its long-standing reputation as a financial center, Manama continues to lead the regional pack, if not in terms of brute capital, then at least in terms of maturity. Its banking community has the reputation of being one of the best regulated in the Arab world and has developed strengths in niche areas such as Islamic finance, insurance and asset management. At $218.9 billion, banking assets in October had reached nearly ten times the national GDP.

Though a few keep an eye on the local market, many of these banks are effectively offshore institutions. Exposure to regional troubles became a worry in the summer of 2009 when two banks (owned respectively by the Saudi Arabian Algosaibi and Saad family businesses) defaulted on debts and were placed in receivership. The further contagion from debt defaults in Dubai last autumn, which are thought to have affected Islamic banks in particular, has also led many to ponder the future of the industry. While the financial sector has seen dramatic growth this decade, Bahrain is wary of putting all its eggs in one basket, says Sheikh Mohammed of the EDB.

By and large Bahrain has avoided Dubai’s mistakes. Yet Bahrain also missed some tricks. Chronic traffic congestion is just one sign that past planning failed to accurately predict growth. Even in the slowest periods of the year Bahrainis sit in interminable traffic. When Dubai was opening the first phase of its highly sophisticated metro in September Bahrain was still grappling with designs for a metropolitan urban railway, a scheme advanced nearly a decade ago and a far cry from the country-wide network sketched out in Vision 2030. There are also other infrastructural deficiencies. Shortages of natural gas, for instance, have resulted in the country’s electricity generating and water desalination plants only barely outpacing domestic demand. Alba and GPIC are treading water for want of the same raw energy supplies.

After having led the region as its service, trade and financial center for many years, Manama has been usurped by Dubai which based its economic strategy on a highly risky ‘build it and they will come’ model. Speculative population projections were used to underpin a wave of investment in real estate which in turn attracted a growing pool of businesses and consequently fed the growth of the city in a virtuous circle. Though this method clearly leaves a lot to be desired, as it has left the emirate saddled with crushing debt, Dubai has nevertheless achieved something its sleepier rival could not. As a result of rapid population growth, local authorities were forced to build the most advanced infrastructure of any Gulf city, which is in marked contrast with Manama.

The challenge now is to find a sense of identity for Bahrain’s future while at the same time solving its current problems. How this will be accomplished remains unclear; but the emphasis on logistics, services and training in Vision 2030 suggests Bahrain intends to be a sort of back-office for the bigger oil and gas-driven Gulf economies. It is already connected by causeway to Saudi Arabia and will be linked by an even larger bridge to Qatar in 2014.

Yet the Vision 2030 document clearly states that Bahrain has no intention of becoming dependent upon neighboring economies. Its aim is to maintain a balanced economy and so logistics, like financial services, are unlikely to become a dominant industry to the exclusion of others. There is no doubt, however, that the performance of the economy will remain influenced by the health of Bahrain’s neighbors.

With its comparatively liberal atmosphere, low cost of living and mature mixed economy, the kingdom has many attractions for both companies and commuters. According to the World Bank, it is ‘the twentieth best country in the world for ease of doing business’. Provided Qatar and Saudi Arabia continue their energetic industrial expansion plans, Bahrain can derive significant economic benefits from its neighbors. Through Vision 2030 it will also seek a measure of independence and insulation from future regional economic problems by pursuing a mixed economy. Whether those benefits will be felt by the poor of Diraz and Karbabad, however, remains to be seen.

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