Bahraini.TV

Talk of reform but still much to do

by mahmood on 12/11/09 at 9:22 am

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.”