A major report on the proposed labour fees in Bahrain questions whether it will achieve the objectives of creating growth.

The report for the Bahrain Chamber of Commerce and Industry argues that while a low-wage economy is neither sustainable nor desirable, the proposed fees on business may not achieve the key objective of making the private sector the engine of growth.

It says that businesses relying heavily on low-cost expatriate labour will be significantly affected by the fees.

The fee does not differentiate between sectors and skill levels and would be unlikely to see Bahranis take up jobs like labour on construction sites, cleaning, tailoring or working as cabin crew for an airline, even if these positions became available because of the higher cost of employing expatriates.

"Enabling cost competitiveness between national and expatriate workers is the essential reason for the proposed labour fees," the report by Ernst & Young states.

"This alone, however, will not lead automatically to making nationals the preferred choice of employees in the private sector, as there are factors like attitude, commitment, skill sets and relevant qualifications and experience which the employer would seek from a potential employee."

It warns that the move could not only cause inflation but put local businesses at a disadvantage to other regional economies.

"Business establishments will try to pass on the additional cost to third parties, either to the ultimate consumer or the employee," it says.

"If the effects of incremental costs are passed on to the consumer, prices of goods and services will go up, which may lead to inflation."

It points out that if other GCC countries do not implement similar labour reforms, Bahrain's small to medium sized businesses will find themselves at a disadvantage in terms of cost of production.

A key problem is the existing wage and skill differences between nationals and expatriates, it argues. The country remains a low-wage, low-skill economy with 70 per cent of expatriates earning BD99 a month, while only 1pc of nationals work for that kind of money.

About 74pc of Bahranis earn between BD100 and BD499 a month. So the fees would do little to make them want to take up jobs currently done by expatriates. -TradeArabia News Service