The proposed labour policy will have implications on small companies’ cost structures. In Bahrain, SME’s rely heavily on cheap expat labour. In fact, the overall Bahrainisation level for companies with less than 10 employees is less than 2%.

The implications of this reform, however, can be viewed as stimuli to a natural market transformational trend. The most successful companies will find opportunities to change their business model by capturing scale economies and providing more value added goods and services.

In every developing economy, there is a natural trend for structural change whereby companies take advantage of economies of scale and consolidate. One example of this phenomenon would be the small grocery shop that eventually gives way to the larger supermarket, which in time also loses market share to an even larger player, such as a Carrefour. Here players take advantage of economies of scale to lower costs and provide a larger product offering. This ultimately leads to increased customer satisfaction with better goods and services at lower prices. The proposed reform policy would simply accelerate this transformational process as companies turn their focus towards improving productivity.

There are a number of issues small companies will face in the short term as they adjust to this reform policy. Such an issue could be liquidity. Small companies may find themselves in a difficult cash position as they attempt to pay the upfront expat fees during the implementation phase. For these circumstances, the fund can be used to mitigate the impact of reform and help guide companies through their transformation.

In addition, we are organizing two workshops with various stakeholders to identify the most urgent areas of concern, assess the best use of the fund’s resources, and start defining programs to assist small companies during the transition phase.