Bahrain’s business policies have received the thumbs up from economists and financial analysts who are encouraged by several important developments including the Free Trade Agreement (FTA) with the US due for signing later this year, the upcoming Bahrain Financial Harbour and the expansion of the Alba smelter.

The kingdom has also attracted special interest from international corporations in recent months. Ciba Specialty Chemicals has established a hub in the country and German business group Trapp Networks, which is involved in construction, water purification and desalination industries, among other things, is to open its corporate headquarters on the island.
The FTA, the third that the US will sign in the Arab world after similar pacts in Jordan and Morocco, will cover around 14 chapters including services, finances, market access, textiles, e-commerce, telecommunications, customs, labour and legal issues.
The advantage to Bahrain is that it will further open US markets to Bahraini exports, attract US and other investments to the kingdom and create more jobs while also opening up US markets to Bahraini service companies and providing national treatment to Bahrainis in the US.
The kingdom’s exports to America were $95 million in 2002 against imports of $419 million and it is likely trade between the two will grow phenomenally with much benefits to the Gulf state if what happened to Jordan is any indication.  After signing the FTA in 2000, Amman saw bilateral trade with the US rising from $11 million to $700 million and the creation of 40,000 new jobs in the Hashemite kingdom.
An FTA does not mean it will be a magic wand. Business houses will have to be shrewd in taking advantage of the liberalised terms by becoming competitive so US buyers opt for their goods, analysts say.
The FTA will have broad repercussions, encouraging other markets to participate in the changed scenario.
This was clearly brought out by a trade official of the British embassy in Bahrain, Isabel Mulvaney, who said that while it would not directly increase Bahrain’s trade with the UK it would nevertheless prompt British companies to make Bahrain a manufacturing base in order to tap into the US market. Such a move would have tremendous advantages for Bahrain’s business and labour sectors.
The Bahrain Financial Harbour is another pointer in the right direction, observers say. Standard Chartered Bank Middle East economist Daniel Hanna characterised it as an “incredible” institution for opening regional markets and boosting long-term project finance. Hanna said the same about the Dubai International Financial Centre.
Director Ulrika Trapps of Trapp Networks said German entrepreneurs were “most interested” in the prospects presented by the financial harbour and that it would provide  “an excellent base” for German firms for investment in the region with support from German engineering, medical and information technology industries.”
Enthusiasm for Bahrain’s business prospects comes at a time when Alba’s Potline 5 expansion is proceeding in full swing towards a mid-2005 completion. The aluminium market has recovered and demand is strong in international markets, especially with China’s consumption growing at a rapid pace. Alba’s contribution to the national exchequer is set to grow very significantly. Prospects are also bright for another expansion that will bring production capacity to more than double that of today.
Recently released economic statistics brought much cheer and raised optimism in investment circles.  Companies listed on the Bahrain stock exchange saw their profits escalating by 118 per cent to BD 169 million. Some 31 companies of 35 listed on the bourse announced their financial results by the end of April for 2003 and none of them reported losses.
The GDP rose five per cent and the 2003 budget achieved a surplus of about BD471 million. Exports witnessed a 14 per cent surge, imports expanded seven per cent and the trade surplus registered BD16.4 million compared with BD13 million in 2002. Private sector exports rocketed from BD118 million in 1992 to BD312 million in 2002.
At the end of 2003, rating agencies had positive words for the country. Moody’s said economic growth had been relatively healthy in recent times and was likely to be sustained in coming years as a result of several private- and public-sector projects in the oil and non-oil sectors. It also said that while such initiatives would contribute to the growth of the non-oil sector, the government would continue to be highly dependent on oil for its revenues.
Fitch ratings agency cited political reform and economic diversification as key strengths. It said its overall net external creditor status was strong, public finances were comfortable and a positive business climate reigned. 
Standard & Poor’s described the government’s fiscal policy as prudent and mentioned a general government net asset position of about 60 per cent of GDP as well as monetary stability and a well-developed financial system.
There have been several pro-business initiatives in recent times. The successful staging of the Grand Prix brought in tens of millions of dollars to local businesses and could well continue to be the goose that lays golden eggs.
The Hidd Industrial Area has seen the completion of its first phase and the government expects it to be a magnet for investors. Possible industries are likely to include plastics, steel, petrochemicals and aluminium and provision is being made for a free trade zone within it.  An important element in the Hidd Industrial Area development is the upcoming Khalifa bin Salman Port.