Bahrain boasts some significant industrial enterprises, a few of them large by Gulf standards and at least one that is internationally recognised as a major industrial venture. However in terms of private participation in industry, it has still a long way to go. GDP growth has been a steady 4.2 per cent per annum, but the public sector represents 65 per cent of total GDP, a level economists believe needs lowering. The government has stressed it has created an ideal investment climate for private businesses based on a free economy, transparent procedures, tax exemptions and 100 per cent ownership of businesses by foreigners, among other things. The Bahrain Chamber of Commerce and Industry, while appreciating what it said were recent positive developments in the investment situation, wants more to be accomplished. "We believe that putting a new agenda in developing the investment climate requires placing new laws to encourage and organise direct foreign investments and specific laws related to investors," chairman of the chamber Ali bin Yousif Fakhro said recently.

The chamber also wants a unified industries law to replace separate laws covering industrial areas and protection of local industries.

The government has pointed out that among its priorities are establishing laws and procedures relating to commercial agencies, establishment of companies, bidding and contracting issues, and financial, exchange and investment services.

It has also outlined specific steps, saying a tourism company would be established soon to capitalise on a sector it believes has greater growth potential.

Minister of Finance and National Economy Abdullah Hassan Saif has expressed his government's desire to privatise public transport and projects dealing with public services as well as some development projects, all of which could be worth BD800 million over a five-year period from 2001.

He has also mentioned strategic projects for similar action, among them the development of the Khalifa bin Salman Port, Al Hidd Water and Electricity Station, airport expansion projects and Muharraq Hospital, together worth BD440 million.

Enthusiasm for strengthening the private sector has grown in GCC states in recent years as the sector is viewed as an important channel to achieving economic goals, increasing household incomes, reducing unemployment and promoting currency stability.

One area seen as having the potential to bring Bahrain closer to its goals is small and medium industries (SMIs). Developing the sector would be challenging considering the local market is modest and SMIs would have to look overseas for sales. Yet, its presence in the national economy is not without significance.

Currently, more than 300 SMIs have been operating in mainly downstream industries, and though they are not many, they still contributed some 8.5 per cent or BD100 million of the country's total export value of BD1,200 million in 1999. SMIs also accounted for 27 per cent of total manpower in manufacturing industries and their share of investment was 26 per cent.

Unlike the larger companies, the export value of SMIs has not fluctuated much, instead recording a steady growth. Osamu Miki, an expert with the Japan International Co-operation Agency (Jica) and advisor to the Bahraini government, says Bahrain must strive for diversification and value increases in SMIs, they being vital for expanding the economy and raising employment levels.

The Bahrain ratio of SMIs per 1,000 population is 0.49, small when compared with Taiwan's ratio of 7.4, Singapore's 1.5 and Thailand's 0.9. "There is a lot of export potential in Bahrain and this industry requires a proper strategy for marketing, export promotion, technology transfer and financing," said Miki.

He mentioned Bahrain's well-educated population, disciplined human resources and a developed industry and economy infrastructure as well as the presence of incentives including full foreign ownership of projects and real estate.

However, progress needs to be made in the financing area, observers say.

Assistance through credit guarantees, export financing and venture capital would take some of the pressure out of SMI promoters. Local SMIs could also do with specialist help in finding suitable foreign partners for export-oriented ventures.

The Japan External Trade Organisation (Jetro) has a "Trade Tie-up Promotion Database Programme" and the Japan Small Business Corporation (Jetro) has its own "Matching Support Programme", both of which Bahraini SMIs could work with. The Higher Economic Supreme Council has opened an office in Tokyo to facilitate ties with Japan's business community and technology providers.

The opening of an embassy in Tokyo would give Bahraini entrepreneurs greater exposure. While the Internet is a good channel to inform markets about Bahraini enterprises, other avenues could also be explored including bulletins and trade seminars.

A cloud over local industry is the reported troubles of garment manufacturers, who could best be classified in the SMI category. The garment industry had shown promise for several years, but the business chamber's garments committee recently warned that 75 per cent of the factories face closure unless firm action was taken to resolve problems.

The committee wants the government to negotiate for duty-free exports to the US, its main market. Against the trend, Bahrain's garment industry is seeking a freeze on Bahrainisation.

Garment exports totaled more than BD87 million in 1999, indicating a 132 per cent increase over 1995, and the industry's contribution to the GDP grew from 6.2 per cent in 1996 to nearly 10 per cent in 1999, according to the garment committee. At the end of 2000, the industry employed 2,717 Bahrainis, representing 32 per cent of the workforce.

Seventy per cent of the factories are working on a subcontract basis since they are too small to get direct orders from retailers. The industry wants the minimum wage for new Bahraini workers to be set at BD95 per month, against the government-recommended wage of BD120, and a freeze on the rate of Bahrainisation at 25 per cent, although it is averaging 32 per cent. The committee explains that raising salaries of Bahrainis only would be discriminatory. The industry's problems also include low productivity and high absenteeism and sick rates among Bahraini workers.

The entrepreneurial spirit is alive and kicking in Bahrain, as official statistics show. Businesses registered to individuals rose nine per cent in 2000 compared with the previous year and nearly half these were trading companies while 40 per cent were located in Manama.

There was a 20 per cent increase in businesses registered for women.

The government has announced it is investing BD1 million in establishing 100 small businesses over the next two years. The business will create jobs for 400 Bahrainis and the project is part of a BD25 million package for the training and employment of Bahrainis.

Bahraini industrialisation will be further advanced with the BD250 million Hidd development plan, which will create a super port, an industrial park and a free zone. The project, expected to be completed by the summer of 2004, covers dredging and reclamation. Bahrain is also looking at developing other industrial areas.

There was encouraging news for investors when, for the second year in a row, the Heritage Foundation, the Washington-based think-tank, adjudged Bahrain as being the freest in the Arab World.