Bahrain Economy

In an attempt to analysis and examines all 21 chapters of the U.S.-Bahrain FTA including its annexes and to assess the likely effects of the U.S.-Bahrain FTA on the national economy as a whole

In the most general sense, the U.S-Bahrain FTA builds on the inherent differences between a relatively capital abundant U.S. economy and a relatively labor-abundant Bahraini one.

With serious unemployment problems in Bahrain, it makes sense to open up trade with a capital-rich country that could bring investment and technology to help employ more Bahraini workers.

The kingdoms aim is  to make Bahrain one of the most vibrant economies in the world, an economy that is independent of any reliance on oil, By build the growth of the national wealth, the size of the economy, the contribution of the private sector, and the investments in our people.

Bahrain’s is planning a growth rate rise to 9 percent a year, driven by productivity increases of 5 percent a year and an increase of labor of 4% a year.

This means that by 2015 every Bahraini will have to produce more than 65% more than he does now.

Today, Bahrain’s productivity is falling behind compared to best practice.  Over the past 25 years, Bahrain has improved productivity by only 45 percent while world productivity has improved by an average of 85 percent.

Today, Bahrain has a small, underdeveloped private sector.  It produces only 45  percent of the economy, compared to an average of 86 percent in Europe.

80 percent of private sector jobs are low-wage, low-skill, just as in Asia’s poor countries.  On current trends, less than 20,000 high-wage, high-skill, jobs will be created in the next 10 years.

In economic terms Achieving this growth requires achieving two fundamental changes that will in combination act as the engines of growth:

  • increasing the wealth of the middle class
  • increasing competitiveness.

Bahrain’s middle class is smaller than it should be.  In countries with similar levels of wealth to Bahrain, about 60% of families are part of the middle income group, In Bahrain, fewer than 45% of families are in the middle income group where two out of every three middle income families work with the government.

Increasing the wealth of Bahrain’s middle class is essential for economic growth  not only will this mean that Bahrain is generating more wealth as a nation but, more importantly, this wealth will be distributed more equitably across the population.

we have to become more productive and competitive.

  • A simple salary increase which is not sustained by changes in the way we work, would lead to a decline of our competitiveness and companies would have to go out of business.
  • Companies will have to continuously think about how to produce their products and deliver their services more efficiently using fewer people.  One Bahraini and a machine can do what today takes several laborers to achieve.
  • This increased productivity will translate directly in to higher wages and greater wealth for Bahrainis.

Increasing competitiveness will result in an economy that is able to produce more output with fewer but high tech resources employing  a labour-force that is more productive, Generating a higher rates of economic growth and a stronger private sector.

Improved productivity is the long-term driver of increased wealth in all advanced economies.  Countries that are more productive are wealthier.  Increased productivity leads to greater output, which gives rise to increased wages and greater profit.

Increased wages and greater profits lead to higher spending and investments and thus create a healthy cycle of growth.  Conversely, if our productivity fails to keep pace with international standards, we will loose our competitiveness, profits and salaries will go down  as a consequence a downward cycle might be triggered

Regional trade agreements (RTAs) are a major and perhaps irreversible feature of today’s multilateral trading systems (MTS). The number of preferential agreements as well as the world share of preferential trade has been steadily increasing over the last ten years. Sluggish progress in multilateral trade negotiations under the Doha Development Round appears to have accelerated further the rush to forge RTAs. Between January 2004 and February 2005 alone, 43 RTAs have been notified to the WTO, making this the most prolific RTA period in recorded history. The total number of notified preferential agreements in force is currently 170; approximately 20 RTAs are due to enter into force upon completion of their respective ratification procedures; a further 70 RTAs are under negotiations/proposal stage. RTA activities have intensified across all world regions particularly in the Western Hemisphere and Asia-Pacific.

The promotion of free trade at a preferential level may help developing economies to implement domestic reforms and open up to competitive market pressures at a sustainable pace, thus facilitating thief integration in the world economy. This may also benefit the multilateral process by exerting leverage for openness and competitive liberalization in international trade relations. Yet, the development of complex networks of non-MFN trade relations and of regulatory regimes which increasingly touch upon policy areas uncharted by multilateral trade agreements may place developing counties, in particular, in a weaker position than under the multilateral framework.