BAHRAIN - Economy Prepared To Globalise.

From the start of his reign, Shaikh Hamad has kept his focus on improving the Bahraini economy and bringing it up to date with the globalising world. One month after he took over, the US acknowledged Bahrain's efforts at the protection of intellectual property rights by removing it from the Special 301 watchlist of countries which are designated as violating these rights. An effective legal system is gradually being put into place, and a new accounting law has recently been issued to formalise the relationship between businesses and accounting companies.

One of the key aspects of globalisation is for governments to move away from running businesses to facilitating business. In line with this approach, Shaikh Hamad is formulating an economic agenda to encourage the private sector to lead Bahrain's economic development in the new millennium. The liberalisation of business laws and practices is ongoing and new initiatives are being implemented in the financial sector. The IT sector, which is regarded as a cornerstone of the globalised economy, is beginning to thrive in the emirate.

Laws and regulations have been overhauled to some extent since 1990 in order to make the business climate more market oriented and to attract foreign companies. The government strongly encourages foreign investors to set up industries in the emirate, with 100% foreign ownership permitted for export industries under certain conditions. In 1998 the Commerce Ministry issued commercial registrations to 24 new foreign owned companies, 26% more than during 1997.

The government also encourages foreign companies to set up 100% owned regional offices and distribution centers in the country. In addition, Manama has set up the Bahrain Promotions and Marketing Board (BPMB) to coordinate efforts to attract businesses and investments and to offer streamlined assistance to foreign firms that want to establish themselves in the emirate.

In fact, the government has for some years been undertaking serious efforts to tackle the economic aspects of globalisation. Manama has been focusing on attracting foreign investment into the country as well as on industrial diversification. Bahrain had long ago realised that it could not live by oil exports alone, and had concentrated on turning itself into an offshore banking centre. It succeeded and established itself in this role while Lebanon sank into a civil war and undermined its status as main financial hub in the Middle East.

Yet by the late 1980s Dubai had emerged as a serious competitor in the financial sector, and in 1990 the strife in Lebanon ended while Iraq invaded Kuwait - both moves which hit the outlook for Bahrain. Lebanon is now looking increasingly attractive for business, while the confrontation between Iraqi leader Saddam Hussein and the US is making the Persian Gulf region appear unstable. Thus, by the mid-1990s, the impression of Bahrain was of a country losing its business edge. But after Shaikh Hamad became the emir, a new sense of energy has been injected into the regime.

Now the emirate is focusing extensively on industrial diversification. It has had some success: major investments are envisaged by private businessmen, including a $5 billion refining and petrochemical venture planned by Petroma Refining and Marketing of Saudi Arabia. Several new infrastructure projects are planned as part of efforts to give a boost to the economy and deal with the problem of unemployment.

It is important to note that the Bahraini economy, although the smallest in the GCC, is already quite diverse and in many ways better integrated into the global marketplace than other GCC member states. Bahrain has overcome its relatively small size by positioning itself as a regional leader in a number of key sectors. It has done so by enabling foreign investors to leverage their investments and reach a broader consumer base in the GCC.

The Saudi Factor: A key aspect of Bahrain's stability, whether political or economic, remains its close relationship with Saudi Arabia. The kingdom has acted as a kind of "big brother" ever since the emirate gained independence from Britain on Aug. 15, 1971. Manama counts on Riyadh to step in when necessary and help it to get through the difficult periods. One such period was in the immediate aftermath of the December 1994 riots when Riyadh is said to have discreetly dispatched military forces to help Bahrain deal with the unrest.

This special relationship, which becomes evident every time Bahrain faces some crisis, looks set to last well into the future. Over the years, the Bahraini economy has developed a high level of dependence on Saudi gifts of oil and other aid. Critics of the government have pointed out, for example, that Bahrain in the late 1990s was able to avoid budget deficits largely because Riyadh gifted the production of the offshore Abu Saafa field to the emirate. (The field straddles the borders of the two countries).

There are some observers who believe that the current political liberalisation process in Bahrain must be viewed in this context. They point out that political reforms will not proceed beyond a certain point if Saudi Arabia feels that there could be some spillover effect that would threaten the status of the royal family.

On the other hand, other observers note that the steps taken by the Emir, Shaikh Hamad, could not have been taken without some sort of understanding with Riyadh. They believe that Crown Prince Abdullah is more in tune with current global realities and would have realised that it was necessary for Bahrain to take such measures to project itself as a stable place and a hub for business throughout the region. For example, over the long term, it could be turned into Saudi Arabia's "Hong Kong".