’Make the most of trade deals’
Gulf Daily News, Bahrain
’Make the most of trade deals’
Bahrain businesses must act now or lose out on massive new opportunities worldwide, says an expert.
AMIRA AL HUSSAINI reports
MANAMA: 18 June 2005
Investors need to make the most of Free Trade Agreements (FTAs) and other economic deals in the pipeline, says an expert. Businesses should start doing their homework today, says Bahrain Export Development Society chairman Dr Yousif Mashal.
They should seek partners and joint ventures with investors from countries Bahrain will be signing such pacts with, to ensure they don’t lose out, he said.
Bahrain has already signed an FTA with the US, though it has yet to be ratified and similar agreements are in the pipeline between the GCC and Turkey and the GCC and Syria.
These agreements will create an economic boom, generate new employment opportunities, develop the skills of the local workforce and boost Bahrain’s export potential, says Dr Mashal.
"The FTAs are a way forward which Bahraini investors have to make the most of," he said.
"They will promote Bahrain as an investment hub and businessmen should understand those agreements to utilise them in the best way possible."
In addition to attracting foreign investment, Dr Mashal said money should be pumped into the economy by the private sector.
"If we compare Bahrain to Dubai, for instance, we see that money is being put into the emirate by local UAE businessmen. Where is the money from the private sector here?
"It is mostly tied up in government or semi-government company-owned stocks or in stocks outside Bahrain.
"We need this money to be invested in the local economy, in industries which will produce goods, which can serve the local market and supply international markets with Bahrain-made products.
"Because the Bahraini market is small, production should be geared to meet the needs of the export market."
Dr Mashal said industrial development was paramount to enabling Bahrain to expand its benefit from the FTAs.
"More money should be pumped into our downstream industries, which will grow by utilising local raw material such as aluminium, gas and petrochemical products," he said.
"These are the main industries in Bahrain producing raw material for downstream industries around the world, which could be set up here.
"In the aluminium sector, for example, I can name 50 small and medium-sized industries which can use raw material from Alba to produce value-added aluminium products here and which can in turn be exported to the rest of the world.
"These projects don’t have to be huge, but could be as small as 10-people projects. I am talking here about small and medium-sized high-tech low-labour projects."
Such industries, noted Dr Al Mashal, would create new employment and training opportunities for a new breed of local technicians.
Training
"We will have to train Bahrainis to use machinery and new instrumentation instead of being labourers," he said.
"They will have to use their brains instead of their hands and learn new skills, which will increase the productivity of the projects they are employed in and make their companies more competitive internationally."
Dr Mashal said 92 per cent of Bahrain’s exports, which contribute to the Gross National Product, were from the aluminium, oil, petrochemicals and gas sectors.
"The remaining 8pc is distributed on the products from small and medium-sized industries, including paper products, chemicals and detergents and foodstuff," he said.
"Why should we export our raw material without giving it an added value and without allowing it to bring a bigger return to the national economy?
"What we should do is process our raw material here and manufacture value-added products which could be exported around the world."
A few companies have already taken this route in Bahrain and are a fine example for others to follow, said Dr Mashal.
He said more high-tech low- labour industries could be set up if certain criteria were met:
Interest from the private sector
Support from the government
Support from the general public
Dr Mashal said businessmen should study new avenues to attract and set up new industries in Bahrain.
"The initiative should come from the private sector. They should be conducting feasibility studies and getting their plans and projects ready to catch up with the rest of the world," he said.
"They should concentrate on industrial investment instead of real estate, services and importing goods to the country, which usually affects the balance of trade."
The government, said Dr Mashal, should also encourage entrepreneurs to invest in industrial projects by instructing the companies it supports to provide them with incentives such as low cost local raw material.
"I don’t think local industries should pay international prices for local raw materials being produced at a factory down the road," he said.
"The government is already supporting large industries in their operations. It is only right that those companies in turn support downstream productions which rely on the raw products they make."
Dr Mashal said Bahrain’s support to its industries should also be in line with World Trade Organisation requirements.
"There is a big role for the government to play in promoting and marketing its local industries. It can support them in allocating markets and in helping them utilise economic and political agreements in place with other countries," he noted.
"The government should also include small and medium-sized industries in exhibitions and trade missions to promote local industries in the international market."
Industrial areas, said Dr Mashal, should also be zoned to help achieve maximum benefit from them.
"Zoning helps in putting similar industries in clusters and providing them with the necessary infrastructure and services they need," he said.
"Industrial parks are also the call of the hour and are found all over the world."
Dr Mashal said another area the government could expand on was Bahrain’s pioneering industrial incubator project, in Hidd, which is supported by the United Nations Industrial Development Organisation (Unido).
"This project should be expanded to other areas to include different types of incubators for industries such as electronics, plastics and chemicals, to name a few," he said.
To ensure that such efforts are successful, Dr Mashal said consumers should be supportive to local industries and take pride in purchasing locally-produced goods.
"People should understand that when they support local industries, they are showing support to the national economy, which in turn will boost their own income, create job opportunities and revive the market," he said.
"All these aspects are inter-related and should be looked at from a distance, assessed and carefully analysed to help Bahrain and all Bahrainis.
"This brings us to the people’s representatives, the MPs, who should work on drafting legislation to protect local small and medium-sized enterprises as well as local and international investors.
"A strong legal framework and proper legislation and protection in place is a big magnet to pull industries towards Bahrain."
The MPs, added Dr Mashal, should put Bahrain’s interest ahead of any other considerations.
"The FTA with the US will give Bahrain access to the world largest consumer base and the largest economic power," he said.
"They will have to look at it with an open mind and assess its long-term benefits to Bahrain.
"The Bahrain-US FTA will open a door to the global village because once the US market trusts Bahrain and its industries, the whole world will follow."
Develop
Dr Mashal said all these three components working together will develop the country’s export potential and prepare Bahrain to make the most out of the FTA with the US and other FTAs and economic agreements in the pipeline.
"If you look at other countries in the region which already have signed FTAs with the US, such as Jordan and Morocco, you will see that the gains they have made in terms of industrial development are enormous," he explained.
"The FTA with the US is mainly based on attracting investors from the US to invest in Bahrain, which could be achieved in different ways.
"There could be, for instance, joint ventures with existing industries. This will help upgrade industries here from labour intensive to industries which depend more on technology.
"This will not happen in a day or two and industries should invest in automation and high technology from now to be able to catch up once the FTA is signed.
"It would not be economically viable to utilise the FTA in what we have now because many of our small and medium-sized enterprises are still labour intensive.
"Having said this, compared to the US, we have low-cost labour. This is where the garment sector is scoring points on the trade balance.
"Garment exports from Bahrain to the US exceeded an average of $178 million (BD67.2m) per year, compared to $22m (BD8.3m) for oil, $55m (BD20.7m) for aluminium and $30m (BD11.3m) for fertilisers, over a five year period."
Dr Mashal said 98pc of all goods produced in Bahrain and the US would become tax-free once the FTA is signed.
"This will reduce the cost of garments for instance by 19pc," he noted.
The FTA with the US will also expand Bahrain’s market.
"Industries should start planning, investigating and assessing joint ventures from now. They should start looking for partners for joint ventures," he said.
"They don’t have to go to multi-national companies. Instead, even small and medium-sized industries in the US would be considered larger and more technologically advanced than what we have in Bahrain.
"Investors should look at industries which are looking at expanding outside the US.
"Bahrain’s strategic location would be ideal for such an opportunity as it is has easy access to a market of almost 30m people living the GCC.
"Bahrain is also close to the Far East and has a culture which will help market its products in markets across the Middle East, Far East and Africa, with whom we share similar values.
"They can provide us with the technical know how which we don’t have and we can provide them with the marketing culture and a market we have an easier access to."
