With high oil prices in 2000 and 2001, the pressure on the Bahraini government to reform the economy has recently eased a little. But given that the country cannot sustain its dependence on oil for much longer, economic reform remains necessary. The government is expected to push for limited privatization, starting with public transport, although the major state revenue-generating organizations such as the Bahraini Petroleum Company (BAPCO) and Aluminum Bahrain (ALBA) will remain off limits.
At the end of 2000, a new corporate law was introduced, aimed at streamlining regulations and enticing foreign investment. In addition, the establishment of a new international Islamic banking system in Bahrain in October 2001 suggests that there will be further progress in developing the offshore financial services sector. Unemployment among locals remains the government's main economic and social problem. The government will continue to emphasize training to enhance the skills of existing workers and the 6,500 new entrants into the job market each year. But where government policy clashes with the interests of foreign firms—for example, over efforts to encourage companies to replace foreign workers with locals (the so-called "Bahrainization" of the work-force)—the development of a welcoming business environment will take precedence.
Politically, there are several challenges ahead. The emir has signaled his will to broaden political participation but is still struggling with the prime minister over the pace of reform. In the long run, however, both political and economic liberalization will prove unavoidable, with one reinforcing the other to the benefit of the country.