Poor work ethic in the national labour force has been identified as the most problematic factor for doing business in Bahrain.

The Global Competitiveness Report 2007-2008 released by the World Economic Forum says that in a survey respondents were asked to select the five most problematic aspects of doing business in their country from a list of 14 factors and to rank them between 1 (most problematic) and 5. Poor work ethic was overwhelmingly selected as the number one detriment in Bahrain.

The next four menaces are labour red-tape, workforce education, government bureaucracy and supply of infrastructure.

Policy instability, restricted access to financing, corruption and inflation come next in the list. In the overall Global Competitiveness Index (GCI) Bahrain is 43rd and takes the seventh position in the Mena region where Kuwait tops with rank 30 followed by Qatar with 31.

The report comments that macroeconomic environment in Kuwait has markedly improved in the past few years.

The country is at present assessed as second to none out of all countries with respect to macroeconomic stability, reflecting a large budget surplus, low debt and growing national savings.

Kuwait also boasts efficient financial infrastructure with easy access to a wide range of financial services, including loans, equity markets and venture capital.

The country's labour markets also get good marks for efficiency, most particularly related to the flexibility of the system which facilitates job creation.

Like Kuwait and the other oil-producing countries in the region, Qatar's macroeconomic stability has benefited from the increased production and export price of oil and gas, although inflation remains one area of concern as it has reached very high levels (11.8 per cent in 2006).

Qatar also shows a relatively good track record in education.

Oman enters the GCI for the first time this year, ranked 42nd. The country's solid outcomes on macro-economic indicators (ranked 11th), including a high budgetary surplus, low debt and low inflation, are a result of the economic reforms started in the early 1990s that focused on diversification and privatisation, the report notes.

Other strengths in Oman include its well-developed institutions (ranked 30th), both in the public and private spheres.

Perceived low levels of corruption and favoritism and an excellent security situation contribute to a good business environment.

Oman's commitment to improving labour market outcomes is reflected in the high level of efficiency in its local labour markets. Yet further reforms aimed at rendering the labour markets more flexible will be necessary to help reduce the high unemployment rate.

Saudi Arabia also entered the GCI for the first time this year at a respectable 35th place. As is the case of the other oil exporters, macroeconomic stability is the country's main competitive strength.

With a healthy fiscal environment, relatively low interest rates, and inflation that has been kept under control, Saudi Arabia ranks a very high 3rd on this pillar.

The country's access to a relatively large domestic and foreign market is also a competitive advantage, allowing Saudi businesses to benefit from economies of scale.

This is complemented by elements of business sophistication, with relatively sophisticated production processes (35th) and strong control over international distribution chains (19th).

Calling the UAE economy a success story in diversification, the report says the country has undergone a remarkable development over the past few years.

Amid security problems, the Emirates have achieved one of the highest growth rates in the region by pursuing economic reforms and liberalisation policies and by actively supporting economic diversification since the 1980s.

One of the main vehicles for this development was the creation of free trade zones, which have become a widely imitated success story in the region. Dubai has pioneered this development but other Emirates, in particular Abu Dhabi, followed.

Today, diversification away from the energy sector continues to be a priority - the country focuses not only on further developing financial services, but also health care, industry, out-sourcing and ICT.

In providing basic requirements Bahrain's rank is 32 beating Oman with 38 and Saudi Arabia with 39.

Qatar tops the list with 24, a rank below the US which tops the GCI.

In efficiency enhancers Bahrain ranks 46th, three notches above top-ranker Kuwait. Among the toppers only UAE with 35 and Qatar with 44 are above Bahrain.

Bahrain, is however, a very low on innovation factors with 74. The region's topper there is Tunisia with 29. Switzerland is the world topper.

The challenge before Bahrain now is to develop and commercialise innovation and to

upgrade business practices as it transitions to an innovation-driven economy where the sustainability of its economic growth and its competitiveness will be tested.

This ability depends on two interrelated factors - Bahrain's capacity to innovate and the strength of its educational system. These are the two factors on which Bahrain ranks poorly.

In innovation, Bahrain needs to upgrade its capacity in university-industry research collaboration, its capacity for innovation, the quality of its research institutions and company spending on research and development.

In order to meet these challenges, Bahrain must have an adequate educational system.

Bahrain's secondary enrollment levels are relatively high, but graduates currently fail to meet the needs of the business community, which has consistently cited an inadequately educated workforce and poor work ethic in the national labour force as two of the most problematic factors for doing business in the country.

To address workforce education, a comprehensive educational reform programme is underway geared toward upgrading primary, secondary and tertiary education.

This programme includes upgrading curricula and creating new institutions to ensure that training meets labour market needs and is of a standard high enough to create the capacity to innovate within the economy.

Labour market reform has significantly reduced market restrictions in an effort to ensure that adequately trained and experienced labour - both Bahraini and foreign - is available to meet labour market demand.

But in order to sustain the current wealth beyond the oil reserves and to become a truly innovation-driven economy, the country will have to make even more efforts to improve education and enhance innovation.