The rate of citizens working in the industry has dropped from 33 per cent to as low as 15pc, according to the latest figures.
Labour Minister Jameel Humaidan said part of the problem was based on misconceptions that the industry is not compatible with social values.
A five-year strategy is being launched to encourage Bahrainis to work in the sector and the Cabinet has approved plans for a specialised training institute.
"The hospitality sector, whether in hotels, tourist facilities or restaurants, offers some of the best and most elegant jobs in the labour market," said Mr Humaidan.
"Whether its managers, supervisors, administrators or receptionists, there are 25 decent jobs available with a pay no less than BD300.
"It is not just serving food or beverages and that misconception has to end, along with the idea that women should not work in these respected facilities."
The government hopes to increase the Bahrainisation rate in the sector to 22pc within five years.
Mr Humaidan said work on a training institute was supposed to begin a few months ago, but was halted so that a more suitable location could be found.
"The institute was planned on a plot of land in the middle of the new Busaiteen government housing project and we think it is a wrong location, so we have asked for an exchange and the Municipalities and Urban Planning Affairs Ministry has been informed to work on it," he said.
"Now, we are working on a detailed plan and feasibility study for the institute and its importance so whenever it gets built, we can kick in our programmes.
"Oman is an example we have to compete with, they came here a decade ago to learn from our previous experience in the sector and implemented it. Now they have 50pc Omanisation, and on a long-term we have to be on those terms."
Mr Humaidan said the government would soon launch the 10,000 Bahraini employment programme, which was approved by the Cabinet last month.
"We will have jobs for 4,000 secondary graduates, 4,000 university graduates and 2,000 diploma holders - our aim is to have most pumped in the hospitality sector," he said.
"The problem is that there are some with the mentality that they only want jobs in major companies and there are cases in which parents have come complaining to me that they want their sons and daughters out of small and medium size (SME) businesses.
"Parents come wanting jobs in Bapco, Alba and Gulf Air, but that's the wrong approach.
"In Europe, 85pc of businesses are SMEs, and ironically pay higher than major companies because with less employees and more work, the wages are more." mohammed@gdn.com.bh
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