COUNTRY NAME: The Kingdom of Bahrain
LAND AREA: 660 km2
POPULATION: 738,000 (2010 est.)
LANGUAGE: Arabic (official), English (commercial)
CURRENCY: 1 Bahraini Dinar (BHD) = 1000 Fils; 1 EUR = 0.51 BHD (Nov. 2010)
MAIN CITIES: Manama (capital), Muharraq, Isa Town, Ar-Rifa
NATIONAL DAY: 16 December
TIME ZONE: Standard Time is GMT + 3
Bahrain’s strategic geographical position has made it a natural trading hub throughout its long history. Historically, Bahrain had long played a key role in the Gulf and now is becoming one of the region’s most dynamic and accessible economies. For much of the 18th and early 19th century the country was also important as a pearl-fishing centre.
The discovery of oil in Bahrain in the 1930s has enabled the creation of an attractive and modern infrastructure, an elegant skyline, luxury hotels, a bustling international airport, excellent roads and telecommunications and a thriving port. But the island’s reserves of oil proved to be small by comparison with its Gulf neighbours, although it remains the main motor of growth. This has forced Bahrain down the path of economic diversifi cation. With its highly developed communication, fi nancial services and transport facilities, Bahrain is home to numerous multinationals with business in the Gulf. The relatively liberal social climate has stimulated tourism, attracting, particularly, residents from nearby Saudi Arabia. These activities have been complemented by the development of a signifi cant industrial base, for which Aluminium Bahrain (Alba) is a cornerstone.
Bahrain is highly dependent on regional demand for its services and goods exports. Bahrain has an extremely low-tax environment. There is no corporation tax, and there has traditionally been no income tax, although from June 2007 employees pay 1% of their salaries into a national unemployment insurance scheme, a fi gure that employers match. There is also a 10% municipal tax on rents and a 3% levy on all hotel bills.
Reforms
Efforts towards economic reform are driven by the need to diversify the economy away from oil (as output is declining), stimulate private-sector growth and foreign investment, and address high unemployment among nationals. The state’s ability to upgrade its infrastructure and invest in education will be constrained by the dependence of the public fi nances on oil revenue. With the private sector continuing to depend on expatriate labour, unemployment among Bahraini nationals will remain a key social and political concern for the authorities. The public sector is relatively small for a GCC state, accounting for only one in 11 jobs, and so can absorb only a limited number of entrants to the labour market. In an effort to boost employment in the private sector, the government will continue to implement “Bahrainisation” policies, setting quotas on the number of expatriates who can work in any given sector.
Industries
Because of the small scale of its hydrocarbons reserves, Bahrain was ahead of its GCC counterparts in seeking to diversify the local economic base away from energy dependence. Factors such as labour costs, energy costs, taxes and transport infrastructure, played signifi cant roles in making Bahrain increasingly attractive to manufacturing businesses. In the 1970s and early 1980s it invested heavily in industrial infrastructure. Bahrain is home to Alba, one of the world’s largest aluminium smelters, producing the highest grade material. This creates signifi cant opportunities in downstream aluminium manufacturing, such as in the automotive, aviation and other precision engineering sectors. Bahrain has also developed production of petrochemicals and iron and steel, as well as aluminium-based industries and ship repair at the Arab Shipbuilding and Repair Yard (ASRY).
A study from Porsche Consulting identifi ed clear cost and operating advantages in Bahrain for a number of segments in the automotive sector, including high-performance car assembly and precision-engineered automotive components. The presence in Bahrain of the international Formula 1 circuit has also led to the creation of world-leading centre for engineering and design excellence.
Imports
Bahrain remains the most import-dependent of all the Gulf Co-operation Council (GCC) states, although this is in part because it imports substantial quantities of crude oil, which it refi nes and exports at a profi t. However, Bahrain is actively pursuing the diversifi cation and privatization of its economy to reduce the country’s dependence on oil.
Exports
Petroleum production and refi ning account for over 60% of Bahrain’s export receipts, over 70% of government revenues, and 11% of GDP (exclusive of allied industries), underpinning Bahrain’s strong economic growth in recent years. Aluminium is the second major export after oil. Other major segments are the financial and construction sectors. Bahrain is focused on Islamic banking and is competing on an international scale with Malaysia as a worldwide banking centre.
Banking
The island has emerged as the region’s principal offshore banking hub and also as an important centre for insurance and Islamic banking. Services constitute the bulk of GDP, refl ecting Bahrain’s success in exploiting its location to become an important services and distribution centre for the Gulf. Bahrain’s fi nancial sector is the largest single contributor to GDP, accounting for 27.5% of total Bahrain GDP. In fact, fi nance is now the most important sector of the economy. Financial services are regulated by the Central Bank (formerly the Bahrain Monetary Agency), which has built a good reputation as an effective banking regulator – a key national asset in the current international climate.
The Central Bank of Bahrain is considered to be one of the region’s most progressive regulators, and has helped develop the country’s reputation as an international fi nance centre. The CBB capitalized on its position as one of the fi rst Gulf States to begin diversifying away from oil and into fi nancial services. Bahrain’s regulatory environment, low start-up costs and lack of any limitations on foreign ownership have made it a destination for banks looking to establish themselves in the region. Bahrain is now a leading international finance centres, home to more than 400 licensed financial services institutions, representing a rich mix of recognisable international, regional and local names. In addition to traditional banking, Bahrain also became the leading centre for Islamic fi nance. The first Islamic bank in Bahrain was established in 1979, when Bahrain Islamic Bank was licensed.
ICT
Bahrain is an obvious choice for ICT businesses wishing to locate in the Gulf because of low office lease rates, excellent broadband and telecoms connections and lower labour costs than our neighbours. Significant investment has been undertaken to provide a highlydeveloped technology infrastructure. A growing demand for ICT products and services is a natural consequence of Bahrain’s strong growth in other sectors. Firms already present in Bahrain include ICT software companies such as Software AG of Germany and three of India’s largest IT companies, Satyam, TCS and WIPRO.
Tourism
Bahrain’s heritage as a cultural and trading centre dates back more than four millennia making it an attractive place to visit. Tourism is increasingly becoming the focus of investment in the kingdom’s drive to diversify its economy. Bahrain offers great potential as both a regional and a world tourist destination, blessed with 33 islands, a cosmopolitan capital city; an attractive, liberal lifestyle; and a rich history and culture. There were over six million visitors to Bahrain in 2008. The Island was known as Dilmun, and home to an ancient trading civilisation. Dilmun’s capital was a major port whose remains are still visible at the UNESCO World Heritage Site of Bahrain Fort (Qal’at al Bahrain). The Kingdom is mentioned in one of the world’s oldest works of literature – the Epic of Gilgamesh, where the island was home to the source of eternal youth.
Construction
Many new development projects are opening in Bahrain to provide residential, business and recreational facilities. These include Bahrain Bay, City Centre Mall, Al Areen, Amwaj Islands and Durrat Al Bahrain which are now opening up Bahrain to a wider market and attracting more visitors. The billion-dollar Al Areen development furthers Bahrain’s reputation as a friendly destination for family and health-oriented tourists. Phase one includes the Banyan Tree Desert Spa and Resort, the largest spa in the Middle East, and the stateof- the-art ‘Lost Paradise of Dilmun’ Water Park. The development will comprise five-star hotels, residential villages, entertainment and recreational facilities, shopping centres and the Al Areen Wildlife Park. Durrat Al Bahrain is the Kingdom’s largest luxury residential, commercial and tourist resort development. Costing $6bn, it consists of The Islands, six ‘Atolls’ and five ‘Petals’, with 1,800 luxury residential villas; and The Crescent dining, shopping and entertainment resort. There will also be an 18-hole golf course designed by Ernie Els, and one of the region’s largest marinas, with 400 berths across three islands. Attracted by these prestige projects more major hotel groups are setting up such as Four Seasons, Kempinski and Renaissance, joining those already established like Ritz-Carlton, Sheraton, Radisson, Novotel, Marriott and Banyan Tree.
Outlook
The EIU forecasts that Bahrain’s real GDP growth is projected to slow to an annual average of 3.3% in 2009- 13, from the very high estimated annual average of 7% in 2004-08. This is mainly because of a more subdued outlook for global and regional growth, and for the global financial sector, particularly in the early part of the forecast period, following recent financial turmoil. This will constrain the growth of Bahrain’s exports of goods and services, a vital source of overall economic growth given the small size of the domestic market, with Bahrain having just over 1m residents. In general, the private sector will benefit from a rapid expansion in construction over the forecast period, notably in roadbuilding, power and water projects, tourism and retail infrastructure, and housing. Private firms will also gain an increasing role in areas formerly managed by the state.
Source: Austro-Arab Trade Directory 2011.
The mentioned data are subject to modification. No responsibility is taken for the correctness of the details provided.
Last modified: 24 January 2011
