Economy of Bahrain

The economy of Bahrain is heavily dependent upon oil and gas.[1] The Bahraini currency is the second-highest-valued currency unit in the world.[18] Since the late 20th century, Bahrain has heavily invested in the banking and tourism sectors.[19] The country's capital, Manama is home to many large financial structures. Bahrain's finance industry is very successful. In 2008, Bahrain was named the world's fastest growing financial center by the City of London's Global Financial Centres Index.[20][21] Bahrain's banking and financial services sector, particularly Islamic banking, have benefited from the regional boom driven by demand for oil.[22] Petroleum production is Bahrain's most exported product, accounting for 60% of export receipts, 70% of government revenues, and 11% of GDP.[23] Aluminium is the second most exported product, followed by finance and construction materials.[23]

Economy of Bahrain [1]
Manama skyline
CurrencyBahraini dinar (BHD)
Calendar Year
Trade organisations
GCC
Country group
Statistics
Population 1,569,439 (2018)[4]
GDP
  • $34.624 billion (nominal, 2020 est.)[5]
  • $74.245 billion (PPP, 2020 est.)[5]
GDP rank
GDP growth
  • 1.8% (2018) 1.8% (2019e)
  • −2.5% (2020f) 3.0% (2021f)[6]
GDP per capita
  • $22,878 (nominal, 2020 est.)[5]
  • $49,057 (PPP, 2020 est.)[5]
GDP per capita rank
GDP by sector
2.800% (2020 est.)[5]
Population below poverty line
N/A[8]
Labour force
  • 977,302 (2019)[11]
  • 70.9% employment rate (2015)[12]
  • 44% of the population in the 15-64 age group is non-national[7]
Labour force by occupation
  • agriculture: 1%
  • industry: 32%
  • services: 67%
  • (2004 est.)[7]
Unemployment
  • 0.714% (2019 est.)[13]
Main industries
Petroleum processing and refining, Aluminum Smelting, Iron Pelletization, Fertilizers, Islamic and Offshore Banking, Insurance, Ship Repairing, Tourism
43rd (very easy, 2020)[14]
External
Exports$15.38 billion (2017 est.)
Export goods
Petroleum and Petroleum Products, Aluminum, Textiles
Main export partners
 United Arab Emirates 19.6%
 Saudi Arabia 11.7%
 United States 10.8%
 Oman 8.1%
 China 6.5%
 Qatar 5.7%
 Japan 4.2% (2017 est.)[15]
Imports$16.08 billion (2017 est.)
Import goods
Crude Oil, Machinery, Chemicals
Main import partners
 China 8.8%
 United Arab Emirates 7.2%
 United States 7.1%
 Australia 5.8%
 Japan 4.8% (2017 est.)[16]
$52.15 billion (2017 est.)
Public finances
88.5% of GDP (2017 est.)
Revenues$5.854 billion (2017 est.)
Expenses$9.407 billion (2017 est.)
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars.

According to the 2020 Index of Economic Freedom, Bahrain has the fourth freest economy in the Middle East and North Africa region and is the 63rd freest economy in the world.[24] An alternative index, published by the Fraser Institute, puts Bahrain in 70th place.[25] Bahrain was recognised by the World Bank as a high income economy.[26]

Economy overview

Oil and natural gas play a dominant role in Bahrain’s economy. Despite efforts to diversify the economy, according to the CIA World Fact Book: oil still comprises 85% of Bahraini budget revenues, meaning throughout the last few years lower world energy prices have generated sizeable budget deficits - about 10% of GDP in 2017 alone.[27] Bahrain is also relatively poor when compared to its oil-rich Persian Gulf neighbours; its oil has "virtually dried up" and it depends on international banking and tourism.[19] Bahrain's unemployment rate is among the highest in the region.[28] Extreme poverty does not exist in Bahrain where the average daily income is US$12.8, however 11 percent of citizens suffered from relative poverty.[29]

Bahrain has many large financial institutions and is known as the business capital of the Gulf. With its highly developed communication and transport facilities, Bahrain is home to numerous multinational firms with business in the Persian Gulf. A large share of exports consists of petroleum products made from imported crude. Bahrain also has substantial aluminium production. Construction proceeds on several major industrial projects. Unemployment, especially among the young, and the depletion of both oil and underground water resources are major long-term economic problems.

Balance of payments

Bahrain has a current account balance characterized by surpluses in merchandise trade and international services, and a large deficit in unilateral transfers by the country's large expatriate workforce sending home a portion of its earnings.

In 2003 and 2004, the balance of payments improved due to rising oil prices and increased receipts from the services sector. As a result, the current account balance registered a surplus of US$219 million in 2003 and a surplus of US$442 million in 2004, compared to a deficit of US$35 million in 2002. Bahrain's gross international reserves increased substantially in 2004 to US$1.6 billion, up from US$1.4 billion in the previous three years (2001-2003).

Diversification
Graphical depiction of Bahrain's product exports in 28 color-coded categories as of 2010.

Though Current GDP per capita shrank by 2.4% in the 1980s, it bounced back to a growth of 36% in the 1990s as a result of successful diversification initiatives. Bahrain's urgency in embracing economic liberalisation is due to its need to diversify the economy away from its limited oil supplies. Unlike its Persian Gulf neighbours, Bahrain has little oil wealth and the economy has expanded into banking, heavy industries, retail and tourism. The Kingdom is the main banking hub for the Persian Gulf and a centre for Islamic finance, which has been attracted by the strong regulatory framework for the industry. According to the International Monetary Fund's Financial System Stability Assessment of Bahrain's financial regulatory environment, published on 6 March 2006, found:

  • The financial system is enjoying strong performance under favorable circumstances, and is likely to remain a major contributor to overall growth. The main risk stems from potential overheating in the economies of the region, but the system should be resilient to likely shocks.
  • Prudential regulations are modern and comprehensive, and supervision is generally effective, especially in the dominant banking sector. Supervisory capacity needs to be expanded in line with new regulations and to keep up with the growth and increasing sophistication of financial institutions.
  • The further expansion of the Islamic sector, the development of housing finance, and the deepening of securities markets are important for the future growth of the financial system. The banking and insurance sectors will eventually undergo consolidation.

In 2005, Bahrain signed the US-Bahrain Free Trade Agreement, becoming the first Persian Gulf state to sign such a bilateral trade agreement with the United States. A massive privatization programme is underway to sell off key government assets: utilities, banks, financial services, and telecommunications have started to come under the control of the private sector.

As a result, the economy has been well positioned to exploit the extra revenues generated in the region thanks to the sustained high oil prices since 2002. In January 2006, the United Nations Economic and Social Commission for Western Asia cited Bahrain as the fastest growing economy in the Arab world.

Between 1981 and 1993, Bahrain Government expenditures increased by 64%. During that same time, government revenues continued to be largely dependent on the oil industry and increased by only 4%. Bahrain has at times received significant budgetary support and project grants from Saudi Arabia, Kuwait and the United Arab Emirates.

The government has used its modest oil revenues to build an advanced infrastructure in transportation and telecommunications. Bahrain is a regional financial and business center. Tourism, especially from the region, has proved another significant source of income.

Bahrain has benefited from the oil boom since 2001, with economic growth of 5.5%. It has succeeded in attracting investment from other Persian Gulf states partly because it used the revenues of the 1970s-early 80s boom to invest in infrastructure development and other projects to improve the standard of living; health, education, housing, electricity, water, and roads all received attention.

The success of ventures such as the Bahrain Grand Prix has raised the Kingdom's international profile, and combined with the boom in Islamic banking, has encouraged major airlines to resume services to the country, with Lufthansa announcing on 14 March 2006 that it would schedule three flights a week to Muharraq from Frankfurt.

As part of its efforts to build a modern economy, Bahrain has initiated a series of labour reforms under Minister of Labour Majeed Al Alawi in order to bring the labour market into line with international standards. Bahrain intends to expand its high tech industries, invest in research and development, and strengthen its competitive edge within a global economy. In 2006,it was announced that the Bahrain Science and Technology Park,a Kuwait Finance House Bahrain initiative would be a reflection of this effort to create a diversified economy, provide high quality jobs for locals and international workforce, providing a place for innovative and inventive thinking that will have direct benefits to the island nation.

In 2009 it was announced that the Bahraini Government would be developing land next door to the Bahrain International Circuit. The project being managed by @Bahrain is a mix of facilities including an exhibition and convention facility, a choice of hotel accommodations ranging from mid-market to luxury, a multi-purpose indoor arena, an automotive club and engineering facility, retail and leisure establishments, a tech-tainment (technology interacting with entertainment) centre, a research institute, a technology park and a focus on education and training. @Bahrain is part of the Mumtalakat group of companies and will dedicate more than 1 million square meters of business, entertainment and educational space with a value in excess of $2bn (BD 850 million), making it one of the largest investment projects to take place in Bahrain in the past five years.[30]

Macro-economic trend

This is a chart of trend of gross domestic product of Bahrain at market prices estimated by the International Monetary Fund with figures in millions of Bahraini Dinars.

YearGross Domestic ProductUS Dollar ExchangeInflation Index (2000=100)
19801,1580.37 Bahraini Dinars79
19851,3750.37 Bahraini Dinars97
19901,7030.37 Bahraini Dinars94
19952,1990.37 Bahraini Dinars100
20002,9960.37 Bahraini Dinars100
20054,8590.37 Bahraini Dinars104

For purchasing power parity comparisons, the US Dollar is exchanged at 0.30 Bahraini Dinars only. Mean wages were $19.81 per man-hour in 2009.

The following table shows the main economic indicators in 1980–2017.[31]

Year 1980 1985 1990 1995 2000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
GDP in $
(PPP)		 7.49 Bln. 9.66 Bln. 12.39 Bln. 17.33 Bln. 23.68 Bln. 34.20 Bln. 37.53 Bln. 41.73 Bln. 45.20 Bln. 46.70 Bln. 49.32 Bln. 51.34 Bln. 54.24 Bln. 58.10 Bln. 61.71 Bln. 64.17 Bln. 67.08 Bln. 70.43 Bln.
GDP per capita in $
(PPP)		 17,583 22,987 25,398 31,011 37,133 38,482 39,081 40,151 40,852 39,633 39,953 42,963 44,862 46,359 46,946 46,827 47,115 48,504
GDP growth
(real)		 7.5 % −0.9 % 3.5 % 1.9 % 7.0 % 6.8 % 6.5 % 8.3 % 6.2 % 2.5 % 4.3 % 2.0 % 3.7 % 5.4 % 4.4 % 2.9 % 3.2 % 3.2 %
Inflation
(in Percent)		 3.8 % −2.4 % 1.3 % 3.1 % −0.7 % 2.6 % 2.0 % 3.3 % 3.5 % 2.8 % 2.0 % −0.4 % 2.8 % 3.3 % 2.7 % 1.8 % 2.8 % 1.4 %
Government debt
(Pct. of GDP)		 ... ... 8 % 14 % 26 % 24 % 20 % 16 % 13 % 21 % 30 % 33 % 36 % 44 % 44 % 66 % 81 % 90 %

Investment

The stock market capitalisation of listed companies in Bahrain was valued at $21,176 million in 2008 by the World Bank. Bahrain is generally a country which is open to creating a unique economy which is fast growing and open for all to create business opportunities.

Hydrocarbon industry

Petroleum and natural gas are the only significant natural resources in Bahrain. Because of limited reserves, Bahrain has worked to diversify its economy over the past decade. Bahrain has stabilized its oil production at about 40,000 barrels (6,400 m³) per day, and reserves are expected to last 10 to 15 years. The Bahrain Petroleum Company refinery was built in 1935, has a capacity of about 250,000 barrels (40,000 m³) per day, and was the first in the Persian Gulf. After selling 60% of the refinery to the state-owned Bahrain National Oil Company in 1980, Caltex, a U.S. company, now owns 40%. Saudi Arabia provides most of the crude for refinery operation via pipeline. Bahrain also receives a large portion of the net output and revenues from Saudi Arabia's Abu Saafa offshore oilfield.

The Bahrain National Gas Company operates a gas liquefaction plant that utilizes gas piped directly from Bahrain's oilfields. Gas reserves should last about 50 years at present rates of consumption. The Gulf Petrochemical Industries Company (GPIC) is a joint venture of the petrochemical industries of Kuwait, the Saudi Basic Industries Corporation, and the Government of Bahrain. The plant, completed in 1985, produces ammonia, methanol and urea for export.

Bahrain's other industries include Aluminum Bahrain, which operates an aluminum smelter—the largest in the world with an annual production of about 1,500,000 metric tons—and related factories, such as the Aluminum Extrusion Company and the Gulf Aluminum Rolling Mill Company (GARMCO). Other plants include the Arab Iron and Steel Company's iron ore pelletizing plant (4 million tons annually) and a shipbuilding and repair yard.

Bahrain's development as a major financial center has been the most widely heralded aspect of its diversification effort. International financial institutions operate in Bahrain, both offshore and onshore, without impediments. In 2001, Bahrain's central bank issued 15 new licenses. More than 100 offshore banking units and representative offices are located in Bahrain, as well as 65 American firms. Bahrain's international airport is one of busiest in the Persian Gulf, serving 22 carriers. A modern, busy port offers direct and frequent cargo shipping connections to the U.S., Europe, and the Far East. Internationally recognised Bahraini companies include Investcorp, the venture capital firm credited with turning around the fortunes of Gucci.

Taxation

Taxation and import laws apply equally to Bahraini and foreign-owned companies, and foreign investors must comply with the same requirements and legislation as local firms.

Oil and gas companies are taxed 46 percent on income derived from the sale of hydrocarbons and derivative products.

There is no personal income tax in Bahrain.

Employers and workers must pay social insurance contributions as follows:
(1) for old-age, disability and survivor protection: for Bahraini employees, employers pay 10% of salary plus constant allowances, workers pay 5% plus constant allowances; for non-Bahraini employees, employers pay 3% of salary plus constant allowances (then being entitled only to employment injury benefits).
(2) for unemployment insurance: since June 1, 2007, all wages are subject to a 2% tax, paid for equally by the employer and the employee, applicable both to nationals and non-citizens and supplemented by a government contribution of 1%. This makes Bahrain the first of the GCC countries to implement a UI scheme.

References

Notes
  1. "The World Factbook". Retrieved 29 October 2019.
  2. "World Economic Outlook Database, April 2019". IMF.org. International Monetary Fund. Retrieved 29 September 2019.
  3. "World Bank Country and Lending Groups". datahelpdesk.worldbank.org. World Bank. Retrieved 29 September 2019.
  4. "Population, total - Bahrain". data.worldbank.org. World Bank. Retrieved 21 February 2020.
  5. "World Economic Outlook Database, October 2019". IMF.org. International Monetary Fund. Retrieved 3 November 2019.
  6. "Middle East and North Africa Economic Update, April 2020 : How Transparency Can Help the Middle East and North Africa". openknowledge.worldbank.org. World Bank. p. 10. Retrieved 10 April 2020.
  7. "MIDDLE EAST :: BAHRAIN". CIA.gov. Central Intelligence Agency. Retrieved 21 February 2020.
  8. "The World Factbook". Retrieved 3 March 2015.
  9. "Human Development Index (HDI)". hdr.undp.org. HDRO (Human Development Report Office) United Nations Development Programme. Retrieved 11 December 2019.
  10. "Inequality-adjusted Human Development Index (IHDI)". hdr.undp.org. HDRO (Human Development Report Office) United Nations Development Programme. Retrieved 11 December 2019.
  11. "Labor force, total - Bahrain". data.worldbank.org. World Bank & ILO. Retrieved 21 February 2020.
  12. "Employment to population ratio, 15+, total (%) (national estimate) - Bahrain". data.worldbank.org. World Bank & ILO. Retrieved 21 February 2020.
  13. "World Bank Open Data". data.worldbank.org. Retrieved 14 November 2020.
  14. "Ease of Doing Business in Bahrain". Doingbusiness.org. Retrieved 2017-11-24.
  15. "Export Partners of Bahrain". CIA World Factbook. 2016. Retrieved 2018-03-09.
  16. "Import Partners of Bahrain". CIA World Factbook. 2016. Retrieved 2018-03-09.
  17. "Sovereigns rating list". Standard & Poor's. Retrieved 26 May 2011.
  18. "10 Most Expensive Currency In The World - Latest News Online, News, Fresh News, Online News". Archived from the original on 25 February 2015. Retrieved 3 March 2015.
  19. "Bahrain's economy praised for diversity and sustainability". Bahrain Economic Development Board. Archived from the original on December 28, 2010. Retrieved 24 June 2012.
  20. Hedge Funds Review 18 March 2008
  21. Gulf Daily News 18 March 2008
  22. "Bahrain calling – Banking & Finance". ArabianBusiness.com. 25 April 2008. Retrieved 27 June 2010.
  23. "CIA World Factbook, "Bahrain"". Cia.gov. Retrieved 25 January 2011.
  24. "Bahrain Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption". www.heritage.org. Retrieved 2020-09-18.
  25. Gwartney, James; Lawson, Robert; Hall, Joshua; Murphy, Ryan; Berggren, Niclas; McMahon, Fred; Nilsson, Therese (2020). "Economic Freedom of the World Annual Report" (PDF). fraserinstitute.org.
  26. "Bahrain | Data". data.worldbank.org. Retrieved 2020-09-18.
  27. "Middle East :: Bahrain — The World Factbook - Central Intelligence Agency". www.cia.gov. Retrieved 2019-09-23.
  28. Elizabeth Broomhall (7 July 2011). "Bahrain and Oman have highest Gulf unemployment rates". Arabian Business. Retrieved 9 July 2012.
  29. "Bahrain", United Nations Development Programme. Retrieved 21 July 2012. Archived 19 June 2013 at the Wayback Machine
  30. "Gulf Daily News » Business News » Jobs 'for generations to come'". Retrieved 3 March 2015.
  31. "Report for Selected Countries and Subjects". Retrieved 2018-08-27.

Bibliography
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