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CONTENTS Bahrain  Economic AnalysisLegal Information Info-Prod Country Guide

Principal Commercial and Political Characteristics


The Government of Bahrain has set out to make the country into the Singapore or Hong Kong of the Gulf, and, hopefully, of the whole Middle East and South Asia. Although at present wholly or partially government-owned enterprises dominate the economy, laws and regulations have been overhauled in recent years, particularly since 1990, in an attempt to make the business climate as welcoming as possible for free enterprise and in order to attract foreign companies. Foreign investors are welcome to set up licensed export industries, with 100 percent foreign ownership. Commercial firms are likewise encouraged to set up 100 percent foreign-owned regional offices and distribution centers.

With government encouragement, Bahrain has long been established as the principal banking and financial center of the Gulf region. The Bahrain Promotions and Marketing Board, a special office set up with inter-ministerial, joint public and private sector membership, is responsible for coordination efforts to attract businesses and investments.

Commercial Outlook

By 1995, government revenue was estimated at just US$ 1.43 billion and expenditures at US$ 1.39 billion. Per capita GDP has dropped substantially over the last fifteen years, due mainly to a population growth of 3.4 percent per year, one of the highest rates in the world.

Bahrain's 1995 budget deficit reached US$ 176 million (on spending of US$ 168 million), and the rate of expansion in 1995 was modest, just 1.5 percent. This is a result of weakness in the economy of Saudi Arabia's Eastern Province, on which Bahrain and its tourism and services sectors, in particular, are largely dependent. Economic growth for 1996 remained under 1 percent.

Bahrain's non-oil foreign trade deficit widened to US$ 1.1 billion in 1996 from a deficit of US$ 832.1 million reported in 1995. Bahrain exported goods worth US$ 1.2 billion in 1996 and imported goods worth US$ 2.3 billion. In 1995, Bahrain exported goods worth US$ 1.54 billion and imported goods worth US$ 2.37 billion.

A total of 34 percent of GDP was derived from oil in 1980, while in 1994 this sector accounted for only 15.7 percent of GDP. Rising oil prices in 1996 have boosted government revenues. Bahrain's present oil production capacity nearly tripled recently due to added production from the offshore Aba Safa oil field, run jointly with Saudi Arabia. Bahrain's share of the Abu Safa flows translates to a US$ 200 million injection into the Bahraini economy. These added revenues should do much for Bahrain's ailing economy, although the revenues increase the tiny nation's dependence on the oil sector.

New infrastructure will involve private financing. Public unrest at rising unemployment rates force the government to take further measures to encourage job-creation for Bahrainis. A policy of "Bahrainization" is likely to be expanded, and the Ministry of Labor will take a tougher stance on targets for the employment of nationals, while introducing new legislation to make it easier and cheaper for firms to take on Bahraini workers.

Political Outlook

The country's demographics are a serious cause of internal political turmoil. Of Bahrain's population of 550,000, Shi'ite Muslims constitute a slight majority. They accuse the Sunni minority of discrimination regarding employment opportunities. The rising unemployment rate is becoming an important social and political factor. The official government figure of 1.8 percent is unreliable, with various estimates placing the actual figure as high as 15 percent. A higher unemployment rate, of course, is more likely to affect the young - those more inclined to turn to desperate political acts regarding the government's policies.

Shi'ite arsonists were suspected in a wave of attacks in Bahrain's capital city of Manama in early May 1996, just 40 days after the execution of a Shi'ite demonstrator found guilty of killing a police officer.

Bahrain's ruling Al-Khalifa clan has accused Iran of being behind the recent unrest in the Shi'ite community. It was claimed that Iran is well aware that Bahrain's neighbor, Saudi Arabia, has important strategic interests in Bahrain and that Iran would like nothing better than for this unrest to spill over into the heavily Shi'ite Eastern Province of Saudi Arabia. This tension has damaged the trade ties between Bahrain and Iran

On a different front, early December 1996 marked an all-time low in relations between Bahrain and nearby Qatar. In late 1996, Bahrain announced the capture of two alleged Qatari spies in Manama, and subsequently decided to boycott an upcoming GCC leaders summit, scheduled to be held in Qatar's capital city of Doha. Tensions were eased when Bahrain released the alleged spies and accepted the mediation of GCC intermediaries.


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