An island of commerce: Leveraging natural strengths and strategic advantages

The Report: Bahrain 2012 – Country Profile

As the Arabic word for “two seas”, Bahrain’s name refers to the sweet-water springs that fill the Kingdom’s aquifers and the salty seas that surround the island.

HISTORY: The Kingdom of Bahrain is home to one of the region’s oldest civilisations, the Dilmun civilisation, which dates back nearly 6000 years. Throughout history, Bahrain attracted the attention of empires and nations due to its strategic position in the Gulf. Consequently, the country was influenced by a number of powers including the Persians, Sumerians, Assyrians, Arabs, Babylonians, Portuguese and the British. Bahrain was important to ancient Mesopotamia because it connected the lands of the present day Middle East and established sea lanes. Thus, the country thrived as a commercial centre where merchants founded settlements that formed the backbone of the economy.

GOVERNMENT: Bahrain declared independence from the British in 1971. Between 1961 and 1999, Bahrain was ruled as an emirate by the late Sheikh Isa bin Hamad Al Khalifa. On his death in 1999, Sheikh Hamad bin Isa Al Khalifa, his son, became the island’s ruler and set in motion a reform programme.

In 2001, the National Action Charter was published, setting out key principles for the government of Bahrain, including the establishment of a constitutional monarchy, parliamentary elections, and universal suffrage for men and women. The charter was ratified by a national referendum with 98.4% of voters in favour of transforming the hereditary emirate into a constitutional monarchy, thereby establishing the current Kingdom of Bahrain ruled by King Hamad bin Isa Al Khalifa.

The executive government is headed by the prime minister, Prince Khalifa bin Salman Al Khalifa, who has been in place since 1971, making him the world’s longest-serving prime minister. Executive authority is vested with the King and the Council of Ministers (the cabinet), which is appointed by the King. Crown Prince Salman bin Hamad Al Khalifa is the deputy supreme commander of the Bahrain Defence Force as well as the chairman of the Bahrain Economic Development Board (EDB), a state body tasked with formulating the country’s long-term development strategy.

The National Action Charter modernised the legislative side of government, and the parliament that was suspended in 1975 was reconstituted. The Bahraini parliament, known as the National Assembly, is made up of a lower house, the Council of Representatives, which is elected by universal suffrage, and an upper house, the Shura (consultative) Council, which is appointed by the King. The National Assembly consists of 80 seats; 40 elected members sit on the Council of Representatives and 40 appointed members sit on the Shura Council. The upper parliament has the power to block legislation from the lower parliament. Elected members of the lower parliament serve four-year terms.

The most recent elections were held in October 2010. Special elections were held in September and October 2011 to fill the 18 seats vacated by members of the Al Wefaq party, resulting in the largest number of women ever to be elected to the Council of Representatives, with four women now part of the 40 members. Al Wefaq did not participate in the elections. The Kingdom also announced in May 2012 it would join Saudi Arabia in a closer political union, with the two states collaborating on foreign, security and economic policy.

POLITICS: Protests flared up throughout the Kingdom in February and March of 2011, and demonstrations continued for the remainder of the year and into 2012. In response to the earlier political unrest, a National Dialogue was held on July 1, 2011 to engage the different factions of Bahraini society and to discuss further political, economic, social and legislative reforms.

This concluded with a number of recommendations for restructuring, including recognising the importance of further diversification; encouraging the role of the private sector; evaluating options for redirecting subsidies; placing new levies for indirect and corporate taxes; resolving the issue of the high increase of guest workers; and supporting innovation programmes. One outcome of the dialogue was a set of constitutional amendments that make it easier to question and remove ministers and withdraw confidence in the Council of Ministers. According to a televised speech by the King, the purpose of the these amendments, ratified in May 2012, is to increase dialogue on reform.

Following the conclusion of the dialogue, the King launched the Bahrain Independent Commission of Inquiry (BICI) on June 29, 2011 to investigate the political unrest of earlier that year. The commission’s aim was to determine if the events that began in February 2011 had involved violations of international human rights law and to provide recommendations for political stability. The commission was directed to issue a comprehensive account of the events and describe any acts of violence that occurred by highlighting all the parties involved and investigating allegations of police brutality and violence by demonstrators. The official BICI Report was released on November 23, 2011 with numerous recommendations, and the National Commission that was tasked to follow up on the suggestions released its final report on March 20, 2012. Nevertheless, the opposition has claimed that the government’s reform measures are taking too long to implement.

ECONOMIC OVERVIEW: Bahrain has set many regional precedents; among others, it was the first country in the Middle East to discover oil in 1932. This sparked a major economic overhaul as the petroleum industry developed, catalysing a process of modernisation that diverted the Kingdom’s economy away from traditional mainstays such as pearl diving and fishing. Mindful of its finite hydrocarbons reserves, Bahrain pursued an early policy of economic diversification. This policy formed the basis for the Economic Vision 2030, a development plan to improve Bahraini living standards. The campaign’s framework, the National Economic Strategy, highlights the path to a stronger economy through growth in the private sector as the government continues to invest in infrastructure and human resources.

Bahrain has successfully developed its industrial and downstream sectors, and is home to one of the largest aluminium smelters in the world, Aluminium Bahrain (Alba). In 2011, overall GDP at constant prices had an annual growth rate of 2.2%, with the oil sector growing at 3.4% and non-oil sector growing at 2.1%.

The Kingdom ranked 38th in the World Bank’s 2012 “Doing Business” report, and for the third time ranked 37th in the World Economic Forum’s “Global Competitiveness Report” in 2011. Bahrain was also notably ranked the 12th freest economy in the world and first in the Middle East and North Africa (MENA) region, according to the 2012 Index of Economic Freedom.

ENERGY: Bahrain’s energy sector is a major source of government revenue. In 2011 oil accounted for approximately 13% of GDP and 75% of government revenues. Onshore reserves discovered in the Awali Bahrain Field yielded some 75,000 barrels per day (bpd) at its peak in the 1970s. Output has since declined, falling to some 32,000 bpd in 2010. Forecasts suggest that by 2015, Bahrain will account for 0.6% of Middle East regional oil demand while providing 0.2% of supply. Gas production in Bahrain totalled some 552bn cu ft during 2011.

FINANCIAL SERVICES: The financial services sector has been a great beneficiary of the economic diversification programme. Sector assets amounted to $195.5bn as of January 2012, contributing 25% of GDP. There were 415 registered financial institutions operating in the Kingdom as of February 2012, up from 409 in 2011, demonstrating that the regulatory system in place helped to sustain the industry in 2011. As of 2009, the sector employed roughly 15,000 people, 34% of whom were foreign nationals. Bahrain is also a major centre for offshore banking and funds in the region, with 2789 authorised funds registered as of February 2012.

ISLAMIC FINANCE: Bahrain is a major centre for Islamic finance, and the sector’s assets totalled $24.4bn as of January 2012. The Kingdom is home to a number of regulatory agencies and institutions that help to develop standards and guidelines for the Islamic finance industry, including the Accounting & Auditing Organisation for Islamic Financial Institutions (AAOIFI), the International Islamic Financial Market (IIFM), the Islamic International Rating Agency (IIRA), and the General Council for Islamic Banks and Financial Institutions (CIBAFI). As of January 2012, the country was home to 26 Islamic banks as well as 18 takaful firms, which provide sharia-compliant insurance.

TRANSPORT: Given its strategic maritime location and proximity to Saudi Arabia – the largest market in the Middle East – Bahrain has successfully established itself as a transportation hub for the northern Gulf region. The country’s new Khalifa Bin Salman Port, the Bahrain International Airport and the overland route to Saudi Arabia via the King Fahd Causeway helped establish the nation as a focal point for transport and logistics. Expansion of the international airport, ongoing infrastructure improvements and the planned Qatar-Bahrain Causeway will serve to further boost the Kingdom’s competitiveness as a transportation hub.

TOURISM: Bahrain has a thriving tourism industry that attracts visitors from both the region as well as further abroad. Tourists are drawn to Bahrain’s traditionally liberal atmosphere, rich history and culture. The Kingdom offers a wide range of attractions, including historic monuments like the Al Khamis Mosque, which dates back to 692 CE, and the modern Bahrain International Circuit, host of a 2012 Formula 1 race.

The tourism sector was adversely affected by the political environment in 2011 with a major decline in visitors and the cancellation of that year’s Bahrain Formula 1 Grand Prix. However, tourism numbers improved in 2012, and the meetings, incentives, conventions and exhibitions segment is back on track. Bahrain was designated Capital of Arab Culture in 2012 and Capital of Arab Tourism in 2013. Both should give the sector a boost as visitors arrive for the scheduled fanfare.

GEOGRAPHY: The total inland area of Bahrain is constantly expanding thanks to land reclamation projects. In 2011, Bahrain grew to 765.3 sq km, up from 759 sq km in 2010. The national archipelago consists of 33 islands, and the four main islands are Bahrain Island, Al Muharraq Island, Sitra Island and Umm An Nasan Island, which make up approximately 95% of the total land area. These islands are connected through a series of causeways, while more remote islands can be reached by boat.

Saudi Arabia is Bahrain’s closest neighbour to the north-west and across the Gulf of Bahrain, and they are linked by the 25-km King Fahd Causeway. Qatar lies 28 km off the south-eastern coast. The two countries will eventually be linked by a causeway, which will be the world’s longest fixed link, extending some 40 km.

The capital Al Manamah, colloquially known as Manama, sits on the northern portion of the main island, with a population of roughly 200,000. Muharraq is the second-largest island and is home to the country’s second-largest city, which bears the same name. Other significant cities include Riffa, Sitra and Isa Town.

At 122 metres, Jebel Al Dukhan is the Kingdom’s highest point. Most of the islands are low-lying desert, and agrarian land is scarce, with only 2.82% arable.

CLIMATE: Bahrain has two seasons: a hot and humid summer and a mild winter. Summer begins around April and continues through October. The average temperature in the summer is 36°C, with highs reaching 48°C. Sandstorms are not uncommon during the mid-summer months. Winter is from November to April with temperatures ranging from 15°C to 24°C, and coolest between December and March when the northerly winds prevail. Average annual rainfall is 77 mm.

NATURAL RESOURCES: Oil, gas, fish and pearls are Bahrain’s most abundant natural resources. Due to the desert climate, agricultural production is limited. Since the discovery of oil in the 1930s, traditional industries such as fishing and pearling have contributed significantly less to overall output but remain important areas for employment and due to their traditional cultural significance. Although the Kingdom was the first of the GCC states to discover hydrocarbons, it has smaller quantities of oil and gas than its neighbours. The government has accelerated exploration efforts and is preparing to boost refining capacity. In 2010 production from the onshore Bahrain Field was raised for the first time in 30 years thanks to enhanced oil recovery techniques. The Kingdom recently awarded a tender for deep gas exploration, and drilling has begun in offshore blocks alongside an increase in onshore exploration. Bahrain also shares the yield from the offshore Abu Safa field with the Kingdom of Saudi Arabia.

Water is a limited and dwindling resource in Bahrain. The main aquifer, Dammam, is becoming saline from overuse. As a result, Bahrain relies on desalination plants to provide most of its potable water.

POPULATION: The country’s population is diverse and multicultural and home to a variety of different ethnicities. The 2010 census puts the total population of the Kingdom at 1.23m, with 568,400 nationals and 666,200 non-Bahrainis, who make up 54% of the total populace. Approximately 51.1% of the population are Bahraini citizens, GCC citizens or hail from other Arab countries; 45.5% are from Asia or Oceania; 1.6% are from Africa and the remaining 1.3% are from Europe and the Americas. Males account for around 62% of the total, which can be attributed to the sizable expatriate workforce. An estimated 88.7% of the population live in urbanised areas, with 329,510 individuals residing in the Capital Governorate, home to the capital, Manama.

LANGUAGE: Arabic is the official language of Bahrain, and Bahraini Arabic, similar to Khaleeji(Gulf) Arabic, is the most common spoken form. English is widely used and is often the de facto language of business given the ethnic and linguistic diversity of the country’s population. Road signs are usually in English and Arabic, and most documentation is available in both languages. English is a compulsory second language in local schools, and Bengali, Farsi, Hindi, Malayalam, Tagalog and Urdu are also well represented in society.

RELIGION: Islam is the official religion of Bahrain. Some 98% of Bahraini nationals are Muslim of either Shia or Sunni following; however, the approximate percentage of each sect is widely disputed as there are no statistics readily available. The Kingdom is one of the most religiously tolerant states in the Gulf region and allows for religious freedom, evidenced by the presence of mosques, churches, temples and synagogues throughout the country. According to the 2010 census, 70% of the total population, including non-nationals, are Muslim. Of the non-nationals, 54% are non-Muslim including Bahais, Buddhists, Christians, Hindus and Sikhs. Bahrain is also home to a small indigenous Jewish population that is represented in the government.

WOMEN: Bahrain also values the role that women play in society. Women have actively contributed to the country’s development since the late 1920s when they were allowed to attend schools, receive formal education and vote in municipal elections. Women’s rights were further supported with the establishment of the National Action Charter and the Supreme Council for Women (SCW) in 2001. The SCW promotes the status of women, awareness of their capabilities, ensures their rights are protected and helps tackle various problems in society. Bahrain was the first GCC state to allow women to participate in national elections, both as voters and candidates. It was also the first state in the Gulf to elect a female member of parliament, and there are currently four elected female members serving in the Council of Representatives.

EDUCATION: As a leader in the field of education, Bahrain was the first country in the Gulf to open a public school for males in 1919 and the first to provide schooling for females in 1928. Compulsory elementary education for children was introduced in 2001. The World Economic Forum’s “Global Competitiveness Report 2011-12”, issued in October 2011, highlighted Bahrain’s high rates of both primary and secondary enrolment (97.3% and 96.4%, respectively) as well as the quality of education and availability of research and training services. Tertiary enrolment has increased threefold over the course of the last decade, and women account for 70% of total students. The government pays all educational costs for Bahraini citizens, and 11% of total government expenditure is earmarked for education. Bahrain’s literacy rate, which is approximately 91.4%, is one of the highest in the region.

Recent government programmes meant to further improve education include teacher training schemes, a new polytechnic college, improvement of upper-secondary vocational programmes and a quality assurance initiative to raise the accreditation standards.

HEALTH CARE: Bahrain has played a vital role in developing the region’s health care. The Kingdom is home to the region’s oldest hospital, the American Mission Hospital (AMH), established in 1902. Until the late 1940s, AMH provided health care for both Bahrainis as well as neighbouring populations, including Saudis, who would travel to the island nation by boat for care.

Health care is completely subsidised for Bahraini nationals. There are 13 private hospitals and 11 government hospitals, including the recently opened King Hamad University Hospital in 2012. Health care continues to be a central focus as the government strives to keep up with the significant growth in population.

Countries: Bahrain
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