Bahrain continues its economic diversification


For much of its history, Bahrain was the name for the eastern coast of Arabia. Bahrain means “two seas” in Arabic, and although it is unclear which two seas the name refers to, it has recently come to identify the 33 natural islands of the Awal archipelago.


The first notable inhabitants of the region were the Dilmun civilisation, approximately 6000 years ago, but throughout history its geographically strategic location has attracted the attention of numerous empires, including the Persians, Sumerians, Assyrians, Babylonians, Arabs, Portuguese and British. Once a commercial centre for the ancient region of Mesopotamia, Bahrain’s key location for trans-Gulf trade continues to draw merchants and imperial administrations to this day.


 In 1932 Bahrain pioneered oil production in the Middle East, and in so doing, established the region’s initial framework for the petroleum industry. The new resource enabled Bahrain to modernise its economy by moving beyond traditional industries such as pearl diving and fishing. At an early stage the kingdom sought to diversify its economy, and established itself as a leading regional financial centre in the 1970s and 1980s. During Lebanon’s civil war, it was Bahrain’s well-established regulatory system that encouraged various banks seeking safety and stability to move their capital, and set up base in Bahrain.

Today, the country’s national plan, Bahrain Economic Vision 2030, aims to enhance private sector growth and continue government investment in infrastructure, affordable housing and human resources. The kingdom maintains a developed industrial sector and hosts one of the world’s largest aluminium smelters, Alba, with downstream businesses creating products for export. Other industries in Bahrain include downstream oil and gas products as well as a growing food industry, serving both the Saudi market and the global economy. In the World Bank’s “Doing Business 2018” report, the kingdom ranked 66th out of 190 countries on ease of doing business and fifth in the paying taxes category. In the World Economic Forum’s 2017-18 Global Competitiveness Index, the kingdom ranked 44th out of 137 economies, mainly due to its strong institutions, growing and stable infrastructure, market efficiencies and business sophistication. According to the International Monetary Fund, its GDP was $31.86bn in 2016, increasing to $33.9bn in 2017.

Bahrain’s model of development has been studied and formalised by the UN Industrial Development Organisation (UNIDO), in partnership with the Arab Regional Centre for Entrepreneurship and Investment Training based in Manama, the nation’s capital. The UNIDO Entrepreneurship Development and Investment Promotion programme, developed in Bahrain, has been implemented with UNIDO support in 42 developing countries around the world with strong results. In a bid to facilitate increased privatisation and to improve efficiency, a fully independent body, the Tender Board, is working to increase government transparency and clarity to both bidders and purchasers of the public tender system by creating pre-certification, online tracking and standardisation of the tenders.


Bahrain gained independence from the British government in 1971 and has been ruled as a constitutional monarchy since 2002 under the leadership of King Hamad bin Isa Al Khalifa, who is the country’s current ruler. King Hamad came to power in 1999 following the passing of his father, Sheikh Isa bin Salman Al Khalifa, who began his rule in 1961. Sheikh Khalifa bin Salman Al Khalifa, the country’s prime minister, has served as head of government since 1971. The crown prince, Sheikh Salman bin Hamad Al Khalifa, is the deputy supreme commander of the Bahrain Defence Force, the first deputy prime minister and chairman of the Bahrain Economic Development Board. Executive authority is entrusted with the king and his appointed Council of Ministers. A bicameral legislature, known as the National Assembly, was re-established in 2002 after its suspension in 1975. The assembly consists of a 40-seat lower house, the Council of Representatives, whose members are elected to four-year terms, and the Consultative or Shura Council, a 40-seat upper house, whose members are appointed by the king. The Shura Council has veto power over the lower house. The latest parliamentary elections took place in November 2014 and garnered over 52% voter turnout, despite being met with boycotts by the Al Wefaq party. Six women were elected to the lower house of Parliament, the most since elections began.


Due to a wave of protests throughout the Arab world in 2011, civil unrest reached its height in Bahrain during February and March of that year. The demonstrations, predominantly by Shiite Muslim citizens, were focused on grievances surrounding the country’s democratisation process. In mid-March 2011 the kingdom received GCC security assistance in order to uphold political stability, and the country’s businesses managed to maintain positive growth in the following years. As a result of a national dialogue with the aggrieved parties, the king authorised the Bahrain Independent Commission of Inquiry (BICI) to investigate the crisis and develop recommendations moving forward. The final report highlighted various instances of police brutality and demonstrator violence during the unrest, and provided recommendations for political reform. As of late 2017 the government remained under pressure from the opposition party and the international community regarding the implementation of the BICI report recommendations.

Financial Services

Bahrain’s rise to prominence as a key regional financial centre occurred in the 1970s. The banking sector benefitted significantly from the kingdom’s economic diversification programme and is highly regarded for its regulatory framework under the Central Bank of Bahrain (CBB). Throughout 2017 regulations were updated at a quick pace in an ongoing effort to keep up with the impact of new technologies on the sector. According to the CBB, there were a total of 398 financial institutions in the country as of September 2017, and the sector contributed 17.2% of overall GDP. In addition, Bahraini nationals comprise approximately 65% of employees in the financial sector.

Islamic Finance 

As of December 2016 Bahrain was home to the highest number of Islamic financial institutions in the Middle East, according to the ICD-Thomson Reuters Islamic Finance Development Indicator, ranking second globally only to Malaysia. The kingdom also hosts a number of regulatory institutions that provide international standards for the sector such as the Accounting and Auditing Organisation for Islamic Financial Institutions, the International Islamic Financial Market, the Islamic International Rating Agency, and the General Council for Islamic Banks and Institutions. The kingdom regularly issues sukuk (Islamic bonds) that are met with full subscription rates. The kingdom is also home to seven takaful (Islamic insurance) companies.


The energy sector is a pillar of Bahrain’s economy, accounting for the majority of government revenue but a shrinking proportion of GDP. Upstream recovery technology enabled Bahrain to increase its oil production rate to over 58,000 barrels per day (bpd) in 2015, up from 48,000 bpd in 2013. However, the government’s target to reach 100,000 bpd in 2017 was impacted by the drop in global oil prices, and Tatweer, Bahrain’s exploration and production company, froze new drilling in 2016.

Presently, the country refines approximately 260,000-bpd, with the majority of crude resources coming from the Abu Safa field, which the country shares with Saudi Arabia. A new pipeline, with a capacity to transfer 350,000 bpd from Saudi Arabia to a Bahraini refinery, is expected to be operational in 2018, replacing an ageing 230,000-bpd pipeline. At the same time, gas production is expected to increase from 1.5bn to 2.7bn cu feet per day.


The kingdom’s geographic location is a key strategic asset, enabling it to serve as a transportation hub for the region. The Khalifa Bin Salman Port has enhanced the country’s role as a primary supplier of goods to Saudi Arabia, the region’s largest market. Bahrain is also linked to Saudi Arabia via the 25-km King Fahd Causeway, which is being expanded to handle increased traffic. Additionally, Bahrain International Airport is in the midst of an extensive expansion and modernisation programme, which is expected to further improve the country’s status as a tourist destination and a centre for logistics by 2020. Bahrain Customs Affairs is currently undergoing the modernisation of various eCustoms initiatives in an effort to streamline processes and increase pre-clearance capabilities.


Due to its vibrant history, rich culture and diverse population, Bahrain attracts a large number of tourists, particularly from other GCC states. In 2012 the Arab League named Manama the Capital of Arab Culture, and the kingdom hosted a wide array of events relating to Arab art, music, architecture and literature. Manama was also designated as the Capital of Arab Tourism for 2013, which boosted the industry after a decline in tourism numbers following political unrest in 2011, and named the Capital of Gulf Tourism 2016 by the minister of tourism of the GCC. The Formula 1 Gulf Air Bahrain Grand Prix is a significant driver of annual tourism revenue. In addition, Bahrain is investing in infrastructure to support the meetings, incentives, conferences and exhibitions segment, and the kingdom’s Ministry of Tourism was absorbed by the Ministry of Industry and Commerce to help accelerate development of the sector. Established in 2015 Bahrain Tourism and Exhibitions Authority has begun to formalise the sector and spearhead its development with a new identity, “Ours. Yours. Bahrain”, to highlight the hospitable and welcoming culture of the country.


Bahrain’s climate consists of two seasons: a hot and humid summer and a mild winter. April through October generally mark the summer months, when the average temperature hovers around 40°C, with highs of up to 48°C. During the winter months – generally November through March – the temperature ranges between 10°C and 20°C. The country’s annual rainfall averages 77 mm, typically coming during the winter season.


Due to land reclamation projects, the country has increased its overall landmass to more than 765 sq km, up from its original size of 665 sq km. The archipelago consists of 33 islands and is situated off the eastern shores of the Arabian Peninsula. The four predominant islands include Bahrain Island – accounting for 76% of the total landmass – Al Muharraq Island, Sitra Island and Umm Al Nasan Island, which are all interconnected by causeways. Bahrain Island is also connected to Saudi Arabia via the 25-km King Fahd Causeway. A second causeway to Saudi Arabia, named for King Hamad, which includes both road and rail links, is scheduled for completion by 2023 (see analysis). Manama sits at the northernmost part of Bahrain Island and is the country’s most populous city. Other major cities include Riffa, Muharraq, Isa Town and Sitra. The Bahrain International Airport is located in Muharraq. Jebel Al Dukhan is the kingdom’s highest point, at 122 metres, as the majority of the landmass consists of low-lying desert. Less than 3% of land is arable, and the primary agrarian area is situated on a 5-km strip on Bahrain’s northern coast, which produces dates, almonds, figs and pomegranates.

Natural Resources

The country’s primary natural resources include oil, gas, fish and pearls. The traditional industries of fishing and pearl diving have diminished substantially since Bahrain began oil production but remain culturally significant. Although the kingdom was the first GCC state to discover oil, it has smaller petroleum reserves than its neighbours. Water is another finite local resource for the kingdom, and the island’s primary aquifer has been depleted by overuse. Bahrain currently depends on desalination for approximately 90% of its potable water, as fresh water sources are scarce.


The kingdom hosts a diverse, multicultural population that, according to estimates by the Central Informatics Organisation in 2014, totals around 1.25m people – 614,830 of whom are Bahraini nationals and 638,361 expatriates – with an estimated average annual growth rate of 7.4%. The percentage of foreign nationals in Bahrain has increased from 38% of the population in 2001 to approximately 55% in 2014, with the majority hailing from Asia. Due to the large size of the expatriate workforce, males account for almost 62% of the population. Almost 90% of people live in urban areas, with most in the Capital Governorate covering Manama. A 2016 report by Euromonitor projects the population is likely to reach 2.6m by 2030, with 53% of foreign citizens from South and South-east Asia.


The official language of the kingdom is Arabic. There are several colloquial tongues, however, some closer to Khaleeji (Gulf) Arabic and others closer to Iraqi Arabic. English is widely spoken due to the extensive expatriate community and business environment. The majority of street signs and documentation also include English, which is a compulsory second language in the school system.

Due to land reclamation projects, the country has increased its overall landmass to more than 765 sq km, up from its original size of 665 sq km However, protectionary laws require most signage to include an equal amount of Arabic at a minimum. Other common languages heard in the country include Farsi, Urdu, Hindi, Malayalam and Tagalog.


Islam is the official religion of Bahrain. Approximately 98% of Bahraini nationals are Muslim and are adherents to either the Shia or Sunni sects, but the kingdom is considered to be tolerant regarding the practice of different religious beliefs. The 2010 census stated that, at the time, 70% of the country’s population classified themselves as Muslim and 30% as members of other religions. The expatriate population includes substantial Christian, Hindu, Buddhist and Sikh communities. The country is also home to a small indigenous Jewish community that originally emigrated from Iraq in the late 19th century. Bahrain’s freedom of faith is considered a defining characteristic of the Gulf state, and the travelling delegation, “This is Bahrain”, has been promoting awareness of Bahrain’s culture internationally since May 2014, highlighting the kingdom’s ethnic and religious diversity.


Bahrain was the first Gulf state to initiate public education – for boys in 1919 and for girls in 1928. Since then, Bahrain has invested heavily in education, and the government currently spends approximately 11-12% of its budget on education development. Bahrain’s literacy rate is the second highest in the Arab world at 94.6%. In line with Bahrain’s Economic Vision 2030, the government launched the Quality Assurance Authority for Education and Training to develop and implement standards for institutions. Mandatory contributions to Tamkeen – the state agency assigned with development and funded by companies – for each employed expatriate worker are invested throughout Bahrain’s education and training system to cultivate the local workforce. The Bahrain Institute of Public Administration aims to improve the technical and soft skills of public administrators, focusing on sharing knowledge by bringing in outside experts and offering its services to foreign governments across the GCC (see Education chapter).

Health Care

As has been the case with other sectors, Bahrain has historically led the GCC states in health care. The American Mission Hospital (AMH), established in 1902, is the region’s oldest health care institution. Bahrain created its Ministry of Health in 1973 and modelled its policies on the successful operations of the AMH. The government subsidises health care costs for all of its citizens. In an effort to reduce costs and improve service quality, the Supreme Council of Health has developed an e-Health initiative to link the country’s hospitals to a central databank of medical records. Plans are also under way to increase the privatisation of the health sector, with discussions focusing in and around rules requiring expatriates to carry health insurance.

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The Report: Bahrain 2018

Country Profile chapter from The Report: Bahrain 2018

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