For much of its history, Bahrain was the name for the eastern coast of Arabia. The name Bahrain means “two seas” in Arabic, and this has come to identify the largest of the 33 natural islands of the archipelago that makes up the kingdom.


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


In 1932 Bahrain began oil production, and in so doing helped to established the Middle East’s initial framework for the petroleum industry. The 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, Bahrain’s well-established regulatory system was a driving force behind various banks that sought safety and stability moving their capital and setting up base in Bahrain. Nowadays, Bahrain is adapting to the changing banking landscape in the GCC by focusing on financial technology (fintech). The kingdom is currently home to more than 120 fintech companies, some of which are valued at over $1bn. The sector doubled in participants between 2018 and 2021.

Today, the country’s guiding plan, Bahrain Economic Vision 2030, aims to enhance private sector growth and continue government investment in infrastructure, affordable housing, human resource development and digital transformation. The kingdom maintains a developed industrial sector and hosts the world’s largest single-site aluminium smelter outside of China, Aluminium Bahrain, with downstream businesses creating products for export. Other industries in Bahrain include downstream oil and gas and ICT, with segments such as data analytics, cloud computing, storage and business process outsourcing expanding rapidly.

GDP contracted by 4.9% in 2020 amid the Covid-19 pandemic, as the health and economic crisis significantly impacted sectors such as energy and tourism. Although recovery soon followed – with GDP growth for 2021 estimated at 2.2% and forecast at 3.3% for 2022, per IMF data – the widening fiscal deficit poses a challenge. Due to the elevated spending deployed to help the economy withstand the pandemic-related shocks of low oil prices and subdued demand, the budget deficit for 2021 was expected to remain high, at 7.9% of GDP, albeit an improvement from 16.8% in 2020.

Challenges were also reflected in a notable increase in public debt, which reached 133% of GDP in 2020, up from 102% in 2019. In October 2021 the government announced a new economic growth plan and reboot of the 2018 Fiscal Balance Programme, including a value-added tax hike from 5% to 10%. This sets the country on a course to balance the budget by 2024. The rationalisation of public spending and higher oil prices in 2022 should contribute to achieving this goal as well.

Model of Development

In the World Economic Forum’s 2019 Global Competitiveness Index, the kingdom’s overall ranking rose five places to 45th out of 141 economies. It placed 18th for the product market, 31st for infrastructure, 33rd for the labour market and 37th for the financial system. However, Bahrain ranked 117th for macroeconomic stability.

The country’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 UNIDO Entrepreneurship Development and Investment Promotion programme, created in Bahrain, has been implemented in 42 countries around the world.

In 2000 the government formed the Bahrain Economic Development Board, chaired by the crown prince, Sheikh Salman bin Hamad bin Isa Al Khalifa. The organisation was created to enhance the competitiveness of the economy by improving the ease of doing business and fostering a more attractive environment for foreign investors. In a bid to facilitate increased privatisation and improve efficiency, the Tender Board – a fully independent body – works to improve government transparency and clarity of the public tender system by creating pre-certification, online tracking and standardisation of tenders.

Addressing the challenges posed by an expanding young population and seeking to build a more resilient job market after the pandemic, in January 2021 the crown prince launched the National Employment Programme 2.0, which aimed to create 25,000 jobs that year. With foreign investment and innovation viewed as crucial elements in expanding economic opportunity, Bahrain is working to develop relations with a diverse range of countries. For example, in late 2020 Bahrain signed agreements with Israel on technical cooperation, technology transfer and small business development, and in 2021 it announced a partnership with the US for the creation of the US Trade Zone (see analysis). In February 2022 the country introduced the Golden Residency Visa to attract international talent and investment.

Government Structure

Bahrain gained independence from Britain in 1971 and has been governed as a constitutional monarchy since 2002 under the leadership of King Hamad bin Isa Al Khalifa. He came to power in 1999 following the passing of his father, Sheikh Isa bin Salman Al Khalifa, who began his rule in 1961. Khalifa bin Salman Al Khalifa held the position of prime minister for the 50 years preceding his death in 2020. The crown prince, Sheikh Salman, is now the prime minister, and also the deputy supreme commander of the Bahrain Defence Force and chairman of the Bahrain Economic Development Board. Executive authority is entrusted to the king and the Council of Ministers, positions on which are appointed.

A bicameral legislature, known as the National Assembly, was re-established in 2002 after its suspension in 1975. The National 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 2018 and garnered 67% voter turnout despite bans on some opposition figures due to their membership in dissolved political societies. Women doubled their presence in the Parliament that year and now hold six of the 40 seats.

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. In recent years regulations have been updated at a quick pace in an ongoing effort to keep up with the impact of new technologies on the sector. According to the central bank, there were 365 financial institutions in the country as of November 2021, and the sector contributed 17.9% to total GDP in 2020. Notably, approximately 70% of employees in the sector are Bahraini nationals.

Islamic Finance Segment

Bahrain ranked third after Malaysia and Indonesia on the ICD-REFINITIV 2020 Islamic Finance Development Indicator for the most developed Islamic finance market in the world, and first in terms of the share of Islamic banking assets to GDP. The kingdom hosts a number of regulatory institutions that provide dedicated international standards for the segment, 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), which are well received by the international financial community, and is home to several takaful (Islamic insurance) companies.


The sector is a pillar of the economy, accounting for the majority of government revenue but a shrinking share of GDP. Onshore oil production has been relatively steady over the last decade, at 48,000 barrels per day (bpd) in 2013 and 42,000 bpd in 2019, according to mid-2022 data from the Ministry of Oil and Environment. However, the majority of crude comes from the offshore Abu Safa field – whose output is shared with Saudi Arabia – which reached its full capacity of 300,000 bpd in 2004.

The country refined approximately 260,000 bpd in 2010-19, with this dropping to 222,000 bpd in 2020, according to BP’s “Statistical Review of World Energy 2021” report. A pipeline with the capacity to transfer 350,000 bpd from Saudi Arabia to a Bahraini refinery was completed in 2018 to replace an ageing 230,000-bpd pipeline. The national Bahrain Petroleum Company, known as BAPCO, planned investments to boost refining capacity to 380,000 bpd by 2023. In terms of finds, a large offshore shale oil discovery of some 80bn barrels was announced in April 2018, with subsequent years seeing extensive assessments for viability. Production could be accelerated if partners are found to commercialise the reserves (see Energy & Utilities chapter).

Natural gas output, meanwhile, has risen from 12.3bn cu metres in 2010 to 16.4bn cu metres in 2020, per BP data. The kingdom opened an offshore liquefied natural gas import terminal in April 2020.

While there are high-potential projects in the pipeline, Bahrain is committed to exploring other energy sources. A royal decree in September 2021 transferred the responsibilities of the National Oil and Gas Authority (NOGA) to the Ministry of Oil and Environment, with NOGA to transition into an energy company focused on non-hydrocarbons resources.


The kingdom’s geographic location is a strategic asset, enabling it to serve as a satellite transport hub for the region. The Khalifa Bin Salman Port has enhanced the country’s role as a key 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. Preparatory work for the construction of a second road link, the King Hamad Causeway, was completed in late 2021.

In addition, Bahrain International Airport opened its new passenger terminal in January 2021, strengthening the position of the country as a travel destination and centre for business in the region. Bahrain Customs Affairs is similarly modernising eCustoms initiatives in an effort to further streamline processes and increase pre-clearance capabilities. For example, in 2020 the government body automated data collection and deployed artificial intelligence scanners for shipment inspections before the Saudi Arabia-Bahrain border.

Infrastructure works are under way to improve urban transport as well. The kingdom’s metro network, which is scheduled to commence operations in 2023, will have six lines spanning 109 km, as well as electric, driverless trains. The metro system is set to significantly improve mobility across the island.


Thanks to its rich culture, diverse population and water views, the kingdom attracts a large number of tourists, including many visitors from other GCC countries. In 2016 Manama was named the Capital of Gulf Tourism. In terms of the event calendar, the annual Formula 1 Gulf Air Bahrain Grand Prix is a significant driver of tourism.

The Ministry of Tourism was absorbed by the Ministry of Industry and Commerce in 2015 to accelerate development of the sector but was spun back off in 2022. Established that same year, the Bahrain Tourism and Exhibitions Authority has worked to formalise the sector, encourage investment in tourism facilities and spearhead development with the messaging “Bahrain. Ours. Yours.” 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, with the average temperature hovering at around 40°C, with highs of up to 48°C. During the winter months – generally November through to March – the temperature ranges between 10°C and 20°C. The country’s annual rainfall averages 77 mm, which typically comes during the winter.


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 principal islands are Bahrain Island – accounting for 76% of the total landmass – Muharraq Island, Sitra Island and Umm Al Nasan Island, all of which are interconnected by causeways.

The King Fahd Causeway lands on Bahrain Island. The capital, Manama, sits at the northern-most part of Bahrain Island and is the most populous city. Other major cities include Riffa, Muharraq, Isa Town and Sitra. Bahrain International Airport is located on Muharraq Island directly opposite Manama.

Jebel Al Dukhan is the kingdom’s highest natural point, at 134 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 along Bahrain’s northern coast, producing dates, almonds, figs and pomegranates.

Natural Resources

The country’s primary natural resources are oil, gas, fish and pearls. The traditional industries of fishing and pearl diving have diminished substantially since Bahrain began oil production, but they remain culturally significant. Despite the fact that the kingdom was the first GCC country to discover oil, it has smaller petroleum reserves than its neighbours.

Water is another finite natural resource, and the kingdom’s primary aquifer has been depleted by overuse. Bahrain depends on desalination for approximately 90% of its potable water, as freshwater sources are scarce.


Bahrain hosts a diverse, multicultural population, which totalled some 1.7m people in 2020. Over half (53%) are expatriates, mostly from Asia. Due to the large size of the foreign workforce, males account for more than 60% of the population. Almost 90% of people live in urban areas, with most in the Capital Governorate that includes Manama. A 2016 report by Euromonitor projected that the population is likely to reach 2.6m by 2030.


The official language of the kingdom is Arabic. There are several local dialects, however – some closer to Khaleeji (Gulf) Arabic and others closer to Iraqi Arabic. English is widely spoken due to the sizeable expatriate community and international business environment. Most street signs and documentation include English, which is a compulsory second language in the education system. Nevertheless, cultural protection laws exist that require most signage to include at least an equal amount of Arabic as other languages. Other languages that are widely spoken in the country include Farsi, Urdu, Hindi, Malayalam and Tagalog.


Islam is the official religion of Bahrain; 98% of nationals are Muslim and adhere to either the Shia or Sunni denominations, but the kingdom is considered to be tolerant regarding the practice of different religious beliefs and freedom of religion is enshrined in the constitution. The 2010 census stated that 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. It has been promoting this in travel forums for years, highlighting its ethnic and religious diversity.

Education & Training

Bahrain was the first Gulf country to initiate a public education system – for boys in 1919 and for girls in 1928. Since then, Bahrain has invested heavily in the education sector, and the government currently spends 10-12% of its annual budget on education development. Bahrain’s literacy rate is among the highest in the Arab world, at 97.5% as of 2018, according to the World Bank.

In line with the goals of Bahrain Economic Vision 2030, the governmental Education & Training Quality Authority develops standards for learning institutions. Furthermore, employers of expatriates must make mandatory contributions to Tamkeen, the semi-autonomous state agency charged with developing the private sector. The funds are then invested in Bahrain’s education and training system, with a view to cultivating the local workforce.

For its part, the Bahrain Institute of Public Administration aims to improve the technical and soft skills of workers in the government sector. Focuses include sharing knowledge by bringing in outside experts and offering services to other governments in the GCC. In higher education, a number of the private universities that operate in Bahrain are partnered with international institutions, such as the British University of Bahrain and the American University of Bahrain, which officially opened its doors in the 2019/20 academic year.

Health Care

As has been the case in other sectors, Bahrain has historically led the GCC countries in terms of health care. The American Mission Hospital (AMH), established in 1902, is the region’s oldest health institution. Bahrain created its Ministry of Health in 1973 and modelled policies on the successful operations of the AMH. The government subsidises health care costs for all citizens.

In an effort to reduce costs and improve service quality, the Supreme Council of Health has developed an e-health initiative that connects the country’s hospitals to a central database of medical records. In 2018 the Parliament and the Shura Council approved Law No. 23 – known as the Health Insurance Law – which applies to all nationals, residents and visitors. It has as an overarching goal to increase the privatisation of the health care sector. The law requires that expatriates and their employer pay a set amount of health insurance contributions.