Bahrain’s strategic location, business-friendly climate and increasingly diversified economy have helped the island country emerge as an appealing destination for international investors in recent decades. Looking ahead, the kingdom’s proactive approach to economic reform and stable governance position it for ongoing expansion in the coming years. As the global economy continues to recover from the impact of the Covid-19 pandemic, Bahrain looks poised to benefit from strategic investment and policy reforms – underscoring its competitive standing within the region.
History
One of the first groups to settle in the area was the Bronze Age Dilmun civilisation, some 5000 years ago. The kingdom’s advantageous location has attracted the attention of multiple empires throughout history, including the Persians, Sumerians, Assyrians, Babylonians, Arabs, Portuguese and British. Following its status as a commercial centre in ancient times, Bahrain’s strategic location for trans-Gulf trade continues to draw merchants and multinational companies.
Climate & Geography
Bahrain’s climate comprises two seasons: a hot and humid summer, and a mild winter. The months from April to October generally mark the summer period, with an average temperature of approximately 40°C and highs of up to 48°C. The winter months – typically November to March – generally experience temperatures ranging from 10°C to 20°C. Bahrain’s yearly rainfall, largely experienced during the winter period, averages 77 mm.
The kingdom has expanded its overall landmass to some 790 sq km, up from its original size of 665 sq km, owing to land-reclamation projects. Located off the eastern shores of the Arabian Peninsula, the archipelago consists of 33 islands. The four principal islands are Bahrain Island – home to 76% of the country’s total landmass – Muharraq Island, Sitra Island and Umm Al Nasan Island, all of which are interconnected by causeways. The King Fahd Causeway links Bahrain Island to Saudi Arabia. Bahrain’s capital and most-populous city, Manama, is situated in the north-eastern part of Bahrain Island. Other major cities include Isa Town, Muharraq, Riffa and Sitra. Bahrain International Airport is located on a 5-km strip along Bahrain’s northern coast that produces dates, almonds, figs and pomegranates.
Natural Resources
The kingdom’s primary natural resources are oil, gas, fish and pearls. The traditional industries of fishing and pearl diving remain culturally significant, despite decreasing considerably since the country commenced oil production. Although Bahrain was the first GCC economy 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 some 90% of its potable water since freshwater sources are scarce.
Population & Language
Bahrain’s diverse population expanded from 1.5m in 2021 to 1.6m in 2023, of which 54% were expatriate workers. Amid the large share of the foreign labour force, males account for over 60% of the population. Some 90% of the populace live in urban areas – primarily in the Capital Governorate that includes Manama – according to World Bank data.
The kingdom’s official language is Arabic, with several local dialects – some of which are closer to Khaleeji (Gulf) Arabic and others to Iraqi Arabic. English is widely spoken owing to the sizeable expatriate community, as well as to the international business environment. Street signs and documentation typically include content in English, which is a compulsory second language in the kingdom’s education system. Meanwhile, cultural protection regulations require that most signage includes at least as much content in Arabic as in non-Arabic languages. Farsi, Urdu, Hindi, Malayalam and Tagalog are among the other widely spoken languages in the country.
Government Structure
Bahrain gained full sovereignty from the UK in 1971. Since 2002 the country has been governed as a constitutional monarchy under the leadership of King Hamad bin Isa Al Khalifa. King Hamad came to power in 1999 upon the passing of his father, Shaikh Isa bin Salman Al Khalifa, who had ruled the kingdom since 1961. Shaikh Khalifa bin Salman Al Khalifa held the position of prime minister for the 50 years preceding his death in 2020. The crown prince, Shaikh Salman bin Hamad bin Isa Al Khalifa, is now the kingdom’s prime minister, as well as the deputy supreme commander of the Bahrain Defence Force and chairman of the Bahrain Economic Development Board (Bahrain EDB). Meanwhile, executive authority is entrusted to the king and the Council of Ministers.
A bicameral legislature, known as the National Assembly, was re-established in 2002 after being suspended in 1975. The National Assembly consists of the Council of Representatives, a 40-seat lower house 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 Council of Representatives. Parliamentary elections took place in November 2022, with a 73% voter turnout. This saw women increase their presence in Parliament, holding eight of the 40 seats.
Human Capital Development
Bahrain was the first Gulf country to introduce a public education system – commencing in 1919 for boys, followed by a system launched in 1927 for girls. The kingdom has continued to invested heavily in education, and in 2022 the government spent 9.3% of its annual budget on education development. Bahrain’s literacy rate – which stood at 97.5% as of 2018, according to figures from the World Bank – is among the highest in the Arab world. In line with the goals of the kingdom’s long-term development blueprint, Bahrain Economic Vision 2030, the Education & Training Quality Authority develops standards to guide learning institutions. With respect to higher education, a number of the private universities that operate in the kingdom are partnered with international institutions. These include the British University of Bahrain and the American University of Bahrain.
The Labour Fund (Tamkeen) is tasked with fostering the development of the private sector. Employers of expatriate workers make mandatory contributions to Tamkeen. These funds are earmarked for investment in Bahrain’s training and employment support system, as part of efforts to cultivate a competitive local labour force. Meanwhile, the Bahrain Institute of Public Administration seeks to enhance the technical and soft skills of workers within the government sector. Objectives include knowledge sharing by external experts, as well as the provision of services to other governments across the GCC.
Health Care
Bahrain has historically led GCC countries in terms of health care. The kingdom’s American Mission Hospital (AMH), established in 1902, is the oldest health institution within the region. The kingdom formed the Ministry of Health in 1973, modelling its policies on the successful operations of the AMH. The government subsidises health care costs for all citizens. Recent efforts to reduce costs and improve service quality include an e-health initiative developed by the Supreme Council of Health, connecting the country’s hospitals to a central database of medical records.
Approved by Parliament and the Shura Council that year, Law No. 23 of 2018 is referred to as the Health Insurance Law. Applicable to all nationals, residents and visitors, its objective is to increase the privatisation of the health care sector. The law requires that expatriates and their employer pay a set value of health insurance contributions (see Education & Health chapter).
Religion
Islam is the official religion of Bahrain, with 98% of nationals adhering to either the Shia or Sunni denominations. Nonetheless, the kingdom is considered to be tolerant regarding the practice of different religious beliefs. Indeed, freedom of religion is outlined in the constitution. The 2010 census documented that 70% of the country’s population classified themselves as Muslim, with 30% self-described as members of other religions. The expatriate population includes substantial Christian, Hindu, Buddhist and Sikh communities. The kingdom 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 feature in travel forums for years, highlighting its ethnic and religious diversity.
Economy
Bahrain pioneered oil production in the Middle East in 1932, establishing the region’s inaugural framework for the petroleum industry. The resource enabled Bahrain to modernise its economy by moving beyond traditional industries. Hydrocarbons production also provided the funding to help the country diversify its economy and establish itself as a leading regional financial centre during the 1970s and 1980s.
Bahrain’s regulatory system has remained a key attraction for banks seeking stability in the region. Moreover, the kingdom is adapting to the GCC’s evolving banking landscape by focusing on financial technology (fintech). As of mid-2024 the country was home to over 120 fintech firms, with some valued at more than $1bn.
Bahrain Economic Vision 2030 aims to enhance private sector growth while also promoting government investment in infrastructure, affordable housing, human capital development and digital transformation. The country maintains a developed industrial sector and hosts the world’s largest single-site aluminium smelter outside of China, Aluminium Bahrain, while downstream firms create products for export. Other industries include downstream hydrocarbons processing and ICT, with segments such as data analytics, cloud computing and business process outsourcing expanding rapidly.
GDP contracted by 5.9% during 2020 in the face of the pandemic, with the crisis impacting sectors such as energy and tourism. Recovery soon followed, with annual GDP growth at 4.4%, 6% and 3% during 2021-23, with projections of 3% and 3.2% for 2024 and 2025, respectively, according to the IMF’s World Economic Outlook in October 2024. The budget deficit is expected to decrease to 3.2% of GDP for 2024, down from over 5% in 2023, according to the World Bank – before increasing again during 2025-26, due in part to lower expected oil prices. Challenges remain in tackling public debt, which reached an estimated 123% of GDP in 2023. According to the same analysis, public debt is projected to increase slightly to 127% for 2024 before further increasing during 2025-26. In 2021 the government announced an update to the Fiscal Balance Programme, which included an increase in value-added tax from 5% to 10% effective from 2022 (see Tax chapter). This, combined with an ongoing commitment to long-term economic diversification under its 2030 roadmap, looks set to help the country balance its budget in the years ahead (see Economy chapter).
Development Planning
The kingdom’s model of development has been studied and formalised by the UN Industrial Development Organisation (UNIDO), in partnership with the Arab International Centre for Entrepreneurship and Investment, based in Manama. The UNIDO Enterprise Development and Investment Promotion programme, created in Bahrain, has been implemented in over 50 countries across the world.
In 2000 the government formed the Bahrain EDB, which is chaired by Crown Prince Salman. The organisation was created to enhance the competitiveness of the economy by improving the ease of doing business and fostering an attractive environment for international investors. Meanwhile the Tender Board, a fully independent body, works to improve government transparency and the clarity of the public tender system by creating systems for the pre-certification, online tracking and standardisation of tenders, in a bid to increase privatisation and improve efficiency. Addressing the challenges posed by a growing young population and seeking to build a more resilient labour market after the pandemic, in January 2021 Crown Prince Salman launched the National Employment Programme 2.0, which created 26,344 jobs that year.
With foreign investment and innovation crucial for economic opportunity, the kingdom is working to develop relations with a diverse range of countries. For example, in April 2024 the Bahrain EDB hosted a high-level delegation from Monaco to explore bilateral investment opportunities – focusing on sectors such as financial services, digital transformation and tourism. In January 2021 the kingdom announced a partnership with the US to create the US Trade Zone. Construction on the zone began in February 2022, with full operations expected to commence in 2025. February 2022 saw the country introduce the Golden Residency Visa in a move to attract international talent and investment.
Energy
The energy sector remains a pillar of the economy, accounting for the majority of government revenue – albeit a declining share of GDP amid ongoing economic diversification. Onshore oil production has remained relatively steady in recent years, averaging some 43,000 barrels per day (bpd) between 2017 and 2021, according to government figures. The majority of crude comes from the offshore Abu Safah field, whose output is shared with Saudi Arabia (see Energy & Utilities chapter). This location reached full capacity, at 300,000 bpd, in 2004. The country refined approximately 260,000 bpd every year from 2010 to 2023, according to the Energy Institute’s “Statistical Review of World Energy 2024” report. The Bahrain Petroleum Company (Bapco) operates a refinery with a throughput of 267,000 bpd, and in 2019 launched the Bapco Modernisation Programme. By May 2024 over 80% of the project, a multibillion-dollar initiative to boost refining capacity to 400,000 bpd, had been completed.
In 2018 Bahrain announced a substantial offshore shale oil discovery of some 80bn barrels. The kingdom was still assessing the feasibility and commercial viability of extracting these resources as of mid-2024, with no update available at the time of writing. This involves appraisal and planning to enable the efficient and sustainable development of the reserves. Natural gas output, meanwhile, increased from 14bn cu metres in 2013 to 16.7bn cu metres in 2023, according to Energy Institute figures. While there are high-potential projects in the pipeline – such as the beginning of commercial operations for the two natural gas reservoirs discovered in late 2022, in the Al Jawf and Al Joubah fields – Bahrain is committed to exploring other energy sources. In September 2021 a royal decree transferred the responsibilities of the National Oil and Gas Authority (NOGA) to the Ministry of Oil and Environment, after which NOGA transitioned to an organisation focused on sustainable energy solutions and diversification.
Financial Services
Bahrain’s rise to prominence as a regional financial centre occurred in the 1970s. The banking sector benefitted considerably 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 rapidly in an effort to keep pace with emerging technologies in the space. According to the central bank, there were 365 financial institutions in the country as of April 2024, and the sector accounted for 17.8% of GDP in 2023. Notably, around 70% of employees in the sector are Bahraini nationals.
Islamic Finance
Bahrain ranked first for Islamic finance regulations globally in the “Islamic Finance Development Indicator Report 2024”, published by the Islamic Corporation for the Development of the Private Sector and London Stock Exchange Group. This highlights the kingdom’s leadership in creating a robust framework for Islamic finance institutions. In the report’s overall ranking, the country placed fourth globally and second in the MENA region.
The kingdom hosts a number of regulatory institutions that provide international standards for the segment. Among these are 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 country regularly issues sukuk (Islamic bonds), which are well received by the international financial community, and is also home to several takaful (Islamic insurance) companies.
Tourism
Bahrain’s history, rich culture and diverse population add to the appeal of the kingdom as a tourism destination – including many visitors from other GCC markets. Regarding the event calendar, the annual Formula 1 Gulf Air Bahrain Grand Prix is a significant visitor draw. Although the Ministry of Tourism was absorbed by the Ministry of Industry and Commerce in 2015 to accelerate development of the sector, it became independent and autonomous again in June 2022 – with Fatima bint Jaafar Al Sairafi appointed as minister. The Bahrain Tourism and Exhibitions Authority (BTEA) is tasked with formalising the sector, encouraging investment in tourism facilities and positioning Bahrain as an ideal spot for short getaways. Towards this end, the authority is focused on attracting visitors from nearby markets, including India.
In May 2022 the BTEA partnered with a leading online travel marketplace to drive tourism to the kingdom, in line with the government’s strategy to attract over 14.1m annual tourists to the country by 2026 (see Tourism chapter). Marking progress towards this 2026 goal, during the first half of 2023 Bahrain enjoyed a 51% increase in visitors relative to the same period in 2022, reaching 5.9m visitors compared to 3.9m. In the first half of 2023 Bahrain welcomed a 48% increase in inbound tourism revenue to BD924m ($2.5bn), up from BD623m ($1.7bn) during the same period in 2022.
Transport Infrastructure
Bahrain’s location is a strategic asset, enabling it to serve as a transport nexus 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. The two countries are also connected via the 25-km King Fahd Causeway, which has been expanded to handle increased traffic. Pre-construction activities commenced for a second road link between the two countries, the King Hamad Causeway, in 2023.
In terms of other developments that strengthen the position of the country as a travel destination and a centre for business in the region, Bahrain International Airport (BIA) opened its new passenger terminal in 2021. In addition, Bahrain Customs Affairs is modernising eCustoms initiatives to streamline processes and increase pre-clearance capabilities. In 2020 the government body automated data collection and deployed artificial intelligence scanners for shipment inspections at the border between Bahrain and Saudi Arabia.
Regarding urban transport, by June 2024 the Bahrain Metro project had made significant progress – with the first phase, estimated to cost $2bn, already under way (see Transport chapter). This phase includes the development of two lines – the Red Line and the Blue Line – covering a total of almost 29 km and featuring 20 stations. The Red Line will connect BIA with Seef Mall, passing through Bahrain Financial Harbour. Meanwhile, the Blue Line will extend from Juffair to Isa Town, passing through the Diplomatic Area. Once complete, the metro will comprise four lines spanning 109 km, as well as electric, driverless trains. The underground system is expected to considerably improve mobility and connectivity across the kingdom in the coming years.
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