Bahrain Economic Yearbook

ECONOMIC
YEARBOOK
2013
Kingdom of Bahrain
H.R.H. Prince Khalifa bin
Salman Al Khalifa
The Prime Minister of the
Kingdom of Bahrain
H.M. King Hamad bin
Isa Al Khalifa
The King of the
Kingdom of Bahrain
H.R.H. Prince Salman bin
Hamad Al Khalifa
The Crown Prince,
Deputy Supreme Commander
and First Deputy Prime Minister
of the Kingdom of Bahrain
INTRODUCTION
WWW.BAHRAINEDB.COM 2
KINGDOM OF BAHRAIN
ECONOMIC YEARBOOK 2013
This book is intended as a comprehensive reference work on the Bahraini economy. It offers a compendium
of data and analysis covering the development, composition, and prospects of the national economy.
Apart from reviewing the recent performance and key characteristics of the economy as whole, this work
provides a detailed overview of individual sectors ranging from the historically important hydrocarbons
sector to emerging champions in areas such as private education and health care. The book contains
seven chapters, which are: Profle of the economy, Macroeconomic developments, Financial markets,
Foreign trade, Social infrastructure, International benchmarking, and Individual sectors.
The opening discussion on the Bahraini economy since the turn of the millennium depicts a decade
success. Annual real GDP growth in Bahrain averaged 5.0% between 2000 and 2012. The economic
expansion was underpinned by strong structural drivers in the form of demographic dynamism, economic
diversifcation, and an advantageous location. The contribution of these factors was signifcantly enhanced
by a decade of economic reform designed further develop the education system, improve the business
climate, and upgrade the national infrastructure, among other things. Growth further benefted from a long
period of high oil prices, rising government spending, a real estate boom, and high demand for health care
and educational services.
This work highlights Bahrains track record as a regional pioneer of economic diversifcation. While partly
attributable to maturing hydrocarbons sector, the track record also refects Bahrains long-standing
investments in human capital and regulatory reform. The past decade proved transformative in terms of
diversifcation as the real GDP weight of Mining & Quarrying (primarily oil and gas) declined from 44%
in 2000 to 20% in 2012. All non-oil sectors, with the exception of Real Estate, saw an increase in their
GDP share.
The analysis further reveals the resilience of the Bahraini economy which has continued to record growth
even in the face of major challenges created by the global crisis. After 1.9% expansion in 2011, the rate
of increase accelerated to 3.4% in 2012, despite technical disruptions in the oil sector. With hydrocarbons
production normalizing and continued momentum in the non-oil economy, real GDP growth in 2013 is
expected to exceed 5.0%.
The Yearbook highlights the competitive advantages of Bahrain, above all in the areas of qualifed human
capital and a central location. Bahrains long history of economic openness has led to a high degree of
integration in the global economy. A benchmarking of Bahrains standing in a number of international indices
underscores substantial competitive strengths in areas such as human development, macroeconomic
stability, fnance services, effcient business regulations, openness to trade, and ICT readiness.
Introduction
KINGDOM OF BAHRAIN KINGDOM OF BAHRAIN
A SNAPSHOT
OF BAHRAIN
Key Indicators
2012 proved to be the year of steady consolidation
Bahrain Economic Outlook 2011 2012 2013e 2014e
Real GDP growth (%) 1.9 3.4 5.3 4.2
Non-hydrocarbon sectors 1.4 6.7 4.1 4.5
Hydrocarbons sector 3.6 -8.5 10.3 3.1
Infation (CPI %) -0.4 4.1 8.6 6.6
Nominal GDP growth (%) 13.4 2.8 2.9 3.0
Current account (% of GDP) 11.1 7.3 8.9 10.2
Fiscal balance (% of GDP) -0.3 -2.0* -5.3** -5.7**
Oil price in USD (Arabian Medium) 106 107 106 105
* Based on the 2012 budget, oil price is USD80. ** Based on the draft budget for 201314, oil price is USD90
Source: Central Informatics Organisation, Ministry of Finance, Economic Development Board team analysis
Surface area 765.3 sq km
Population, 2010 est. 1,234,600
Population density 1,630/sq km
Main population centers Manama (capital)
Muharraq
Riffa
Isa Town
Hamad Town
GDP, 2011 est. USD26.1bn
PPP USD31.1bn
GDP per capita, 2011 est. USD23,100
PPP USD31,100
Currency 1 Bahraini Dinar (BHD) = 1000 Fils = USD2.65
HDI
1
0.796
Language Arabic
TABLE OF
CONTENTS
1. Profle of the economy
GDP Breakdown: A pioneer in Diversifcation 9
2. Macroeconomic developments
Economic prospects 19
3. Financial markets
Equity markets 39
Bond and sukuk markets 43
Interbank markets 45
4. Foreign trade
Current account 48
Capital and fnancial account 53
5. Social infrastructure
Education in Bahrain 55
Healthcare 59
Entrepreneurship 65
6. International
Rating environment 75
Bahrain global rankings performance 76
7. Individual sectors
Oil and gas sector 79
Financial services 83
Insurance and takaful 9 4
Manufacturing 9 8
Transport and communications 104
Real estate and construction 112
Trade 116
Social and personal services 118
Government services 120
Tourism 121
References 129
PROFILE OF
THE ECONOMY
01
Figure 1: Nominal and real GDP (200012)
GDP Breakdown: A pioneer in diversication
Historical growth (200012)
The opening decade of the 21st century proved a period of rapid economic development in Bahrain.
Real output growth averaged 5.0% annually
1
between 2000 and 2012, driven by high oil prices, rising
government spending, expansion in property and construction, as well as high demand for private
social and personal services (mostly private health and education).
Source: Central Informatics Organisation
1
Real GDP has been rebased from 2001 to 2010. The result has been an adjustment of sector proportions, most notably with
the mining & quarrying sector, which experienced relatively high infation.
Economic diversifcation
Bahrain, partly due to its relatively modest hydrocarbon endowments, has long been a pioneer of
economic diversifcation in the Gulf region. While it was frst regional economy to discover oil in 1932, it
also was home to the frst oil refnery (1936), as well as industrial ventures such as Aluminium Bahrain
(ALBA, set up in 1968). A signifcant offshore banking sector emerged in the 1970s. But the frst
decade of the 21st century proved particularly transformative in terms of economic diversifcation and
witnessed rapid expansion across much of the non-oil economy. Using 2010 as a base year, mining
and quarrying (primarily oil and gas) accounted for 44% of real GDP and decreased to 20% in 2012,
while nominal GDP remained at 25% of GDP in both years. With the exception of real estate and mining
and quarrying, the share of all major sectors increased their share of real GDP between 2000 and 2012.
The three fastest growing sectors over the period were social and personal services, construction, and
transportation and communications.
KINGDOM OF BAHRAIN
Figure 3: Real GDP by sector (200012)
Source: Central Informatics Organisation, Economic Development Board team analysis
Sector 2000 2012 CAGR % 2000 Share 2012 Share
of GDP of GDP
Social and Personal Services 111 549 14.3% 2% 5%
Construction 142 688 14.1% 2% 7%
Transportation and Communication 234 716 9.8% 4% 7%
Other 271 616 7.1% 5% 7%
Retail 172 461 8.6% 3% 5%
Government 514 1,235 7.6% 9% 12%
Finance 781 1,745 6.9% 14% 17%
Manufacturing 713 1,577 6.8% 12% 15%
GDP 5,736 10,187 4.9% 100% 100%
Real Estate 289 428 3.3% 5% 4%
Mining and Quarrying 2,510 2,172 -1.2% 44% 20%
Figure 2: Share in real GDP by sector
Recent trends
Following a exceptional decade of robust growth and increasing oil prices, Bahrain continued to record
signifcant growth despite a number of challenges faced in recent years. Despite a severe global downturn
since 2009, regional political challenges in 2011, and oil production dips in 2012, the economy has
consistently posted positive growth throughout this period.
In 2012, Bahrain real GDP grew by 3.4%, despite a 8.5% fall in oil production due to unscheduled
maintenance in the Abu Saafa feld, which accounts for the majority of Bahrains crude oil production.
Thus, growth in 2012 was driven by the non-oil sector, which expanded by 6.7%.
The hotels and restaurants sector experienced the fastest growth of any sector in 2012, growing by
13.6% over the year. While impressive, this growth rate in large part represented normalization from
disruptions in 2011. Manufacturing as well as social and personal services grew by a robust 5% and
13%, respectively. The main drivers were expansion in the petrochemical and oil-related industry as well
as private health care.
Figure 4: Real GDP composition, 2000 Figure 5: Real GDP composition, 2012
Source: Central Informatics Organisation Source: Central Informatics Organisation
KINGDOM OF BAHRAIN
Figure 6: Quarterly real GDP growth (200912)
Figure 7: Quarterly real GDP growth (YoY)
Population
According to the Central Informatics Organization (CIO)s 2010 Census, Bahrains population grew at a
rapid pace between 2001 and 2010, nearly doubling from 0.66mn to 1.22mn - an annual average growth
rate of 7.4%. The Bahraini and non-Bahraini population grew by an annual average of 3.7% and 11.8%
respectively. Consequently, non-nationals increased their share of the total population from 38% in 2001
to 54% in 2010.
Figure 9: Bahraini and non-Bahraini population by gender (2001 and 2010)
Source: Central Informatics Organisation National Census Data 2001 and 2010
2011 2012 2013
YoY growth Annual Q1 Q2 Q3 Q4 Annual Q1 Q2 Q3 Q4 Q1 Q2
Crude Petroleum &
Natural Gas 3.6% 0.5% 3.0% 17.4% -4.3% -8.5% -4.7% -14.6% -6.8% -8.0% 8.0% 18.6%
Manufacturing 3.1% 21.2% 6.0% 4.8% -13.2% 4.7% 8.7% 8.8% 2.4% -1.1% 2.0% -1.9%
Construction -7.9% -1.1% -5.8% -9.7% -14.4% 4.1% 1.4% 5.8% 2.8% 6.6% 2.8% 5.6%
Trade -1.7% 1.6% -3.1% -1.8% -3.2% 5.9% 5.8% 8.1% 7.9% 1.7% 1.6% 1.8%
Hotels & Restaurants -17.2% -19.8% -20.6% -13.5% -15.4% 13.6% 13.5% 20.7% 13.5% 7.7% 13.5% 8.9%
Transport and
Communication 6.1% 7.3% 6.0% 4.8% 6.4% 4.4% 6.1% 3.1% 5.4% 3.2% 4.8% 1.7%
Social &
Personal Services 11.2% 14.8% 8.7% 5.4% 16.1% 12.5% 13.6% 11.6% 15.1% 10.0% 6.2% 7.8%
Real Estate &
Business Activities -6.6% -2.3% -5.8% -9.0% -9.1% 3.6% 1.2% 3.4% 3.8% 6.2% 1.7% 1.8%
Financial Corporations -0.4% -1.4% -2.2% 0.0% 2.1% 4.0% 4.3% 3.7% 4.2% 3.9% 3.0% 2.8%
Government Services 14.4% 16.5% 14.7% 13.5% 13.0% 12.0% 13.3% 12.5% 11.3% 11.1% 4.2% 2.7%
Other 1.2% 1.4% 5.6% 4.8% -6.5% 11.6% 10.5% 11.8% 7.5% 17.0% 0.4% 3.4%
GDP 2.1% 4.8% 2.2% 4.5% -2.7% 3.4% 4.8% 3.0% 3.4% 2.5% 4.2% 5.3%
KINGDOM OF BAHRAIN
Figure 10: Bahraini and non-Bahraini population by age (2010)
In terms of age composition, the local population is fairly young with 42% under the age of 20 and just
4.1% over 65 as of 2010. For Bahrainis, the dependency ratio
2
, which is commonly used to compare the
size of working age population to the dependent population, decreased between 2001 and 2010. This
indicates a continued increase in the working-age population over the decade. The dependency ratio
stood at 89% in 2010 compared to 104% in 2001 implying that the Bahraini population in the age group
of 2064 is now larger than the dependent (019 and 65+) segment.
The non-Bahraini population is overwhelmingly in the working-age category with 88% aged between
20 and 64 as of 2010 and is characterized by a low dependency ratio of 14%, compared to 20% in
2001. Also, non-Bahraini males outnumber females with 2.6 males per female. These indicators refect
the signifcant numbers on low wage expatriate workers who are primarily employed and numerically
dominance in labor-intensive sectors such as retail and construction.
2
Dependency ratio is defned as 019 and 65+ population over those in the age group of 2064.
Bahraini workforce and participation rates
The Bahraini workforce participation rate
3
stood at 58.4% in 2010. This is relatively low as compared to
developed countries such as the US, where the participation rate in the age group of 2064 stood at 78.7%
in the same year. A lower participation rate is largely refective of a signifcant, albeit diminishing, gender
differential in participation among Bahrainis. Labor force participation by Bahraini women is signifcantly
lower than that of men, 40.1% as compared to 76.5% respectively. However female participation rates
have risen by an average of ten percentage points over the decade.
As depicted in the graph below, both males and females in the age group of 25 and 35, have the highest
levels of labor force participation in Bahrain, followed by a gradual decrease for males in higher age groups
and a more pronounced decline in female participation.
Figure 12: Bahraini participation rates (2010)
Source: Central Informatics Organisation, Economic Development Board
3
Participation rate defned as workforce aged 2064 over the population aged 2064.
Figure 11: Population by nationality and broad age group (200110)
Population Annual avg. growth Share of population
2001 2010 2001 2010
Total 650,604 1,234,571 7.4% 100.0% 100.0%
0-19 232,364 320,316 3.6% 35.7% 25.9%
20-64 401,877 888,021 9.2% 61.8% 71.9%
65+ 16,363 26,234 5.4% 2.5% 2.1%
Bahraini 405,667 568,399 3.8% 100.0% 100.0%
0-19 192,446 240,591 2.5% 47.4% 42.3%
20-64 198,257 304,231 4.9% 48.9% 53.5%
65+ 14,964 23,577 5.2% 3.7% 4.1%
Non-Bahraini 244,937 666,172 11.8% 100.0% 100.0%
0-19 39,918 79,725 8.0% 16.3% 12.0%
20-64 203,620 583,790 12.4% 83.1% 87.6%
65+ 1,399 2,657 7.4% 0.6% 0.4%
KINGDOM OF BAHRAIN
In terms of the sectoral breakdown, over one-third of civilian Bahraini employment was in government,
with retail and manufacturing being the next largest employers of Bahrainis, at 16% and 11% of total
Bahraini employment, respectively. While the public sector continues to account for a large share of overall
Bahraini employment, it should be noted that the proportion is markedly lower than in the other Gulf
Cooperation Council (GCC) member states. Among non-Bahrainis, 63% are employed in construction,
retail, or domestic work.
Figure 14: Employment by nationality (200212)
Source: Labour Market Regulatory Authority
Labor market
Total civilian employment in the Kingdom increased from 307,000 to 647,578 between 2002 and 2013.
As non-Bahraini employment outpaced Bahraini employment, the share of employed Bahrainis as a
share of total employment fell from 34% to 23% over the period. Non-Bahraini employment and Bahraini
employment grew by 3.5% and 8.7%, respectively, over the same period.
Figure 13: Bahraini population and workforce pyramid (in 000), 2010
Source: Central Informatics Organisation, Economic Development Board
Figure 15: Bahraini workers by sector (2011) Figure 16: Non-Bahraini workers by sector (2011)
Source: Social Insurance Organisation,
Labour Market Regulatory Authority
Source: Social Insurance Organisation,
Figure 17: Employment in 2011 (by nationality)
Source: Social Insurance Organisation, Labour Market Regulatory Authority
Total Bahraini Non-Bahraini
Manufacturing 80,867 15,707 65,160
Construction 130,793 10,920 119,873
Trade 127,403 23,966 103,437
Hotels and restaurants 33,556 3,118 30,438
Transport and communication 20,474 8130 12344
Social and personal services 22,850 5602 17248
Real estate and business activities 37,613 8071 29542
Finance 14,849 9,273 5,576
Government 58,147 52,730 5,417
Domestic workers 95,297 95,297
Other 25,729 10,264 15,465
Total employment 647,578 147,781 499,797
KINGDOM OF BAHRAIN
MACROECONOMIC
DEVELOPMENTS
02
Economic Prospects
Bahrains real GDP grew by 3.4% in 2012. However, the recovery was, to an extent, contained by a
protracted dip in oil production due to technical disruptions in the Abu Saafa offshore oilfeld during
most of the year. In 2013, growth is expected to reach 5.3%, largely thanks to the normalization of
oil production from the Abu Saafa feld, as well as planned further increases in production from the
Bahrain Field. The EDB expects real GDP growth to revert to 4.2% in 2014e.
Figure 19: IIF, IMF, and EDBs GDP forecasts (201213)
2012 2013
IIF 3.7 4.6
IMF 2.0 2.8
CIO 3.4 5.3*
Figure 18: Table. Medium-term macroeconomic forecasts (201114)
2011 2012 2013e 2014e
Real GDP growth (%) 1.9 3.4 5.3 4.2
Non-hydrocarbon sectors 1.4 6.7 4.1 4.5
Hydrocarbons sector 3.6 -8.5 10.3 3.1
Infation (CPI %) -0.4 4.1 8.6 6.6
Nominal GDP growth (%) 13.4 2.8 2.9 3
Current account (% of GDP) 11.1 7.3 8.9 10.2
Fiscal balance (% of GDP) -0.3 -2.0* -5.3** -5.7**
Oil price in USD (Arabian Medium) 106 107 106 105
* Based on the 2012 fnal accounts ** Based on the draft budget for 201314
Source: Central Informatics Organisation, Economic Development Board, National Oil and Gas Authority
Source: Central Informatics Organisation, International Monetary Fund, Institute of International Finance,
* Economic Development Board
Monetary policy
Bahrain has a long history of pursuing a fxed exchange rate policy. The Dinar was offcially pegged to the
International Monetary Funds (IMF) Special Drawing Rights (SDRs) in 1980. In 2001, the fxed exchange
rate parity with the USD was made offcial and a countercyclical fscal policy was utilized to stabilize
growth. Bahrain is committed to an exchange rate peg at BHD 0.376 per US Dollar, corresponding to
approximately BHD 1 = USD 2.65957. The exchange rate is a nominal anchor of the Kingdoms monetary
policy framework, which aims at protecting the currencys external value while ensuring internal price
stability. Within this framework, the Central Bank has some fexibility to alter domestic monetary conditions
by changing policy interest rates (repo rates), introducing prudential guidelines on bank lending, and
adjusting reserve requirements to achieve the required balance between price stability and growth.
KINGDOM OF BAHRAIN
Since Bahrain is a small and open economy with foreign trade accounting for more than 110% of nominal
GDP
5
, the exchange rate represents a logical anchor for monetary policy. It reduces transaction costs and
exchange rate uncertainty, and thereby stimulates trade. Given the role of the US Dollar as the leading
global reserve currency as well as its central role in international trade and fnance, pegging Dinar to the
Dollar enhances the credibility of monetary policy and contributes to fnancial stability.
Monetary policy instruments
The CBB utilizes three main monetary policy instruments to infuence liquidity conditions in the banking
sector, as shown below.
Exchange rate facility: CBB offers to buy/sell Bahraini Dinars against the US Dollar at rates very close
to the offcial exchange rate.
Standing facilities: A set of lending and deposit instruments are designed to infuence overnight
liquidity, overnight interest rates and steering the short-term money market to the key policy rate
determined by the CBB.
The Central Bank of Bahrain (CBB) defnes its role as the main authority responsible for maintaining
monetary and fnancial stability, and having the instruments and operational independence in pursuing its
policy objectives. It is also the single integrated regulator of Bahrains fnancial industry. As part of the fxed
exchange rate policy, CBB offers a foreign exchange facility, implying that it stands ready to buy and sell
US dollars, at rates very close to the offcial exchange rate. CBB provides this facility to commercial banks
located in the Kingdom of Bahrain.
4
Figure 20: Exchange rate: Bahraini Dinar vs. US Dollar
Source: Central Bank of Bahrain
4
www.cbb.gov.bh
5
Central Informatics Organisation National Accounts 2011
Minimum reserve requirements: Credit institutions in Bahrain are required to hold a minimum reserve of
5% of the value of non-bank deposits on accounts with CBB. These funds are used to ease temporary
fuctuations in bank liquidity and infuence interbank transfers.
Monetary policy developments
Interest rates
In line with the loose monetary policy pursued by the US Federal Reserve, money market and commercial
interest rates have been on a downtrend in Bahrain since 2006.
Key policy interest rates
Policy interest rates refer to the rates that CBB extends on its deposit and lending standing facilities. The
one-week deposit rate, which serves as the key policy rate, normally provides a ceiling and a foor for the
overnight market interest rate. The CBBs policy rates infuence short-term interest rates in the money
market that, in turn, impact the deposit and lending rates that retail banks offer to their customers. With
the US Fed undertaking several rate cuts since 2008, the CBB reduced its key policy interest rate (one-
week deposit facility) eight times: from 5% in Oct 2007 to 0.5% in Sep 2009.
In 2012, the CBB maintained the one-day Bahraini Dinar deposit rate at 0.25% and one-week maturity
rate at 0.5% for retail banks; similarly, it retained the 2.25% lending rate for the overnight repo and BHD
secured rate.

Interbank rates
In 2006, the CBB developed the Bahrain Interbank Offered Rate (BHIBOR) in collaboration with a number
of Bahraini banks and Reuters. BHIBOR indicates the interest rate charges between banks on short- term
loans ranging from overnight to 12-month maturities.
6
Figure 21: CBB and US Federal Reserve policy rates (%)
Source: Central Bank of Bahrain, Federal Reserve
6
www.cbb.gov.bh/page-p-monetary_policy_framework.htm
KINGDOM OF BAHRAIN
As of 4Q12, the three-month BHIBOR rate stood at 0.32% compared to 0.25% in 4Q11, while the six-
month rate was 0.56% in 4Q12 compared to 0.50% in 4Q11.
Loan and deposit rates
As of 4Q12, the weighted average Bahraini Dinar time deposit rate (312 months) stood at 1.00%,
marginally lower than 1.11% in 4Q11. The weighted average savings rate decreased from 0.24% to
0.22% over the same period.
Commercial loan rates have generally declined over the past year. The weighted average interest rate
on business loans rose slight to 5.67% in 4Q12 from 5.58% in 4Q11, while that on personal loans fell to
5.96% from 6.28% during the same period. Mortgage rates fell from 6.71% to 6.58%.
Figure 22: Interbank rates, quarterly averages,%
Figure 23: Time and deposit rates,%
Infation
The average rate of consumer price infation in Bahrain rate stood at 2.8% YoY in 2012 compared to 0.4%
in 2011. Housing and food carry the two largest weights in the Consumer Price Index (CPI), at 24% and
21% respectively, and have in recent years been the main drivers of infationary trends in the Kingdom.
Figure 24: Business and personal loan rates,%
Figure 25: Infation in Bahrain (2006 = 100)
KINGDOM OF BAHRAIN
In 2011, the decline in infation was primarily ascribed to the 12.4% YoY fall in housing cost in the Housing,
Water, Electricity, Gas and Other Fuels category. The correction in rentals matched broader regional
trends as several market segments witnessed an oversupply due to a sharp reversal in the economic
cycle. However, recent trends suggest the market is in the process of bottoming out.
Although housing infation further declined by 3% YoY in 2012, the main CPI index increased due to a
sharp rise in the recreation and culture (22% YoY), and alcoholic and tobacco (13.7% YoY) indices. Food
and beverages (4.0% YoY), and furnishings, household equipment and routine household maintenance
(4.9% YoY) were the other main contributors. The large increase in recreation and culture prices was mainly
ascribed to a higher number of tourism package deals, particularly in the pilgrimage and Umrah category.
Figure 26: Growth in CPI (YoY)
Figure 27: CPI index (YoY growth)
2010 2011 2012
CPI 2.0% -0.4% 2.8%
Food and beverages 4.9% 2.0% 4.0%
Alcoholic beverages and tobacco 5.6% 5.1% 13.7%
Clothing and footwear 1.7% 2.2% 2.2%
Housing, water, electricity, gas and other fuels -1.2% -12.2% -3.0%
Furnishing, household equipment and routine household maintenance 1.5% 2.0% 4.9%
Healthcare services 3.5% 3.2% 1.0%
Transport 3.5% 3.7% 2.4%
Communication -2.4% -2.5% -4.1%
Recreation and culture 0.1% 6.9% 22.0%
Education 6.1% 1.9% 1.9%
Restaurants 6.0% 0.9% 1.5%
Miscellaneous goods and service 2.3% 11.6% 3.5%
Money Supply
Refecting the dynamism of the economy, all measures of money supply have grown consistently since
2000. The narrowest measure, M1 (defned as currency outside of banks and demand deposits) increased
more than fve-fold from BHD449.2mn in 2000 to BHD2.61bn in 2012. The broadest measure, M3 (which
includes all types of deposits, also general government) expanded more than four times from BHD2.48bn
in 2000 to BHD10.43bn at the end of 2012.
The broad money supply, as measured by M3, has exhibited continuous growth. It includes M2 as well as
large time deposits, institutional money-market funds, short-term repurchase agreements, along with other
larger liquid assets. The slightly narrower measure, M2, grew at a steady rate between 2002 and 2004,
and recorded an average growth rate of 32% YoY in 2008. Since 2009, growth in M2 was moderately
positive and reached 6.1% YoY in 2012. An increase in the money supply over the past decade was
primarily driven by a rise in private sector time and savings deposits (quasi money) which surged 233%,
as well as demand deposits (+410%) between 2001 and 2012.
Figure 28: Money supply ( BHD mn)
Figure 29: Components of money supply
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12
Currency Outside Banks 444.7 406.9 397.4 402.2 414.2 424.5 418.0 421.4
(g) 34.4% 21.0% 17.2% 15.0% -6.9% 4.3% 5.2% 4.8%
Demand Deposits 1,989.9 2,063.7 2,073.1 2,234.7 2,248.9 2,305.3 2,367.3 2,189.7
(g) 6.1% 0.1% 4.9% 14.3% 13.0% 11.7% 14.2% -2.0%
Time and
Savings Deposits 5,482.1 5,448.8 5,292.8 5,498.2 5,715.3 5,649.3 5,669.1 5,853.7
(g) 9.0% 3.2% -1.1% -1.2% 4.3% 3.7% 7.1% 6.5%
KINGDOM OF BAHRAIN
In recent years, the funding of Bahrains public debt has become increasingly dependent on sukuk rather
than conventional bonds. The main types are Ijara leasing securities and Al Salam Islamic securities issued
by CBB. Between 2001 and 2008, Government of Bahrain lowered its reliance on conventional debt
and did not issue any development bonds during the period. However, in 2012, it issued conventional
development bonds worth BHD564mn (USD1.5bn), which was oversubscribed four times. This
demonstrates confdence in the Kingdoms economic prospects.
In a pioneering move by international standards, the CBB began regular sukuk issuance in 2001. The
market grew steadily in subsequent years as is evident from the fact that Islamic instruments were used
to fnance 32% of the Kingdoms total public debt in 2012 as compared to 24% in 2001. Increasing the
relative importance of Islamic instruments is in line with the governments plans to boost the Kingdoms
stance as an Islamic fnancial hub.
The standard CBB Ijara leasing securities have a maturity of 182 days, while that of Al Salam securities is
91 days. The former dominate the CBBs Islamic debt instruments accounting for 96% of total Shariah-
compliant issuance in 2012, while the remainder is made up of Al Salam issues. The total outstanding volume
of Islamic leasing securities increased from BHD112.8mn in 2002 to BHD1.2bn in 2012. In value terms, Al
Salam Islamic securities totaled BHD54mn in 2012, almost equivalent to the level witnessed in 2011. This
highlights their primary role as short-term liquidity management instruments for the banking sector.
Public Debt
Bahrains domestic public debt instruments increased by 575% between 2001 and 2012. According to
the CBB data, the aggregate value of the Kingdoms public debt instruments totaled BHD3.87bn as of
December 2012 implying a growth of 22% YoY. Of this total, BHD2.6bn was issued in conventional bonds
and BHD1.27bn in sukuk.
Figure 30: Public outstanding domestic debt by type of instrument (in BHD mn)
Fiscal policy
Bahrains fscal position in recent years has refected the sharp economic cycle linked to the global
economic crisis and the oil price boom that preceded it. After a small defcit in 2002, Bahrain accumulated
substantial surpluses totaling BHD1.7bn between the years 2003 and 2008. During that period, the
government debt-to-GDP ratio decreased from 32.5% in 2003 to 12.6% in 2008. The collapse in global
oil prices in the second half of 2008 triggered a deterioration in the fscal situation which became manifest
in 2009. As a result, Bahrains defcit reached BHD446 million, while the debt-to-GDP ratio rose to 21.4%
in 2009 and further to 29.7% in 2010.
In 2011, oil prices again rose to reach a level close to the estimated fscal break-even price of USD114 per
barrel. This, coupled with reduced public project spending, helped contain the defcit to BHD31.3mn, a
reduction of 93% as compared to 2009. In 2012, spending growth outpaced revenue growth raising the
defcit to BHD227mn or 2% of GDP. As of 2012, debt to GDP was 36.7%, compared to 21.4% in 2009
(Figure 31).
The collapse in oil prices in late 2008 highlighted the growing dependence of the current fscal system on
high and growing oil prices at a time when permanent current expenditures dominate government spending.
Figure 31: Fiscal overview
Source: Ministry of Finance, Economic Development Board
Revenues
Oil and gas-related revenues are the main sources of government income and their importance has been
further underpinned by historically high oil prices in recent years. Since 2007, revenues from hydrocarbons
have contributed at least 80% of total government revenues (Figure 32), although the contribution of oil
and gas to GDP was only 25.2% of nominal GDP as of 2012. The offshore Abu Saafa feld, a resource
shared with and managed by Saudi Arabia, is the main source of oil revenues. Over the past three
years, revenues from this feld alone have constituted an average of 80% of total hydrocarbon revenues.
Although the revenue share of the onshore Bahrain Field has been more modest, it has been growing
since the establishment of Tatweer Petroleum Company in 2009. The company aims to substantially
increase Bahrain Field production, with the original target set at 100,000 b/d. Tatweer boosted its crude oil
output from 32,000 b/d in 2009 to 42,500 b/d in 2011 and further to some 45,300 b/d in 2012. The fscal
contribution of gas remains marginal, representing around 10% of total hydrocarbon revenue.
KINGDOM OF BAHRAIN
Non-hydrocarbon revenues account for a small share of the total government revenues, and their
relative importance has been declining in recent years due to higher oil prices. The share of non-oil
revenues fell from 31% in 2001 to 13% in 2012, however, the absolute value of non-hydrocarbon
revenues remained relatively stable during the decade, growing by annual average of 2% between 2001
and 2012. Non-hydrocarbon revenues mainly comprise different fees and levies, with the majority of
revenue comes from the Public Administration sector, and specifcally from the Customs and Ports and
Maritime Affairs, the Ministry of Interior, the Survey and Land Registration Bureau, and the Ministry of
Justice and Islamic Affairs.
Figure 32: Hydrocarbon and non-hydrocarbon government revenues
Source: Ministry of Finance
The dominance of hydrocarbon revenues as a source of government income remains the norm across the
GCC region. Bahrains share of hydrocarbon revenues is in line with the regional average with four other
the GCC countries sourcing at least 80% of their revenues from hydrocarbons. Kuwait had the highest
share as of 2010 at 94% while Qatar represented the other end of the spectrum at 49%.
Figure 33: Hydrocarbon revenues as % of total revenues, 2010
Source: Bahrain Ministry of Finance, Central Bank of Kuwait, Oman Ministry of National Economy,
Qatar Ministry of Economy and Finance, Saudi Arabian Ministry of Finance, UAE National Bureau of Statistics
Expenditure
Bahraini government expenditures rose sharply during the past decade, alongside increases in GDP.
Spending grew by 314%, from BHD0.79bn in 2000 to BHD3.26bn in 2012, driven by robust growth in
recurrent (280%) and project expenditures (500%).
Figure 34: Government expenditure by category (BHD mn)
Source: Ministry of Finance, Economic Development Board analysis
Figure 35: Recurrent spending by category, 2001 Figure 36: Recurrent spending by category, 2012
Source: Ministry of Finance Source: Ministry of Finance
KINGDOM OF BAHRAIN
Figure 37: Growth rate of government expenditure by category
Source: Ministry of Finance, Economic Development Board analysis
Project expenditure has been relatively volatile in recent years. The sharpest increases were recorded in
2002, 2006, 2010 and 2012. These hikes were mostly driven by the infrastructure sector, mainly by the
Ministry of Housing and the Ministry of Works.
Public debt and the debt-to-GDP ratio
Between 2000 and 2012, Bahrains total government debt rose from BHD0.9bn to BHD4.2bn. As a share
of GDP, total debt, which includes domestic and foreign borrowing reached 32.5% in 2003 and 36.7%
in 2012. This marked a sharp reversal from the trend seen during the preceding decade. Factors such
as favorable oil prices, large budget surpluses, and reduction in borrowing needs had allowed Bahrain
to decrease its debt-to-GDP ratio to a low of 12.6% in 2008. This positive dynamic was reversed with
the onset of the global economic crisis. Due to Bahrains dependence on oil revenues, debt rose quickly
between 2009 and 2010 as oil prices dropped, and countercyclical fscal policy saw a rise in government
expenditure, which totaled BHD3.26bn in 2012.
Although foreign borrowing
7
has increased both in absolute terms and as a proportion of total government
borrowings in recent years, domestic borrowing
8
still accounts for the majority of Bahrains debt. In 2012,
domestic borrowing made up 55% of total government debt, as compared to 85% in 2000. By contrast,
foreign borrowing increased from a modest 15% of total loans in 2000 to 45% in 2012.
7
International development bonds, international Islamic leasing securities, development funds owned mainly by GCC
8
Local development bonds, local issuing of Islamic leasing securities, T-bills, al salam leasing securities, and other local loans
with domestic creditors
Key growth drivers
Over the last decade, a range of key development indicators in Bahrain improved signifcantly due to
extensive economic and social reforms. Important steps included: (i) the corporatization of state-owned
businesses; (ii) the adoption of improved governance and transparency standards through the formation of a
Tender Board and National Audit Court; (iii) the elimination of red tape which constricted foreign investment;
(iv) the liberalization of the telecommunications sector through the establishment of the Telecommunication
Regulatory Authority (TRA); and (v) the formal regulation the healthcare sector to elevate the standards of
care through the establishment of the National Health Regulatory Authority (NHRA).
Bahrains real GDP expanded by 78% from 2000 to 2012, while aggregate employment grew by 133%
from 2002 to 1Q13. The rise in commodity prices and a strong global economy over the past decade
drove a signifcant increase in exports. From 2002 to 2012, Bahrains goods export revenues grew by
229%. These trends bolstered the living standards as average real wages of Bahrainis increased 33%
between 2002 and 2010.
Figure 38: Proportion of domestic and foreign loans for Government of Bahrain
Source: Central Bank of Bahrain, Ministry of Finance
KINGDOM OF BAHRAIN
Figure 39: GDP, employment, exports, and wage growth
Source: Central Informatics Organisation, Labour Market Regulatory Authority,
Economic Development Board analysis
It should be noted, however, that the rapid development since the turn of the century was in important
ways linked to extensive growth increases in overall inputs rather than productivity. For instance, a
rapid increase in low-cost foreign workers, especially in labor-intensive sectors such as tourism and
construction, went hand in hand with declines in labor productivity. This highlights the need for more
innovation and the need to stimulate growth in higher value-added sectors.
Figure 40: Private sector employment by nationality (000)
In spite of the desirability of rebalancing growth, the contribution of employment to overall growth is
projected to further increase over the next two decades as the projected expansion in the workforce is
likely to be higher than real GDP growth. This will likely mainly be fueled by faster growth in the working-
age population relative to the dependent population (below the age of 20 and above 65).
Income components as drivers of GDP growth
9
Figure 42 breaks down GDP growth between 2006 and 2011 into the contributions of the individual
expenditure components. Increasing consumption was by far the most important driver of GDP growth
over the last six years, growing by an annual average of 10%. The GDP share of consumption rose from
42% in 2006 to 58% in 2011. Consumption registered robust increases (in excess of 10%) between
2008-2010 and accounted for the bulk of growth over the past few years while investments faced
volatile growth.
Government and private consumption experienced relatively similar average growth rates over the same
period at 11% and 10% respectively. However, government consumption was particularly strong in 2011
at 18%, due partially to salary increases for civil service employees and the government reacting to the
global downturn through countercyclical policy.
Figure 41: Employment and GDP growth
9
GDP = Consumption +investment + government spending + net exports
KINGDOM OF BAHRAIN
Investments experienced low annual average growth over the period between 2006-2012 of 2%, however,
growth was very volatile, ranging from a low of -35% in 2011 to a high of 38% in 2007. Investment
accounted for 24% of GDP in 2006 and 20% in 2012, however, government investments as a share of
GDP have actually increased with slow growth in private investments being the primary cause for the
overall GDP contribution decrease.
Despite the substantial GDP contribution of investment, the amount of investment needed to generate an
additional unit of output has more than doubled over the past decade
10
. This highlights the importance of
new initiatives to boost effciency and thereby long-term growth.
Figure 42: Contribution to real GDP growth by expenditure components
Source: Central Informatics Organisation, Economic Development Board analysis
10
Effciency of investment is measured by the Incremental Capital Output Ratio (ICOR). This indicator measures the amount of
investment needed to generate one additional unit of GDP. Lower ICOR signifes higher effciency.
Net real exports have had a decreasing share of real GDP over the past decade, from 37% in 2000 to 21%
in 2012. Net exports have grown by an annual average of 0% over the period, however there has been
large volatility over the period, with the largest fall in net exports experienced in 2008 at -28%, followed
by 29% growth the subsequent year. Changes to real net exports have been predominantly caused by
shifts in real imports rather than real exports which have experienced a relatively subdued growth rates
over the period.
Sectors driving GDP growth
In recent years, growth in the Bahraini economy has been driven above all by four main sectors:
manufacturing, fnancial corporations, telecommunications and transport, and personal and social
services. The frst two segments have a remarkably consistent track record of high growth rates over the
last decade, while their contribution to GDP has remained almost constant in recent years. The analysis
below is based on CIOs national accounts data from 200012.
11

While construction and real estate output grew signifcantly at the start of the decade, their pace of
expansion has slowed down in recent years as the regional property boom lost momentum. However,
with continued growth in population, and developers increasingly focusing on affordable housing options,
these sectors are expected to recover gradually.
11
2010 base year
Figure 43: Effciency of investment
Source: Central Informatics Organisation, Economic Development Board Analysis
KINGDOM OF BAHRAIN
Manufacturing, which is historically dominated by oil-related downstream industries, registered an annual
average growth of 6.5% between 2000-2012, with the sector growth peaking at 16% in 2005. The sectors
contribution to GDP increased from 12.4% in 2000 to 14.8% in 2012, and has been responsible for 18%
of GDP growth between 2000 and 2012. Manufacturing has led the process of economic diversifcation
in the Kingdom and is one of the largest employers of Bahraini nationals. The sector has been resilient to
economic shocks due to the relatively inelastic demand associated with its outputs.
Financial corporations have successfully capitalized on the wealth of skilled national labor as well as the
governments liberalization efforts, including strengthened central bank supervision, anti-money laundering
laws, and fexible ownership rights. The annual pace of growth in the sector between 2000-2012 was
7% and its real GDP contribution has hovered around 17% of GDP over the last seven years. With the
exception of 2009 and 2011, the sector was responsible for a substantial proportion of growth; 17% in
2008 and 29% in 2010, for instance.
Similarly, the transport and telecommunication sector emerged as one of the most dynamic sectors of
the economy toward the end of the last decade mainly due to privatization and liberalization initiatives.
Its share of GDP increased from 4% in 2000 to 7% in 2012, although the pace of growth subsequently
slowed down. Going forward, the telecommunications sector is projected to grow as the TRA fulflls its
licensing targets and executes additional phases of its liberalization agenda. Despite the slowdown, the
sector was still responsible for 9% of the GDP growth in 2012.
Figure 44: Sectoral contribution to growth
Growth in the social and personal services sector had the highest average annual growth between 2000-
2012 at 14.3%, increasing its share of GDP from 2.1% to 5.4% over the period, and representing 10% of
growth over the period in 2012.
The success of economic diversifcation has happened in tandem with a signifcant decline in the
hydrocarbon sectors share of GDP (from 43.6% to 19%) between 2000-2012. The hydrocarbon sector
faced had an overall negative contribution in as of 2012 from 2000 of -12.6%, however, this is largely due to
a fall in the sector of 8.5% in 2012 due to temporary maintenance in the Abu Saafa oil feld. The oil sector
is expected to have a strong recovery in 2013.
Figure 45: Comparison of sectoral contributions to real GDP (2000 and 2012)
FINANCIAL
MARKETS
03
Equity Markets
Bahrain is an established center of capital market activity. The Bahrain Stock Exchange (BSE), now
Bahrain Bourse (BHB), commenced operations in 1987 with the government being an active issuer in the
bond and sukuk markets. Institutional development of the markets has led to signifcant progress in the
form of stricter corporate governance directives and the opening of the Kingdoms second exchange,
Bahrain Financial Exchange (BFX), in 2009. The development of the equity market over the past decade
is a familiar story echoed by other stock markets in the GCC region. Equity issuance and trading
volumes increased in early 2000 and reached their peak around the middle of 2008 before the global
crisis sharply pushed down the indices and trading volumes alike. Although the Bahraini market has
been relatively resilient amid external uncertainty, the equity market failed to develop signifcant positive
momentum since the sharp corrections during the global crisis. However, total market capitalization is
slowly rebounding to the pre-crisis levels.
Figure 46: GCC equity market indices (Jan 2007Jun 2013)
Note: Jan 2007 = 100
Source: Bahrain Bourse, Kuwait Stock Exchange, Muscat Securities Market, Qatar Exchange, Tadawul,
Abu Dhabi Securities Exchange, Dubai Financial Market, Economic Development Board analysis
Bahrain Bourse
The establishment of formal capital markets in Bahrain dates back to the 1950s. With the establishment of
Bahrains frst national holding company in 1957, the Al Jowhara Market came into being as an informal
platform for the trading of company shares took place. However, the collapse of this as well as other
regional unoffcial markets in the 1980s prompted the need for an organized, regulated capital market
platform. In 1987, the Bahrain Stock Exchange (BSE) was established according to Amiri Decree No.
4, and operations commenced in 1989 with 29 Bahraini listed companies being traded in an Auction
Trading
12
system. About a decade later, the system was upgraded to an automated trading platform,
which facilitated the listing of multiple asset classes alongside common stock, including bonds, sukuk
(Islamic securities), mutual funds, and preferred stock. The BSEs legislative transformation in 2002 from a
government-owned entity to a closed shareholding company regulated by the CBB marked the conception
of what stands today as the Bahrain Bourse (BHB).
12
A system where investors place their bid and offer orders with the broker, and the broker then matches between them manually
KINGDOM OF BAHRAIN
As of June 2013, BHB was home to 48 listed companies classifed across a number of defned sectors:
commercial banks, investment, insurance, services, industrial, and hotel and tourism, along with non-
Bahraini companies, closed companies, and preferred shares.
The seven commercial banks represent the largest sector on BHB, accounting for 45.4% of the total market
capitalization (BHD6.5bn) as of June 2013. The traded eequities include Ahli United Bank, the largest
listed company in Bahrain, which accounts for 21.5% of overall capitalization. The second largest sector
comprises 12 investment frms (with 23.1% of total capitalization), including Arab Banking Corporation
and Investcorp Bank. These sectors, along with fve insurance companies,
13
constitute 70.8% of the
market capitalization refecting Bahrains prominence as a regional fnancial center.
Figure 48: BHB market capitalization, Jun 2013
Source: Bahrain Bourse, Economic Development Board analysis
Figure 47: BHB market capitalization, by sector
Source: Bahrain Bourse
13
Including Al-Ahlia Insurance Co., Arab Insurance Group, Bahrain Kuwait Insurance Co., Bahrain National Holding, and Takaful
Insurance Co.
The services sector consists of nine companies (with 14.8% of total capitalization) dominated by Bahrain
Telecommunications Company (Batelco), which accounts for 59.7% of the sectors capitalization. Hotels
and tourism held 2.8% of the total market capitalization in June 2013. The industrial sector, whose share
in overall market capitalization stood at 11.6% of the total, was heavily dominated by Aluminium Bahrain
(Alba) which is responsible for 97.9% of the sectors capitalization. Alba is the second-largest public
company listed on BHB and one of the worlds largest aluminum producers.
The exchange has broadened its range of tradable instruments beyond equity listings to include mutual
funds and a debt market comprising conventional bonds and sukuk. As of June 2013, BHB had 26 listed
mutual funds and nine bonds and sukuk.
BHB remains a low-volume market compared to regional and global equity markets. The exchange
accounted for less than 1% of the aggregate GCC market capitalization as of December 2012. Three
main indices Bahrain All-Share, Esterad and Dow Jones Bahrain are used to track the performance
of the Bahraini stock market. The market was fairly steady during mid-2000 and reached a record peak
in 2008. This was followed by a sharp contraction, alongside other global markets, with the three indices
plummeting around 41.9% YoY by January 2009. The Bahrain All-Share Index grew 11.5% to 1,187.8
points during 1H13. A closer look reveals an impressive growth of 27.1% in the commercial banks sector,
followed closely by an expansion of around 21.0% in the industrial sector, mainly driven by Alba.
Figure 49: Bahrain Bourse performance (January 2005June 2013)
BHB witnessed relatively high market activity during the years leading up to the recent fnancial crisis;
since then, activity has slowed down considerably with an average overall market turnover of 16.2% over
January 2009 to the end of 1Q13. However, overall market turnover reached 74.0% in May and averaged
50.3% during 2Q13. Primarily, the spike in activity refects the acquisition of 51.6% stake in Bahrain Islamic
Bank (BisB) by National Bank of Bahrain (NBB) and SIO Asset Management Company (SIOAMC). Market
turnover
14
is a ratio of how often shares change hands and is a measure of market liquidity. Consequently,
the volume of shares traded reached 302.1mn in February 2008, and has since declined, averaging 59mn
shares between January 2009 and the end of 1Q13. However, the volume of shares traded peaked at
612mn shares in May, with the stake purchase by NBB and SIOAMC in BisB.
14
The ratio is calculated by dividing the total value of the shares traded during a period by the market capitalization for that period.
KINGDOM OF BAHRAIN
Bahrain Financial Exchange
Bahrain Financial Exchange (BFX), which commenced operations in 2011, is the frst of its kind in the
Middle East. The entity is wholly owned by Indias Financial Technologies Group and is directly regulated
by the CBB. BFX offers investors internationally accessible platforms for multi-asset trading in cash
instruments, derivatives, and Shariah-compliant fnancial products. Products that have been approved
for trading on the exchange include gold futures, natural gas futures, and Eurodollar futures, among other
index futures. BFX aims to recover the regions liquidity and capital invested in overseas markets and to
pool the wealth into one market to drive investments and growth opportunities in the regional economy.
In 2011, to stimulate the equity market, BHB undertook measures to encourage the listing of additional
companies through amendments to its listing rules, which proved challenging amid the diffcult post-crisis
market conditions. One such revision canceled an article stipulating that a company must have realized
profts during the two years prior to its application, or at least for three of the past fve years. Furthermore,
the Ministry of Industry and Commerce (MOIC), in collaboration with the CBB and the National Corporate
Governance Committee, introduced a new Corporate Governance Code in 2010 combining nine core
principles that refect the highest international governance standards
15
. Enforced under a comply or
explain framework, the Code is part of the longer-term initiative to extend BHB and instill confdence in
capital markets among investors and companies seeking to raise capital through a listing.
Figure 50: BHBs market turnover and traded volume (September 2005June 2013)
15
The nine core principles cover a range of governance issues, including the role of Board of Directors, internal compliance
and audit procedures, remuneration, management structure, and clearer communication with shareholders, in addition to
requirements for Shariah-compliant companies.
Bond and sukuk markets in the GCC remain less developed compared to other fnancial market
segments and possess signifcant growth potential
16
. In particular, there is growing emphasis on the
need for debt securities to fnance the regions massive infrastructure boom. Although Bahrain, owing
to CBB issuance, is a relative pioneer in the regional bond and sukuk markets, corporate issuance has
been comparatively rare to date. In recent years, growth in the national bond and sukuk markets has
been almost entirely driven by increased government issuance.
Over the past three years, the conventional bond market in Bahrain has seen corporate issuances by
Batelco, Bank of Bahrain and Kuwait (BBK) and Investcorp Bank. Specifcally, Investcorp diversifed its
funding profle through its recent and oversubscribed USD250mn 5-year bond maturing in November
2017. Similarly, the Bahrain-domiciled but largely Saudi-controlled Gulf International Bank has been a
regular issuer. In other cases, Bahraini corporates have mostly preferred bank fnance. For instance, in
late December 2012, Alba announced it had opted for bank loans to refnance an USD169mn bond
maturing in March 2013. Furthermore, Batelco launched its USD650mn 7-year corporate bond in
April 2013, after completing its acquisition of Cable & Wireless Communications Monaco and Islands
business division.
The Kingdom of Bahrain is an established issuer of conventional debt securities and sukuk. With growth
of almost 526% since 2Q03, the total outstanding debt issued by the government stood at BHD3.7bn
by the end of 1Q13. Of this, BHD2.6bn was conventional debt, while BHD1.1bn was funded through
Islamic securities. Government debt issuance has increased markedly following the fnancial crisis of
2007. Government debt reached 37.9% of GDP in 2012 compared to less than 10% during the years
prior to the fnancial crisis.
Bond and Sukuk Markets
16
Deutsche Bank: GCC Financial Markets (Nov 2012)
Figure 51: Total outstanding domestic public debt (200312)
Source: Central Bank of Bahrain, Central Informatics Organisation,
KINGDOM OF BAHRAIN
A key element of CBB issuance is short- and medium-term government Treasury bills (T-bills).
Denominated in BHD, these include weekly issuances of BHD25mn with three-month maturity, monthly
offerings of BHD20mn with six-month maturity, and quarterly placements of BHD50mn with 12-month
maturity. Government T-bills account for almost one-quarter of the total outstanding domestic public debt
(BHD930mn as of 1Q13).
Government development bonds are long-term conventional bonds issued on an irregular basis and
are denominated either in USD or BHD, with maturities typically ranging from three to ten years. These
bonds constituted around 45% of the outstanding public debt as of 1Q13. In 2012, the CBB held two
government development bond issuances of BHD564mn (maturing in July) and BHD185mn (maturing in
November). The third issuance was undertaken in July 2013, with an offer size of BHD150mn.
In the Shariah-compliant space, the CBB issues Sukuk Al Salam on a monthly basis, with a standard issue
of BHD18mn. These short-term BHD-denominated securities have a maturity of three months. Al Salam
accounted for less than 2% share of the outstanding government debt in 1Q13.
CBBs Sukuk Al Ijara are issued every month in installments of BHD20mn and a six-month maturity. Also
long-term Sukuk Al Ijara are issued on an ad hoc basis. They are denominated in USD or BHD and have
maturities ranging from 310 years. Sukuk Al Ijara accounted for the second-largest proportion of total
outstanding government debt at 29.0% in 1Q13.
Figure 52: Outstanding debt by security (20031Q13)
Source: Central Bank of Bahrain, Economic Development Board Analysis
The interbank money market in Bahrain remains relatively small. It is used by banks extend loans to one
another at various maturities, mostly overnight. The CBB, in collaboration with Thomson Reuters and the
Bahrain Association of Banks (BAB), established the Bahraini Dinar Interbank Offered Rate (BHIBOR) in 2006
as the frst offcial interbank lending market benchmark rate. It represents the average offered interest rate of
10 commercial banks in the Kingdom and is provided for eight tenors, ranging from overnight to 12 months.
Following the onset of the fnancial crisis, BHIBOR fell from 5.4% in 3Q07 to around 2.8% by mid-2008. Due
to escalating fears in the interbank lending market,primarily triggered by the collapse of Lehman Brothers,
rates plummeted further during the subsequent year to reach 0.8% by mid-2009. Since then, BHIBOR
has remained below 1%; as of 1Q13, it reached 0.29%, close to the Saudi Arabian Interbank Offered
Rate (SAIBOR
17
) of 0.291% and the London Interbank Offered Rate (LIBOR
18
) of 0.51%
19
. Monitoring and
responding to the US Federal Reserves monetary policy changes, the CBB has undertaken interest rate
adjustments to extend liquidity and ensure the interbank markets function effectively and smoothly during
turbulent times.
Interbank Lending Market
Figure 53: Bahraini Dinar interbank market rate (quarterly average, % pa)
* Saudi Arabian Interbank Offered Rate
** London Interbank Offered Rate
Source: Central Bank of Bahrain, Saudi Arabian Monetary Agency, British Bankers Association
17
Saudi Arabian Interbank Offered Rate
18
London Interbank Offered Rate
19
Quarterly averages of three-month BHIBOR, 3-month SAIBOR and 3-month LIBOR
FOREIGN
TRADE
04
As a small, but strategically located island nation, Bahrain has a long history of and dependency on
trade. This, in turn, has engendered a culture of economic openness. For instance, according to the
Heritage Foundation and Wall Street Journal 2013 Index of Economic Freedom, Bahrain ranks as the
12th freest economy in the world. In the Middle East and North Africa (MENA) region, Bahrain ranks
frst. Another index measuring economic freedom, published by Fraser Institute, ranks Bahrain seventh
in the world and frst in the MENA region.
Openness to trade is recognized as one of the main component areas determining the level of economic
freedom. This indicator is used to measure the ease of cross-border transactions, and fow of goods
and services. Bahrains strong position in this regard is built on the reality of no exchange controls, no
restrictions on repatriation of profts or capital, no restrictions on converting or transferring funds, and
relatively few non-tariff barriers. Moreover, the Kingdoms established regulatory system and strong
fnancial sector makes it more attractive to investors.
Receipts from oil exports generate the majority of government revenue and the funds required to
fnance imports. The ratio of openness to trade, defned as the sum of imports and exports to GDP, was
approximately 109% in 2012, representing one of the highest percentages in the region after the UAE.
Prior to 2008, trade, as a percentage of GDP, was the highest in the GCC at around 145% in 2005. As
important as foreign trade is, Bahrain export profle is still heavily concentrated on one product, viz. oil.
Figure 54: Trade as a percentage of GDP (GCC states)
Source: World Bank
KINGDOM OF BAHRAIN
Terms of trade
20
have been improving in the GCC since 2009, following a large decline during the fnancial
crisis and the concomitant oil price correction. Nevertheless, the purchasing power of imports is increasing
due to larger export receipts. However, Bahrains terms of trade are the lowest in the GCC, owing to lower
oil exports.
Bahrain recorded a current account surplus of BHD835mn in 2012, a decrease of 31.5% from 2011. As
a percentage of GDP, the current account surplus declined from 11.1% in 2011 to 7.3% in 2012, but was
still much higher than the 2009 and 2010 fgures of 2.4% and 3.0% respectively. The decrease in 2012
was primarily attributable to lower oil exports, caused by a technical disruption to oil production in the Abu
Saafa offshore feld. On the other hand, the value of oil imports increased 20% in 2012 from a year earlier.
Growth in non-oil exports has been consistent; however, non-oil imports decreased in 2011 and 2012,
by 28% and 7% respectively. While the drop in imports indicates lower demand, a reduction in the size of
the decline is a sign of normalization.
Figure 55: Net barter terms of trade index, World Bank (WDI) 2000=100
Source: World Bank
20
Terms of trade refers to the value of a countrys exports relative to its imports. When a country experiences improving terms
of trade, its export prices are increasing faster than its import prices; otherwise, the terms of trade would be worsening when
prices of exports are increasing at a lower rate than imports.
Current Account
Goods
Bahrains oil imports and exports grew by 52% and 65% respectively between 2006 and 2012. As of
2012, imports stood at BHD3.4bn, while exports totaled BHD5.7bn. An increase in the value of oil trade
during the given years is predominantly due to higher oil prices rather than increases in production,
particularly in 2008 and 2011. While prices frst rose in 2008 due to fears of supply shortages and rising
demand from emerging markets, they subsequently fell by 34% owing to the global economic crisis and
subdued demand. Following the global crisis, political instability in the Middle East in 2011 dented investor
sentiment and raised fears of future supply shortages and disruptions in production. Consequently, oil
prices increased and remained at a historically high levels in 2012.
Figure 56: Bahrains current account (BHD mn)
* 2012 data is provisional
Figure 57: Petroleum product exports (2011)
Source: National Oil and Gas Authority
KINGDOM OF BAHRAIN
Oil and refned petroleum products accounted for 77% of Bahrains total goods exports in 2012. In general,
the composition and share of products has not changed since 2000, although the volume of diesel and
fuel oil has declined. Conversely, there has been an increase in the volume of jet fuel and asphalt. The total
volume of petroleum exports has decreased 7% from 2000, however, a rise in prices during the same
period led to an overall increase in the value of oil exports.
Bahrains non-oil exports predominantly consist of mineral products (43%) and metals (39%), mainly
including exports of mineral fuels, aluminum and aluminum products, and iron.
Oil constituted 62% of Bahrains total imports in 2011
21
, a marked rise from 48% in 2010. The majority
of oil imports were from Saudi Arabia, sent directly to the Bapco refnery where they were manufactured
into various petroleum products and then exported at a higher value. On an average, non-oil imports
constituted 50% of total imports during the past six years. Bahrains imports are more diversifed than its
exports and the top categories include machinery, mineral products, transportation, metals and chemicals.
Figure 59: Non-oil goods exports (2011)
Figure 58: Bahraini exports of petroleum products
Petroleum Products Price 2005 2011 % change
Asphalt USD per barrel 24.37 90.23 270%
Diesel USD per barrel 62.65 124.75 99%
Fuel USD per barrel 38.87 99.01 155%
Gasoline USD per barrel 60.05 112.24 87%
Jet A-1 Cargo USD per barrel 66.13 125.08 89%
Jet A-1 Airport USD per barrel 67.31 126 87%
LPG USD per barrel 40.21 73.36 82%
Naphtha USD per barrel 49.8 101.68 104%
Sulfur USD per barrel 10.92 44.25 305%
21
That is largely due to general increases in oil receipts due to an increase in the price level
Figure 60: Non-oil goods imports (2011)
The GCC is the dominant destination of Bahraini exports, with Saudi Arabia accounting for 21% of total
exports in 2011, followed by Oman and Qatar (12% each), the UAE (8%) and Kuwait (2%). The share of
exports to the GCC region has risen from 21% of the total in 2001 to 38% in 2005 and 55% in 2011. At
the same time, the share of exports to Asia-Pacifc declined from 26% in 2001 to 12% in 2011, while the
proportion of exports to the Americas fell from 25% to 7% during the same period. By contrast, exports
to South Asia increased from 5% to 9%, largely due to higher trade with India, while exports to MENA
countries (minus the GCC) and Europe remained constant.
A large portion of Bahraini imports arrives from China, Brazil and the US, although the composition of imports
is highly diversifed. The share of non-oil imports from various regions has remained largely stable with the
exception of a noticeable shift from Europe to the Americas. Share of imports from Europe declined to 23%
in 2011 from 31% in 2001, while that from the Americas grew from 12% to 23% during the same period.
Figure 61: Non-oil goods exports by country of origin (2011)
Source: Central Informatics Organisation Source: Central Informatics Organisation
Figure 62: Non-oil imports by country of origin (2011)
KINGDOM OF BAHRAIN
22
Except for 200, when remittances dropped 22%
Services
In 2012, Bahrains net service exports increased by 6% following a 41% decrease in 2011. The 2011
correction was due to a decline in the travel (by 63%), fnancial services (by 44%), and communication
services (by 24%. The fall in travel and communication services was due to regional instability in 2011
including the cessation of fights to major destinations such as Lebanon, Iran and Iraq, and traffc disruption
via the King Fahd Causeway. The decision to postpone the Formula 1 Grand Prix in 2011 also added
to the decline. In 2012, the economy experienced gradual normalization which led to an increase in net
services, particularly in fnancial and transportation services, by 21% and 16% respectively. Travel and
communication services also witnessed a slight rebound of 2% and 1% respectively in 2012.
Income and current transfers
Bahrains net investment income has been declining in recent years, dipping by 59% and 2% in 2011 and
2012 respectively. The decrease is mainly due to an increase in inward direct investment and a reduction in
other investment income. In 2012, net direct investment income grew marginally, however, portfolio income
continued to rebound at a slower rate. Workers remittances experienced a large growth in 2011, growing
at 25%
22
, followed by a slight dip in 2012 of 1%.
Figure 63: Net services exports (2011)
* 2012 data is provisional Source: Central Bank of Bahrain
Net capital transfers increased by 31% in 2012 after surging by 52% in 2011. Outward investments rose
168% in 2011, after a steep reduction in 2009, and continued the uptrend in 2012, albeit at a slower
rate of 3%. Moreover, inward foreign direct investments escalated 401% in 2011 and 14% in 2012 after
a protracted downtrend due to the fnancial crisis. Receipts from both portfolio and other investments
decreased, indicating lower sales of acquired assets abroad. However, positive net assets still indicate
some sale of assets abroad. On the other hand, acquisition of portfolio investments by foreign investors
increased 163% in 2012 after a sharp decline in 2011. Moreover, there was a reduction in the amount of
other investments sold by foreign investors in 2012.
Figure 65: Capital and fnancial account
Capital and Financial Account
Figure 64: Net income from investments
SOCIAL
INFRASTRUCTURE
05
Bahrain in 1919 became the frst GCC country to introduce formal education. In another pioneering move
in 1928, schools for girls were established to provide equal access opportunities. Currently, education is
compulsory for all students until ninth grade in both public and private institutions. More than 265 primary
and secondary schools currently operate in the Kingdom, including 65 private schools with curricula from
the UK, US, France, India and Pakistan. Bahrain is also home to 16 public and private universities.
The education sector has experienced robust growth in recent years, expanding by a cumulative
205% between 2000 and 2012. The GDP contribution of the sector rose from BHD136mn in 2000
to BHD452mn in 2012, pushing up the GDP share of education from 2.3% to 4.4%. According to the
National Accounts, growth in private education outpaced that in government education over the past
12 years. Government education experienced a somewhat volatile aggregate increase of 130% over
the period. Private education grew 5.5 times faster. The latter is due to the establishment of private
universities and institutions over the past few years.
Figure 66: Share of private and public educational services in real GDP
Source: Central Informatics Organization, Economic Development Board analysis
Education in Bahrain
The total number of teachers in primary and secondary schools was approximately 15,630 in 2010.
23

Women constitute a clear majority of tachers in the Kingdom, accounting for an average of 65% of total
employment in education between 2001 to 2010. The number of teachers grew 74% during the same
period, with the majority being employed in government institutions.
23
Only schools without high education institutions due to lack of information. Here, we focus on both private and government schools
KINGDOM OF BAHRAIN
Between 2002 to 2010, teachers made up an average of 2.9% of the total workforce in Bahrain. Although
the number of teachers in the Kingdom has increased since 2001, their proportion of the total workforce
has contracted somewhat due to rapid growth in labor-intensive sectors such as manufacturing,
construction and retail.
Figure 68: Number of teachers as a share of total employment
Source: Labor Market Regulatory Authority, Central Informatics Organization,
Figure 67: Education workforce
Figure 69: Education workforce (by nationality)
Approximately 80% of the total number of public school teachers in the Kingdom are Bahraini national. In
private schools, by contrast, the corresponding share of nationals is less than 20%.
Public spending
24
on education in Bahrain remains below the average of the advanced economies,
although this may be partly attributable to lower prices and the absence of taxes in the Kingdom. Public
education spending per student in OECD countries
25
averaged USD7,600 (BHD2,865) in 2007 across
primary, secondary and tertiary levels. The average for Bahrain in the same year was lower at USD4,337
(BHD1,635). Spending on public educational at the primary, secondary and tertiary levels in the OECD
countries averaged approximately 4.6% of GDP
26
in 2007. The corresponding fgure in Bahrain was a
comparable 4.4% of real GDP.
Literacy rates
27
in Bahrain are relatively high by international standards and have increased in recent
years. The most common measure of literacy is the percentage of population above 15 years who
can read and write. According to the United Nation Development Program (UNDP) the literacy rate in
Bahrain increased from 86.5% in 2001 to 91.9% in 2010
28
.
School attendance in Bahrain is high by international standards. The gross enrolment rate
29
iis defned
as the ratio of those enrolled in schools to those who are in school enrolment age. Enrolment at the
primary
30
and secondary levels stood at 107% and 103%, respectively
31
. The Bahraini ratios are in
fact higher than those of the US, the UK, and the rest of the GCC. This reality Bahrains fairly favorable
ranking of 48th out of 187 in the UNDPS 2013 Human Development Report.

The overall number of students in Bahrain grew by 22% from 138,000 in 2000 to 171,000 in 2010.
Private school students accounted for 21% of the total number during that period.
24
Here focus is only on the public source for funds.
25
OECD 2007 (latest data available)
26
OECD 2007 (latest available)
27
From this section onward, we focused only on schools without high education institutions due to lack of data
28
Latest data available
29
GER can exceed 100% due to the inclusion of over-aged and under-aged students because of early or late school entrance and
grade repetition
30
Includes elementary and intermediate levels
31
According to the UNDP Human Development Report 2013: Data refers to the most recent year available during the period from 2002
to 2011 for the education indicator
KINGDOM OF BAHRAIN
Figure 70: Total number of students in Bahrain
Figure 71: Female to male ratio
Between 2000 and 2010 slightly fewer girls than boys enrolled at the elementary and intermediate levels
in Bahrain. The number of girls averaged 95% and 96% of the number of boys during the two years,
respectively. by contrast, girls outnumbered boys at the secondary level averaging 104% of the number
of boys.
Class size and student-teacher ratios are considered among the key determinants of the quality of teaching
in a given country. In 2010, Bahrain had an average of 11 students per teacher. The corresponding OECD
average is markedly higher at 15
32
students per teacher. The highest student to teacher ratios seen in
Bahrain since the turn of the century were in the private school segment in 2001-2002. Since then,
however, the fgures have been consistently below the OECD average and fairly steady in recent years.
Moreover, the ratios have largely converged between the public and the private sector.
32
OECD 2011: Education at a Glance. In 2010, OECD student-teacher ratio for primary level was 16 and secondary level was
14. Here we considered the average of both due to lack of data availability
Figure 72: Student-teacher ratio
Source: Central Information Organization, Economic Development Board analysis
To improve employability and effciency while more directly catering to the needs of the job market,
the government introduced reforms in the education sector over the past decade. These initiatives
included a teacher training program, a new polytechnic college for technical and vocational training, an
improved upper secondary vocational program, and a quality assurance initiative. Teachers received
increased training based on up to date pedagogical standards and techniques. New support and
accountability systems for school performance were introduced and national numeracy and literacy
strategies were implemented. The quality assurance authority, now in its ffth year of operation, is
providing external assessment of public and private educational establishments leading to enhanced
student outcomes. According to the World Economic Forum (WEF)s Global Competitiveness Report of
20132014 Bahrains ranking in educational standards has improved and the Kingdom is now placed
48th worldwide in terms of the quality of the educational system in the latest report. This compares to
the 56th position in 2008. Enrolment rates in the primary, secondary and tertiary segments currently
stand at 97.8%, 103% and 29.8% respectively.
Healthcare
Public healthcare services are provided free of charge to all Bahrainis, and are heavily subsidized for
expatriates through a network of Ministry of Health (MoH) hospitals, maternity units and primary healthcare
centers. Non-Bahrainis employed in corporations with more than50 employees are covered under a
mandatory health insurance scheme
33
. Moreover, private healthcare is an increasingly important sector in
the Kingdom and encompassed 14 hospitals as of 2010.
33
This scheme imposes a health tax of BHD60 for each non-Bahraini employee, payable by the employer. Expatriates not
covered by this scheme pay a fat rate of BHD3 per visit.
KINGDOM OF BAHRAIN
Figure 73: Economic indicators for the healthcare sector
Source: Ministry of Health, Central Informatics Organization, Economic Development Board analysis
The Bahraini healthcare sector registered strong growth of around 10% per year between 2006 and
2012 due to the establishment and expansion of additional public and private healthcare facilities. The
annual pace of growth reached 9.5% in 2012. Rising staffng levels at the new facilities also translated
into a 10.2% increase in health care employment in 2008, a pace which subsequently declined to 4%
in 2010 in response to a broader slowdown in the sector. Growth in the private sector is expected to
accelerate following the completion of several projects including Dilmunia Healthcare Island and King
Abdulla Medical City.
While GDP contribution of the health care sector steadily increased throughout the decade, its contribution
to employment has remained at 2% of the national total in the last six years.
Healthcare expenditure as a percentage of GDP declined somewhat between 2001 and 2007 before
rebounding sharply until a temporary correction in 2011. However, further growth momentum is expected
from a comprehensive health care reform agenda pursued by the Ministry of Health. The plans includes
a comprehensive upgrade of billing mechanisms, storage systems and cost management schemes.
A key objective of reforms in the health care sector has been to improve the quality of the human capital
available to the health facilities. The Royal College of Surgeons Medical University of Bahrain was also
established in 2004 to provide access to world-class training for upcoming physicians and nurses in the
Kingdom. The College of Health Sciences is increasing its training capacity for nurses which is currently
at 300 students per year. Nursing has the highest potential to create national jobs due to a high number
of foreign workers in this feld. Bahrainization in nursing was estimated at 50% in 2009 compared to
80% for physicians. Apart from training initiatives, retention schemes have been developed to address
staff shortages. Although growth in the number of healthcare practitioners has mirrored increase in
the population, Bahrain continues lag behind the advanced economy average in terms of physician to
population ratios. As of 2010, Bahrain had 1.4 physicians per 1,000 people, which compared to the
OECD average of 2.8.
Figure 74: Healthcare expenditure (% GDP)
Source: Ministry of Health
Figure 75: Healthcare practitioners vs. population total growth
Source: Central Informatics Organization, Ministry of Health, Economic Development Board analysis
KINGDOM OF BAHRAIN
The development of Bahrains healthcare sector over the past three decades is refected in the steady
improvement in key indicators, especially life expectancy, which is now among the highest in the world.
In an important instance of positive progress, the number of hospital beds per 1,000 people is estimated
to have increased 50% upon completion of the King Hamad General Hospital. Nonetheless, the ongoing
implementation of the health reform agenda is critical to further elevating Bahrains relative position in
these indicators. These initiatives include allocating 6.6% of government spending for healthcare in the
201314 draft law for the fscal budget.
Figure 76: Life expectancy at birth
1990 2011
Bahrain 72.3 75.1
Norway 76.5 81.1
Canada 77.3 81
UK 75.6 80.2
Malta 75.3 79.6
US 75.2 78.5
UAE 71.8 76.5
Argentina 71.5 75.9
Kuwait 72.5 74.6
China 69.4 73.5
Source: United Nations Development Programme
Figure 77: Hospital beds per 1000 population (2009)
Source: World Health Organization
Figure 78: Physicians per 1000 population (2010)
Figure 79: Healthcare expenditure as % of government expenditure (2011)
Figure 80: Healthcare expenditure as % of GDP (2011)
KINGDOM OF BAHRAIN
The National Health Regulatory Authority (NHRA)
The National Health Regulatory Authority (NHRA) was established in 2009 in order to separate the
governments regulatory function from service provision. The NHRA was set up with a view to elevating
healthcare standards in the public system through improved monitoring and inspection of public
healthcare facilities and practitioners. Formal supervision had previously been largely restricted to the
private sector. Overall healthcare standards are being addressed through an overhaul of healthcare
legislation designed to promote fair competition and an open investment environment, as well as to
ensure world-class minimum standards for professionals and facilities. The NHRA also aims to improve
accountability, encourage research and development, increase options for patients, ensure system-
wide integration, enhance the regulation of drugs and pharmaceuticals, as well as boost investments in
preventative care. Since the NHRAs establishment, public healthcare facilities devised plans to upgrade
their facilities and gain international accreditation. The regulatory authority has also granted licenses to
investors in ventures that were previously restricted.
Among other things, the NHRA was tasked with the development of a framework for healthcare research
and development in Bahrain. As a result, a project was launched to conduct genetic screening on
approximately 15,000 babies in the next two years to support genetic research on prevalent disorders
like diabetes (7,059 cases in 2010) and hypertension (7,522 cases). Al Jawhara Center is a research
facility licensed by NHRA. It is the frst comprehensive genetic research facility in the Kingdom with
an academic and research focus on molecular diagnostics and genetic disorders. The center also
partners with Arabian Gulf University to provide academic training for medical students. Research
conducted at Al Jawhara is focused on prevalent regional disorders, endemic cardiovascular disorders,
pharmacogenetics, the human genome, and biomarkers.
Despite signifcant expansion in recent years, growth potential in healthcare in Bahrain is enormous in
view of population growth and the range of existing services. The most promising opportunities exist in
tertiary care facilities and research institutions. Since 2007, the private healthcare sector has grown by
more than 12% per year, surpassing the pace of expansion in the public sector and thereby capturing
a large market share. This movement has been prompted by the proliferation of healthcare insurance in
the Kingdom upon the adoption of prepaid schemes by corporations and individuals.
Figure 81: Private healthcare growth outpaces government healthcare investments
Source: Central Informatics Organization
Bahrains human capital is widely recognized as its greatest competitive advantage. This reality,
combined with the demographic dynamics of the Kingdom and the need to achieve sustainable
economic diversifcation have made entrepreneurship a key policy priority. Entrepreneurship is a long
tradition in an economy with a centuries-long tradition as a regional trading hub. While the Kingdom is
home to a large number of established private enterprises, efforts to stimulate the growth of new ones
have frmly established themselves as a strategic priority in recent decades. New entrepreneurship
can serve as a source of job creation, non-oil diversifcation, exports, and innovation. Indeed, small
and medium-sized companies constitute the backbone of many advanced and a growing number of
emerging markets in these areas.
The importance of the SMEs is considerable also in Bahrain where they account for 77% of private sector
jobs, although their GDP weight remains signifcantly lower at just over a quarter. In terms of the number of
companies, the dominance of SMEs is overwhelming as they accounting for some 99% of the total. Even
beyond its numerical signifcance, the Bahraini SME sector is a highly dynamic part of the economy with
an average of 7,200 Commercial Registrations (CRs) recorded each year. New CRs reached their height
in 2006 and 2007, during which Bahrain also experienced its highest GDP growth rates. An economic
rebound in 2012 also contributed to the 37% YoY increase in CRs, matching the 2007 level.
Entrepreneurship
KINGDOM OF BAHRAIN
Figure 82: Annual number CRs issued
Source: Ministry of Industry and Commerce
In spite of the rapid growth of the SME space in recent years, the overwhelming majority of Bahraini
companies remain very small. Micro enterprises with more than 10 employees account for 91.2% of
all corporate entities in the Kingdom.
34
By contrast, large companies account for only 0.2% of the total
number of Bahraini businesses.
The business activities of commercial establishments in Bahrain are heavily focused on trade services,
which were responsible for 39% of all CRs in 2012, followed by fnance at 18%, and other
35
service
sectors at 13%. The large percentage of service activities refects the progress made in economic
diversifcation as the focus of economic activity has shifted away from oil. Services
36
comprise 52.7%
of Bahrains GDP at constant prices while the share of fnance 16.1%. Construction and manufacturing
account for 11% and 12% of the total, respectively.
34
IThere are two defnitions for company sizes: The frst relies on employment and the second on capital investment and annual
turnover. Due to insuffcient data on capital investment and turnover, the defnition based on employment has been adopted. Micro
enterprises hire up to 10 employees, while small enterprises hire between 11 and 50 (up to 100 for the construction sector) and
medium enterprises hire between 51 and 250 (up to 400 for the construction sector).
35
Including education, health, personal & social services, and hotels & restaurants
36
These include wholesale and retail trade, hotels & restaurants, transport & communications, fnancial services, business
services, other service industries, and real estate.
Figure 83: Sectorial distribution of establishments (2012)
Employment in micro, small and medium enterprises constitutes 77% of total jobs in the Bahrain private
sector. 13% of these jobs are held by Bahraini nationals. This refects the relative dominance of labor-
intensive activities in the SME space where companies contain costs by recruiting low-cost expatriate
workers. Twenty nine percent of MSME jobs in 2012 were in the construction sector followed by trade
(26%) and other services (18%).
By contrast, the relative presence of Bahraini nationals tends to more signifcant in larger companies.
Whereas 39% of the workforce of large private companies is Bahraini nationals, the corresponding
share for medium-sized companies is 28% and for small companies 24%. By contrast, the proportion
of Bahrainis in the employee pool of micro enterprises is a signifcantly lower 9%. Bahraini employees
are concentrated in service activities, particularly trade and fnance.
37
This is based on industry data (employment in registered companies), which may be different than total employment within the
sectors. Total employment also includes self-employment.
Figure 84: Bahraini employment in establishments by
economic activity (2012)
37
Figure 85: Non-Bahraini employment in
establishments by economic activity (2012)
Source: Ministry of Industry and Commerce Source: Ministry of Industry and Commerce
KINGDOM OF BAHRAIN
Figure 86: Distribution of foreign-held CRs by nationality
In 2012, 98% of companies in the Kingdom were owned by Bahrainis. The entities fully owned by
foreigners included 156 European-owned companies 83 entities belonging to GCC nationals. The
owners of micro enterprises include Bahraini, US and GCC nationals.
Key determinants of entrepreneurship in Bahrain
Access to fnance
Commercial banks in Bahrain have adopted a cautious approach toward lending to SMEs due to the
risks associated with them. Apart from this, SMEs typically do not match the book-keeping, fnancial
planning and budgeting standards of larger companies and hence frequently struggle to qualify for
mainstream commercial lending, something that is common in other parts of the world as well. In
response to these limitations, Bahrain Development Bank (BDB) was established in 1992 as a dedicated
government-supported lending to this sector. The banks key objective is to promote investments for
the purpose of economic diversifcation and employment creation for Bahrainis. The bank provides both
fnancial and advisory services.
The Bahrain Development Bank has disbursed nearly BHD240mn in loans since 2005. New lending has
grown signifcantly in recent years. The total new loans disbursed by the bank averaged BHD16.31mn
a year over 200508, as compared to BHD43.75mn during 200912, implying a growth rate of 168%
between the two time periods. About 76% of the total loans have been earmarked for the services
sector, followed by manufacturing at 21%, and agriculture and fsheries at 3% since 2005. The banks
importance and resilience is also refected in the speedy recovery in 2012 following the unrest. The BDB
managed to cater to 1,162 benefciaries during the year.
Figure 87: New lending by the Bahrain Development Bank (BHD)
Source: Bahrain Development Bank
Another important source of government SME support is the Tamkeen labor fund, which fnances
and guarantees loans from commercial and Islamic banks. Tamkeen guarantees 50% of the value of
SME loans made by Ithmaar Bank, BDB, Bahrain Islamic Bank, BMI Bank, Al Salam Bank, Standard
Chartered Bank, Kuwait Finance House and Khaleeji Commercial Bank, in addition to microfnance
institutions such as Family Bank and Ebdaa Bank. Total loans disbursed to date amount to approximately
BHD6.5mn to 4,764 enterprises. The majority of the loans were granted by BDB (3,176 benefciaries).
An additional BHD50mn is to be allocated by various partner banks to further extend the Tamkeen
guarantee scheme. Tamkeen has granted BHD126,505 for 31 start-ups to date as part of its startup
support scheme, which includes pre-seed grants and feasibility and incubation support.
Tamkeen has over time introduced a number of programs designed address the needs of Bahraini
SMEs. The following sections review some of the most important initiatives.
KINGDOM OF BAHRAIN
Funds for general improvement
Tamkeen identifed poor accounting and auditing practices as a major and common impediment to
funding among Bahraini SMEs. In order to address this issue, Tamkeen allocated BHD9.8mn toward its
Mohasaba scheme
38
, benefting 835 enterprises to date.
In addition to Mohasaba, Tamkeen recognized sustainable fnancing as a particular concern, most
notably during times of fnancial and economic distress. To address the issue, Tamkeen set up a
business sustainability support program under which an enterprise support fund was established with
the purpose of improving the productivity and proftability of SMEs. Thus far, BHD9.2mn has been spent
under the auspices of the program, catering to 2,500 benefciaries.
Funding and advice for expansion
Tamkeen provides 26 programs for the expansion, development and internationalization of SMEs. So
far BHD13.1mn has been offered to 3,242 enterprises. The program ultimately aims to reach out to
roughly 12,000 companies and the funds allocated for the purpose total approximately BHD131mn. The
activities supported by the program include marketing assistance, business development consulting,
quality management, promotion in exhibitions, and technical assistance to improve productivity and
e-marketplace training. Expansion and advisory services are classifed under the Enterprise Growth
Management (EGM) program, the second phase of which had a budget of around BHD50mn.

A number of new programs are under consideration or in planning. These include legal support,
information and communications technology (ICT) grants,
39
a support fund for large enterprises, and
a business diversifcation scheme. The addition of new programs is in line with the countrys overall
strategy to: (i) support the expanded use of ICT; (ii) enable businesses to acquire new technologies; and
(iii) enter new markets or develop new products.

38
Tamkeen supports the benefciary for two years by paying up to BHD4, 000 out of BHD4, 500 for the full Accounting and
Auditing service package and up to BHD1, 250 out of BHD1, 500 for Auditing services only. Additionally, Tamkeen provides a
BHD300 grant to the enterprise to purchase modern accounting software. This support enables the enterprise to implement
an advanced accounting system, utilize proper internal auditing practices, issue regular fnancial reports, analyze fnancial data,
and publish auditing reports - Tamkeen
39
Support business to acquire IT-related items
Figure 88: Distribution of benefciaries under the EGM program (second and third phases)
Source: Tamkeen Operational Plan 2013
Sector-specifc fnancing
Through its collaboration with other entities Tamkeen has widened its fnancial reach to specifc
niche markets including agriculture and fsheries while encouraging female entrepreneurship and ICT
development. So far Tamkeen has provided BHD4.3mn of funding to 835 fshermen and 369 farmers
to support the purchase of machinery and equipment. The ICT fnance scheme has so far reached out
to 51 benefciaries. Through its collaboration with the Supreme Council for Women and as part of its
women entrepreneur support scheme, Tamkeen has benefted 95 female-run enterprises in areas of
transport, fashion design and photography.
Microfnance scheme
Tamkeen has so far subsidized 934 micro loans through the Family Bank and HRH Princess Sabeeka
bint Ibrahim Al Khalifa Entrepreneurship initiative. The number of micro loans is expected to double next
year. The fund has allocated approximately BHD70,000 to assist the promotion of products from 200
productive families in 2013.
Microfnance was frst introduced in Bahrain in 1998 through the UNDPs MicroStart program which
aimed to tackle unemployment and encourage economic diversifcation. The success of this project
led to the introduction of microfnance institutions, with Family Bank and Ebdaa Bank
40
being the two
leading microfnance institutions in Bahrain.
40
For more information on microfnance institutes, please refer to the Microfnance article in the Bahrain Economic Quarterly (2Q12)
KINGDOM OF BAHRAIN
Business incubation
As part of the developing infrastructure for SME development, a number of entities are setting up
various business incubators across the country with a primary focus on start-up enablement. The
largest of these facilities is the Bahrain Business Incubator Center that has been set up as a subsidiary
of the BDB. The center provides independent work spaces (from 12 sq m to 215 sq m), a fully equipped
conference hall and meeting room, a display system for project promotion, an offce support center,
onsite parking and a reception area. It offers various services such as business advisory, fexible short-
term lease, training and operation services. The incubator currently hosts 120 clients (of 138 available
units). Additional incubators in the pipeline include a BDB center for women and a University of Bahrain
facility targeting young people.
Regulatory environment
The Kingdom has embarked on a number of projects to improve the business environment and
encourage entrepreneurship. The establishment of the Bahrain Investors Centre (BIC) in 2004 was an
important step toward facilitating new businesses creation in Bahrain. The BIC serves as a one-stop-
shop for potential investors. Further steps to ease commercial registration are underway and will include
the streamlining and automation of all business processes. Pending regulatory initiatives are linked to a
new competition law and a new company law.
Similarly, the CBB continuously strives to improve its regulatory framework by addressing the needs of
all types of fnancial institutions, investors and loan recipients. Currently, it is in the process of introducing
special regulations for microfnance institutes to ease the lending process.

The government has allowed 100% foreign ownership of businesses in most sectors of the economy.
Land ownership by non-Bahraini nationals is permitted in designated areas.
41

Entrepreneurial education and training
As part of its 2012 Skills for the 21st Century campaign, the Higher Education Council (HEC) is
developing skills and competencies of students in the areas of entrepreneurship and innovation.
In 2012 HEC held workshops led by the Massachusetts Institute of Technology (US) and Queen
Margaret University (UK) which focused on how to embed entrepreneurship and stimulate innovation
by improving university curriculums. The new strategy will be published in 2013 and will focus on
integrating entrepreneurship into higher education and introduce performance parameters to measure
its impact.
41
Government of Bahrain enacted the freehold property law of 2003, which allows foreigners to own property in designated
areas of the Kingdom
Higher education institutes have independently recognized the importance of entrepreneurial education.
As part of the education reform agenda, entrepreneurship was added to the University of Bahrains
strategy in 2009. Also, an incubation center is scheduled to commence operations in 2013.
Bahrain Polytechnic is establishing an Enterprise Development Center on its campus. The primary
function of the center will be to offer entrepreneurial development courses for Polytechnic students.
It will also leverage the existing incubation and startup support provided by the wider enterprise
development community within the Kingdom of Bahrain. The frst stage of the project includes a
portfolio of entrepreneurial courses, including exploring entrepreneurship; enterprise development;
entrepreneurial fnance; creativity, innovation and teamwork.
The Royal University for Women has also entered an agreement with the United Nations Industrial
Development Organization (UNIDO) to build a training center. The center will offer entrepreneurship
courses and will offer general business incubation services to new companies.
Other supporting initiatives
Tamkeen has launched three programs to support entrepreneurship in educational institutions. The
frst is the Injaz
42
company program, whose objective is to provide necessary entrepreneurial skills to
secondary school students. Through this program, students are categorized into groups and asked to
develop their own model company.
In 2013, Tamkeen will be introducing two additional programs: (i) a nationwide business plan competition
among university students (Mashroo3i)
43
; and (ii) an entrepreneurship module for educational
establishments which is intended to be embedded in school and university curricula.
Institutions, in cooperation with Tamkeen, are also deploying initiatives with the aim of fostering a culture
of entrepreneurship among the local population and providing Bahrainis the skills needed to create and
sustainability operate a business. Partners include the Ministry of Industry and Commerce (MoIC), the
Supreme Council for Women, BDB and private sector institutions like Tenmou.
42
As a member of the Junior Achievement Worldwide, it aims to embed an entrepreneurial and business mindset among the Arab
youth and empower their career aspirations. Its focus lies largely on youth educational and training programs.
43
This program is already launched
INTERNATIONAL
06
This section assesses the Kingdoms credit rating position according to three leading international credit
rating agencies:
Standard & Poors (S&P)
Fitch Ratings
The International Islamic Rating Agency (IIRA)
Credit ratings
A sovereign credit rating assesses the credit worthiness of a national government. The rating indicates
the risk level of the investment environment of a country and the ability of the country to meet its
fnancial obligations. The rating incorporates economic and political risk, and is an indicator which
investors often consider when making their asset allocation decisions.
Ratings are provided by dedicated credit rating agencies, the best known of which are Fitch and
Standard & Poors. Each agency has its own methodology in measuring creditworthiness and uses a
specifc rating scale to publish its ratings opinions. Key factors that all agencies evaluate include the
health of public fnances as well as fscal and monetary policy. Additionally, the agencies assess the
economic performance and the level of public and private debt along with debt servicing capacity.
The Rating agencies have four main indicators that can be assigned to countries: Short term rating,
Long-term rating, Transfer & Convertibility assessment and Outlook. As defned by rating agencies
a Short-term rating is a probability factor of a government defaulting within a year. This is in contrast to
Long-term rating which is evaluated over a longer timeframe. S&P defnes the Transfer & Convertibility
assessment as the rating associated with the likelihood of the sovereign restricting non-sovereign
access to foreign exchange needed for debt service. The Outlook assigned to the rating implies the
transition that the rating might make over the next 12 to 18 months. The outlook could be positive,
stable or negative. A positive outlook indicates that the rating could be improved; a stable outlook
implies that the rating might remain unchanged; and a negative outlook suggests that the rating could
be downgraded.

Ratings are expressed as letter grades that range from AAA to D. The investment ratings indicate the
agencys view of the creditworthiness of the country being assessed. These investment grade ratings
start at BBB to AAA which is the highest assigned rating. Ratings at BBB- and below are considered
to be speculative. Ratings provide an indication of a borrowers ability to make repayments in full and
in a timely manner. Consequently, the higher the rating grade assigned, the lower the interest rate the
borrower needs to pay to creditors.
The Kingdom of Bahrains current foreign and local long-term sovereign credit ratings are all investment
grade. Additionally most of the outlooks assigned are stable. This indicates that the countrys economic
fundamentals are favorable.
Rating environment
KINGDOM OF BAHRAIN
In this section, the Kingdoms international position is benchmarked against other economies using a
number of key economic and social indicators. It assesses Bahrains standing in international rankings
and reviews its performance across various component indices.
The analysis lists the most recent global rankings of Bahrain according to 14 leading international
indices that are usually issued and updated on an annual basis. It uses data from a number of reputable
sources including research and fndings from the Heritage Foundation, Transparency International,
United Nations Development Program (UNDP), United Nations Conference on Trade & Development
(UNCTAD), World Bank, World Economic Forum and the Fraser Institute.
Some reports and indices rely only on statistical data which some also supplement their analysis with
survey data. Statistical data consists of indicators capturing quantitative information such as infation
rates, GDP and life expectancies. These data sets are collected by international organizations, including
the IMF, World Bank, and various UN agencies, from reporting national entities (central banks and
statistical agencies) in their member states. The survey data is more qualitative in nature and covers a
variety of issues such as the protection of property rights, independence of the judiciary, and quality of
the educational system.
Bahrain has attained impressive results in a number of recent global rankings. Although some of these
standings have seen downward trends in recent years, Bahrains position remains highly competitive on
a global scale. The table below provides a snapshot of the Kingdoms performance in the latest reports
compared to the previous ones.
44
Fitch uses the term Country Ceiling
45
F3 fair quality grade with adequate capacity of obligor to meet its fnancial commitment, but near-term adverse conditions could
impact the obligors commitments
Figure 89: Bahrains sovereign credit rating
Foreign currency issuer Local currency issuer Transfer &
credit/default rating credit/default rating Covertability Outlook
assessment
44

Long-term Short-term Long-term Short-term Local long-term
S&P BBB A-2 BBB A-2 BBB Stable
Fitch BBB F3
45
BBB+ BBB+ Stable
IIRA A- A-2 A- A-2 Stable
Source: Standard &Poors, Fitch, International Islamic Rating Agency
Bahrain global rankings performance
Bahrains economy remains strong and its key characteristics make it extremely competitive on a global scale.
The reports evaluation suggests that Bahrains main comparative strengths include:
High standard of human development; ranks
in the High Human Development category in
UNDPs Human Development Report
Macroeconomic stability (low infation)
Favorable tax regime
Strong banking and fnance sector
Effcient business regulations
Openness to global trade
ICT readiness
46
It is misleading to compare HDI values and rankings with those of previous reports as the underlying data and methodology
have changed. In the 2013 report, the numbers for 2012 were revised and Bahrains ranking was 48
Figure 90: Bahrains comparative ranking
Index Latest rank Previous rank Change in rank
Economic freedom 12 12 -
Economic freedom of the world 8 7 -1
Ease of doing business 42 39 -3
Global competiveness 43 35 -8
Financial development 24 23 -1
Human development index
46
48 48 -
Networked readiness 29 27 -2
Corruption perception 53 46 -7
Education development 51 45 -6
Travel and tourism competiveness 55 40 -15
Logistics performance 48 32 -16
Enabling trade 30 22 -8
Gender gap 111 110 -1
Source: Various reports
Figure 91: Bahrains global ranking
Source: Various reports
INDIVIDUAL
SECTORS
07
Bahrain the frst oil economy in the region
Bahrain was the frst country in the Middle East to discover oil, with the Bahrain Field in the south
of the island commencing production in 1932. Revenues generated by this natural resource were
used to improve education and develop infrastructure, thereby placing the Kingdom at the forefront of
economic modernization in the Gulf region. Since the 1970s, Bahrain has been successful in diversifying
its economic base and is among the least oil-dependent economies in GCC. In 2012, the oil and gas
sector contributed 19% to real GDP compared to 44% in 2000 refecting the relatively small change in
oil and gas volumes.
Though Bahrain has focused on economic diversifcation for a number of decades, oil remains an
important part of the economy. Recent years have once again highlighted the importance of the oil
and gas sector in maintaining a positive trade balance, generating public wealth, and enabling the
government to moderate the impact of the global economic downturn. High oil prices, among other
things, have maintained oil and gas revenues as the primary source of government revenue. In 2012, oil
revenues constituted 87% of total government revenues compared to 67% in 2002.
The oil sector contributed 77% of total goods exports in 2012. Since Bahrain is a small open economy
and heavily dependent on imports, oil exports continue to play an important role in sustaining the
current account surplus and maintaining the currency peg to the US Dollar. On the other hand, while
natural gas is not a large contributor to government revenues or the Kingdoms exports, it is vital for
power generation and the manufacturing industry which contributed 15% of real GDP in 2012.
Oil and gas production
Bahrain currently produces more than 190,000 b/d of crude oil from two felds: Bahrain Field (situated
in the southern part of the island) and the offshore Abu Saafa Field (located to the north). On current
projections, Bahrains total oil output could climb as high as 250,000 b/d by 2020 or soon thereafter.
The positive forecast is primarily due to ongoing efforts to rehabilitate the Bahrain Field.
While production at the Bahrain Field totaled 75,000 b/d in 1970s, this fgure had more than halved
to 31,877 b/d by 2010. In response, the authorities in 2008 launched the Bahrain Field Development
Project, an enhanced oil recovery project undertaken by the newly established Tatweer Petroleum
Company
47
, to reverse the declining trend. Tatweers primary goal is to triple oil output at Bahrain Field
by drilling new oil wells and eventually use the latest enhanced oil recovery techniques to extract heavy
oil. In 2012, production at the Bahrain Field increased to 45,300 b/d a marked reversal of the steady
decline over the past four decades. Average daily production exceeded 45,289 b/d in 2012. Output
from the Bahrain Field is expected to reach 100,000 b/d by 2020.
Oil and Gas Sector
47
Tatweer Petroleum is a joint venture between nogaholding (the business and investment arm of Bahrains National Oil & Gas
Authority), Occidental Petroleum Corporation (US) and Mubadala Development Company (UAE).
KINGDOM OF BAHRAIN
Bahrain Petroleum Company (Bapco) owns and operates an oil refnery in Bahrain. The facility was
offcially commissioned in 1936 for the purpose of refning oil from the Bahrain Field. With the discovery
of oil in Saudi Arabia the refnery also began refning oil from Saudi, which was transported by ships prior
to the construction of the Saudi ArabiaBahrain oil pipeline in 1945. Currently, more than eight different
petroleum products are manufactured at the facility. 88% of the total output is exported. These products
include gasoline, diesel, jet fuel, fuel oil, asphalt, sulfur, liquefed petroleum gas (LPG), and lube base oil.
Bahrain receives export revenues from one-half of the crude oil produced from the offshore Abu Saafa
feld (shared with Saudi Arabia). At the current capacity, the Kingdoms share stands at 150,000 b/d. In
2012, production in the Bahraini share of Abu Saafa decreased to 127,642 b/d due to unscheduled
maintenance work throughout most of the year. By the end of 1Q13, production at Abu Saafa had once
again normalized.
Figure 92: Projection of crude oil production (b/d)
Source: National Oil and Gas Authority, Economic Development Board team analysis
Figure 93: Annual refnery production (000 barrels)
Figure 94: Hydrocarbons production (US b/d)
Natural gas
The Khuff gas reservoir, near the Bahrain Field, is the main source of natural gas in the Kingdom. The
reservoir was discovered in 1948, but was not developed until late 1960s, when the country was
planning to embark on an industrialization scheme, which would rely on Khuff gas as the main source
of energy. All of the natural gas production of Bahrain is consumed domestically (Figure 96). In 2003,
natural gas production totaled 339,798 million standard cubic feet per day (MMSCFD), a fgure which
had increased by 31% to 438,467 MMSCFD in 2012.
In 2012, Bahrain also produced more than 104,000 MMSCFD of associated petroleum gas, which was
processed by Bahrain National Gas Company (BANAGAS) into marketable liquid gas products such as
propane, butane and naphtha.
Figure 95: Production of gas (million standard cubic feet per day)
KINGDOM OF BAHRAIN
Future development plans
As a mature hydrocarbons producer, Bahrain is currently exploring new sources of hydrocarbons. Since
the formation of the National Oil and Gas Authority (NOGA) in Sep 2005, Bahrain has offered all four
of its offshore blocks to two international companies. Blocks 1, 3 and 4 were awarded to US-based
Occidental Petroleum and Block 2 was awarded to Thailand-based PTTEP. Occidental has completed
geophysical studies and performed seismic surveys
48
in Block 4. Furthermore, geological maps have
been developed to identify locations for drilling new exploration wells. An exploratory well is expected
to be drilled in each block.
Bahrain is also focusing on boosting gas production. The government has signed an agreement for
deep-gas exploration with Occidental. The project is estimated to increase overall gas production to
2.5bn cubic feet per day (CFD) by 2020 from 1.5bn CFD currently. To secure an adequate supply of gas
for its future requirements, Bahrain is currently evaluating bids for importing liquefed natural gas (LNG).
This involves installation of LNG receiving facilities to supplement local gas production.
Bahrain has further planned a USD6bn project to increase and upgrade the capacity of the Bapco
refnery, as well as replace the existing pipeline between Saudi Arabia and Bahrain. In 2011, Bahrain
purchased 216,400 barrels of crude oil on a daily basis from Saudi Arabia through pipeline for fnished
products. The pipelines capacity is expected to be raised to 350,000 b/d.
Overall, these projects indicate a total investment of USD20bn by international companies over the
next 20 years. Partnerships with these entities also guarantees greater employment for Bahraini
nationals, substantial technology transfers, procurement contracts for local merchants and adherence
to environmental protection laws.
48
A seismic survey is a method of exploration geophysics that uses the principles of seismology to estimate the properties of the
Earths subsurface from refected seismic waves. It is commonly used in hydrocarbon exploration to produce high resolution
3D maps of potential oil and gas reservoirs.
Figure 96: Consumption of gas in 2012
Bahrains strategic central location within the GCC region provides fnancial institutions operating in
the Kingdom with easy access to the regional economy, which is worth some USD1.4trn. The region
is characterized by one of the largest concentrations of private and public wealth in the world, and
supported by a growing oil and gas industry, the GCC remains critical to the global market for energy.
Bahrain is the oldest fnancial services center in the Gulf region, having emerged as a major offshore
banking hub in the 1970s. The Kingdom hosts a total of 411 fnancial institutions
49
((as of May 2013),
diversifed over a range of well-established industry sectors, including retail and wholesale banking,
Islamic fnance, asset management, and insurance.
The development of fnancial services has been actively supported by the CBB, which serves as a
unifed regulatory authority for the entire industry since 2006. The sector is governed by best-practice
international standards, with Bahrains business regulatory environment ranked frst among 17 economies
in the Middle East according to the Fraser Institute
50
. Financial institutions can capitalize on the fexible
regulatory environment as the Kingdom has been repeatedly recognized as the freest economy in the
Gulf region. The government allows 100% foreign ownership in companies, and provides one of the
most favorable taxation regimes both regionally and globally, with no tax
51
on corporate income and
capital gains
52
.
Overview
The fnancial services sector plays an important role in Bahrains economy as the largest sector of the
non-oil economy. It contributed 17.2% of the Kingdoms total real GDP in 2012. As of 2012, the sectors
output totaled BHD1.76bn, an increase of 4.03% YoY. Financial services registered a compound annual
growth rate (CAGR) of 8.14% over 200112.
49
According to the Central Bank of Bahrain (CBB)
50
Economic Freedom of the Arab World, 2012 Annual Report: Fraser Institute, an International Research Foundation
51
Excluding corporate income tax of 46% on oil & gas companies
52
Ernst & Young: Worldwide Corporate Tax Guide (2012)
Financial Services
Figure 97: Financial services Sector output and contribution to total GDP
Source: Central Informatics Organization
KINGDOM OF BAHRAIN
The fnancial services industry had nearly 14,900 employees in 2012, following a small 1.45% decline
from 2011. The sector contributed 2.3% to total employment during the same period. It is characterized
by a high Bahrainization rate, with nationals accounting for 62.4% of the total sectoral workforce as of
2012. This highlights the maturity of a highly skilled fnancial labor force that has emerged due to the
Kingdoms history as a fnancial center. In fact, over 20022012, Bahraini employment in the fnancial
services sector consistently held its ground at an average of 61.9%, portraying a sustained expansion
of Bahraini employment in line with the sectors overall growth. This was supported by a range of
competitive training facilities such as the Bahrain Institute of Banking and Finance (BIBF).
Figure 98: Financial services Sector employment and contribution to total employment
Figure 99: Growth in fnancial services
The performance of the Bahraini fnancial sector in 200112 refected the worldwide cycle experienced
by fnancial services. The total output of the sector stood at BHD703.5mn in 2002, a fgure that
dramatically expanded to BHD1.1bn in 2004, reaching the highest growth levels of 36% YoY, driven
primarily by wholesale banks. These banks are restricted from seeking retail deposits and raise their
funds directly from investors or the interbank market. The sector experienced negative growth in 2009,
for the frst time since 2002, due to the impact of the fnancial crisis. However, it was resilient amid the
uncertainty, growing at an annual average of 2.61% from 2009 to 2012. The insurance market, which
expanded at an annual pace of 25.1% in 2009 and 24% in 2010, has become an increasingly important
driver of growth in the fnancial industry over the past few years.
Banking
The banking sector in Bahrain is comprised of retail and wholesale banks. These include Islamic banks
operating in line with Shariah principles. Among other things, Bahrain hosts a sizeable population of
foreign banks, the largest of which are BNP Paribas, Citibank, HSBC, and Standard Chartered. At the
end of May 2013, the number of licensed banking institutions stood at 104, including 28 conventional
retail banks. The three largest local retail banks dominating the market are the National Bank of Bahrain
(26 branches), Ahli United Bank (20), and BBK (19). Currently, of the 53 conventional wholesale banks in
Bahrain, 13 are locally incorporated
53
including Gulf Investment Bank, Investcorp Bank, and TAIB Bank.
Beyond conventional fnance, Bahrain represents the largest concentration of Islamic fnance institutions
in the Middle East. The Kingdom is home to a total of six Islamic retail banks and 18 Islamic wholesale
banks. All are locally incorporated with the exception of Kuwait Turkish Participation Bank. The largest
network of Islamic retail branches is held by Ithmaar Bank (15) followed by Bahrain Islamic Bank (12),
the frst Islamic bank to be established in Bahrain in 1978.
Despite its diverse profle, Bahrains development as a regional fnancial center has been mainly
underpinned by rapid advancements in the banking sector. At approximately 7.2 times Bahrains GDP,
the consolidated assets of the banking sector totaled USD195.3bn at the end of 1Q13. Apart from the
strong regulatory environment and qualifed human capital, the banking sector benefts from the liquidity
generated by the regional oil and gas industry. The substantial presence of foreign banking institutions
in Bahrain attests to the attractive market conditions.
Over the past decade, Bahrains banking sector experienced pronounced cyclical variation, refecting
the global economic crisis and the boom preceding it. Total assets of the banking sector rapidly rose to
a peak of USD252.4bn in 2008 from USD74.0bn in 2002, increasing more than threefold. Since then,
the global economic crisis exerted downward pressure on bank assets, which was particularly visible
over 200809. By 1Q13, bank assets had once again rebounded slightly to USD195.3bn following
4.82% QoQ growth from 4Q12. Overall assets declined 2.25% over the past year due to continued
corrections experienced by wholesale banks which saw a 7.33% YoY drop in 1Q13. Retail bank assets,
by contrast, posted growth of 6.53% over the same period.
53
CBB Register (as of Jun 30, 2013)
KINGDOM OF BAHRAIN
Structure of the banking sector
Total deposits at retail banks and retail credit extended to the domestic economy exhibited a consistent
upward trend between 2004 and 2008, both registering growth of around 164%. Despite the global
credit crisis, retail deposits in Bahrain maintained their upward momentum, growing by a further 56.2%
to BHD14.8bn by the end of 1Q13. This was partly refective of an increase in investors risk aversion
to other asset classes. Domestic credit contracted slightly in 2010, but totaled BHD7.03bn by 1Q13,
exhibiting a growth of 19.5% over 2008 to 1Q13.
Figure 100: Consolidated assets of the banking system
* The increase in 2007 was due to a change in the type of license of some banks,
which have been converted from wholesale to retail banks
Source: Central Bank of Bahrain, Economic Development Board analysis
Figure 101: Total deposits and domestic credit (20031Q13)
Bank credit to the government and the private sector rose rapidly up to 2008, but slowed down sharply
in 2009 and 2010 in response to the onset of the global crisis and tighter liquidity conditions. However,
since mid-2011, YoY changes in credit to the private sector have been positive. By the end of 1Q13,
credit increased by over BHD460mn from the previous year to BHD6.85bn.
Since 2008, market lending interest rates have generally been on a downtrend in Bahrain. This largely
refects the loosening of the monetary policy by the US Federal Reserve as the Bahraini Dinar is pegged
to the US Dollar. Interest rates on personal loans fell to 5.8% by 2Q12, the lowest rate during the period
under review, from 9.3% at the end of 2007, increasing again to 6.1% by 1Q13. Furthermore, interest
rates on business loans declined from 6.9% in 4Q07 to 4.3% by 1Q13.
Figure 102: Growth (% YoY) in credit to the government and private sector (20071Q13)
Figure 103: Average lending rate (%), 20041Q13
KINGDOM OF BAHRAIN
Islamic fnance
Despite cyclical variations in the broader global fnancial industry, Islamic fnancial institutions have generally
remained resilient and increased their relative market share in Bahrain. A global leader in Islamic fnance,
the Kingdom is home to the largest market for Islamic fnance institutions in the Middle East, and is a
pioneer in the development of the Islamic capital market with regular sukuk issuance by the CBB.
Bahrain Islamic Bank, the Kingdoms frst Islamic lender, commenced operations in 1979. Over the next
decade, an number of Sharia-compliant institutions were set up in the Kingdom. Bahrains position in
Islamic fnance is further strengthened by the presence of a number of multilateral standard setting and
support institutions for Shariah-compliant fnancial services. The Accounting and Auditing Organization
for Islamic Financial Institutions (AAOIFI) set up its headquarters in Manama in 1990. Nearly a decade
later, it was followed by a number of other infrastructure institutions including the International Islamic
Financial Market (2001), General Council for Islamic Banks and Financial Institutions (2001), and the
Islamic International Rating Agency (2005). In October 2012, Thomson Reuters, one of the worlds leading
names in fnancial services and a leading source of market information for businesses and professionals,
announced the establishment of its Global Islamic Finance Hub in Bahrain.
Due to the proactive approach pursued by the CBB in support of Islamic fnancial services, Bahrain
has also been a global pioneer of bespoke regulation for such services. The government adopted a
set of industry-specifc regulations in 2001. Issued in 2005, Volume 2 of the CBB Rulebook provides
a comprehensive regulatory framework for Islamic fnancial institutions in Bahrain. Furthermore, Islamic
licensees are subject to a number of national laws, such as the Financial Institutions Law of 2006 and the
Bahrain Anti Money Laundering Law of 2001. As Bahrains sole regulatory authority for Islamic fnance,
the CBB introduced a new module on the sector in Volume 2 of the CBB Rulebook. The new module
establishes internationally accepted best practices in Risk Management (RM) for Islamic bank licensees.
With effect from early 2013, the RM modules principles are classifed under six categories: credit risk,
market risk, equity investment risk, liquidity risk, rate of return risk, and operational risk.
In 2006, the CBB established the Waqf fund, maintaining Bahrains position at the forefront in the
development of Islamic fnance. Through this facility, the CBB funds research, education, and training
in the feld. This is undertaken alongside the joint development of new industry standards with other
relevant stakeholders.
Islamic banks
As of June 2013, the CBB has issues operating licenses to 24 Islamic banks. While wholesale investment
frms operate as offshore entities with limited access to the domestic economy, retail banks cater to the
domestic demand for Shariah-compliant products. The Islamic fnance sector has experienced rapid
growth over the past decade. The consolidated assets of Islamic banks increased more than 12-fold
from USD1.9bn in 2000 to USD25.8bn in 1Q13. Thereafter, Islamic banks have been growing in size
relative to conventional banks, highlighting their resilience and untapped growth potential even during
challenging economic times. The share of Islamic bank assets in total assets has risen to 13.2% in
1Q13 from1.8% in 2000, indicating robust growth in the segment.
The real estate sector boom prior to the fnancial crisis signifcantly contributed to the expansion in the
Islamic fnance industry. Shariah principles necessitate a physical asset-fnanced model, and Islamic
fnance institutions resorted to real estate as a preferred asset class during the initial development of the
sector. Growth in Islamic banks accelerated 3050% between 2004 and 2008, surpassing that in the
conventional banking sector. While the subsequent real estate correction affected many Islamic institutions,
the impact of the fnancial crisis on Islamic retailer banks was lower than that seen on wholesale banks.
Figure 104: Breakdown of banking sector assets (20001Q13)
Source: Central Bank of Bahrain (Statistical Bulletin)
Figure 105: Growth of total banking assets (%), 20041Q13
Source: Central Bank of Bahrain (Statistical Bulletin)
KINGDOM OF BAHRAIN
Shariah-compliant investment products
Since the frst issuance of sukuk in 2001, the CBB has been a regular issuer of Islamic debt instruments.
Short-term sukuk include monthly issuances of BHD18mn Sukuk Al Salam (three-month tenor) and
BHD20mn Sukuk Al Ijara (Islamic leasing securities, with a six-month tenor). As of July 2013, the central
bank issued a total of 146 Al Salam sukuk and 94 Al Ijara sukuk. The CBB had also issued 19 long-
term Sukuk Al Ijara by the end of 2012. In Jul 2012, a BHD180mn issue with a fve-year tenor was
oversubscribed by 200%. The CBB also undertakes international issuances. The fourth issue (a seven-
year USD750mn sukuk) was placed by the CBB International Sukuk Company in November 2011. The
sukuk is listed on the London Stock Exchange and tradable in the GCC and Malaysia. The issue was
signifcantly oversubscribed with an order book of USD1.8bn.
The secondary market architecture for Islamic fnancial products has developed gradually in recent years.
BHB lists most long-term sukuk in the Kingdom. These include three CBB Ijara Sukuk issues and two
corporate sukuk. The BFX, launched in 2011, among other things operates an Islamic division, Bait Al
Bursa. Regionally, it is the frst dedicated platform to offer exchange-traded solutions in the Islamic fnance
market. e-Tayseer, a fully automated platform essentially offering a liquidity management solution to
facilitate Murabaha transactions, is expected to be the frst Islamic fnancial product on the BFX.
The outlook for Bahrain remains strong for its role as a key player in the regional and global Islamic
fnancial industry, driven by a skilled fnancial workforce and a leading range of innovative and
sophisticated Shariah-compliant solutions. However, the industry remains fragmented, which has
limited the competitiveness of several players beyond the domestic context. As a result, the CBB
has encouraged market consolidation to enable frms to diversify capital resources. In January 2013,
the merger of three Islamic investment banks Capivest, Elaf Bank, and Capital Management House
strengthened their balance sheets with consolidated shareholder equity of around USD350mn and
assets of over USD400mn.
Asset management
The fund management industry in Bahrain traces its origins to 1980s, with the frst locally incorporated
fund established in 1984. The Kingdom has since established itself as an important fund management
hub in the region. According to the CBB, there were 2,811 funds being managed in Bahrain as of 1Q13
(including open-end and close-end funds), 0.75% more than the total of 2,790 funds a year before. The
total net asset value (NAV) of funds remained fairly unchanged at around USD8.4bn in 4Q12 (USD9.2bn
in the previous year). According to the most recent annual consolidated data from the CBB, there
were 127 Bahrain-domiciled funds at the end of 2011, with USD5.0bn in total assets, whereas foreign
funds totaled USD3.4bn (invested across 2,711 funds). Refecting the importance of Islamic fnance,
Bahrain was home to 101 Shariah-compliant funds, with assets totaling USD1.7bn (locally domiciled
and foreign funds).
The Bahrain fund industry experienced rapid growth during the economic boom of the past decade.
Aggregate assets under management surged 308% to USD8.4bn from USD2.1bn between 1Q01 and
4Q12. However, the historic peak to date for assets under management was attained in 2008 when it
reached USD18.1bn. Subsequently, refecting global trends, a sharp correction was observed in 2Q08
and 2009. Despite the downward pressure on total fund assets due to the global crisis, the number of
mutual funds distributed for sale in Bahrain consistently rose from 2004 to 2011. On the other hand, the
number of new fund registrations has been declining since 2006, when it reached the highest level of 80
funds within the year.
Figure 106: Total mutual fund assets under management in Bahrain (USD bn)
KINGDOM OF BAHRAIN
The ten largest locally incorporated funds in Bahrain collectively had USD993.1mn in assets under
management as of Nov 2012. The two fxed income funds that top the list manage 50% of the total
across the largest funds, whereas the remaining are equity funds. The fund managers domiciled in
Bahrain have focused their investments mainly in the GCC region, with some funds investing more
broadly in the MENA region. Besides equity and fxed income funds, Bahrain-domiciled funds include
money market, sukuk, and hedge funds.
Institutions dominate the investor base in the Bahraini funds industry. Individual investors accounted for
just below 30% of the total fund assets, on average, from 2001 until 4Q12. This proportion had peaked
at 70.2% of the total NAV in 3Q12, while it had reached USD8.73bn in absolute terms during 1Q08. In
contrast, holdings among institutional investors peaked at USD11.9bn in 2Q08. As of December 2012,
fund holdings of individuals stood at USD2.2bn, a slight contraction of 5.8% YoY, while institutional
investor holdings grew 2.1% YoY to USD6.2bn
Figure 107: Number of mutual funds
Figure 108: Mutual fund investments Total assets by investor type (USD bn)
With regard to the distribution of funds in Bahrain, retail and wholesale banks recorded a decline in
total assets managed after the fnancial crisis. As of December 2012, the fund assets of retail banks
increased by 1.8% YoY to USD2.4bn, whereas wholesale banks experienced a 13.6% YoY drop to
USD1.5bn. Assets in funds distributed by other institutions, including representative offces, grew by
4.2% and totaled USD4.5bn.
Figure 109: Mutual fund investments Total assets by distributor (USD bn)
Under the CBB Rulebook, Bahrain offers asset managers a distinctive regulatory infrastructure and a
competitive taxation regime. The frst formal rules governing mutual funds were introduced by the CBB
in 1992. Since then, regulations have been developed further, in line with growing investor demand for
greater transparency of Collective Investment Undertakings (CIU), especially regarding the underlying
risks associated with investments in these products. Initially a module within Volume 6 of the CBB
Rulebook, the regulations underwent further revisions in 2011. The CBB incorporated the feedback
received from an industry-wide consultation in October 2011 and addressed issues such as corporate
governance. The revamped framework, released in 2012 as Volume 7, enables fund sponsors and
managers to capitalize on the tailor-made opportunities to suit the needs of investors. The CIU
regulatory framework provides a wide range of vehicles that asset managers can distribute in Bahrain,
within defned categories of Retail, Expert, Exempt, and Private. Each of these categories is regulated
separately and tailored to specifc characteristics, including targeted investor profles, level of product
sophistication, and the minimum capital requirements for investment.
KINGDOM OF BAHRAIN
Apart from private funds, Bahrain is home to a number of important government funds. These include
the Bahrain Mumtalakat Holding Company, which serves as the independent investment arm of the
Kingdom, strategically managing non-oil and gas related assets. Established in 2006 and wholly owned
by the government through the Ministry of Finance (MoF), Bahrain Mumtalakat holds a diversifed asset
portfolio of USD7.1bn in over 35 commercial enterprises across a range of sectors in the Bahraini
economy including aluminum production, fnancial services, and real estate (as of June 2012). Pursuing
the governments initiatives of value-enhancement, increased transparency, and operational excellence,
Bahrain Mumtalakat has been rated as the second most transparent sovereign wealth fund in the
Middle East
54
.
The Social Insurance Organisation (SIO), one of the largest institutional investors in the region, was
established in 2008 through a merger between the General Organisation for Social Insurance (GOSI)
and the Pension Fund Commission (PFC). Bridging the gap between the public and private sectors, SIO
manages the Kingdoms largest pension funds. In early 2013, SIO announced the launch of Osool Asset
Management Company (Osool), an independent organization set up to manage the formers fnancial
assets. Regulated by the CBB and MOIC, Osool aims to pursue an investment strategy to diversify
assets managed away from low-return bank deposits while minimizing risks.

The Bahraini insurance sector traces its origins back to the 1950s, when a group of taxi drivers formed the
countrys frst mutual insurance company, securing coverage for their vehicles within a legal framework.
Motivated by Bahrains position as a regional center of trade, foreign insurance companies arrived from
the UK, the US, and India. This foreign presence encouraged the development of domestic frms, such as
Zayani Group, thereby increasing competition in the insurance market. In 1961, American Life Insurance
Company (ALICO) was the frst insurer to be granted a license for offering long-term life and accident
insurance. In 1969, Bahrain Insurance Company was the frst established insurer to become a public
shareholding company. Since then, Bahrains insurance industry has expanded at a steady pace and has
been registering double-digit growth, in line with the signifcant developments in the fnancial industry.
Historically, the GCC insurance sector has been small and underdeveloped by global standards in terms of
most key indicators. The Bahraini insurance market contributed around 1.83% of the total GCC insurance
premiums in 2012
55
Despite the small volume, the industry grew rapidly in line with the expansion in the
broader fnancial market prior to 2007. Similar to its global counterparts, the insurance market in the GCC
was impacted by the fnancial meltdown. However, growth has continued beyond 200708, refecting
the resilience and growth potential of the market (albeit at a slower pace). However, the large exposure of
some insurance companies to real estate and equity investments has led to some structural challenges.
54
Based on the Linaburg-Maduell Transparency Index
55
Alpen Capital GCC Insurance Industry Report 2013
Insurance and takaful
History of the Bahraini insurance market
Bahrains insurance market encompasses 151 insurance frms and organizations (as of Feb 2013),
including 27 locally incorporated entities that are limited to offshore operations. There are 20 locally
incorporated insurance frms in Bahrain, including two reinsurance frms and three retakaful frms, while
foreign frms include 11 insurance frms. Evolving with the regional and local demand for Shariah-compliant
fnancial services, Bahrains insurance sector also incorporates six domiciled takaful and two retakaful
frms. Other companies represent ancillary services such as insurance brokers, loss adjusters, actuaries,
and insurance consultants.
Total gross premiums in the Bahraini insurance industry grew by 2.1% YoY from BHD210.5mn to
BHD214.9mn in 2011, underpinned by a 31% surge in engineering insurance along with a 10%
increase in medical insurance from 2010. Medical policies are increasingly being incorporated as part of
the beneft packages that companies offer to employees. The outlook for the Bahraini insurance market
and the GCC in general remains positive. Recent fgures indicate penetration in Bahrain stood at 2.3%
in 2012 as compared to 2.2% in 2011
56
. The GCC average was a much lower 1.1% in 2012. Across the
region, penetration rates are well below the global average of 6.5%. This, coupled with low insurance
density, suggests an untapped market potential.
Figure 110: Bahrain insurance market (gross premiums, BHD mn)
Source: Central Bank of Bahrain Insurance Market Review 2011
56
Swiss Re World Insurance Report 2011 and Alpen Capital GCC Insurance Industry Report 2013
KINGDOM OF BAHRAIN
Motor insurance was the single largest segment in the insurance market in 2011, largely due to
the mandatory status of vehicle insurance. With BHD55.6mn in premiums, the motor segment was
responsible for 26% of the gross written premiums. Long-term insurance was the second-largest
segment with BHD48.9mn in written premiums. It represented 23% of total written premiums along
with the highest retention ratio of 91% in 2011, up from 69% in 2010. The third-largest segment is fre,
property and liability insurance (18%). This product category recorded 8.4% growth in total premiums
to BHD38.6mn in 2011. Finally, medical insurance, and marine and aviation insurance accounted for
16% and 3% of the written premiums, respectively, in 2011. Other smaller segments comprised 14%
of the total gross premiums and included areas such as miscellaneous fnancial losses and engineering
insurance; the latter registered the highest annual growth of 31% in 2011 compared to other segments.
The need for Sharia-compliant insurance (takaful) has been refected in the general expansion in the
insurance sector and is also connected with developments in the Islamic lending market. As of February
2013, six takaful and two retakaful companies existed in Bahrain. The takaful industry increased at a
compound annual pace of 35.73% over 200111, far outpacing growth in the conventional insurance
sector (11.91%). Gross contributions in Bahrains takaful industry stood at BHD40.2mn in 2011 compared
to BHD1.9mn in 2001. Takafuls share of total gross written premiums/contributions has expanded more
than six-fold from 3% in 2001 to 19% in 2011.
Figure 111: Bahrain insurance market (gross premiums in 2011)
Source: Central Bank of Bahrain Insurance Market Review 2011
Growth in the Bahraini insurance market and the increase in the number of takaful frms in recent years
has necessitated the development of a reinsurance and retakaful market. As of February 2013, there
were four conventional reinsurance frms, along with two retakaful frms. Gross premiums/contributions
from the reinsurance and retakaful industries increased by 8% YoY to BHD349.5mn in 2011 from
BHD323.0mn in 2010. With signifcant growth of around 36%, gross claims stood at BHD272.8mn,
according to the 2011 data published by the CBB.
Licensed by the CBB in 2006, Hannover Retakaful Company is the frst in its line of business to start
operations in Bahrain, joined two years later by ACR Retakaful Company. Gross contributions of the
two retakaful frms rose 10.3% to BHD86mn in 2011 from BHD78.1mn the previous year. The retakaful
industry accounts for 25% of the total reinsurance and retakaful premiums/contributions.
Figure 112: Takaful insurance industry, 200111 Gross contributions and gross claims (BHD mn)
Figure 113: Reinsurance and retakaful frms (200111) Gross premiums/contributions (BHD mn)
KINGDOM OF BAHRAIN
A comprehensive regulatory framework has supported robust growth in the insurance industry over the
past few years. The CBB formulated the frst complete insurance rulebook in 2003, when it assumed
the responsibility to regulate and supervise the industry and establish Bahrain as an insurance center.
Implemented in 2005, the rulebook was aligned with the core principles of the International Association
of Insurance Supervision (IAIS). When the CBB became the unifed fnancial service regulator in 2006,
the insurance regulations were introduced in Volume 3 of the CBB Rulebook. Among other things,
the volume provides business standards to promote the resilience of the insurance system, reporting
guidelines that encourage transparency and accountability, and enforcement and redress for the
protection of insurance policyholders.
With a large and diverse domestic and expatriate workforce, an excellent logistics infrastructure, and an
attractive investment environment, Bahrain provides several opportunities and advantages to businesses
seeking to establish a regional manufacturing presence. These factors have helped increase real
manufacturing output by 90% over the past decade. In 2012, the manufacturing industry constituted the
third-largest sector after hydrocarbons and fnancial services, contributing 15% to real GDP and 13% to
total employment. Non-oil manufactured goods comprised 20% of Bahrains total goods exports.
Figure 114: Manufacturings contribution to GDP, exports and employment in 2012
Source: Central Informatics Organisation, Social Insurance Organisation, Labour Market Regulatory Authority
*Excluding refned petroleum products
Manufacturing
The Bahraini manufacturing sector is highly concentrated. Three main industries accounted for nearly
60% of the manufacturing output in 2011. These industries and their contributions to total nominal
manufacturing output are mentioned below.
1. Basic metals (23%): Aluminum production accounted for 87% of the basic metals industry in 2011,
while iron and steel manufacturing made up the remainder. Alba is the main upstream aluminum
producer in Bahrain, accounting for 73% of the total aluminum production
57
. Midal Cables, Gulf
Aluminium Rolling Mill Company (GARMCO) and Bahrain Aluminum Extrusion Company (Balexco)
are midstream and downstream producers.
Gulf Industrial Investment Company is the main producer of iron ore pellets, while SULB is engaged in
the manufacture of heavy steel sections.
2. Refned petroleum products (21%): Bapco, the main producer of refned petroleum products,
accounted for 83% of the total output of refned petroleum products in 2011. The company refnes
over 260,000 barrels of crude oil per day into LPG, gasoline, jet fuel, ultra-low sulfur diesel, fuel oil,
naphtha, asphalt and heavy lube distillate. BANAGAS contributed 16% to the total refned petroleum
production and produces naphtha, propane and butane. Bahrain Lube, which produces lube-based
oil, was responsible for the remaining 1%.
3. Chemical products (15%): Gulf Petrochemical Industries Co (GPIC) was responsible for 45% of the
total chemicals output of the Kingdom in 2011. Its products include ammonia, methanol and urea.
Plastic products and other chemicals such as paints and manmade fbers accounted for 55% of
the total chemical output.
Seven smaller subsectors comprised about 35% of the manufacturing output in 2011. These industries
and their contributions to total nominal manufacturing output are as follows:
4. Food and beverages (9%): Grain mills and bakeries constituted 58% of food and beverages
manufacturing, while dairy products and other drinks accounted for 36%.
Figure 115: Composition of manufacturing in 2011
57
Total aluminum production includes upstream, midstream and downstream production
KINGDOM OF BAHRAIN
5. Non-metallic mineral products (9%): This segment was dominated by glass and building materials.
6. Fabricated metal products (6%): This refers to the manufacture of storage tanks, and welding and
assembling non-machinery metal products.
7. Clothes and dyeing (3%)
8. Publishing, printing and media (3%)
9. Vehicle and shipbuilding (3%)
More than 50% of the industrial output in Bahrain is generated by four main producers: Alba and Gulf
Industrial Investment Company (GIIC), which are engaged in basic metal production, Bapco (refned
petroleum production) and GPIC (chemical production).
Alba
Alba is a regional pioneer in aluminum production, having originally launched operations in 1968 as well
as one of the worlds largest smelters. Albas high-grade output has created signifcant opportunities
in downstream aluminum manufacturing for the automotive sector. In 2005, Alba launched its ffth pot-
line, which dramatically increased the production capacity. In the past six years, the companys average
annual production has exceeded 860,000 tons, peaking at nearly 890,217 metric tons in 2012 with a
sixth production line currently under consideration.
Figure 116: Aluminum production (metric tons)
Source: Aluminum Bahrain, Central Informatics Organization
Albas main products include standard and T-ingots, extrusion billets, rolling slab, properzi ingots, and
molten aluminum. Around 46% of the output is directed to Bahrains downstream aluminum industry,
while the rest is exported to regional and international customers in the Middle East, Europe, Far East,
South East Asia, Africa, and North America.
With an average metal purity of 99.84%, Albas high purity grade molten metal has directly been used in
midstream and downstream aluminum production which is offer the most diversifed products in the region.
The midstream sector is highly developed, consisting of GARMCO, BALEXCO, Midal Cables, Aluwheel
and Bahrain Alloys Manufacturing Company (BAMCO). These frms export a wide variety of products,
including aluminum rods, conductors, cold rolled coil, aluminum circles, alloys, and extrusion products
used for doors and window frames, across the world.

Bahrain has also developed the downstream sector. Aluwheel, which produces passenger car wheels,
fully fnished truck wheels (Tunawheels) and wheel alloy ingots, is engaged in exports to global original
equipment manufacturers (OEM) and aftermarket customers. Another downstream company is Bahrain
Atomisers International, a producer of aluminum powder and pellets.
Albas early success established a blueprint for other non-oil industries to follow, including a thriving
downstream aluminum industry. The company is a major contributor to the social, industrial and
economic development in Bahrain. Alba has over 3,000 employees, of which nearly 90% are Bahrainis.
The companys shares are listed on the Bahrain and London exchanges.
GIIC
GIIC, wholly owned by Foulath Holding Company, has been operating in the Kingdom since 1984. The
company produces high quality iron oxide pellets and is a market leader in the region with the only
merchant pelletizing plant in the Arab World
58
. In 2010, GIIC launched a second plant that increased
capacity to 11mn tons per annum (tpa) and nearly doubled production from 3.5mn tpa in 2009 to
6.2mn tpa in 2010, 2011 and 2012.
Figure 117: Aluminums share in local consumption and exports (in 2012)
Source: Aluminum Bahrain
58
Due to its concept of importing iron ore as raw material and exporting pellets as fnished product, GIIC is unique in the region
and can be considered to be the only merchant plant as it is neither a part of an iron ore mining company nor a steel
production industry.
KINGDOM OF BAHRAIN
GIIC imports iron ores, the primary raw material, mainly from Brazil and exports iron pellets to Saudi
Arabia, Qatar, Iran, India, Indonesia and Malaysia. GIIC is also expanding regionally as it has obtained
licenses to build two plants in Egypt.
Figure 118: Steel production (mn tons)
Source: GIIC
Figure 119: GIICs export destinations, 2012
Source: Gulf Industrial Investment Company
Other basic metal companies
SULB
In 2010, United Steel Company (SULB), a USD1.2bn project to build a steel manufacturing plant, was
launched. The project is a joint venture between Foulath Holding Company and Japans Yamato Kohgo
Company, and will be the regions only producer of beams, and medium and heavy structural steel
sections. SULB is expected to have a 1.5m tpa DRI facility (pellets to be supplied by GIIC) and two
0.65m tpa casters for I beams, H beams, and large channels and angles. Construction of the facility is
well under way and will become a vital link in the supply chain for Bahrains construction industry in the
future. The plant is projected to create around 1,700 jobs.
UNIROL
Universal Rolling Company (UNIROL) is a construction steel plant that started commercial production
in December 2008. UNIROLs goal was to produce steel rebars (0.2mn tpa) that conform to the British
Standard Products. The majority of the companys output is directed to the domestic market, catering to
major government infrastructure projects and key private sector projects in Bahrain and the GCC region.
Bapco
Bapcos refnery, the oldest in GCC and one of the largest in the Middle East, refnes over 260,000 barrels
of crude oil daily. About one-sixth of this crude originates from the Bahrain Field and the remainder is
pumped from Saudi Arabia through pipelines extending 27 km over land and a further 27 km under
water before reaching northwest Bahrain.
Bapco produces a wide variety of high value refned petroleum products including LPG, naphtha,
gasoline, jet fuel, diesel, fuel oil and asphalt. In 2011, the company exported about 90% of its production
to customers in the Middle East, India, Far East, South East Asia and Africa. The introduction of low
sulfur diesel in 2007 also allowed the company to expand in the European and US markets.
Figure 120: Refned petroleum and gas production (USD mn barrel.)
Figure 121: Refned petroleum products (in 2011)
KINGDOM OF BAHRAIN
Bapco is planning to expand its facility at a cost of USD5bn to compete with top refneries in the Middle
East and Asia-Pacifc regions. The primary goal is to boost capacity up to 450,000 b/d and improve the
range and quality of its products and processes by focusing on higher value-added products.
GPIC
The petrochemical industry is the second-largest manufacturing subsector in Bahrain after aluminum
and became a major industry after the establishment of GPIC in 1979. The company began operations
as a joint venture of GCC member states for manufacturing fertilizers and petrochemicals by utilizing
Bahraini natural gas as a feedstock. The companys main shareholders to date include Bahrain NOGA,
Saudi Basic Industries Corp (Sabic), and Petrochemical Industries Co of Kuwait, each holding one-third
of equity capital. GPIC manufactures methanol, ammonia and urea products, which are distributed to
customers worldwide. In 2011, the company set a new annual record of producing 1.575mn tons of
ammonia, urea and methanol the highest annual output in the companys history.
In 2011, GPICs petrochemical exports included 666,634 tn of urea, 435,286 tn of methanol and
71,536 tn of ammonia. The main export market for urea products was the US, accounting for 53% of
total exports, followed by Australia and Pakistan (13% each), India (11%), and Thailand, South Africa
and Vietnam (3% each). In 2011, the main export markets for ammonia were South Korea (53%) and
India (47%).
Bahrains central location and strong regulatory framework have made it a regional hub for transportation
and telecommunications. Over the past decade the sector has grown to become a leading driver of
economic growth. Its contribution to the annual real GDP expansion peaked at 36.7% in 2009. The
sectors share of GDP has risen signifcantly over the last ten years as a result of privatization in transport
and regulatory reform in telecommunications. The sector accounts for 7% of Bahrains GDP in 2012.
The slowdown in growth observed post 2009 is most likely due to the global downturn. However, the
sector registered signifcant recovery in 2012.
Figure 122: Petrochemical production (mn tons)
Source: National Oil and Gas Authority for 200709,
Gulf Petrochemical Industries Company for 201011
Transport and communications
Telecommunications
The telecommunications sector in Bahrain has historically been dominated by the countrys frst
telecommunications company, Batelco, which began operations in 1981. Over the past decade, the sector
has benefted from a number of reform initiatives. In 2002 Bahrain implemented its telecommunications
law which included the establishment of an independent Telecommunications Regulatory Authority
(TRA) as the industry regulator. The TRAs objective is to liberalize the telecommunications sector and
protect the interest of subscribers and consumers as well as foster transparency and quality assurance.
Following the launch of the sectoral reforms, two telecommunication companies have entered the
market as direct competitors to Batelco; Zain (a rebranded version of MTC Vodafone) and VIVA (owned
by STC Group of Saudi Arabia) entered Bahrains market in 2004 and 2010 respectively. Both began as
mobile service providers but eventually expanded to include fxed line and broadband services.
The TRA liberalization agenda has driven robust growth in sector. Growth in telecommunications
reached 12.8% YoY in 2011. It was responsible for 49% of total Transport and Communications sector
revenue in 2007, a fgure that rose further to 60.8% in 2011. Its contribution to real GDP stood at 4.1%
the same year.
Figure 123: Economic indicators for telecommunications and transport
Source: Central Informatics Organisation, Labor Market Regulatory Authority,
KINGDOM OF BAHRAIN
Figure 125: Employment in telecommunications sector and growth
Source: Telecommunication Regulatory Authority, Economic Development Board analysis
Liberalization efforts in the telecommunications sector have contributed to signifcant employment
growth, taking the total number of jobs in the sub-sector to a total of 2,700 as of 2011. This marked a
50% increase since the launch of the liberalization policies in 2003. Bahrainization in this sector is also
amongst the highest in the country, standing at 80% as of 2011. This is mainly due to the sectors
high productivity and reliance on skilled employment. The sector also boasts a high female ratio of 28%
relative to a workforce average of 21%.
Growth in demand for telecommunication services in Bahrain has been accelerating since the beginning
of the decade. The large demand for telecommunication services is refected in the Kingdoms
internationally high penetration rates, which were achieved over a relatively short period of time. As
of 2Q12, broadband penetration reached 34%, with 60% of subscribers belonging to the mobile
users category. All 413,000 Internet subscribers in Bahrain are registered as broadband users. Mobile
penetration rates reached 158% in June 2012 with over 1.9mn mobile subscriptions after the third
mobile operator (VIVA) launched its services in 2010.
Figure 124: Telecommunications revenue in BD mn and growth
Source: Telecommunication Regulatory Authority, Economic Development Board analysis
Transportation
As the GCC country with the shortest travel time between seaports, airport, commercial and residential
areas, Bahrain holds a highly competitive position regionally in terms of transportation effciency
and speed. Bahrain is 25 minutes away from Saudi Arabia through the King Fahad Causeway and
a proposed causeway project is due to link the country to Qatar. Bahrains national carrier, Gulf Air,
which originally began operations in 1950, provides competitive connectivity within the region as well
as internationally. The countrys logistics infrastructure further includes a dedicated logistics zone and
modern port facilities. This infrastructure makes Bahrain a hub for trade and tourism with high potential
for further growth.
59

Road and rail
Bahrains modern road infrastructure boasts one of the highest percentages of paved roads as a
share of total roads globally, at 82%
60
. However, vehicle density in the Kingdom is also very high by
international standards at 537 per 1,000 people, causing strain on Bahrains infrastructure despite rapid
developments over the past decade. The high number of personal vehicles is partly attributable to a
relatively rudimentary public transportation system and highly subsidized fuel prices.
Figure 126: User growth
Source: Telecommunication Regulatory Authority
59
Economic Development Boards projections
60
World Bank database
The increasingly competitive market place pushed the overall growth in domestic calls to 82% and in SMS
to 175% in 2010. The composition of the workforce in Bahrain, which is approximately 70% expatriate, is
an important growth driver for the international calls segment. This, alongside with the downward trend in
international call prices, led to a growth of 35% in international calls in 2010 and stability in 2011 even in
the face of the growing popularity of free Internet calls. 84% of all outgoing international calls were made
to South Asian countries, while neighboring GCC countries were the second most important destination.
The popularity of calls to South Asia refects the presence of expatriate workers from the region while
regional calls are a result of Bahrains role as a regional tourism destination.
KINGDOM OF BAHRAIN
61
Ministry of Transportation
In order to manage environmental concerns from high motor vehicle usage and the increasing costs of
traffc management, the government launched an initiative to improve and expand the public transportation
system with the intention of complementing the privatization efforts of Bahrains public transportation. A
new bus system is expected to commence operations in early 2014 and offers additional and intermediate
routes, upgraded stations, control centers and traffc management mechanisms.
To further alleviate transportation issues and promote growth, Bahrain is expected to be linked to the
emerging GCC railway network as part of a USD 4.4bn project.
61
The planned USD2.9bn Friendship
Bridge between Bahrain and Qatar will be part of the network. In addition, through the road link between
the two countries, travel time is expected to be reduced from over four hours to half an hour.
Aviation
Bahrain is an established aviation hub in the Gulf region with the establishment of its national carrier, Gulf
Air, dating back to 1950. The competitive position of Bahrain as an aviation hub is evident by choice of
several international airlines to base their regional headquarters in Bahrain, including Lufthansa, Cathay
Pacifc and Air India.
In spite of a global downturn and intense regional competition in the transport sector, the aviation sector
has been highly resilient in recent years. The growth of the sector slowed down in 2009 before a 12.4%
correction in passenger numbers in 2011. A strong recovery with an 8.8% increase in passenger traffc
was seen in 2012.
Figure 127: Paved roads (% of total), 2009
Source: World Bank
The display of continuity has been even more obvious in the case of aircraft movements. The number
of aircraft landing at the Bahrain International Airport (BIA) rose at an annual average pace of 5% over
the years 2005-2012. The positive trend was only temporarily disrupted by a 2.8% dip in 2011. A
subsequent recovery took the total number of fights to almost 106,000 in 2012, which was only slightly
short of the 2010 peak.
Figure 128: Total airline passenger movements
Figure 129: Total aircraft movements
Source: Civil Aviation Authority
KINGDOM OF BAHRAIN
The disruptions caused by the global economic downturn have been more pronounced in the area of
cargo fow which have eroded since their 2007 peak. A 15.4% fall in 2011 was due to a 14% drop in
uplifted cargo (leaving the country) and a 9% drop in cargo discharged (entering the country). It was
followed by a 6% decline in 2012. The Bahraini International Airport has also served as a logistics hub
servicing large international companies particularly DHL which has a subsidiary of its aviation sector
based in Bahrain and carries the lions share (57%) of the cargo volume.
Bahrains fundamentals point to considerable growth potential for the aviation sector, refected the
project to develop the Bahrain International Airport which is due to start in 2013 and will be undertaken
in two stages. Firstly, the existing structure will be redeveloped in line with modern technical standards
and design, and secondly, the airports capacity of both passengers and aircrafts will be expanded. The
development project has an estimated budget of USD363mn while the expansion is estimated to cost
around USD458mn. The project is expected to result in a 50% increase in capacity from around 9mn
to 13mn people in order to meet expected growth.
Sea ports
In attempts to further develop its position as a logistics hub in the northern Gulf region, Bahrain launched its
new Khalifa Bin Salman Port (KBSP) in 2009. Built on 110 hectares of reclaimed land, the port has a 1,800m
quay including a 900 sq m container terminal and is served by four 61-meter post-Panamax cranes.
The facility is currently operated by APM Terminals with a 25-year concession agreement, supervised
and regulated by the Ports & Maritime Affairs of the Ministry of Transportation, and is a hallmark of
successful public private partnership in Bahrain. The current throughput capacity of the KBSP stands
at 1.1mn TEU (20-foot equivalent units) per year with plans to expand to 2.5mn. Following the opening
of KBSP, the old Mina Salman Port has re-focused on specialized commercial operations, including
less-than-container-load (LCLs) and warehousing for the public and private sector.
Figure 130: Total air cargo and mail, tons
Figure 131: Container throughput (Khalifa Bin Salman Port and Mina Salman Port)
Figure 132: General cargo throughput (Tons)
Source: Ports and Maritime Affairs
This restructuring and expansion of Bahrains port facilities has helped drive substantial growth in
maritime trade. The container throughput of Bahrains ports has almost doubled since the opening of
the KBSP in 2009 having grown over 87% in the past four years. The increased volumes have gone
hand in hand with increased crane productivity from a monthly average of 32 moves in 2011 to 35.
While container throughput has experienced large growth in recent years, we see the opposite trend in
general cargo, or break bulk cargo. This seems to be in line with general global trends moving away
from loose homogenous products (break bulk) towards more container based trade.
Source: Ports and Maritime Affairs
KINGDOM OF BAHRAIN
General cargo volumes in Bahraini ports have declined sharply from 2009 to 2010. This is refective of
the drop in overall global trade but can more specifcally be associated with a regional undersupply of
building materials, particularly cement. The undersupply, in conjunction with the post-2008 slowdown in
the construction sector, contributed to the reduction of incoming cargo. Export volumes were also hit by
the cyclical downturn. Having subsequently remained fairly fat, the general cargo throughput of Bahrain
posted a robust 39% YoY increase in the frst half of 2012. Refecting Bahrains role as a regional hub,
transshipment volumes rose by an annual 21% in the frst half of 2012. Further growth is expected in
2013 in order to reach the transshipment target of 389,009 TEUs
62
in 2013.

Broadly matching the experience of its regional neighbors, the Bahraini real estate and construction
sectors experienced a very sharp cycle over the past decade. Six years of history rapid growth between
2002 and 2008 was driven by a surge in commercial, luxury and freehold projects. However, the global
downturn triggered a strong market correction. After a period of decline, the market rebounded in 2012,
partly due to higher construction activities by the government. The authorities launched a comprehensive
housing program aimed at meeting the growing demand for social housing, while private developers
increasingly refocused their attention on gaps in the real estate market, offering more price-sensitive
housing to mid-income Bahraini households.
Real estate and construction were established as important segments of the countrys non-oil economy
during the past decade. In real GDP terms, the combined contribution of the two sectors stood at
11% in 2012, marginally down from 13.7% in 2008. Despite a high contribution to total employment,
the 26% Bahrainization rate is relatively low due to a large number of low-cost migrant labor in the
construction sector.
62
Ports and Maritime Affairs, KBSP Performance Half Year Report
Figure 133: Contribution of construction and real estate sectors to GDP, employment, and Bahrainization rate (in 2012)
Source: Central Informatics Organisation, Labor Market Regulatory Authority, Social Insurance Organisation
Real Estate and Construction
A number of factors could be used to explain the property market boom in the past decade. A combination
of rising oil prices between 2002 and 2008, followed by an increase in pro-cyclical government spending
(on higher oil and gas revenues) led to an improvement in the liquidity situation. Similarly, the decision
to allow foreign nationals to acquire real estate
63
in parts of the island acted as a catalyst for a private
sector-led real estate boom. Between 2002 and 2008, construction sector output increased by 292%
in real terms, while the real estate sector grew by 53%. Employment in the two sectors also increased
substantially, particularly in the construction sector, where the total number of jobs doubled.
By the end of 2008, the real estate market in Bahrain as well as other GCC countries experienced
a sharp decline and several projects were halted or faced delays. As of 2011, the number of new
construction permits fell 37% compared to 2008. Permits for renovations and additions declined 17%,
while reclamation permits contracted from 36 in 2008 to 4 in 2011.
A fall in oil prices and the global fnancial crisis were the key reasons for an end to the property boom.
Investors lost confdence in real estate investments and real estate-backed fnancial transactions.
Expectations of an increase in future land prices, which had initially driven demand and speculation
ended abruptly. Meanwhile, numerous freehold development projects came to market after the
downturn. This, in turn, led to a further decline in prices due to oversupply. The price effect of the real
estate boom is evident from the average price of traded land permits that grew sevenfold between 2001
and the peak of 2008.
64

63
Government of Bahrain enacted various laws, such as the freehold property law of 2003, which allowed foreigners to own
property across designated areas in the Kingdom.
64
It should be noted that this data includes different types of traded properties, including industrial, residential, and commercial
lands, but nevertheless, is a useful general indicator of real estate prices in the past decade.
Figure 134: Construction permits
Source: Ministry of Municipalities and Agriculture Affairs
KINGDOM OF BAHRAIN
Figure 135: Average price of traded land permits (in BHD)
Figure 136: Annual growth rate in the construction and real estate sectors
Source: Survey and Land Registration Bureau
65
GCC Development Program is a GCC-pledged USD10bn fnancial aid aimed at upgrading housing and infrastructure in
Bahrain over 10 years.
Despite the post-boom slowdown, there was fairly a broad-based bottoming out of the market in 2012
followed by the emergence of pockets of renewed growth. The sector was estimated to have grown
4%, mainly due to increasing public spending on social housing projects and a refocusing on low to
middle-income housing projects by private developers. The 20132014 state budget draft incorporates
a BHD580mn program to build 16,000 new houses. Of this, nearly BHD340mn is expected to be
funded through the GCC Development Program
65
.
66
Social housing units, in the form of a house or apartment, are offered to Bahraini households earning less than BHD900 per
month and are usually offered to the eligible households under a rental agreement, which is capped at 25% of the households
monthly income.
Social housing
In recent years, demand for social housing
66
has increased considerably with the offcial waiting list for
government housing now at an estimated 15 years with more than 53,000 applications. On average,
8,000 Bahraini households apply for social housing each year. In order to meet the growing demand
and achieve the goal of reducing the waiting time for social housing to fve years, MoH launched a
BHD580mn program consisting of several housing projects with the aim of catering to Bahraini
households that have submitted applications prior to 2007. In 2011, the Ministry provided 6,000 homes
and was targeting the construction of 7,000 homes in 2012. Furthermore, it announced plans for
developing 20 projects with 8,717 social housing units in the coming years.
In an important new approach designed to boost housing availability, the government signed a public-
private partnership with Naseej Properties to build 3,100 social housing units and 1,000 affordable
housing units at a cost of BHD208mn. The government is handling the primary infrastructure (worth
BHD155mn) for the project, while the rest will be borne by Naseej Properties. The social housing units
will be allocated to applicants on the governments social housing waiting list and the remaining 1,000
units will be available for sale to Bahraini households.
Future social housing projects
Governorate Area Number of units Housing type
Capital Juffair 60 Apartment
Um al Hassam (Phase 2) 160 Apartment
Nabih Salih 225 House
Muharraq Arad 183 House
Muharraq 207 48 Apartment
Samaheej (Phase 3) 105 House
Northern Jannusan 92 House
16 Land plot
Hamala 233 House
Karranah 139 House
Shahrakan 202 House
Shakhora 300 House
Central Isa Town 288 Apartment
Tubli 291 House
320 Apartment
Sitra (Phase 1,2,3) 1,500 House
Southern Jaw (Phase 2) 95 House
Askar 550 House
Bar Al Dur 1,560 -
Al Jazayer 2,350 -
Total 8,717
KINGDOM OF BAHRAIN
Apart from the direct provision of social housing, the government seeks to improve access to
accommodation through special loans for qualifying families. Households earning BHD9001,200 per
month are eligible for a social housing loan. The terms of such loans have been revised recently, for
example, Eskan Bank (which administers the governments social housing fund) has raised its maximum
subsidized mortgage loan from BHD40,000 to BHD60,000 and has extended the maximum term of
the mortgage from 25 to 30 years. In 2012, social housing loans totaling BHD40.7mn were granted to
322 Bahraini households. Since land prices have increased substantially in the past decade, the level of
subsidized fnance available is not always enough to cover the cost of a standalone house.
The global economic downturn prompted a growing number of regional property developers to shift
their focus from luxury projects to the more price-sensitive, middle-income housing projects. A growing
proportion of houses are either fully attached or semi-attached to other houses with connecting walls.
The projects offer homes in the price range of BHD42,000180,000, with the cheaper units usually
being fully attached homes.
Figure 137: Residential projects in the pipeline offering affordable housing
Projects Area Developer Units Price range (BHD)
Buwaitat al- Fareej Sanad Capital Real Estate 85 42,00085,000
Diyar Homes Muharaq Kuwait Finance House-Bahrain 350 99,900+
Tubli Gardens Tubli Al Manara 57 90,000110,000
Wahat al Muharaq Qalali Al Manara 180 98,000170,000
Al Faridha I Al Markh Al Saraya Properties Company 50 79,500+
Janayin Al Hamala Al Hamala Al Manara 148 78,000130,000
Al Dair Gardens Al Dair Aman Real Estate Development 57 75,000+
Jeyoun Bu Quwah Al Argan 18 69,999133,900
Sanad Oasis Sanad Al Kobaisi 38 125,000180,000
Source: [Economic Development Board team analysis]
Diyar Homes, being developed by Kuwait Finance House-Bahrain, is part of Diyar Al Muharraq, one of the
biggest mixed-use residential urban projects in the Kingdom. The project achieved major success in its Phase
1 launch in May 2012 with all 350 housing units that were released for sale purchased by customers within
a month. The project is being marketed as affordable housing with home prices starting from BHD99,900.
Another project marketed as affordable housing is Buwaitat Al Fareej in the Central Governorate, which is
being developed by Capital Real Estate Company and fnanced by Eskan Bank. In line with other projects
targeting the low- to mid-income market, developers have opted to build smaller houses with unit lot areas
ranging from 72160 sq m and sale prices from BHD42,00085,000.
Over the past decade, Bahrains trade sector grew rapidly. The sector expanded 32.3% in 2004 and
averaged 13.3% growth annually between 2001 and 2008. Since 2008, growth has slowed down and
the sector actually experienced a contraction in 2009. As of 2012, the sectors total output stood at
BHD470.4mn, which was 174.2% ahead of the 2000 level. Despite the robust growth, the trade sector
remains a small contributor to the Bahraini economy, accounting for 35% of total GDP from 20002012
and standing at 4.61% in 2012.
Trade
The trade sector employed 127,403 people in 2012
67
, contributing almost 20% to total employment; thus,
it was the second-largest employer after construction in that year. The proportion of employment in the
trade sector as a share of total employment hovered at around 12-14% between 2002 and 2007, but
jumped to 20% of total employment in 2008. Employment in the sector is largely composed of low-cost
expatriate labor, with proportion of nationals standing at 18.8% in 2012, a slight decrease of 0.7 percentage
points from 2011.
Figure 138: Trade sectors contribution to GDP (200112)
Figure 139: Trade sector as % of GDP (2012)
Source: Central Informatics Organisation, Economic Development Board Analysis
67
KINGDOM OF BAHRAIN
Bahrains social and personal services sector primarily comprises of private health and education services.
The sector has been highly competitive and recorded one of the fastest and most consistent growth rates
across any part of the Bahraini economy. Over the past decade, the annual pace of expansion consistently
remained in the double digits, ranging between 10% and 20% a year. As of 2012, the total output stood
at BHD553.3mn, accounting for 5.4% of total Bahraini GDP. Private education services constituted 35%
(BHD191.2mn) of the sectors output, while private health services accounted for 23% (BHD127.7mn).
Figure 140: Trade sectors contribution to employment (200212)
Source: Labour Market Regulatory Authority, Economic Development Board analysis
Figure 141: Trade sector Growth, employment, and Bahrainization (200212)
Social and Personal Services
The sector is characterized by high value-added employment as its GDP contribution was signifcantly
ahead of its share of total employment. As of 2012, social and personal services employed 22,850 people,
contributing 3.53% to the Kingdoms total employment. This marks a 35.0% growth from 2008, when there
were roughly 17,000 employees. As of 2011, nearly 6,500 people were employed in private health services
and around 3,000 in private education services. Bahraini nationals comprised approximately one-quarter of
the employment in social and personal services in 2008 and 2012. They accounted for a signifcant 42.6%
of employment in private education services in 2011.
Figure 142: Social and personal services Output by segment (200112)
Figure 143: Social and personal services contribution to employment (200812)
Source: Labour Market Regulatory Authority, Social Insurance Organisation,
KINGDOM OF BAHRAIN
Government services in Bahrain include the provision of public health and education services. The sector
has experienced strong growth over the past decade, expanding by 213% between 2002 and 2012. The
sectors output stood at BHD1.23bn at the end of 2012, which marked growth of 12% YoY from 2011.
However, this represented a slowdown from the previous years 14% YoY growth, which marked the fastest
annual increase during the period under review. Although the historically strong growth in government
health and education has been slightly lower in recent years, growth in output has been underpinned by a
rise in other government services.
Nearly 58,147 employees were active in the government services sector as of 2012. Approximately one-
third is employed in education (18,402
68
) and around one-sixth in health services (9,700
69
). The total number
of employees in government services grew 4.2% YoY in 2012, well above the 200212 average (54,852).
During the same period, as Bahrains workforce more than doubled, while government employment
remained relatively stable, resulting in a fall of the sectors contribution to total employment. The sectors
employment has consisted predominantly of Bahraini nationals. Their share in total jobs varied between
80% and 91% during the period under review, making government services one of the most Bahrainized
sectors in the economy.
Figure 144: Government services Output by segment (200112)
68
Ministry of Education
69
Ministry of Health
Government Services
Bahrain has a long history of attracting tourists from the region and abroad. The KIngdom offers a developed
infrastructure of hotels, resorts, shopping malls, and restaurants that has further expanded in recent years.
Efforts to develop the Kingdoms competitiveness in this sector have involved a number of new initiatives
since the turn of the century. The Bahrain Grand Prix is a Formula One Championship race which became a
key part of the global expansion of the Fdration Internationale de lAutomobile (FIA). The event, sponsored
in Bahrain sponsored by Gulf Air was launched at the purpose-built Bahrain International Circuit on 4 April
2004. It made history as the frst Formula One Grand Prix to be held in the Middle East, and was given the
award for the Best Organized Grand Prix by the FIA. The building of the Bahrain International Circuit in
Sakhir was started in 2002 . By the completion of the project, the circuit became the center of motor sports
in the Gulf region, as it holds the annual Formula One race and many other races such as drag races, GT
races, Formula 3 races and the Australian V8 Supercar.
Recent initiatives for cultural tourism have gained international recognition. For instance, Manama held the
status of Capital of Arab Culture in 2012 as part of UNESCOs cultural capital campaign and was named
Capital of Arab Tourism in 2013 by the Arab Tourism Organization. In celebration of Bahrains 2012 Capital
of Arab Culture debut, the Ministry of Culture planned a year-long program of performances, seminars, and
other events showcasing Arab culture. Each month provided a new focus area ranging from visual arts to
poetry, and even the environment. The Spring of Culture festival in March hosted a variety of dance, music,
and theatrical performances and brought internationally renowned musicians to the Kingdom. To support
such events, the Bahrain National Amphitheatre opened its doors in November 2012. The facility is one of
the largest of its kind in the region with a seating capacity of 1,001. World renowned artists, such as Yanni
and Il Divo, recently performed at the amphitheater.
Figure 145: Government services Contribution to employment, 200212
Tourism
KINGDOM OF BAHRAIN
Refecting its rich historical heritage, Bahrain is home to a number of museums, archeological sites, and
other historic sites. Established in 1988, the Bahrain National Museum one of the oldest museums in the
Gulf region is home to some of the oldest documents and artifacts in the region. The complex consists of
two buildings and nine main galleries detailing culture, astronomy, and wildlife, among other subjects. The
Bahrain Oil Museum commemorates Bahrains prominence as the frst Arab country to discover oil and the
signifcance of oil in the development of the Middle East region. The Kingdom also has several forts, most
notably the Bahrain Fort, which played a prominent role under the Portuguese rule and in the Islamic era. It
was offcially listed as a UNESCO World Heritage site in 2005.
Business tourism
Business tourism plays an increasingly important role in the Kingdom. The Bahrain Exhibition and Convention
Authority (BECA) hosts a number of industry events and exhibitions. Landmark events include the annual
Bahrain Boat Show and the bi-annual Bahrain Air Show, which is the islands largest exhibition. Other
events in 2012 included Jewelry Arabia a gold, jewelry, watch and clock exhibition and the Autumn Fair,
a consumer product exposition.
Due to the growing importance of exhibitions and conferences in Bahrain in recent years, BECA is planning
to expand its exhibition and conference space through the construction of the Bahrain Expo City
70
. This
would increase the net available exhibition space to 145,000 sq m from the current 16,000 sq m facility
located in Manama city. This project is scheduled for completion by 2015.
The Kingdoms tourism sector appears to have rebounded toward the end of 2011, and well into 2012.
As of September 2012, total non-Bahraini arrivals in the Kingdom grew 19.4% YoY. While the number of
hotels increased 1% YoY in 2012, the number of hotel apartments fell 11.8% from the highest fgure of
85 in 2011. The workforce in the hotel industry declined 0.6% YoY in 2011, while hotel performance grew
signifcantly as of August 2012. According to a survey of 5-star hotels , tourism nights rose 11%, total
occupants increased 30%, and occupancy rates grew 21%, albeit a slight fall of 13% was recorded in the
average duration of hotel stays. Nonetheless, the 4-star hotel survey revealed a stronger performance (refer
to the analysis below).
According to the World Travel and Tourism Council, the tourism sector contributed BHD538mn to Bahrains
GDP in 2012, an increase of 8.5% from 2011 (BHD496mn)
71
. Tourism
72
accounted for an estimated 4.9%
of GDP in 2012. Furthermore, employment rose 1.58% from 2011, supporting around 32,100 employees
in hotels, travel agencies, airlines, as well as restaurants and other businesses dealing directly with tourists.
The sectors contribution to total employment stood at 5.2% in 2012.
70
Ministry of Culture
71
Within the Kingdoms national accounts, tourism is proxied by the hotels & restaurants industry. In 2012, hotels & restaurants
contributed BHD245.1mn, constituting 2.40% of total GDP for the year and an impressive growth of 13.6% YoY.
72
The global economic contribution of travel & tourism, as defned by the World Travel & Tourism (WTTC) in collaboration with
Oxford Economics, is consistent with the United Nations Statistics Division-approved Tourism Satellite Account: Recommended
Methodological Framework (TSA: RMF 2008), in terms of what is measured.
Figure 146: Travel and tourism Direct contribution to GDP (200112)
Source: World Travel and Tourism Council
Figure 147: Travel and tourism Direct contribution to employment (200112)
Source: World Travel and Tourism Council
The rebound in the tourism sector in 2012 followed a diffcult year in 2011, when arrivals fell 27% to 6.73mn
from 9.28mn in 2010. Nonetheless, this sector witnessed positive growth during the preceding decade.
Also, total arrivals rebounded to 8.06mn by the end of 2012. A vast majority of tourists were overland
visitors from Saudi Arabia. The King Fahd Causeway accounted for 79.1% of the overall visitors to the
Kingdom in 2012, compared to other ports of entry. Bahrain International Airport and Mina Salman, along
with Shaikh Khalifa Bin Salman Port, accounted for 20.2% and 0.7%, respectively.
KINGDOM OF BAHRAIN
As of 2012, there was a slight change in the demographics of non-Bahraini visitors from the previous year.
GCC nationals, Asians, and non-GCC Arabs continued to dominate the visitors market in 2012, jointly
accounting for 88.2% of the overall arrivals.
Figure 148: Non-Bahraini visitor arrivals (200112)
Source: Central Informatics Organisation, Ministry of Culture
Figure 149: Arrivals by nationality (2012)
Source: Ministry of Culture
Figure 150: Purpose of visit
Source: Central Informatics Organisation, Ministry of Culture
Figure 151: Purpose of visit 2011 arrivals (Jul 2011)
Source: Central Informatics Organisation, Ministry of Culture, Economic Development Board analysis
The majority of tourist arrivals in Bahrain have consistently been for the purpose of leisure. Leisure-related
arrivals grew 10.5% YoY in 2010. Arrivals for business activity, journalism, and other purposes rose 1.5%,
2.6% and 2.2%, respectively, in 2010 vis--vis 2009.
KINGDOM OF BAHRAIN
Hotels
The number of hotels in Bahrain grew by 32.5% between 2001 and 2012. The number apartment
establishments surged 142% since 2003. There has been a particularly pronounced upward trend for
5-star, 4-star, and 3-star hotels, while the relative standing of 1-star and 2-star hotels has declined. The
latter establishments comprised more than 50% of the total hotels in Bahrain in 2001 which fell to around
16% in 2012.
Figure 152: Number of hotels and hotel apartments
Figure 153: Hotels by tier in 2012
Figure 154: Hotel statistics in 2012 (YoY growth)
Source: Ministry of Culture, Central Informatics Organisation
The relative economic importance of hotels has increased over the past decade even as the sectorial
workforce contracted by 0.6% between 2010 and 2011 (from 9,783 to 9,725 employees). However,
employment in the hotel industry grew 65% over 200111. The industry relies primarily and indeed
increasingly on expatriate labor for its employment. While the number of Bahraini employees in the hotel
industry fell 14% over 200111, the number of non-Bahraini employees increased 103%.
Due to data limitations, our analysis on the hotel industrys performance is based on a survey of 5- and
4-star establishments
73
undertaken by the Ministry of Culture. Statistics generally reveal growth in 2012. As
of August 2012, tourism nights in 5-star hotels increased 11%. The number of hotel occupants expanded
30% YoY and average occupancy rates grew 21% YoY. However, average stay showed a decline of 13%
YoY. The performance of 4-star hotels was healthy; tourism nights grew by 61% YoY while the number of
hotel occupants and average occupancy rates increased 55% YoY and 28% YoY, respectively. The average
stay per occupant grew a marginal 4.9% YoY.
73
Statistics provided by the Ministry of Culture, according to a monthly survey of hotel establishments
KINGDOM OF BAHRAIN
Figure 156: Total number of cruise ships and passengers
Figure 155: Workforce in the hotel industry
Source: Central Informatics Organisation, Specifc Council for Training in Hotel and Restaurants
Cruise tourism
The 2012 cruise season in Bahrain commenced in November 2012 and ended in March 2013.The cruise
season in 201011 attracted around 132,000 cruise passengers, the highest recorded in the Kingdoms
history. While the number fell abruptly to about 36,000 passengers in the subsequent season, the number
of cruise ships docking in Bahrain actually increased. In fact, during the 201112 season, the number of
cruise ship arrivals grew 143% over the previous season. According to the Ministry of Culture, the number
of cruise ships during the 201213 season increased 106% to 35. A total of 63,542 passengers arrived
on cruise ships, marking a 76% improvement from the last season.
Growth in cruise tourism is ascribed to an improvement in infrastructure. The new Sheikh Khalifa bin
Salman port has the capacity to accommodate large cruise ships. It commenced operations in April 2009
and has contributed to the 600% growth in the number of cruise ships docking in Bahrain since then.
Below is a list of the sources that were referred to during the preparation of this yearbook:
1. Profle of the economy
a. Economic prospects
Central Informatics Organisation (CIO)
Economic Development Board (EDB)s analysis
2. Macroeconomic developments
a. Monetary policy
Central Bank of Bahrain (CBB)
b. Fiscal situation
Bahrains Ministry of Finance (MoF)
Central Bank of Kuwait
Omans Ministry of National Economy
Qatars Ministry of Economy and Finance
Saudi Arabias Ministry of Finance
United Arab Emirates National Bureau of Statistics
3. Financial markets
Bahrain Bourse (BHB)
Ministry of Industry and Commerce (MOIC)
Bahrain Financial Exchange (BFX)
Deutsche Bank: GCC Financial Markets, Nov 2012
Saudi Arabian Monetary Agency (SAMA)
British Bankers Association
Kuwait Stock Exchange
Muscat Securities Market (MSM)
Qatar Exchange
Tadawul (Saudi Stock Exchange)
Abu Dhabi Securities Exchange (ADX)
Dubai Financial Markets (DFM)
References
KINGDOM OF BAHRAIN
4. Foreign trade
Heritage Foundation
Fraser Institute
World Bank
National Oil and Gas Authority
5. Social infrastructure
a. Education sector in Bahrain
Central informatics Organisation (CIO)
OECD:
OECD database
Gender distribution of teachers (2009)
Education at a Glance 2011
Human Development Report 2011
Global Competitiveness Report 20122013
b. Healthcare
Ministry of Finance (MoF)
World Bank
Ministry of Health
National Health Regulatory Authority
c. Entrepreneurship
Ministry of Industry and Commerce (MOIC)
Bahrain Development Bank (BDB)
Tamkeen
Bahrain Business Incubator Center
Bahrain Investors Center
Higher Education Council
6. International benchmarking
a. Rating environment
IIRA
S&P
Fitch
b. Bahrain global rankings performance
Heritage Foundation 2012 Index of Economic Freedom
Fraser Institute Economic Freedom of the World
The United Nations Development Program 2011 Human Development Report
The World Bank 2012 Logistics Performance Index
Transparency International 2011 Corruption Perception Index
UNESCO Education Development Index
World Bank 2012 Doing Business Report
World Economic Forum 2012 Financial Development Report
World Economic Forum 2012 Gender Gap Report
World Economic Forum 20122013 Global Competitiveness Report
World Economic Forum 2012 Global Information Technology Report
World Economic Forum 2012 Global Enabling Trade Report
World Economic Forum 2012 Travel and Tourism Competitiveness Report
Yale University Environmental Performance Index
7. Individual sectors
a. Oil
Labour Market Regulatory Agency (LMRA)
Social Insurance Organisation (SIO)
National Oil and Gas Authority (NOGA)
Ministry of Finance (MOF)
b. Financial services
Central Bank of Bahrain (CBB) Economic Indicators, Statistical Bulletin, Insurance Market Review, CBB
Review, CBB Rulebook, press releases
Labour Market Regulatory Authority (LMRA)
National Bank of Bahrain (NBB) press releases
Bahrain Mumtalakat Holding Company
Zawya Dow Jones Funds Monitor, Sukuk Monitor, Bonds Monitor, IPO Monitor
S&Ps ratings
Fitch Ratings
Economic Freedom of the Arab World, 2012 Annual Report
Ernst & Young: Worldwide Corporate Tax Guide 2012
Alpen Capital GCC Insurance Industry Report 2011
Swiss Re World Insurance Report 2011
c. Manufacturing
KINGDOM OF BAHRAIN
Aluminum Bahrain (ALBA)
Gulf Industrial Investment Company (GIIC)
d. Transport and telecommunications
Ministry of Transportation
World Bank
Civil Aviation Authority
Ports and Maritime Affairs (PMA)Telecommunications Regulatory Authority (TRA)
Central Informatics Organisation
Zawya
e. Construction and real estate
Ministry of Municipalities Affairs and Agriculture (MOMA)
Survey and Land Registration Bureau (SLRB)
Ministry of Housing
f. Trade
g. Social and personal services
Ministry of Health (MoH)
h. Government services
Central Informatics Organisationation (CIO)
Ministry of Health (MoH)
i. Tourism sector
Ministry of Culture, Tourism Sector
World Travel and Tourism Council
Bahrain Exhibition and Convention Authority
Zawya Investor
World Heritage Convention, UNESCO
www.bahrainedb.com

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