Oil and natural gas play a dominant role in Bahrain’s economy. Despite the Government’s past efforts to diversify the economy, According to the World Factbook of the CIA, oil still comprises 85% of Bahraini budget revenues. In the last few years lower world energy prices have generated sizable budget deficits – about 10% of GDP in 2017 alone. Bahrain has few options for covering these deficits, with low foreign assets and fewer oil resources compared to its GCC neighbors. The three major US credit agencies downgraded Bahrain’s sovereign debt rating to “junk” status in 2016, citing persistently low oil prices and the government’s high debt levels. Nevertheless, Bahrain was able to raise about $4 billion by issuing foreign currency denominated debt in 2017.
Other major economic activities are production of aluminum – Bahrain’s second biggest export after oil and gas –finance, and construction. Bahrain continues to seek new natural gas supplies as feedstock to support its expanding petrochemical and aluminum industries. In April 2018 Bahrain announced it had found a significant oil field off the country’s west coast, but is still assessing how much of the oil can be extracted profitably.
In addition to addressing its current fiscal woes, Bahraini authorities face the long-term challenge of boosting Bahrain’s regional competitiveness — especially regarding industry, finance, and tourism — and reconciling revenue constraints with popular pressure to maintain generous state subsidies and a large public sector. Since 2015, the government lifted subsidies on meat, diesel, kerosene, and gasoline and has begun to phase in higher prices for electricity and water.
Gross domestic product
Bahrain’s GDP grew by 3.9 percent in real terms in 2017 despite a sizeable contraction in the hydrocarbon sector, According to the World Bank. Oil sector contracted further in Q1 2018 by 14.7 percent year on year, due to oilfield maintenance. The non-oil sector grew by 1.9 percent over the same period, driven by large scale construction projects and related domestic demand growth. Notwithstanding steady growth in the real sector, increased risks associated with large current account and fiscal deficits triggered strong market reactions in the first half of 2018.
The World Bank has forecast Bahrain’s economy to grow by 2.6 percent in 2019, driven by higher oil production, a raft of mega projects (e.g., a scheduled capacity enlargement at Aluminum Bahrain, Alba), may raise aluminum production capacity by over 50 percent), and continued regional support.
|Indicators||measuring unit||2016||2017||Change ±|
|GDP (at constant 2010)||Billion US$||31.769||33.003||1.234|
|GDP growth (annual)||%||3.22||3.88||0.66|
|GDP per capita (constant 2010)||US$||22,291.4||22,111.5||-179.9|
|GDP (at current prices)||Billion US$||31.813||34.934||3.121|
|GDP (at current value)||Billion US$||32.153||35.307||3.184|
Source: World Bank.
Bahrain’s current industrial programme was established in 1975, in an attempt to diversify oil and natural gas products. The programme succeeded in increasing the contribution of manufacturing to GDP by 17.4 per cent in 2015. The government has established two new industrial complexes to facilitate the growth of local industry and attract foreign investment.
Bahrain’s efforts to diversify its economy are most obvious in the manufacturing sector and in the growth of heavy industries. Despite falling revenues as a result of the decline in international oil prices in recent years, Bahrain continues to invest in its industrial sector, especially with the $3 billion expansion of Aluminium Bahrain, which will raise production to 1.5 million tons per year, an increase of more than 500,000 tons. The aluminium industry is one of the strategic sectors that has led Bahrain’s economic diversification and currently accounts for 12 per cent of GDP. The government expects this contribution to rise by 16 per cent with the expansion of the sixth remelting line earlier in 2019.
In the meantime, Bahrain continues to benefit from its oil and gas resources, with significant investment in the petrochemical sector. This includes the $5 billion spent on the ongoing upgrade of the Bahrain Petroleum Company and the $515 million gas plant expansion by Bahrain National Gas Company.
Other major industrial sectors, such as food processing, garment manufacturing, engineering and handicrafts, are flourishing. The contribution of the industrial sector to GDP is 16 per cent, according to official sources.
Agriculture and Fishing
The Food and Agriculture Organization of the United Nations (FAO) estimated the area of agricultural land in Bahrain in 2016 at 8,600 hectares, accounting for more than 1.1 per cent of the kingdom’s area, of which 610 hectares are forests. In 2017, domestic agricultural products were able to cover 25 per cent of local market needs as a result of increased production of more than 900 local farms, under a production and marketing plan developed by the government four years earlier. Palm trees occupy the bulk of the cultivated area, followed by tomatoes, wheat and onions. The World Bank estimated the proportion of workers in the agricultural sector at 0.97 per cent, 1.03 per cent and 1.05 per cent of the country’s total workforce in 2016, 2017 and 2018 respectively.
The fishing industry, according to the FAO, is based on traditional methods following a ban on shrimp trawl fishing in 1998. Prior to that, nine boats with steel trawl nets operated in Bahrain’s waters. The boats were supposed to fish in waters deeper than 20 metres. However, they often trawled in shallow waters, causing conflicts with other fishers and resulting in their ban.
Bahrain’s marine waters have experienced a decline in fish stocks for several decades. However, in the first decade of this millennium, restocking has become a routine practice endorsed by the former Public Commission for the Protection of Marine Resources, Environment and Wildlife (now the Supreme Council for Environment). In recent years, the fishing sector has also begun to look for water recycling from farmed fish.
Fish production amounted to 19,864.6 metric tons in 2017, compared to 15,200.1 tons in 2016, an increase of 31 per cent.
|Indicators||measuring unit||2016||2017||Change ±|
|Total fish produced||Metric Ton||15,200.1||19,864.6||4664.5|
|Total imported fish||Metric Ton||14,791||17,807||3016|
|Total exported fish||Metric Ton||13,606||13,010||-596|
|Domestic consumption of fish||Metric Ton||16,385||24,662||8277|
Source: Directorate of Marine Resources.
Total non-oil exports in 2018 increased by 7 per cent compared to 2017, as a result of the increase in the value of non-oil exports by 9 per cent and the decrease in the re-export of non-oil products by 2 per cent in 2018 compared to 2017, according to the Customs Affairs Department.
Total imports of goods and services increased by 13 per cent in 2018 compared to 2017. The non-oil export coverage ratio for total imports decreased by 3 per cent in 2018 compared to 2017.
Iron ore and its concentrates and aluminium wires and billets accounted for 57 per cent of total non-oil exports in 2018. Saudi Arabia was the largest consumer of non-oil exports, followed by the United Arab Emirates and the United States, accounting for 25.6 per cent, 11.8 per cent and 9.2 per cent respectively.
In terms of the most important imports in 2018, cars, digital processing units and tobacco products topped the list. The government maintains import links with a variety of partners. China accounted for 12.8 per cent of the total imports, followed by the United States (8.7 per cent), the United Arab Emirates and Saudi Arabia (8 per cent and 7.4 per cent respectively).
According to the Ministry of Industry, Commerce and Tourism, the total number of international visitors in 2018 was 10.3 million, an increase of 6 per cent compared to 2017. The number of nights in tourist accommodation was 9.8 million in 2018, an increase of 22.3 per cent compared to 2017. The amount of time spent in tourist accommodation also increased, from 2.4 nights per tourist in 2017 to 2.8 nights per tourist in 2018.
In an effort to raise the performance level in the tourism sector, the government established Vatel International Hospitality School in October 2018, which offers bachelor’s degrees in international hospitality management.
Bahrain has more than 40 years of experience as a financial pioneer in the Gulf. The banking sector comprises more than 400 local, regional and international financial institutions, which operate in a sophisticated regulatory environment in accordance with international best practices. The regulatory environment is overseen by the Central Bank of Bahrain (CBB), which supports technological innovation in the banking sector and beyond by providing entrepreneurs with the opportunity to experiment and develop their ideas with real customers before being launched in the market.
The country had 382 banks and financial institutions at the end of 2018, according to the CBB, with $192.1 billion in assets as of November 2018. The sector’s contribution to GDP in the same year was 16.7 per cent, while the number of employees in the sector in 2017 was estimated at 14,093.
International market position
Bahrain was ranked 44th out of 137 countries covered by the Global Competitiveness Index 2017-2018, four positions lower than in 2016-2017. The business environment in the kingdom remains largely unchanged, with the ongoing challenges of the macroeconomic environment and in particular the huge public finance deficit, as well as some aspects of security, innovation and market size. However, Bahrain has seen significant improvement in a number of indicators, especially those related to the macroeconomic environment and technological readiness, some of which are due to the revision of data previously published by the International Telecommunication Union (ITU), according to the index.
The country provides a favourable working environment with a good institutional framework (in which it ranks 23rd globally) and modern infrastructure (33rd). The macroeconomic environment (108th, which suffers from a large deficit) is one of its main weaknesses, along with the country’s small size in the market (90th in the world and the smallest in the region), which is only partially offset by its openness to international markets. Technological readiness is where the country has improved most since 2007. Innovation, higher education and training have also improved significantly, and Bahrain has narrowed the distance with the world’s most advanced economies. On the other hand, the situation has deteriorated in terms of the development of financial markets and the macroeconomic environment, in line with most other countries in the region.
The number of foreign workers in Bahrain was 600,857 at the end of the second quarter of 2018, compared to 606,357 in the same quarter of 2017, according to the Labour Market Regulatory Authority (LMRA).
The slight decrease was due to a data revision by the LMRA of more than 13,000 workers working in houses during the first half of 2018.
The number of Bahraini workers at the end of the second quarter of 2018 was 158,814, 1 per cent higher than the same quarter of 2017.
The number of work permits issued by the LMRA during the second quarter of 2018 was 39,566, an increase of 18.1 per cent compared to the same quarter of 2017. Small enterprises employing fewer than ten workers received 50.5 per cent of the total number of work permits issued.
The total number of permits renewed by the LMRA was 89,751, up from 77,910 in the second quarter of 2017, of which 73,856 were for regular employment, 861 for investors and 15,034 for dependents.
The total number of termination transactions processed by the LMRA at the request of employers during this quarter was 32,621, of which 27,384 were regular work permits, 108 were for investors and 5,129 were for dependents.
The construction sector had the largest number of new regular work permits, with a 33 per cent share of the total work permits issued, followed by the wholesale and retail trade sector with a 17.9 per cent share, then the housing, food and service sectors with a 12.6 per cent share.
The average monthly wage in the second quarter of 2018 was $1,416, an increase of 1.9 per cent compared to $1,389 in the same quarter of 2017. The gap in monthly labour costs between Bahraini and non-Bahraini workers in construction, trade, hospitality and small-scale manufacturing was $861, a $34 decrease compared to the second quarter of 2017.
The unemployment rate did not exceed 4 per cent in 2018, according to the Ministry of Labour and Social Development. The unemployment rate in 2017 was 3.6 per cent, a 0.1 per cent decrease compared to 2016, according to the CIA’s World Factbook.
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