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Natural gasses and oil have played a pivotal role in the economy of the Kingdom of Bahrain for decades. Like the GCC Group of States, the kingdom was concerned about the long-term sustainability of its hydrocarbon revenues, as oil and gas reserves would eventually run out; this led the government to devise strategies to diversify the Bahraini economy. According to the Bahrain Economic Development Board, in 2019, new companies’ investments have put more of a focus on financial services, information technology, communications technology, industry, logistics, real estate, tourism, education, and health care.
Studies have predicted that by 2040, oil revenues will dwindle as a result of less demand in the global market, it is for this reason economic diversification is immerging as a pressing issue in the Arab Gulf States. The slowdown in the global economy caused by the Coronavirus pandemic brought Brent crude prices down from $64 per barrel at the beginning of 2020 to $23 in April 2020, putting the fiscal positions of GCC countries, including Bahrain, under considerable pressure. According to the financial statements, the total budget deficit for the kingdom for 2020 amounted to 1.624 billion dinars ($4.31 billion), an increase of 817 million dinars ($2.17 billion) over the approved budget; The deficit in public finances and the external account has worsened, after falling in 2019, according to World Bank reports.
It was also noted that revenues amounted to 2.139 billion dinars ($5.67 billion), 27% lower than the approved budget due to the decline in oil prices. Before, revenues rose to 1.119 billion dinars ($2.97 billion) in the first half of 2021, and up to 23% from the same period in 2020, with oil revenues increasing by 33% due to a resurgence in oil prices, as well as a 4% rise in non-oil revenues as a result of economic diversification policies. This reduced the government’s budget deficit in the first half of 2021 by 35% ($1.38 billion) compared to the previous year’s period.
After contributing 85% of Bahraini budget revenues in previous years, oil and gas declined by 22% in 2021 and 23% in 2022, accounting for 63% and 62% of total budget revenues in two years, respectively.
The Bahraini government does not have many options to cover these deficits, as they have low foreign assets and fewer oil resources than the neighboring the GCC States.
Another major economic activity of the Kingdom of Bahrain is the production of aluminum, as Bahrain’s second largest export after oil and gas is finance and construction. The government continues to seek new natural gas supplies as feedstock to support the petrochemical and aluminum industries. In April 2018, Bahrain announced the discovery of an essential oil field off the country’s west coast but still had to assess the amount of oil that could be profitably recovered.
In addition to addressing their current financial problems, the Bahraini authorities face the long-term challenge of strengthening Bahrain’s regional competitiveness; particularly in regard to industry, finance, and tourism, as well as reconciling revenue constraints with popular pressure to maintain generous State and large public sector support. Since 2015, the government has raised subsidies for meat, diesel, kerosene, and gasoline, as well as electricity and water prices. It is still working on a plan to reduce the amount of government support it provides to citizens’ bills.
According to the World Bank, Bahrain’s future prospects depend on the uncertainties associated with the emerging coronavirus pandemic, vaccine efficacy, global oil markets’ evolution, and the reform process. Growth is expected to remain at a modest 3% on average over the medium term, owing to fiscal austerity measures, counterproductive to post-pandemic recovery efforts.
Gross domestic product
The Bahraini economy, facing a multifaceted crisis, experiencing a contraction of 5.82% in 2020, with an overall decline of 7.81% compared to 2019. GDP declined by 2.0% as a result of oil production being determined under the OPEC + production reduction agreement. Low consumer demand led to an overall 2.6% contraction in 2020 compared to 2019.
According to the Electronic Information and Government Authority, the construction sector fell by 0.77% in actual prices in 2020, and the mining and quarrying sector by 12.28% in actual prices and 11.43% in current prices. Manufacturing fell by about 1.79% in actual prices while growing by about 5.31% in current prices. Hotel and restaurant activity declined by 13.58% in reality and 13.52% in current prices, these large changes reflect the effect of the pandemic on the tourism sector.
Private education and health services decreased by 0.54% and 0.21% in actual and current prices, respectively. Personal health services also experienced a relatively low rate of 0.02% in substantial expenses, while they rose by 0.06% in current prices.
When comparing economic growth rates for sectors and financial activities during the fourth quarter of 2020 with the corresponding quarter in 2019, economic growth was found to have declined by 5.51% and 7.28% in current prices. The results also showed that the oil sector declined by 8.62% at constant prices, 30.90% at current prices, and the non-oil sector declined by 4.82% and 3.27% at stable and current prices respectively.
In the wake of the Coronavirus pandemic and its direct impact on air traffic and hotel business, the hotel and restaurant sector declined by 42.22% and 42.58% in actual and current prices, respectively. Similarly, transport and communication activity fell by 30.78% in actual costs and 29.27% in current prices.
The CIA report also revealed a decline in construction activity in 2020 of 2.14% at constant prices and 10.89% at current prices. Manufacturing also declined by 9.12% at stable prices and grew slightly at 0.79% at current prices. Similarly, commercial activities declined at 9.57% and 42% in continuous and current prices, respectively.
In 2021, the results recorded during the second quarter showed an improvement in the performance of the Bahraini economy as the pace of economic recovery continued. Real GDP (in constant prices) grew by 5.7% in the second quarter of 2021 compared to the same quarter of 2020, and by 3.5% on a quarterly basis compared to the first quarter of 2021 in regard to Finance and National Economy.
Nominal GDP (in current prices) also grew by 20.7% annually and 6.4% quarterly. For non-oil sectors, real non-oil GDP (in constant prices) increased by 7.8% during the second quarter of 2021, 2.6% quarterly, 12.8% on an annual basis, and 4.4% quarterly.
Furthermore, the oil sector has grown (at current prices) by 98.3% and 18.9 percent on an annual and quarterly basis, respectively, supported by improved oil prices on world markets.
The sector experienced a 2.4% decline (in constant prices) annually due to a quarter-to-quarter variation in production according to seasonal changes. GDP has been at its highest level since the end of 2019.
The report reflected the GDP performance of several non-oil sectors at current prices, with communications and communications with the highest growth of 44.9%, hotels, and restaurants with 40.7% growth, followed by manufacturing with 24.2% growth, and financial projects with 10.7% on an annual basis.
GDP (DB 0.38 = US 1$)
|Indicators||measuring unit||2019||2020||Change ±|
|GDP (at constant 2010)||Billion US$||34.360||32.362||-1.998|
|GDP growth (annual)||%||1.99||-5.82||-7.81|
|GDP per capita (constant 2010)||US$||20,936.1||19,018.6||-1917.5|
|GDP (at current prices)||Billion US$||38.068||34.176||-3.892|
|GDP (at current value)||Billion US$||38.475||34.541||-3.934|
Source: World Bank.
The current industrial program was established in 1975 as a means of diversifying oil and natural gas products. The plan succeeded in increasing the contribution of manufacturing towards GDP, growing it 17.34% in 2015. The Government has established two new industrial parks to attract foreign companies to Bahrain, they have also expanded the sector to facilitate the growth of domestic industry, and are constantly looking for new industrial projects to attract foreign investment.
In addition to the oil and gas industries, there are several major industrial sectors in Bahrain, including:
- Aluminum industry.
- The petrochemical and plastic industry.
- Food processing.
- The garment industry.
- Engineering industries.
Industrial areas of Bahrain:
Industrial Farm Area
Vest Industrial Area
Al-Amir Industrial Zone
Salman Port Industrial Zone
Industrial Meat Zone
Salman Industrial City:
a. Industrial Limit Area
b. Bahrain World Investment Region
The Bahrain World Investment Zone (BIIP) is one of the most important facilities to the Kingdom of Bahrain, it acts as a modern industrial zone designed to cover the financial investment needed by factories, including the needs of infrastructure and incentives that contribute to the growth of the industrial sector.
The region is designed to attract foreign direct investment with high-quality projects as well as domestic, export-oriented jobs. The region’s administration follows the latest standards for industrial rental vouchers to create quality jobs and develop the investment environment in the kingdom.
Over the course of 2020, the manufacturing sector contributed more than BD 2.3 billion ($6.053 billion) to the national economy, contributing about 18% of GDP, providing a total salary of about BD 700 million ($1.842 billion) and equivalent to 25% of the actual wages paid by the private sector.
The data confirmed that the manufacturing sector added 2.38 billion dinars ($6.263 billion) in 2020, of which 583 million dinars ($1.534 billion) in the first quarter, 550 million dinars ($1.447 billion) in the second quarter, 607 million dinars ($1.597 billion) in the third quarter and 640 million dinars ($1.684 billion) in the fourth quarter.
The manufacturing sector is the primary driver of the kingdom’s economic development, the backbone of national exports, the polarizing factor of hard currencies after the oil and gas sector and fuels the creation of high-wage jobs.
Bahrain has taken the necessary steps to diversify its economy, with evident efforts in the vibrant manufacturing sector and the growth of heavy industries in the kingdom. The aluminum industry is one of the strategic sectors that has driven Bahraini economic diversification, accounting for 12% of the kingdom’s gross domestic product.
In the meantime, Bahrain continues to benefit from its oil and gas resources, with significant investment in the petrochemical sector. This highlights the $5 billion spent on modernization at BOC and the expansion of the $ 515 million gas plant by BNG.
In addition to these industries, other major industrial sectors, such as food processing, ready-made clothing, engineering, and handicrafts, thrive. According to official sources, the contribution of the industrial sector to GDP is 16 percent.
Agriculture and Fishing
The Food and Agriculture Organization of the United Nations (FAO) estimated 8,600 hectares of agricultural land in the Kingdom of Bahrain in 2016, of which 1.1% is forested by the kingdom. In 2017, Bahraini agricultural producers covered 25% of local market needs by increasing over 900 local farms. In a production and marketing plan developed by the Government four years earlier. Palm trees occupy most of the cultivated area, followed by tomatoes, wheat, and onions.
The Kingdom of Bahrain implemented a national strategy for the development of marine farming in order to make a qualitative shift in the level of fish production over the next 5 years. The National Program for Training Local Competence in Fish Farming was launched through an agreement with the “Empowerment” Action Fund, which aimed to support the training of 15 Bahraini farmers in local fish farming within and outside the country. The program is proving to be one of the most successful programs for promoting the fish sector in support of food security in the Kingdom of Bahrain.
However, the fishing sector commands the most attention of the Government. According to the Food and Agriculture Organization of the United Nations (FAO), Bahrain’s entire fishing industry is based on the traditional sector, following the 1998 ban on industrial trawling of shrimp. Prior to that year, nine trawling vessels made of steel operated in Bahrain’s waters. These vessels were supposed to fish in waters more than twenty meters deep. However, they often engaged in trawling in shallow waters, causing disputes with other Fishermen. Its’ use was banned on June 1st, 1998.
Bahrain’s marine waters have shown a decline in fish stocks for several decades. However, in the first decade of this millennium, re-storage became a routine practice approved by the former General Commission for the Protection of Marine Resources, the Environment, and Wildlife (now the Supreme Council for the environment). The Kingdom of Bahrain’s fishing industry has already started looking to recycle water from farmed fish.
According to the Food and Agriculture Organization of the United Nations (FAO) (FAO), the production of aquatic life by the farming environment has declined from 14 tons in 2016 to 5 tons per year in 2017, 2018, and 2019.
In the agricultural sector, 19 agrarian plots in the High Hurrah area have been provided to small-scale farmers on on-site land, where 10-year extension contracts have been agreed upon with 19 Bahraini farmers to ensure the sustainability of their activity in the agricultural sector and support of food security.
The World Bank estimated that 1.01%, 0.97%, and 0.94% of the total labor force was based in agriculture during 2017, 2018, and 2019 respectively.
The total value of commodity imports in 2020 was 4.798 billion dinars ($12.626 billion) compared to 4.984 billion dinars ($13.116 billion) in 2019, down 4%. The top ten countries totaled 66% of total commodity imports, while imports from the rest accounted for 34%.
China ranks first in commodity imports of US $1.747 billion (14%), followed by Saudi Arabia with $926 million (7.3%). In comparison, Australia ranks third in imports of US products, $868.4 million (6.9%), followed by the United States, Emirates, Brazil, Japan, India, Germany, and Switzerland, with a total value of US $4.750 billion (37.6%).
Aluminum oxide is the most imported commodity ($873.7 million), iron ores and their concentrations are second ($768.4 million), followed by jeeps ($460.5 million).
Adversely, the value of national exports rose by 4%, reaching $6.282 billion in 2020, compared to $6.047 billion in 2019.
Saudi Arabia ranked first in national exports of origin ($1.411 billion), followed by the United Arab Emirates at $544.7 million, while the United States is third in exports of $529 million.
In terms of the export composition of national origin, ore aluminum mixtures are the most exported goods in 2020, valued at $1.008 billion, second is non-blended ore aluminum, valued at $950 million, followed by iron ore and its concentration at $676.3 million.
Concerning re-export goods, their value declined by 15% to $1.779 billion in 2020, compared to $2.092 billion in 2019. The ten most important countries represent more than 87% of the total re-export volume, while the rest account for only 13% of the re-export volume.
Saudi Arabia ranked first in the re-export volume ($ 518.4 million), followed by the United Arab Emirates at $ 468.4 million, followed by the United States of America at $3 million for re-export ($ 165.8 million).
Jeeps are the most re-exported item, with a value ($263.2 million), followed by gold alloys ($142.1 million), and iron ores and their depressed centers ranking third, valued at $92.1 million.
The trade balance, which represents the difference between exports, and imports, was $4.566 billion, recording an 8% decrease in the value of the deficit from the year 2019 ($4.979 billion).
Tourism was the fastest-growing industry in the 2000s. Since the late 1990s, the Government has been attracting and providing facilities for foreign visitors. A special Directorate for Tourism Affairs was established in the Ministry of Culture to promote Bahrain as a destination for international conferences, sporting events, and recreational activities. One of the government’s main successes was the inclusion of Bahrain in the Grand Prix International. The 2004 Formula One Grand Prix was the first of its kind in the Middle East and succeeded in achieving its goal of bringing the kingdom to the international community’s attention.
In the same period, Bahrain began building exclusive recreational resorts, including multi-million-dollar projects, such as Pearl Island and Artificial Surf Islands, the Bahrain Dra Project “Self-Sufficient City” on the southern tip of Bahrain Island, the Den Desert Resort and Spa at its center, as well as extensive tourism development in the Dihadi Islands.
By 2007, 5.2 million people visited Bahrain each year in combined recreational areas and conferences. Most of them (94%) came from other Arab countries; the remaining 6% were European, 13% American, and 12% non-Arab Asian. Of these visitors, 1.3 million stayed for an average of 1.9 days at the country’s 96 hotels, indicating that most of them were Saudi Arabian’s who visited for the weekend. The most prominent aspect of Bahrain’s tourism is the tendency to ignore cultural sites in the country. Bahrain’s leading cultural destination, the National Museum of Manama, received an unnoticed 87,000.00 visitors in 2006. Other museums received only a few thousand a year. The Den Wildlife Park is the fastest-growing “official” tourist site, seen by 72,000.00 visitors in 2006.
The Arab Spring unrest halted tourism within the country considerably. The 2011 Formula One Grand Prix was canceled, along with other associated tourist events. Some cruise ships canceled their flights to Bahrain as a stop port, and restaurants, shops, and taxis were cleared of customers.
Nevertheless, more than one hundred 5 and 4-star hotels were added over the next five years. In an effort by the Bahraini government to improve performance in the tourism sector, Fatale International College was inaugurated as a destination for a bachelor’s degree in international hospitality management in October 2018, with many officials in the hospitality sector, specifically, international tourism.
The tourism sector’s contribution to GDP is estimated at 7%. Bahrain, excluding residents and non-tourism arrivals, has an average of 11.4 million tourists. 65% are day trips (without accommodation), while an average of 35% are one-night stays and more.
The Coronavirus epidemic has affected many economic sectors in the Kingdom of Bahrain, especially with falling oil prices accompanied by low demand and a multi-month economic shutdown in 2020, which was re-imposed in the first quarter of 2021 as the number of casualties in the country returned.
The tourism sector was among the sectors adversely affected by the pandemic, especially since tourism was an area heavily dependent on tourists from the Gulf States and foreign States. Still, the closure of long-term air areas, which were then opened under the conditions of continuous checks, prompted most tourists to cancel plans of visiting during that period.
As a result of the Corona epidemic, the number of tourist arrivals dropped to about 1.9 million in 2020, bringing total tourism revenue in 2020 down by 80% from 1.5 million dinars (approximately $3.98 million) to 0.3 million dinars (roughly $800,000).
According to estimates by the Bahrain Chamber of Commerce and Industry, the number of visitors arriving through the King Fahd Bridge linking Bahrain to Saudi Arabia decreased by 84% in 2020 compared to 2019, due to the temporary closure of the bridge in March of 2020 as a means of reducing the spread of the virus.
The Bahrain Chamber confirmed that the Corona pandemic had led to the collapse of the tourism sector’s power in the face of social restrictions, paralysis of airport traffic, and the land border’s complete closure for several months.
From the onset of the new Coronavirus pandemic until January 2021, the average daily losses suffered by the tourism sector in its various industries were estimated at 4 million dinars (approximately $10.6 million) and the average monthly losses, 108 million dinars (roughly $268.5 million). In addition, losses have resulted from the cancellation or postponement of all 14 exhibitions and events scheduled for March 2020 to March 2021.
According to the Bahrain Economic Development Board, Bahrain has more than 40 years of financial experience as the leading financial sector leader in the Arabian Gulf. Its financial sector hosts more than 400 domestic, regional, and international financial institutions, with the central banking, insurance, asset management, and wealth management institutions operating effectively and smoothly in an evolving regulatory environment per international best practices. The most crucial reason for Bahrain’s prominent and influential role in the financial sector is the evolving regulatory environment overseen by the Central Bank of Bahrain. The Central Bank of Bahrain supported high-tech companies in the rapidly evolving financial technology sector by launching a pilot course for financial technology regulation in mid-2017. This course allows entrepreneurs to experience and develop their ideas with real clients before launching them into the market. This initiative is one of several initiatives adopted by the Central Bank of Bahrain in support of technological transformation in the financial sector of the Kingdom of Bahrain.
According to the Central Bank of Bahrain, there were 370 banks and financial institutions by the end of 2020, with a resource of $205.8 billion. The contribution of the financial sector to GDP in 2019 was 16.1%. An estimated 13,737 people were employed in the financial sector in 2020.
The Central Bank of Bahrain has launched a series of financial decisions and facilities to address the effects of the spread of the coronavirus on the national economy. The total mandatory reserve of the Central Bank of Bahrain fell by 34% in 2020 compared to 2019, to BD 322.857 million ($849.624 million) in December 2020, compared to BD 489.789 million ($1.289 billion) in December 2019.
The total non-Bahraini employment at the end of the first quarter of 2021 was 531,447, compared to 586,874 in the first quarter of 2020, down by 9.4% annually.
At the end of the quarter mentioned above, the total national labor force amounted to 153,757 Bahraini workers, an annual decrease of 1.9% compared to 156,746 workers in the first quarter of 2020. It recorded an increase to 152,678 workers in the fourth quarter of 2020.
The United Nations estimates Bahrain’s unemployment rate in 2020 at 0.8%.
On work permits, the number of new work permits issued by the Labor Market Regulatory Authority for the employment category in the 1st of 2021 was 36,732, down by an estimated 10.6% annually.
Small enterprises with fewer than ten workers also accounted for 47.7% of the total work permits issued to the employment category during the first quarter of 2021.
The total number of permits issued by the Labor Market Regulator during the first quarter of 2021 was 45,670. 36,732 work permits, 1122 for investors, and 7,816 for dependents were issued. The total number of permits issued decreased from 48,165 in the same quarter of the previous year.
The number of permit renewal transactions processed by the Labor Market Regulator in the first quarter was 75,845, of which 60,802 were work permit transactions, 1,666 for investors, and 13,377 for dependents. The total number of renewals decreased from 98,239 in the first quarter of 2020.
The number of permit termination transactions processed by the Labor Market Regulator at the employer’s request during the first quarter of 2021 was 34,707. Of which 30,009 were work permits, 205 were for investors, and 4493 were dependents.
The economic sector with the most significant number of new work permits for regular workers is still the construction sector with 31.8% of the total standard work permits issued, followed by wholesale and retail with 19.8% share, and housing and food. The service sector is 11.5%.
In terms of wages, the average wage of Bahraini employees was BD 556 ($1,463) at the end of the first quarter of 2021, compared to BD 539 ($1,418) in the same quarter of 2020, an annual increase of 3.2%. The average wage of working in the private sector was BD 455 ($1,197), an increase of 3.2% per annum, while the average wage of Bahraini workers in the public sector was BD 714 (US $1,879), an increase of 1.7% per annum.
The labor cost gap between is, and non- is working in the target sectors (construction, commerce, hotels, restaurants, and small industries) was BD 339 ($892) during the said quarter, a decrease of BD 5 ($13.16) compared to the first quarter of 2020.
Key indicators: (1$=0.38 DB)
|Total public revenues (billion US$)||7.637||5.479||-2.158|
|Total public expenditure (billion US$)||9.437||9.876||0.439|
|The budget deficit (billion US$)||1.790||4.397||2.607|
|Public debt to GDP (%)||102||133||31|
|The discount rate of the central bank (%)||1.75||1.75||–|
|Reserves of foreign exchange and gold (billion US$)||3.90||2.52||-1.38|
|Exchange rates (US$ per JOD)||2.63||2.63||0|