Country Brief: Bahrain

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November 18, 2004

The Kingdom of Bahrain is an archipelago of 36 islands located in the Middle East off the eastern coast of Saudi Arabia in the Persian Gulf.[1]  Because of its size and location,[2] Bahrain has had to tread lightly in foreign affairs.  The country has established itself as the undisputed financial center of the Persian Gulf region.[3] 

 

Bahrain is a constitutional hereditary monarchy[4] that achieved its independence from Britain in 1971.[5]  Arabic is Bahrain’s official language, but English, Farsi, and Urdu are also widely spoken.[6]  Although education is not compulsory, it is offered to nationals and non-nationals of Bahrain at no cost.[7]  Non-nationals consist of a little over 1/3 of the population and approximately half of the workforce in Bahrain.[8] Non-nationals come from a variety of regions, including South Asia and the Philippines, among others.

Bahrain enjoys a prosperous economy, and is home to numerous multinational firms, especially firms with business in the Gulf.[9]  Bahrain enjoyed a 4.9% growth rate in 2003, but consistently suffers from high unemployment rates among the Bahraini population.[10]  The country imports most of its food, crude oil, machinery, and chemicals from Saudi Arabia, the US, Japan, UK, and Germany.[11]  Bahrain mainly exports petroleum and petroleum products, aluminum, and textiles to its major markets: the United States, India, and Saudi Arabia.[12]  Petroleum production and refining account for about 60% of export receipts, 60% of government revenues, and 30% of GDP.[13]

Bahrain has highly developed transportation and telecommunications facilities.  In 2003, the country had 185,800 main telephone lines in use, and 443,100 mobile phones.[14]  In 2000, only 730 km of the 3261 km of highways were unpaved.[15]  The country has three ports and harbors, and four airports.[16]  Bahrain is a member of the UN, the Gulf Cooperation Counsel,[17] and the Arab League.[18]  In September 2004, Bahrain and the US signed a Free Trade Agreement that will serve to increase trade between the countries. The agreement had not been approved for final implementation as of November 2004, but it is expected to be.

Factors that weigh in favor of doing business in Bahrain include:

• Bahrain’s highly developed telecommunication and transportation systems,
• the country’s liberal economic and social environments,[19]
• the absence of income tax for foreign investors,[20]

Factors that weigh against doing business in Bahrain include:

• possible long-term economic problems due to the depletion of oil and underground water resources, and the country’s dependency on Saudi Arabia for oil granted aid,[21]
• Bahrain’s high unemployment rate, especially among the younger generation, and
• possible terrorists attacks targeting Westerners due to Bahrain’s location.[22]