economy

ECONOMY

The economy of Bahrain is based on petroleum production and processing (see Petroleum section below), transit trade, and banking and financial services. Agriculture, chiefly practised on the irrigated northern coast of Bahrain Island, is of strictly local importance, providing eggs, vegetables, and fruit for domestic consumption.

Bahrain was one of the only Persian Gulf states to have a role as a trading and agricultural centre before the discovery of oil. It also had a well-established pearl-fishing industry. It was the first oil producer among the Gulf states, and is expected to be the first to exhaust its oil reserves. It has therefore been the first to diversify its economic base; by the 1980s Bahrain was already a well-established regional centre for commerce, an important entrepôt, and service centre. Tourism has also been an increasing source of revenue. In 1998, 1,922,000 tourists brought a revenue of around US$16 million to Bahrain.
Bahrain has a GNP of US$6,247 million (World Bank figure; 1999), or US$9,370 per capita. Bahrain’s budget for 1999 included revenues of US$1,738 million and expenditure of US$1,860 million. Non-oil revenues increased by 16 per cent in the early 1990s to 40 per cent of budget revenues in 1996. Although the government has invested in many projects, private enterprise is seen as the basis of economic diversity and expansion; there are many multinational firms based in the country.
The 1990-1991 Gulf War was expensive for Bahrain, costing the economy as much as US$2,000 million. The government has since then pursued more enthusiastic policies for expansion. Legislation in the 1990s allowed 100 per cent foreign ownership of onshore companies and free capital movement. Zero tax on personal and corporate income has meant a steady stream of investors. Inflation was around 3 per cent in the mid-1990s.

A. Petroleum
Oil has been extracted in Bahrain since the early 1930s. Production of crude oil was 48,000 barrels a day in 1999. Badly in need of new oil fields in early 2001, Bahrain invited international companies to drill for oil on the Ḩawar Islands immediately after the ICJ’s ruling that they belonged to Bahrain (see The Ḩawar Islands Dispute below). The country’s oil production, relatively small by the standards of OAPEC member states, is less important than its refining industry; crude petroleum is supplied by a pipeline from Saudi Arabia, which in the early 1990s was providing 70 per cent of the oil for Bahrain’s Sitra refinery.
Annual production of liquefied petroleum gas in 1994 was 305,000 barrels; petroleum and its products amounted to around 80 per cent of exports. Bahrain is the only Persian Gulf state not to export any crude oil. Gas deposits are sufficient to last until 2050 based on the production rates of the early 1990s, about 25.9 million cubic metres daily.

B. Manufacturing

Bahrain has developed industries to offset the economic effects of declining oil reserves. Prominent among these are aluminium smelting, providing 7 per cent of exports in the mid-1990s; Bahrain is the region’s largest producer. There are several plants for the manufacture of clothing and consumer goods. In 1995 a US$33 million tissue paper mill was opened in a joint United States-Saudi Arabian venture. Bahrain has further diversified into iron and steel and chemical industries, and there is a fledgling shipbuilding and ship-repair industry. A major long-term economic problem is the likely exhaustion of water resources by 2010 as the aquifer is pumped dry; to deal with this, a number of desalinization plants have been commissioned.

C.Energy

Energy production is based on local fossil fuels; 6.2 billion kWh of electricity were generated in 1999. Power supplies can barely meet the demands of the new industries, although a 200-km (124-mi) link between the national grid and a newly installed 800-MW power station has helped to alleviate the problem.

D.Agriculture and Fishing

Agriculture plays a relatively small part in Bahrain’s economy, employing less than 1 per cent of the total workforce. A range of fruits and vegetables is grown, in particular tomatoes and dates, and provides for most of the country’s requirements. Poultry is the most important livestock; sheep, goats, and cattle are also kept. Environmental concern has grown over the degradation of the available arable land and resulting desertification.
Since 1985, Bahrain has tried, with limited success, to revive the pearl-fishing industry. Despite investment in projects, 75 per cent of fish stocks remain unexploited.

E.Currency and Banking

The monetary unit of Bahrain is the Bahrain dinar of 1,000 fils (0.378 Bahrain dinars equalled US$1; 2002). The bank of issue is the Bahrain Monetary Agency. The government has encouraged Bahrain’s development as an offshore banking centre, especially through banking units licensed to accept deposits from governments and organizations in the region rather than individual Bahrainis. From 56 prior to the Gulf War, these had declined to 47 by 1996. Insurance and financial services are also important, and a stock exchange has operated since 1989. In early 2002, Bahrain signed up to an Organization for Economic Cooperation and Development (OECD) agreement on tax evasion, which compels the country to share information about potential tax evasion and make transparent its own banking arrangements.

F.Commerce and Trade
The offshore banking units had assets of around US$70,000 million in 1996, and the daily foreign exchange turnover of all Bahrain’s financial institutions totals around US$44,000 million. Bahrain had imports of US$4,612 million and exports of US$5,710 million in 2000. Major trading partners are Saudi Arabia, the United States, the United Kingdom, Japan, India, Singapore, and Germany.
A modern harbour at Mīnā’ Salmān near Manama strengthened Bahrain’s position as a trans-shipment port of the southern part of the Gulf.

G.Labour

With unemployment estimated at 20 per cent or higher, job creation for Bahrainis has been a priority. Out of a workforce of 140,000, 60 per cent are foreign and 85 per cent are employed in industry and commerce. The foreign workforce is set to double by the end of the century, as Bahrainis are unable or unwilling to take on many of the jobs.

H.Transport

Bahrain has 3,261 km (2,026 mi) of roads, 78 per cent of them surfaced. In 1999 there were 250 passenger cars per 1,000 people. The King Fahd Causeway linking Bahrain and Saudi Arabia opened in November 1986, leading to a significant increase in local tourism. The international airport at Al Muḩarraq is one of the busiest in the Gulf region; Gulf Air, the passenger airline in which Bahrain owns a quarter of the shares, is based in the country.

I.Communications

There are 4 daily newspapers: Akhbar Al-Khaleej (circulation 42,000) and Al Ayam (21,000) are Arabic-language publications; the Bahrain Tribune (12,000) and the Gulf Daily News (11,000) are in English. Manama is Bahrain’s publishing centre. In 1997 Bahrain had 241 telephones per 1,000 people, 338,000 radios, and 275,000 television receivers. Television is provided by the state-owned Bahrain Television.