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BAHRAIN IN THE NEW MILLENNIUM
The country offers a partner-facilitator that makes investor objectives integrate swiftly into evolving economic strategy of the nation
By SHABBIR H. KAZMI
Dec 15 - 21, 2003
Bahrain's evolution into the dynamic economy that it is today did not begin with the discovery of oil in the 1930s, but rather in the late 1960s when in an attempt to preempt dependence on limited oil and natural gas resources and oil price fluctuations, the government embarked on an economic diversification strategy.
The island nation was, at that stage, well poised to implement the ambitious plan. During the four decades that led up to 1970, Bahrain efficiently deployed oil revenues in the development of what are today the oldest and best healthcare and educational systems in the region.
The returns manifested themselves in the form of a sharp decline in infant mortality rates, improved life expectancy, and the highest literacy rate in the region, earning Bahrain the highest ranking of all Arab countries by the United Nations Human Development Report 2002, as well as the UNDP's compiled Arab Human Development Report.
In 1971 Bahrain gained independence from Britain, a significant milestone in its political and economic development. The 1970s also saw the emergence of a large group of ambitious, university-educated young Bahrainis who were returning from foreign universities to begin new careers at home.
It was during that same decade that Bahrain introduced its first Commercial Companies Law, to regulate all aspects of commercial company establishment and operation. This Commercial Companies Law has served as the cornerstone for Bahrain's commercial and corporate governance infrastructure for over a quarter of a century. Also in the 1970s, the Government increased its focus on the design and construction of a world-class physical infrastructure.
HEY DATES IN BAHRAIN'S RECENT POLITICAL HISTORY
MARCH 6, 1999
His Majesty the King, Shaikh Hamad bin Isa Al-Khalifa became the Head of State following the death of his father, His Highness Shaikh Isa bin Salman Al-Khalifa
MARCH 6, 1999
Human Rights Committee formed within the Consultative Council
DECEMBER 10, 1999
International Human Rights Day celebrated for the first time
OCTOBER 3, 2000
Four women as well as representatives of the country's Jewish, Christian and Indian communities appointed to the Consultative Council
NOVEMBER 23, 2000
Forty-six member committee charged with devising political reform programme began work on the National Action Charter
FEBRUARY 13-14, 2001
Bahrain's political reforms in the National Action Charter endorsed by the people in a referendum with 98.4% voting in favour of the proposals
MARCH 16, 2001
Hawar Islands awarded to Bahrain by the International Court of Justice in the Hague
FEBRUARY 14, 2002
Constitution amended to give women the right to vote and for the establishment of a bicameral legislature following the people's endorsement of the National Action Charter
FEBRUARY 14, 2002
Bahrain declared a constitutional monarchy and Shaikh Hamad declared King of Bahrain
MAY 9, 2002
Municipal elections held under universal suffrage, with women voting and paticipating as candidates
OCTOBER 24, 2002
Parliamentary elections held, also under universal suffrage
FOUR-YEAR ACTION PLAN
On December 28, 2002, His Highness the Prime Minister, Shaikh Khalifa bin Salman Al-Khalifa unveiled the government's four-year Action Plan to the National Assembly based on an overall strategy of continued growth that relies upon a free economy, in which the government undertakes mainly a supervisory and regulatory role.
With a keen focus on further improving economic growth and elevating the national standard of living, the four-year plan lays down the road map for achieving the goals. The Action Plan also gives high priority to privatization in an effort to increase the productivity and provide a higher level of service in previously state-owned enterprises.
Bahrain set a target annual GDP growth rate of 5 to 6%, a significant increase from the growth rate of 4.5% in the previous years. Instrumental to achieving this objective is the attraction of an annual BD 650 million to BD 700 million (US$ 1724 million to US$ 1857 million). For its part, the government continues to relax restrictions on investment, remove undue bureaucracy, increase the level of services that it provides, and improve infrastructure. The government has also increased its budget by 8% for 2003 and 10% for 2004.
Bahrain's new economic paradigm is based on knowledge and technology, with a strong focus on the development of the services sector, particularly healthcare, education and training, and tourism. Bahrain also endeavors to develop its industrial sector and lend special attention and support to small and medium enterprises (SMEs) in the country. The government is also committed to strengthening economic ties with the rest of the region. This includes formation of Gulf Customs Union and Gulf Common Market.
1988 1999 2000 2001
Real GDP Growth (%)
The discovery of oil in the 1930s transformed Bahrain into the Gulf's first oil economy, but early acknowledgment on the part of the government that oil resources could not generate sustainable economic growth led to the well-engineered diversification programme that has yielded today's broad economic base where oil refining and manufacturing coexist with sophisticated financial, banking, commercial and service concerns.
The oldest sector of Bahrain's modern economy, oil and gas, accounted for 17.25% of GDP in 2001, and a significant 54.5% of government revenue. Following the discovery of oil, the Bahrain Petroleum Company (BAPCO) was established in 1936 to extract and refine the newly discovered crude oil. Today, the state-owned company has grown into a world-class operation with a capacity of 250,000 barrels per day (bpd). Bahrain's indigenous oil reserves supply an average 37,249 bpd, the offshore Abu Saffa field supplies an average 144,617 bpd, and the remaining is imported.
In 1979, the Bahrain National Gas Company (BANAGAS) was incorporated with the explicit objective of maximizing the utilization of gas resources by processing associated gas into marketable products, mainly propane, butane and naphtha, and the enhancement of the supply of gas to meet local industrial demand.
During that same year, the Gulf Petrochemical Industries Company (GPIC) was established. The GPIC petrochemical complex comprises of two plants producing ammonia and methanol, each with a daily production capacity of 1,000 tonnes. In 1998, GPIC inaugurated its $5180 million urea plant with a capacity to produce 610,000 tonnes of granulated urea a year.
The gas-dependent petrochemical industry, in turn, fostered the development of associated light industries including chemicals, detergents, paints, medical and industrial gases, plastics, synthetic sponges, fiberglass, heat insulators and heat insulation slabs. Natural gas has also provided the cost efficient energy necessary to establish an aluminum industry in the country.
Aluminum Bahrain (ALBA), Bahrain's first major economic diversification initiative and the region's first aluminum smelter, was incorporated in 1968, primarily to take advantage of the plentiful supply of natural gas. ALBA forms the cornerstone of the entire aluminum industry, which today comprises a wide range of downstream industries, including the production of atomized aluminum powder, aluminum profiles, metal coating, cables and conductors, wheels and automotive parts.
In September 2001, ALBA announced a US$ 1.7 billion expansion project that increased the smelter's annual capacity to 800,000 tonnes, making ALBA the largest single site smelter outside Eastern Europe. ALBA's current annual capacity stands at 520,000 tonnes, half of which is consumed by the country's aluminum downstream industry.
BANKING AND FINANCIAL SERVICES
Taking advantage of a liberal economic environment, availability of skilled non-transient national human capital, major banks and financial institutions began to establish offices in Manama in the mid 1970s. Following the landmark decision by the Bahrain Monetary Agency (BMA), Bahrain's central banking and financial institutions regulator, to allow offshore banking units (OBUs) to operate out of Bahrain. At present, there are 200 financial institutions operating in Bahrain. The sector was the second largest contributor to real GDP (16.4%) in 2001.
Supported by almost three decades of experience in running an offshore banking center and a significant Islamic banking presence, Bahrain is well poised to become the International Islamic Banking Center, with 26 Islamic banks and 5 Islamic insurance companies. With several factors converging to support this natural evolution, one of the most instrumental forces is certainly be the BMA, with its well-earned reputation as a sophisticated and transparent monetary authority.
In the summer of 2001, the BMA ventured boldly into the issuance of short and medium-term Islamic financing instruments, with its landmark issue of three-month government bills, Sukuk al-Salaam on June 13, 2001, followed by its five-year Ijara Islamic Leasing Instruments. Both issues were oversubscribed paving the way for a succession of future offerings.
By November 2002, the BMA had offered four issues of Islamic Leasing securities all of which were oversubscribed. These new Sharia (Islamic Law) compliant securities overcome Islamic restrictions concerning trading in debt and interest-based instruments by providing a return that is directly related to the actual benefit that the government derives from the proceeds. Through these securities, the government has tapped into local public funds for financing.
Mainly designed to address the short-term investment needs of Islamic banks and financial institutions, the securities' tradability over-the-counter also enhance the liquidity of the financial institutions that hold and trade in them.
Further support for a Bahrain-based International Islamic Financial Market comes in the form of stringent anti-money laundering legislation introduced early in 2001. This was followed by the establishment of a Financial Monitoring Bureau and several specialist sub-committees to continuously review, refine and improve money laundering legislation.
In addition to a solid banking infrastructure, Bahrain's excellent relations with its regional and international partners have served to maintain the necessary credibility and investors' confidence to lay the groundwork for the establishment of a global Islamic Banking Center.
The year 2002 has shown a positive step forward for tourism development in Bahrain. The recent surge in intra-Arab tourism, in general, and the increasing number of tourists from GCC States all year round, in particular, have played significant roles in the rise of new development plans. Of the 5.7 million visitors that entered Bahrain in 2001, around 82 percent entered the county via the King Fahad Causeway.
The expansion of the hotel industry and the provision of innovative family tourism anchor projects on the island are main themes for the tourism sector's future progress. The new Bahrain-Qatar Causeway's anticipated completion in 2005 provides a further thrust for the already established industry.
In addition, a key tourism catalyst has been the appointment of Bahrain as the Formula-I "Grand Prix" destination for 2004. The realization of the enormity of this event has set a new pace for the establishment of the Bahrain Racing Circuit in the South of the island, the development of supporting facilities including essential hotel expansions and the generation of down-stream industries.
A further development is the commencement of the Dannat Hawar project off the south coast of the main island of Bahrain. The resort encompasses 250 residential and commercial plots on four large islands with a marina and extensive coast line.
Ongoing projects include Durrat Al Bahrain and Amwaj Island, two major tourist communities. The existing tourism infrastructure has served the industry well in the past, but with the continuing increase in the number of visitors, opportunities exist for a variety of family- oriented facilities, including theme parks, aqua parks, and cultural tourism outlets to allow Bahrain to exploit the full potential of this sector of its economy.
BAHRAIN INTERNATIONAL AIRPORT
The Bahrain International Airport (BIA), a modern, highly efficient facility, serves as the regional hub for a significant number of international airlines, including cargo carriers and charter flight operators. One of those carriers is Gulf Air which, along with other airlines, operates over 300 flights a week to more than 50 destinations in the Middle East and North Africa. International airlines also operate flights to all major European and Asian cities.
In an on-going effort to encourage new carriers to serve Bahrain, Civil Aviation Affairs has developed a range of incentives that includes discounts on landing and parking fees, free parking for the first two hours and reductions on hotel accommodation for crews. Bahrain also offers the best fuel prices in the region.
In addition to its excellent passenger-handling capabilities, BIA also possesses highly efficient air cargo facilities, with an annual capacity of 200,000 tonnes. Its 18,000 square meter Air Cargo Center, managed by Bahrain Airport Services, provides a full range of cargo handling services, including effective transshipment arrangements, inter-airport trucking, customs clearance and special storage arrangements. Break bulk facilities are also available for consolidators and bonded warehousing for specialist companies.
THE KING FAHAD CAUSEWAY
Officially inaugurated in November 1986, the 27-kilometer causeway links Bahrain to the Saudi Arabian mainland, bringing the major population centers of the Eastern Province of Saudi Arabia within a one-hour drive, with driving time to Riyadh and the Kuwaiti border averaging four hours. Proving a boon to Bahrain's tourism industry, the bridge has served as a major contributor to Bahrain's status as a family retreat for regional markets.
PORT MINA SALMAN
Mina Salman is strategically located midway down the Arabian Gulf, providing key access to the region for the global shipping industry. The Port provides a range of facilities for vessels of up to 65,000 tonnes, which incluse an outer approach channel with a minimum depth of 9.5 meters bunkering, fuel available at dockside or by barge (48 hour notice required), berthing facilities, anchorage, fresh water, repair, survey and ship handler services.
SOUTH HIDD PORT AND INDUSTRIAL AREA
The 650 hectare South Hidd Port and Industrial Area is located at the north-eastern extremity of Bahrain. The port has two 300-meter container berths, a 300-meter RO/RO/LO/LO multipurpose berth, three 300-meter general cargo berths and extensive storage facilities. The port also boasts two 40-tonne and two 50-tonne post panamax gantry cranes, and 14 straddle carriers, in addition to fork lifts, Tugmaster units, low bed trailers and a computerized container and cargo tracking system.
The associated industrial area, with its ideal proximity to the airport and specially designed road access to the King Fahad Causeway, caters to smaller cleaner industries. The services envasaged are refrigerated storage facilities, distribution warehouses, bulk grain facilities, a timber yard, quay escalator crane, and a vessel bunkering facility, in addition to a business center and medical facilities.
THE BAHRAIN STOCK EXCHANGE
The Bahrain Stock Exchange (BSE) was established in 1987, making it one of the oldest organized securities markets in the Gulf. Since its inception, the Exchange has pursued a strategy of steady growth and development that has included the signing of cross-listing agreements with exchanges in Oman, Jordan and Egypt, and a cross-trading agreement with the stock exchange in Kuwait. It has also successfully transferred from a manual to an automated trading system.
THE GCC COMMERCIAL ARBITRATION CENTER
The GCC Commercial Arbitration Center was established in 1995 to provide specialized fast and effective arbitration services to support the commercial, industrial, construction and services sectors of GCC economies. Services offered by the Center include the conduct of commercial arbitration in accordance with the Center's rules and regulations. It also supports ad hoc arbitration and arbitration under the rules and regulations of other arbitral institutions.
The Center also plays an important educational role by conducting frequent and regular seminars, symposia and workshops in all GCC States on commercial arbitration and business laws. The main aim is to spread arbitral awareness among private and public establishments, and to highlight the importance of arbitration and its practical advantages in commercial dispute resolution.
ECONOMIC DEVELOPMENT BOARD
The Economic Development Board (EDB), an autonomous semi-private agency, was established by Amiri Decree in April 2000, with Board members officially appointed in June 2000. Chaired by H.H. the Crown Prince Shaikh Salman bin Hamad Al-Khalifa, Board membership comprises seven high profile business leaders and seven government ministers. The unique composition of the Board was designed to ensure the integral participation of the private sector in economic development within the context of the national interests of Bahrain. The EDB is managed by a team of professional executives led by a Chief Executive Officer.
The EDB attends and hosts seminars, investment forums, conferences and exhibitions to heighten awareness of what Bahrain has to offer potential investors. During such events, it establishes contacts with interested parties and helps them organize visits to Bahrain to explore investment opportunities.
During these visits, the EDB familiarizes the investor with Bahrain and its investment environment. The organization also helps the investor establish contact with members of the public and private sectors to initiate the network building process for the potential business investor.
The EDB provides the investor with all the necessary information to support the investment decision. This includes, but is not restricted to, information about the investment environment, investment and commercial laws, economic data, the commercial registration process, and the availability of land and utilities, including registration and leasing procedures.
Head of State: His Majesty the King, Shaikh Hamad bin Isa Al-Khalifa
Population: 650,604 (2001)
Currency: Bahraini Dinar
Languages: Arabic and English Farsi, Hindi and Urdu also widely spoken
State Religion: Islam Significant Christian, Hindu, Jewish and other minorities enjoy freedom of religion and maintain their places of worship.
Bahrain has signed Bilateral Trade and Economic Agreements with the following countries:
Australia Morocco Bangladesh Philippines China Russia Egypt Singapore France South Korea Germany Syria Greece Tunisia India Turkey Iraq UK Jordan USA Malaysia Yemen
BAHRAIN'S TOP TRADING PARTNERS
PAK-BAHRAIN TRADE RELATIONS
The balance of trade between Pakistan and Bahrain is in favour of Bahrain since 1992-93 mainly due to heavy imports of petroleum products from Bahrain. During the year 1996-97, Pakistan exported worth US$ 33.38 million to Bahrain, which increased to US$ 43.93 million in 2000-01, whereas imports from Bahrain increased from US$ 85.17 million in 1996-97 to US$ 114.60 million in 1999-00 but reduced to US$ 75.90 million in 2000-01.
Pakistan's Balance of Trade with Bahrain