Bahrain's Wealth: Rich Country, Rich People?

Bahrain is a small Arab state located in the Persian Gulf, comprising Bahrain Island and around 30 smaller islands. It has been recognised by the World Bank as a high-income economy, and its GDP per capita in 2023 was USD 29,084, or USD 43.21 billion for the entire country. Bahrain's economy is heavily dependent on oil and gas, with petroleum accounting for 60% of export receipts, 70% of government revenues, and 11% of GDP. However, Bahrain has also invested in other sectors such as banking, tourism, and heavy industries. The country's success in diversifying its economy has made it a regional financial and business hub, and it is known for its tax-haven status, with no income tax. Bahrain's modern capital city, Manama, is a popular destination for visitors from neighbouring countries, known for its relaxed and cosmopolitan atmosphere.

Bahrain's economy is heavily dependent on oil and gas

Bahrain has taken steps to diversify its economy away from oil and gas and towards banking, heavy industries, retail, and tourism. However, oil and gas still play a dominant role. Bahrain's oil sector can be divided into two parts: refining and crude oil production for export. In terms of revenue, oil exports are much more important than refining margins. Bahrain's oil exports come from its 50% share of the Abu Safah field, which it shares with Saudi Arabia. In 1972, the two countries agreed that Bahrain would receive 50% of the revenues without being charged production costs. Historically, Bahrain has received significantly more than its 50% entitlement.

Bahrain's other significant oil and gas assets include the Bahrain Petroleum Company refinery, which was the first in the Persian Gulf, and the Bahrain National Gas Company, which operates a gas liquefaction plant. Bahrain also has approximately 124.6 million barrels of proven oil reserves and an extensive reservoir off its west coast estimated to contain 80 billion barrels of tight oil.

Despite Bahrain's efforts to diversify its economy, oil and gas remain crucial. The country has limited oil wealth compared to its Persian Gulf neighbours and has invested its modest oil revenues into developing sectors like banking and tourism. Bahrain's finance industry is very successful, and the country is a regional financial and business centre. However, the economy remains heavily dependent on oil and gas, and lower world energy prices have generated significant budget deficits.

The country's finance industry is very successful

Bahrain's finance industry is very successful. In 2008, Bahrain was named the world's fastest-growing financial centre by the City of London's Global Financial Centres Index. Bahrain's financial services sector is the GCC's financial centre, comprising 367 local, regional and global institutions. The country's capital, Manama, is home to many large financial institutions. Bahrain is a global leader in Islamic finance and banking, ranking first in the GCC for Islamic Banking and Corporate Governance and second globally. The Bahrain Islamic Bank and other financial services companies help lead the way in Islamic finance in the GCC and beyond.

Bahrain is also home to MENA's leading FinTech hub, Bahrain FinTech Bay, which provides a dedicated co-working space, innovation labs, advisory services and more. The transformation of Bahrain's FinTech ecosystem has been driven by unmatched regulatory reform, paving the way for emerging industries including robo-advice and crypto-asset platforms. FinTech establishments can expand their industry offerings thanks to the country's flexible markets and strong technology infrastructure.

Bahrain's financial industry is the largest non-oil contributor to the country's real GDP. By late 2021, the financial sector had overtaken hydrocarbons as the largest contributor to the economy. The country's Islamic finance sector is also strong, with Bahrain ranking fourth out of 135 countries and second in the MENA region in terms of Islamic financial development in a 2021 report by financial analysis firm Refinitiv.

Bahrain's banking sector is well capitalised and supported by good provisioning for future spikes in non-performing loans as pandemic-era measures unwind. The insurance sector has also maintained robust profitability, with new products in health and medical in particular likely to facilitate growth. The kingdom's support for FinTech and innovation in financial services leaves it well-placed for the future development of innovative solutions, boosting efficiency, cutting costs and increasing productivity.

Bahrain is a tax haven

Bahrain is a small but wealthy country in the Middle East, with a high-income economy. It has the second-highest-valued currency unit in the world and is home to a thriving finance industry. Bahrain's economy is heavily dependent on oil and gas, which comprise 85% of the country's budget revenues. However, Bahrain has also invested significantly in the banking and tourism sectors, with the country's capital, Manama, serving as a major financial hub.

In terms of taxation, Bahrain can be considered a tax haven. The country has very low or no corporate and personal income tax, making it an attractive destination for foreign investment. In 2017, the European Union (EU) included Bahrain on a blacklist of "non-cooperative jurisdictions for tax purposes." Bahrain was listed among 16 other countries that failed to comply with EU tax standards and were deemed to be tax havens. The EU stated that the blacklisted countries were not doing enough to address offshore avoidance schemes. As a result of the listing, Bahrain faced restrictions on receiving EU funding and investments from the European Investment Bank.

The inclusion of Bahrain on the EU tax haven blacklist had significant implications for the country's financial system. The EU sought to stop the outflow of money into Bahrain's financial system and force the country to improve transparency and regulation. The blacklist also impacted Bahrain's ability to conduct business within the EU, as financial institutions from blacklisted countries were restricted from operating in the bloc.

However, it is important to note that Bahrain has taken steps to meet EU requirements and improve its regulatory environment. The country has implemented the Base Erosion and Profit Sharing (BEPS) Minimal Standard, a series of legal protocols aimed at combating international corporate tax avoidance strategies. Additionally, Bahrain's financial sector is known for its strong compliance and counter-terror finance measures, which have been developed in coordination with authorities such as the U.S. Treasury Department.

Overall, Bahrain's status as a tax haven is a complex issue. While the country offers favorable tax conditions that attract foreign investment, it has also faced scrutiny and reputational challenges due to its presence on the EU tax haven blacklist. Bahrain has worked to address these concerns and improve the transparency and regulation of its financial sector.

The country's tourism industry is growing

Bahrain is a rich country in the Middle East and North Africa (MENA) region, with an economy that is heavily dependent on oil and gas. However, the country has also invested significantly in the banking and tourism sectors. Bahrain's finance industry is highly successful, with the country being named the world's fastest-growing financial centre by the City of London's Global Financial Centres Index in 2008.

The country's tourism industry is experiencing growth, and this growth is expected to continue. Between January and June 2023, Bahrain saw a remarkable 51% increase in visitors compared to the same period in 2022, with 5.9 million tourists choosing the country as their destination. This growth emphasises Bahrain's growing attraction as a premier tourist destination.

Bahrain's strategic location in the Gulf region, along with its rich history and cultural heritage, makes it a unique travel destination. The country offers a blend of modernity and tradition, with attractions ranging from ancient archaeological sites to bustling souks and luxury shopping malls. Additionally, Bahrain's reputation for safety and hospitality makes it an attractive choice for international tourists looking to explore the Middle East.

The growth of the tourism market in Bahrain can be attributed to several factors, including government initiatives to promote the sector, investments in infrastructure development, and efforts to diversify the economy. The country's stable political environment, ease of doing business, and strategic marketing campaigns have also played a crucial role in attracting visitors and driving growth in the tourism industry.

Bahrain's tourism industry is expected to continue growing, with a projected market volume of US$196.40 million by 2028. The largest market within the Bahraini tourism market is the Package Holidays market, which is projected to reach a volume of US$58.07 million by 2024. The average revenue per user (ARPU) in this market is expected to be US$340.20.

The country's focus on developing cultural and heritage sites, as well as its unique blend of modernity and tradition, makes Bahrain an appealing destination for tourists seeking immersive cultural experiences and a blend of old and new. With its growing tourism industry, Bahrain offers a range of investment opportunities in the tourism and hospitality sector, including infrastructure projects such as new hotels and museums.

Bahrain has a high GDP per capita

Bahrain's economy is heavily dependent on oil and gas, with petroleum being the country's most exported product, accounting for 60% of export receipts, 70% of government revenues, and 11% of GDP. Bahrain's finance industry is also very successful, with the country being named the world's fastest-growing financial centre by the City of London's Global Financial Centres Index in 2008. Bahrain's banking and financial services sector, particularly Islamic banking, have benefited from the regional boom driven by demand for oil.

The country has also invested in other sectors such as tourism and heavy industries. Bahrain's capital, Manama, is home to many large financial institutions and is a popular destination for visitors from neighbouring Saudi Arabia.

Bahrain's high GDP per capita indicates a high level of social wealth potentially available to each person, although it is important to consider other factors such as income inequality and the availability of essential goods and services when assessing the overall richness of a country.

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