Bahrain's Economy: Oil, Allies, And Diversification

Bahrain's economy is heavily dependent on oil and gas, with petroleum and natural gas being the country's only significant natural resources. Oil and gas comprise 85% of Bahraini budget revenues, and petroleum products are the country's most exported goods, accounting for 60% of export receipts, 70% of government revenues, and 11% of GDP. However, Bahrain has the most diversified economy among the regional Gulf countries, with non-oil sectors contributing 79.2% of total GDP. The financial and banking sector is one of the most important non-oil sectors, with 406 financial institutions contributing 16.7% of total GDP. Other significant sectors include manufacturing, transport, communications, construction, real estate, and tourism.

Petroleum and aluminium exports

Bahrain's economy is heavily dependent on oil and gas, with petroleum and natural gas being the country's only significant natural resources. Petroleum production and refining account for more than 60% of the country's export earnings, 70% of government revenues, and 11% of GDP. Refined petroleum is Bahrain's top export, with a volume of 186,000 barrels exported per day in 2020, worth $2.38 billion. The country's second-largest export is aluminium wire, contributing over 9% of total exports. In 2020, Bahrain exported 136,000 metric tons of aluminium wire, worth $755 million.

Bahrain has worked to diversify its economy due to its limited oil reserves, which are expected to last 10 to 15 years. The country has stabilised its oil production at about 40,000 barrels per day. Bahrain's other significant natural resource, natural gas, is expected to last about 50 years at present rates of consumption. Bahrain's aluminium industry is a key part of its manufacturing capabilities, with the country exporting raw aluminium, aluminium, and aluminium wire. In 2020, exports of raw aluminium and aluminium were worth $429 million and $531 million, respectively.

Bahrain's closest trading partners for refined petroleum include Saudi Arabia, China, and India, while the United Arab Emirates, Saudi Arabia, and Oman are the top destinations for aluminium wire exports. The country's aluminium smelter is the largest in the world, with an annual production of about 1,500,000 metric tons. Bahrain's other industries include iron ore pelletizing, shipbuilding and repair, and petrochemicals.

Financial and banking sector

Bahrain's economy is largely dependent on oil and gas, which has driven a regional boom in demand for the country's financial and banking services. Bahrain's finance industry is highly successful, with the country named the world's fastest-growing financial centre by the City of London's Global Financial Centres Index in 2008.

The financial and banking sector is one of the most important non-oil sectors in Bahrain, contributing 16.7% of the country's total GDP. There are 406 financial institutions in Bahrain, including 367 local, regional, and global institutions. The country is a global leader in Islamic finance and banking, and its capital, Manama, is home to many large financial institutions.

Bahrain has a strong regulatory framework for the industry, with the Central Bank of Bahrain serving as the single source of governance for the entire financial system since 2002. The country's progressive regulatory environment has encouraged innovation, with Bahrain FinTech Bay providing a dedicated coworking space, innovation labs, advisory services, and more. The Central Bank of Bahrain has also been quick to embrace open banking, providing banks with a sound and ever-evolving regulatory framework to meet the demand for digital payment and credit services.

The financial sector workforce in Bahrain is made up of 14,124 people, with Bahraini nationals representing 68% of the total workforce. The sector is supported by a well-developed infrastructure, including an international airport and a modern, busy port offering direct and frequent cargo shipping connections to the US, Europe, and the Far East.

Bahrain's financial services sector is the financial centre of the Gulf Cooperation Council (GCC), with a regional market valued at USD 1.67 trillion. Bahrain's finance companies are at the heart of the GCC and the wider Middle East and North Africa (MENA) region. The country's financial services sector offers opportunities in all major aspects of finance, from banking and asset wealth management to FinTech, insurance, and Islamic finance.

Manufacturing industries

Bahrain's economy is largely dependent on oil and gas, with petroleum being the country's most exported product. However, the country has been working to diversify its economy, and manufacturing industries are an important part of this diversification effort. In fact, manufacturing industries contribute 14.5% of Bahrain's GDP.

One of the largest manufacturing industries in Bahrain is aluminium manufacturing and processing. Bahrain is home to one of the largest smelters in the world due to its cheap energy. The country's top industry and manufacturing company, Aluminium Bahrain (ALBA), is wholly owned by the government and is a fully integrated oil company. Its activities include oil and gas exploration, production, refining, storage, distribution, and sales of crude oil and refined products. Other major aluminium companies include Gulf Aluminum Rolling Mill Company (GARMCO) and Aluminum Extrusion Company (BALEXCO).

In addition to aluminium, Bahrain also has steel and iron industries. The Arab Iron and Steel Company operates an iron ore pelletizing plant that produces 4 million tons annually. Bahrain also has a shipbuilding and repair yard.

Bahrain offers a favourable business environment for manufacturing companies, with lower operating costs, a strategic location, a highly skilled workforce, and world-class infrastructure. The country offers 0% corporate income tax and personal income tax, as well as investment grants and low industrial land lease rates. Bahrain is also the only country in the region that offers 100% foreign ownership in industrial manufacturing and distribution, without free-zone restrictions.

Other top manufacturing companies in Bahrain include General Electric (GE), Demag Cranes & Components, Fuji Electric Co Ltd, Gulf Industrial Investment Company (GIIC), Bahrain Rubber Company (BBC), and Havelock One Interiors.

Tourism

Bahrain's economy is heavily dependent on oil and gas, which comprise 85% of the country's budget revenues. However, since the late 20th century, Bahrain has invested significantly in the tourism sector, which has proven to be a significant source of income for the country.

Bahrain has successfully positioned itself as a desirable tourist destination, leveraging its modern and integrated infrastructure, rich history, and unique culture to attract visitors from around the world. The country offers a range of attractions and experiences that cater to a variety of interests.

One of the main draws of Bahrain is its diverse landscape, which includes both mesmerizing cities and expansive deserts. Visitors can explore the marvels of the country's ancient history and traditions while also enjoying the modern amenities and trends that Bahrain has to offer. The capital city, Manama, is known for its financial structures and bustling atmosphere, while the Amwaj Islands and Al Muharraq offer beachfront resorts and restaurants.

Bahrain also boasts a variety of cultural and historical sites, including the Al-Fateh Grand Mosque, the Bahrain National Museum, and the Shaikh Isa bin Ali House. Visitors can also experience the equestrian glory of Arabian horse riding or take a horseback riding tour to explore the country's beauty and traditions. The Lost Paradise of Dilmun Water Park offers a fun-filled day for families, while the city's bars, clubs, antique shops, and shopping malls cater to those looking for a more cosmopolitan experience.

Bahrain has also invested in developing a strong transportation network, making it easily accessible for international travellers. The country's international airport is one of the busiest in the Persian Gulf, serving 22 carriers and offering direct and frequent cargo shipping connections to the US, Europe, and the Far East. Additionally, Bahrain has a modern and busy port, further enhancing its accessibility.

The country has also established itself as a regional financial and business centre, with a successful finance industry that contributes significantly to its economy. This, coupled with its well-balanced international economic and trade relations, makes Bahrain an attractive destination for business travellers and investors.

Bahrain has also been ranked highly as a favourite place for expatriates to work and live, further contributing to the country's appeal as a tourist destination. The country offers legislative incentives and advantages for foreign companies, including complete ownership of companies and the freedom and stability of fiscal and monetary policies.

Transportation and telecommunications

Bahrain's Ministry of Transportation and Telecommunications (MTT) is responsible for the development and regulation of the country's transportation and telecommunications infrastructure and systems. The MTT aims to enhance the quality of life and facilitate the movement of people and goods via land, sea, and air transport, in line with the Economic Vision 2030.

Transportation

Bahrain's small size and level terrain have made it easy to develop an efficient transport system. The country has a well-developed road network, with over 200 kilometres of paved roads linking all populated areas of the island, including Bahrain Island, Al Muharraq Island, Sitra Island, and Umm Al Nasan Island. The national strategy has focused on establishing Bahrain as an international tourism destination and logistics centre, resulting in significant government investment in general and commercial transport infrastructure.

Bahrain's main port, Mina Salman, opened in 1962 and has been expanded several times since. It has sixteen berths and can handle vessels with a draught of up to nine meters. Crude and refined petroleum pass through the port of Sitrah, and a dry dock on Al Muharraq Island can handle ship repairs of up to 500,000 tons. Khalifa Bin Salman Port (KBSP), located in the Al Hidd industrial area, is Bahrain's only commercial port.

Aviation activities are also a priority in the kingdom's development strategies. Bahrain International Airport (BIA) is the country's only commercial aviation centre, with a capacity to handle 14 million passengers per year. It has seen significant upgrades in recent years, including a new terminal opening in 2021. Gulf Air, partly owned by Bahrain, provides regularly scheduled services to more than twenty international destinations.

Telecommunications

Bahrain has a modern telecommunications system with good domestic service and excellent international connections. In 1992, the country had approximately 98,000 telephones, one of the highest per capita figures in the Middle East at the time. Radio-relay and submarine cables connect Bahrain with its neighbours, and three satellite ground stations provide excellent international telephone, data, and television broadcast links.

The Telecommunications sector contributes to 4% of Bahrain's total GDP. The country has a high penetration rate of mobile telephone subscriptions (173%) and broadband subscriptions (128%), as well as a fixed-line penetration of 20%.

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