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TITLE:  BAHRAIN ECONOMIC POLICY AND TRADE PRACTICES
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE


                             BAHRAIN

                     Key Economic Indicators
        (Millions of U.S. dollars unless otherwise noted)


                                  1991      1992      1993 /1
Income, Production,
 and Employment

GDP at Current Prices             4,090     4,300     4,560
GDP Growth (nominal)                3.0       5.0       6.0
Per Capita GNP                    8,115     8,300     8,530
Labor Force (000's)                 203       208       213
Unemployment (percent)             12        15        15


Money and Prices

Money Supply
 (M2: annual percentage growth)    16.9       4.1       7.6
Prime Interest Rate                11         7.5       6.0
Savings Rate                        5.0       3.5       2.5
Consumer Price Inflation            1.0       2.0       3.0
Cons. Price Index (1983-84=100)    96.9      98.8     101.8
Exchange Rate ($/dinar)           0.377     0.377     0.377

Balance of payments and trade /2

Total Exports (FOB)               3,459.7   3,408.2   3,750
  Non-oil Exports to U.S.            68.2      69.0     120
Total Imports (CIF)               4,057.8   4,133.7   3,550
  Non-oil Imports from U.S. /3      346.6     345.1     330
Economic Aid from Other Countries    25        50        50
Economic Aid from U.S.                0         0         0
External Public Debt                n/a       n/a       n/a
Debt Service                        n/a       n/a       n/a
Gold and FOREX Reserves           7,844     7,760     7,700
Trade Balance                      -598.1    -725.5    -200
  Non-oil Trade balance
   with U.S. /3                    -278.5    -276.1    -200


Notes:

1/  1993 Figures are all estimates based on available data in
    October 1993.
2/  Trade figures are for merchandise trade.
3/  Excluding imports of military items and civilian aircraft.


1.  General Policy Framework

    Although the Government of Bahrain has controlling
interests in many of the island's major industrial
establishments, its overall approach to economic policy,
especially those policies which affect demand for U.S. exports,
can best be described as laissez faire.  Except for a few basic
foodstuffs, the price of goods in Bahrain is determined by
market forces, and the importation and distribution of foreign
commodities and manufactured products is carried out by the
private sector.  Owing to its historical position as a regional
trading center, Bahrain has a well-developed and highly
competitive mercantile sector in which products from the entire
world are represented.  Import duties are primarily a revenue
device for the government and are assessed at a ten-percent
rate on most products.  The Bahraini dinar (BD) is freely
convertible, and there are no restrictions on the remittance of
capital or profits.  With the exception of the petroleum
sector, Bahrain does not tax either corporate or individual
earnings.
 
    Over the last two decades, the Government of Bahrain has
encouraged economic diversification by investing directly in
such basic industries as aluminum smelting, petrochemicals and
ship repair; and by creating a regulatory framework which has
fostered the development of Bahrain as a regional financial and
commercial center.  Despite diversification efforts, the oil
and gas sector remains the cornerstone of the economy.  Oil and
gas revenues constitute over 60 percent of governmental
revenues, and oil and related products account for about 80
percent of the island's exports.  The largest source of the
government's oil revenue comes from Bahrain's
100,000-barrel/day share of the offshore Abu Saf'a field, a
field which is shared with and managed by Saudi Arabia.
 
    The budgetary accounts for the central government are
prepared on a biennial basis.  The current budget is for
1993-94, and was approved in April 1993.  Budgetary revenues
consist primarily of receipts from oil and gas (over 60
percent) supplemented by fees and charges for services, customs
duties and investment income.  Bahrain has no income taxes, and
thus does not use its tax system to implement social or
investment policies.  In the 1993-94 budget, 1993 revenue is
projected to be $1.537 billion and 1993 expenditures $1.703
billion.  The projected deficit of $166 million is to be
financed through the issuance of three-month treasury bills and
five- and seven-year government development bonds to domestic
banks, as has been the normal practice of recent years.

    The instruments of monetary policy available to the Bahrain
Monetary Agency (BMA) are limited.  The BMA uses treasury bills
to regulate dinar liquidity positions of the commercial banks. 
Liquidity to the banks is provided now through secondary
operations in treasury bills, including: (a) discounting
treasury bills; and (b) sale by banks of bills to the BMA with
a simultaneous agreement to repurchase at a later date
("repos").  Starting in 1985, the BMA imposed a reserve
requirement on commercial banks equal to five percent of dinar
liabilities.  Although the BMA has no legal authority to fix
interest rates, it has published recommended rates for Bahraini
dinar deposits since 1975.  In 1982, the BMA instructed the 
commercial banks to observe a maximum margin of one percent
over their cost of funds, as determined by the recommended
deposit rates, for loans to prime customers.  In August 1988,
special interest rate ceilings for consumer loans were
introduced.  In May 1989, the maximum prime rate was abolished,
and in February 1990, new guidelines permitting the issuance of
dinar CD's at freely negotiated rates for any maturity from six
months to five years were published.


2.  Exchange Rate Policies

    Since December 1980, Bahrain has maintained a fixed
relationship between the Bahraini dinar (BD) and the U.S.
dollar at the rate of one U.S. dollar = 0.377 BD.  Bahrain
maintains a fully open exchange system free of restrictions on
payments and transfers.  There is no black market or parallel
exchange rate.


3.  Structural Policies

    As a member of the Gulf Cooperation Council (GCC), Bahrain
participates fully in GCC efforts to achieve greater economic
integration among its member states.  In addition to according
duty-free treatment to imports from other GCC states, Bahrain
has adopted GCC food product labeling and automobile
standards.  Efforts are underway within the GCC to enlarge the
scope of cooperation in fields such as product standards, and
industrial investment coordination.  In recent years, the GCC
has focused its attention on negotiation of a trade agreement
with the European Community.  If these negotiations are
successfully concluded, such an agreement could have a
long-term adverse impact on the competitiveness of U.S.
products within the GCC, including Bahrain.  Bahrain is also an
active participant in the ongoing U.S.-GCC economic dialogue. 
For the present, U.S. products and services compete on an equal
footing with those of other non-GCC foreign suppliers.  Bahrain
participates in the Arab League economic boycott against
Israel, but no longer strictly enforces the secondary boycott
against third-country firms found to have certain economic
relationships with Israel.
  
     With a few exceptions for basic food stuffs and petroleum
product prices, the Government of Bahrain does not attempt to
control prices on the local market.  Because most manufactured
products sold in Bahrain are imported, prices are basically
dependent upon the source of supply, shipping costs and agents'
mark-ups.  Since the opening of the Saudi Arabia-Bahrain
causeway in 1985, local merchants have been less able to
maintain excessive margins, and, as a consequence, prices have
tended to fall to the levels prevailing in other GCC
countries.  Bahrain is essentially tax-free.  The only
corporate income tax in Bahrain is levied on oil, gas and
petroleum companies.  There is no individual income tax, nor
does the island have any value-added tax, property tax or
production tax.  A few indirect and excise taxes are assessed. 
Aside from customs duties, they include a tax on gasoline, a
ten-percent municipal levy on rents paid by residential tenants
and a 12.5-percent tax on office rents.


4.  Debt Management Policies

     The Government of Bahrain follows a policy of strictly
limiting its official indebtedness to foreign financial
institutions.  In the past, it has financed its budget deficit
through local banks.  The $1.4 billion Aluminum Bahrain (ALBA)
smelting plant expansion project, completed in December 1992,
is being financed in part through foreign commercial and
supplier credits.  The Government of Bahrain does not regard
this debt as sovereign risk.  The Government of Bahrain has no
International Monetary Fund or World Bank programs.


5.  Significant Barriers to U.S. Exports
 
    Standards:  Processed food items imported into Bahrain are
subject to strict shelf-life and labeling requirements. 
Pharmaceutical products must be imported directly from a
manufacturer which has a research department and must be
licensed in a least two other GCC countries, one of which must
be Saudi Arabia.
 
    Investment:  The government actively promotes foreign
investment and has recently promulgated regulations permitting
100 percent foreign ownership of new industrial establishments
and the establishment of representative offices or branches of
foreign companies without local sponsors.  Most other
commercial investments are subject to government approval and
generally must be made in partnership with a Bahraini national
controlling 51 percent of the equity.  Except for citizens of
Kuwait, Saudi Arabia and the U.A.E., foreign nationals are not
permitted to purchase land in Bahrain.  The government
encourages the employment of local nationals by setting
local-national employment targets in each sector and by
restricting the issuance of expatriate labor permits.

    Government procurement practices:  The government makes
major purchasing decisions through the tendering process.  For
major projects, the Ministry of Works, Power and Water extends
invitations to selected, pre-qualified firms.  Likewise,
construction companies bidding on government construction
projects must be registered with the Ministry of Works, Power
and Water.  Smaller contracts are handled by individual
ministries and departments, and are not subject to
pre-qualification.
 
    Customs procedures:  The customs clearance process is used
to enforce the boycott of Israel.  Goods produced by
blacklisted firms may be denied customs clearance or encounter
delays in clearance.  Customs also enforces Bahrain's Foreign
Agency Law.  Goods manufactured by a firm with a registered
agent in Bahrain may only be imported by that agent or if by a
third party, upon payment of a commission to the registered
agent.


6.  Export Subsidies Policies

    The Government of Bahrain provides indirect export
subsidies in the form of preferential rates for electricity,
water and natural gas to selected industrial establishments. 
The government also permits the duty-free importation of raw
material inputs for incorporation into products for export and
the duty-free importation of equipment and machinery for newly
established export industries.  The government does not
specifically target subsidies to small businesses.  Bahrain is
not a member of GATT and is not a signatory to the GATT
Subsidies Code.


7.   Protection of U.S. Intellectual Property
 
    Bahrain is not yet a signatory to any major intellectual
property convention, and its new copyright law, adopted in
1993, excludes from protection nearly all foreign works which
are first introduced outside Bahrain.  Consequently, protection
of intellectual property is considered unsatisfactory by U.S.
standards.  The sale of unauthorized cheap video and audio
tapes and computer software is widespread.  Patents and
trademarks are, however, protected by Bahraini law.
 
    Existing intellectual property protection is provided by
the Patent, Design and Trademark Law of 1955, as amended by
Ministerial Decree No. 22 Of 1977 and implementing regulations
of 1978.  The Trademark Law was revised in 1991 and reissued as
Decree No. 10 Of 1991.  Protection periods are as follows:  (1)
a trademark can be registered for a period of ten years,
renewable without limit for further ten-year periods;  (2) a
design can also be registered for a period of five years, but
the registration is only renewable for two terms of five years;
(3) a patent can be registered for 15 years, renewable for one
five-year period if the patent is deemed by the Patents and
Trademarks Registration Office of the Ministry of Commerce and
Agriculture to be of special importance and not to have
realized revenue commensurate with the expenses involved in its
formulation.
 
    The enforcement of trademark protection is generally left
to the local agent or an appointed representative of the
trademark owner.  The government does not have a pro-active
policy of seeking and/or removing counterfeit goods from the
market.  Trademark registration fees and procedures have not
been identified as obstacles to seeking or maintaining
trademark protection.
 
    Infringement of new technology is basically limited to
software piracy in Bahrain.  Private satellite receivers are
banned.  The U.S.-based Cable News Network (CNN) is transmitted
during a limited schedule on an open channel by the Ministry of
Information with the agreement of the firm, and viewers wishing
to receive CNN on a 24-hour basis must pay a fee.
 
    Bahrain's recently enacted Copyright Law, Legislative
Decree No. 10 of 1993, applies only to intellectual properties
of Bahrainis and Arab authors who are nationals of states which
have ratified the Arab Copyright Protection Agreement of 1958. 
Intellectual properties of other foreign authors are protected
only if published for the first time in Bahrain.  The law
therefore has virtually no effect on works of U.S. authors. 
There are no reliable estimates of losses to U.S. trade as a
result of Bahrain's failure to provide adequate copyright
protection.


8.  Worker Rights
 
    a.   Right of Association

    Bahrain's partially-suspended 1973 constitution recognizes
the right of workers to organize, but western-style trade
unions do not exist in Bahrain.  However, labor regulations
encourage the formation of elected workers' committees in the
larger Bahraini companies.  Worker representation in Bahrain
today is based on a system of Joint Labor-Management
Consultative Councils (JCC's).  The JCC's are composed of equal
numbers of appointed management representatives and worker
representatives elected from and by company employees.  The
elected labor representatives of the JCC's select the 11
members of the General Committee for Bahrain Workers (GCBW),
which oversees and coordinates the work of the JCC's.  The
committee also hears complaints from Bahraini and foreign
workers, and assists them in bringing their complaints to the
attention of the Ministry of Labor or the courts.  The JCC-GCBW
system now represents close to 70 percent of the island's
indigenous industrial workers.  Twelve JCC's have been
established in the major state-owned industries, and in 1993
the GCBW announced the extension of the JCC system into the
private sector, and the planned formation of at least five new
JCC's in major private companies.  Ministry of Labor spokesmen
have supported these moves, and have urged the formation of
JCC's in all public and private sector companies employing more
than 200 workers.

    In 1992 the AFL-CIO filed a petition to remove GSP benefits
from Bahrain for failure to provide internationally recognized
worker rights.  The review has been extended through the end of
the 1993-94 review cycle.

    b.   Right to Organize and Bargain Collectively

    While the JCC's described above are empowered to discuss
labor disputes, organize workers' services, and discuss wages,
working conditions, and productivity, the workers have no
entirely independent, recognized vehicle for representing their
interests on these or other labor-related issues.  Bahraini
labor law neither grants nor denies workers the right to
organize and bargain collectively, or to go on strike.  There
are no recent examples of major strikes, but walkouts and other
job actions have been known to occur without governmental
intervention and with positive results for the workers. 
Minimum wage rates are established by Council of Ministers'
decree.  Increases in wages above the minimum, which are
subject to discussion in the JCC's, are set by management, with
government salaries for comparable work often serving as an
informal guide.

    c.   Prohibition of Forced or Compulsory Labor
   
    Forced or compulsory labor is legally prohibited, and the
Ministry of Labor is charged with enforcing the law.  The press
often performs an ombudsman function on labor problems,
reporting instances in which private sector employers have
occasionally compelled foreign workers from developing nations
to perform work not specified in their contracts, as well as 
Ministry of Labor responses.  Once a complaint has been lodged
by a worker, the Ministry of Labor opens an investigation and
often takes remedial action.

    d.   Minimum Age for Employment of Children

    The minimum age for employment is 14.  Juveniles between
the age of 14 and 16 may not be employed in hazardous
conditions or at night and may not work over 6 hours per day or
on a piecework basis.  Child labor laws are effectively
enforced by Ministry of Labor inspectors in the industrial
sector; child labor outside that sector is less well monitored
but is not believed to be significant outside family-operated
businesses.

    e.   Acceptable Conditions of Work

    Bahrain's labor law, enforced by the Ministry of Labor,
mandates acceptable conditions of work for all adult workers,
including adequate standards regarding hours of work (maximum
48 hours per week) and occupational safety and health.  Minimum
wage scales, set by government decree, exist for both private
and public sector employees.  Complaints brought before the
Ministry of Labor which cannot be settled through arbitration
must, by law, be referred to the Fourth High Court (Labor)
within 15 days.  In practice, most employers prefer to settle
such disputes through arbitration, particularly since the Court
and labor law are generally considered to favor the
worker/employee.  The law provides protection for both Bahraini
and expatriate workers.  However, all foreign workers are
required to be sponsored by Bahrainis or Bahrain-based
institutions and companies.  Foreign workers, particularly
those from developing countries, are often unwilling to report
abuses for fear of losing residence rights in Bahrain and
having to return to their native countries, in which they may
face significantly inferior working conditions and earning
possibilities.  In addition, the labor law specifically favors
Bahrainis, followed by Arab expatriates, over all other
expatriate workers in the areas of hiring and firing.  Women
are generally paid less than men, and are prohibited from
performing night work, except in certain exempted fields. 
Women are entitled to 60 days of paid maternity leave, nursing
periods during the day, and up to one year of unpaid maternity
leave.

    f.   Rights in Sectors with U.S. Investment
 
    U.S. capital investment in Bahrain is concentrated in the
petroleum sector.  It takes the form of minority share
interests in the Bahrain Petroleum Company (BAPCO), Bahrain
National Gas Company (BANAGAS) and the Bahrain Aviation
Fuelling Company (BAFCO).  There is also a joint venture
factory producing bottle caps.  Workers at all these companies
enjoy the same rights and conditions as other workers in
Bahrain.


         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (millions of U.S. dollars)

Category                                    Amount

Petroleum                                                 D
Total Manufacturing                                       0
    Food & Kindred Products                     0
    Chemicals and Allied Products               0
    Metals, Primary & Fabricated                0
    Machinery, except Electrical                0
    Electric & Electronic Equipment             0
    Transportation Equipment                    0
    Other Manufacturing                         0
Wholesale Trade                                           7
Banking                                                -162
Finance and Insurance                                     D
Services                                                  0
Other Industries                                          0

TOTAL ALL INDUSTRIES                                   -124


(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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