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U.S. DEPARTMENT OF STATE
BAHRAIN: 1994 COUNTRY REPORT ON ECONOMIC POLICY AND TRADE PRACTICES
BUREAU OF ECONOMIC AND BUSINESS AFFAIRS





                             BAHRAIN

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


                                    1992       1993     1994  1/

Income, Production and Employment:

GDP (at current prices)             4,338      4,555     4,637
GDP Growth (nominal)                  3.4        5.0       1.8
Per Capita GNP (USD)                8,300       8530      8725
Labor Force (000s)                    203        212       221
Unemployment (pct.)                    12         15        15

Money and Prices:

Money Supply (M2/ann. pct. growth)    4.1        5.5       6.0
Prime Interest Rate                   7.5        6.1       6.5
Savings Rate                          3.5        3.0       3.0
Consumer Price Inflation              2.0        4.8       2.3
Consumer Price Index (1983/84=100)   96.5      101.1     103.5
Exchange Rate (USD/BD)               2.65       2.65      2.65

Balance of Payments and Trade:  2/

Total Exports (FOB)               3,408.2    3,675.6   3,174.7
  Non-Oil Exports to U.S.            69.0      102.2     103.0
Total Imports (CIF)               4,133.7    3,811.2   3,561.6
  Non-Oil Imports from U.S.  3/     345.1      349.4     277.0
Aid from Other Countries               50         50        50
  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 Foreign Exch. Reserves     1,449      1,350     1,336
Trade Balance                     (-725.5)  (-135.6)  (-386.9)
Non-Oil Balance with U.S.  3/     (-276.1)  (-247.2)  (-174.0)


N/A/--Not available.

1/ 1994 Figures are all estimates based on data available in
October 1994.
2/ Trade figures are for merchandise trade.
3/ Excluding imports of military items and civil 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,
which is shared with and managed by Saudi Arabia.

    The budgetary accounts for the central government are
prepared on a biennial basis.  The budget for 1993-94 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
1993, revenue was $1.487 billion and expenditures were $1.659
billion.  The resulting $172 million shortfall was financed
through the issuance of three-month and six-month treasury
bills to domestic banks, according to the normal practice of
recent years.  1994 revenue is projected to be $1.590 billion
and expenditures are projected to be $1.789 billion.  The
projected $199 million deficit will also be financed through
the issuance of treasury bills.  The 1995-96 budget is
expected to be approved by the Council of Ministers by spring
1995.  It will most likely project budget shortfalls similar
to those seen over the past two years.

    The instruments of monetary policy available to the
Bahrain Monetary Agency (BMA) are limited.  Treasury bills are
used 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) sales 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 certificates of deposit (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 and the U.S. dollar at
the rate of one U.S. dollar equals 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

    Bahrain ratified the Uruguay Round Agreements and became
one of the founding members of the World Trade Organization
(WTO) on January 1, 1995.  Bahrain is also a member of the
regional Gulf Cooperation Council (GCC).  As a member of the
GCC, Bahrain participates fully in its 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 negotiations on a trade agreement
with the European Union.  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 this year announced that it would
not observe secondary and tertiary boycott policies against
third-country firms having economic relationships with Israel.

    With the exception of a few basic foodstuffs 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 are less able
to maintain excessive margins and, as a consequence, prices
have tended to fall toward 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 taxed are assessed.  Aside 
from customs duties, including a tax on gasoline, a ten
percent municipal levy on rents paid by residential tenants
and a 12.5 percent tax on office rents are imposed.


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,
was financed in part through foreign commercial and supplier
credits.  The Government of Bahrain does not regard this debt
as sovereign risk.  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 at least two other GCC countries, one of which
must be Saudi Arabia.

    Investment:  The government actively promotes foreign
investment and in recent years 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, prequalified 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
prequalification.

    Customs Procedures:  The customs clearance process is used
to enforce the primary boycott of Israel.  While goods
produced by blacklisted firms may be subjected to minor
delays, the secondary and tertiary boycotts are no longer used
as the basis for denying customs clearance.  Bahraini customs
also enforces the 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
a member of GATT, the GATT Subsidies Code, and the WTO.


7.  Protection of U.S. Intellectual Property

    The Government of 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. 
Procedures for enforcement even of this limited law are unduly
cumbersome, and there is no effective enforcement mechanism. 
Consequently, protection of intellectual property is
considered unsatisfactory by U.S. standards.  The sale of
unauthorized cheap video and audio tapes and counterfeit
computer software is widespread.  Patents and trademarks,
however, are 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 be registered for a period of five years, but the
registration is only renewable for two periods of five years
each; (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 trademarks is generally left to the
local agent or an appointed representative of the trademark
owner.  The government does not have a proactive policy of
seeking and/or removing counterfeit goods from the
marketplace.  Trademark registration fees and procedures have
not been identified as obstacles to seeking or maintaining
trademark protection.

    Infringement of new technology in Bahrain is basically
limited to software piracy.  Private satellite receivers are
banned.  The U.S.-based Cable News Network (CNN) is
transmitted for one hour every night 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 other 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 originally published in
Bahrain.  There are no reliable estimates of losses to U.S.
trade as a result of Bahrain's failure to provide adequate
copyright protection.  However, as part of its Uruguay Round
obligations under the Trade Related Intellectual Property
Agreement (TRIPS), Bahrain will bring its laws into conformity
with international intellectual property rights conventions.


8.  Worker Rights

    a.  The Right of Association

    The partially suspended 1973 Constitution recognizes the
right of workers to organize, but trade unions do not exist in
Bahrain, and the government does not encourage their
formation.  However, the government passed a series of labor
regulations which, among other things, allow the formation of
elected workers' committees in larger Bahraini companies. 
Worker representation in Bahrain today is based on a system of
joint labor-management consultative councils (JCCs)
established by ministerial decree.  Between 1981 and 1984, 12
JCCs were established in the major state-owned industries.  In
1994, four new JCCs were established in the private sector,
including one in a major hotel.  Further expansion of the JCC
system into tourism and banking sectors is under active
consideration.  The JCCs are composed of equal numbers of
appointed management representatives and worker
representatives elected from and by company employees.  The
selection of worker representatives appears to be a fair
process, and worker representatives appear generally to
genuinely represent worker interests.  The elected labor
representatives of the JCCs select the 11 members of the
General Committee of Bahraini Workers (GCBW) established in
1983 by law, which oversees and coordinates the work of the
JCCs.  The JCC-GCBW system represents close to 70 percent of
the islands indigenous industrial workers, although both
government and labor representatives readily admit that
nonindustrial workers and expatriates are clearly
underrepresented within the system.

    b.  The Right to Organize and Bargain Collectively

    While the JCCs 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 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 minumum, which are
subject to discussion in the JCCs, 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 prohibited in Bahrain, and
the Labor Ministry is charged with enforcing the law.  The
press often performs an ombudsman function on labor problems,
reporting instances in which private sector employers
occasionally compelled foreign workers from developing
countries 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 Labor Ministry 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 ages 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 institutions and
companies based in Bahrain.  Foreign workers, particularly
those from developing countries are often unwilling to report
abuse for fear of losing residence rights in Bahrain and
having to return to their native countries, in which they
would 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
primarily 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 Fueling Company (BAFCO).  There are also
joint venture factories producing plastic bottle caps,
tissues, and pipes.  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--1993

                   (Millions of U.S. dollars)
                                                               
              Category                         Amount          

Petroleum                                               25
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                                          4
Banking                                               -152
Finance/Insurance/Real Estate                           (1)
Services                                                (1) 
Other Industries                                         0
TOTAL ALL INDUSTRIES                                  -114   

(1) Suppressed to avoid disclosing data of individual companies

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


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