Bahrain

Published October 18th, 2000 - 02:00 GMT

 

Indicators: 

1998 

1999 

2000e 

GDP real growth rate (%) 

4.8 

2.5 

4.0 

Inflation (%) 

0.6 

0.5 

1.0 

Total Exports (US$bn) 

3.26 

4.11 

5.33 

Total Imports (US$bn) 

3.54 

3.53 

3.89 

Trade Balance (US$bn) 

-0.29 

0.58 

1.44 

 

 

 

 

 

Political Outlook 

 

In his 15 plus months as ruler of Bahrain, Sheikh Hamad has opened new branches in relations with internal opposition elements and with neighboring states. In contrast to his father's belligerent approach, Hamad has extended a peaceful hand to dissidents, a policy manifest by the July 1999 pardon of leading opposition member Sheikh Abdul-Amir al-Jamri.  

 

A bizarre sequence of events that unfolded in mid-March confirms the conciliatory position Bahrain's Emir Sheikh Hamad bin Isa al-Khaleifa has adopted towards local dissidents since assuming power. Bahraini authorities freed and later re-arrested Abdul Wahab Hussein, a prominent Shi'ite opposition figure who had been detained without trial for more than four years. At the time, his brother had indicated that police were finalizing arrangements for Hussein's permanent release. Abdul Wahab was first arrested along with seven other Shi'ite leaders in 1996 during anti-government disturbances by members of the majority Shi'ite community. Although violence abated two years ago, Shi'ite opponents of Bahrain's ruling Sunni family continue to demand the restoration of parliament, which was dissolved back in 1975. 

 

Sheikh Hamad has also strived to improve relations with Bahrain’s neighbors, achieving mixed results. Although Bahrain has historically accused Iran of backing its Shi'ite community's violent anti-government protests, economic ties between the two states have warmed as authorities continue to pardon political detainees. This past March, Iran's Trade Minister led a business delegation to Bahrain, wherein a Joint Economic Committee was established. This new establishment aims to expand three-fold the volume of bilateral trade, which currently stands at $30 million annually. 

 

Several rounds of high-level official visits between Bahraini and Qatari officials appeared to signify an emerging reconciliation process and a mutual desire to solve their territorial dispute internally. Furthermore, ambitious economic cooperation ventures (including a causeway linking the two nations) were planned. In late May, however, another verbal war erupted, and both parties agreed to entrust the case over the disputed Hawar Islands to the International Court of Justice. All plans for compromise and collaboration are now on hold. 

 

Testimonies at the International Court of Justice (ICJ) have entered full swing, as Bahrain and Qatar each seek to stake their claim on the disputed Hawar Islands. Bahrain’s defense centers on historical determinism, since the disputed islands have been an integral element of the fabric of Bahraini society, both socially and politically, for over 200 years. Qatar’s case rests upon its geographic proximity to the islands, which lie off the coast of the Qatar Peninsula. Once a verdict is eventually reached, relations between these Gulf neighbours could rapidly deteriorate. 

 

Economic Outlook 

 

Although Bahrain is in the midst of developing the Hawar Islands as a major tourist resort, its overall economic wellbeing remains relatively isolated from the outcome of this ongoing suit. Its open economy continues to stimulate private sector activity and attract high volumes of both Arab and foreign investment. The Wall Street Journal’s recently published Index of Economic Freedom ranked Bahrain first among Middle East and North African states and fourth globally in terms of economic freedom. The Index noted Bahrain’s strategic location as a trading hub as a key success factor. It also attributed this tiny Gulf country’s high rating to the strength of its court system and the lack of taxation on personal income or corporate profits. 

 

Bahrain does not have any plans in place to eliminate the absolute tax holidays granted to individuals and corporations. Finance and National Economy Minister Abdulla Saif was recently quoted as attributing this absence of any form of income tax as a major advantage the country possesses in boosting foreign investment and attracting expertise.  

 

Economic indicators also remain strong. Bahrain’s trade surplus through the first quarter of 2000 jumped 51 percent to $360 million, compared to a surplus of $238 million in the previous quarter. This comfortable balance was due largely to higher oil earnings resulting from a surge in international prices. In addition, the country’s official jobless rate has been cut to a miniscule 2.3 percent. Still, this figure covers up the structural unemployment that continues to plague Bahrain. The lack of a qualified and trained national labour force is highlighted by the fact that of the 68,000 job openings last year in the private sector, merely 8,000 positions were awarded to locals, while the remaining ones were filled by expatriate workers.  

 

Bahrain's employment situation is expected to improve slightly from a new $6-million steel project, which is scheduled to become operational by year's end. This Bahraini-Pakistani joint venture, which will be located in the Alba Industrial Estate, will create 110 jobs in the first phase. Initial production capacity will amount to 35,000 tonnes per year, of which 80 percent will be for the domestic market while the remainder will be exported. 

 

New projects such as this one demonstrate the government's policy of diversifying its economy by developing its industrial sector, which is regarded as the engine of future prosperity. In the meantime, however, Bahrain remains highly dependent on oil, which continues to comprise 62 percent of this Arab State's aggregate export earnings. In 1999, this dependence worked in Bahrain's favour, as rising crude petroleum prices caused oil export revenues to jump by 50 percent to BD 960.1 million (approximately $2.55 billion), versus BD 637 million (about $1.7 billion) in 1998. This surge in exports resulted in a balance of trade surplus of BD 217.7 million (nearly $577 million), compared to a deficit of BD 111.3 million (roughly $295 million) in the previous year. 

 

Bahrain comprehends the importance of oil to its economy, and continues to upgrade this sector. A new $66-million in-line blending project has recently been inaugurated at the country’s sole oil refinery, which is run by the Bahrain Petroleum Company (BAPCO) and produces 250,000 barrels/day. BAPCO has also launched a complementary $560 million project to reduce sulphur levels, due to be completed by 2004.  

 

Conclusion 

 

Although Bahrain’s economy appears vibrant, rising unemployment among the country’s youth threatens to become a serious burden. New jobs are being created, but the majority of them are awarded to expatriate workers over locals. Unless this labour imbalance is soon rectified, a growing number of unemployed youth will have the power to disrupt relative social harmony and to negate an otherwise healthy market. 

© 2000 Mena Report (www.menareport.com)

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