Sustainable Prosperity
The first issue includes a short survey of the last decade of economic development in Bahrain,
and looks to the challenges of the coming decade – as well as assessing the current state of the
Bahrain economy and some of its key industries.
I hope that over coming years the Annual Economic Review will take its intended place as an
authoritative and comprehensive survey of the Bahrain economy and the state of its development.
It will always be factual and it will consistently apply high quality economic analysis to the issues
which concern us in the Kingdom.
I hope too that by assembling the facts and applying analysis it will sometimes challenge
our complacency and stimulate further economic reform as we proceed on the path towards
attainment of the Kingdom’s Vision 2030.
The lead article discusses the strong performance of the economy over the last decade and
particularly in the five years to 2008, the downturn in output growth through 2009, and the outlook
for the economy in 2010. It also looks at the challenges for the coming decade presented by an
emerging fiscal deficit and faltering productivity growth.
t 5
IFQPUFOUJBM(%1HSPXUIPWFSUIFOFYUUXPEFDBEFTJNQMJFECZQSPKFDUJPOTPGQPQVMBUJPO
labour productivity and Bahraini participation in the workforce.
t "MUFSOBUJWFXBZTPGNFBTVSJOHDIBOHFTJOUIFSFBMJODPNFTBOEMJWJOHTUBOEBSETPG#BISBJOJT
t 5IFHSPXUIPGFNQMPZNFOUJOSFDFOUZFBST
t 5IFDIBOHJOHDPNQPTJUJPOPG#BISBJOTFYQPSUT
t 5IFTUSFOHUIBOEDPNQPTJUJPOPGUIFTNBMMBOENFEJVNFOUFSQSJTFTFDUPSJO#BISBJO
t 5IFQFSGPSNBODFPGUIFUPVSJTN CBOLJOHBOEDPOTUSVDUJPOTFDUPSTEVSJOHUIFHMPCBMEPXOUVSO
t 5
IFMJLFMZJNQBDUPGUIFOFXSFDPWFSZQSPHSBNPO#BISBJOTPOTIPSFPJMQSPEVDUJPO
JOWFTUNFOU
and the Kingdom’s oil revenues over the next fifteen years.
3. Jobs ..................................................................................................................................... 23
1FSGPSNBODFPGUIFmOBODFTFDUPS....................................................................................... 36
APPENDIX
Sources ................................................................................................................................... 45
Abbreviation ............................................................................................................................ 45
EXECUTIVE SUMMARY
After nearly a decade of success and a particularly strong economic performance in the five prior
years, Bahrain’s growth slowed through 2009 and into 2010. The slowdown was most apparent
in construction and finance, sectors affected by the global financial crisis. But while economic
growth slowed, Bahrain avoided the recession apparent in Europe and North America and
QFSGPSNFESBUIFSCFUUFSUIBOTPNFPGJUT($$OFJHICPVST#BISBJOTTVDDFTTJODPOUJOVJOHUP
expand during the sharpest global downturn in well over half a century testifies to the strength of
its economy and the value of the extensive reforms undertaken by the Kingdom over the preceding
decade.
Moving into the new decade, the Kingdom confronts both challenges and opportunities.
Among the challenges, the most immediate is that of the fiscal deficit. Lower oil prices have
exposed a structural fiscal deficit which, if left unaddressed, would eventually see the Kingdom’s
debt climb to an unacceptable level. A second challenge is the decline in productivity in recent
years. A third is the need to renovate Bahrain’s industry structure to put more emphasis on
innovation and the development of products and services incorporating new technologies.
Bahrain brings considerable strengths to meet these new challenges. It has the most industrialised
BOEEJWFSTFFDPOPNZJOUIF($$0WFSUIFMBTUEFDBEF
UIFWPMVNFPGOPOPJMSFMBUFE#BISBJOJ
FYQPSUTIBTHSPXOTPSBQJEMZUIBUJUJTUPEBZUXJDFUIFWPMVNFPGPJMSFMBUFEFYQPSUT&WFOXJUIJO
PJMSFMBUFEFYQPSUT
UIFTIBSFPGNBOVGBDUVSFEQSPEVDUT
TVDIBTHBTPMJOF
JTDPOTJEFSBCMZIJHIFS
than that of crude oil. Manufacturing output has become more varied in recent years, and
manufactured exports have been expanding strongly. The economy is fully participating in the
HMPCBMFDPOPNZ
NBUDIJOHUIF6"&XJUIUIFIJHIFTUSBUJPPGGPSFJHOUSBEFUP(%1JOUIF($$
Bahrainis are deeply engaged in the economy, composing the majority of the workforce in the
major industries of oil and gas, aluminium and finance. The Kingdom has built up a strong small
and medium enterprise sector which nurtures business skills and accounts for three quarters of
QSJWBUFTFDUPSFNQMPZNFOU1PQVMBUJPOQSPKFDUJPOTCZUIF&%#QPJOUUPBDPOTJEFSBCMFFYQBOTJPO
of the Bahraini workforce over the coming decade, a decline in the ratio of dependents to workers
and a steady improvement in the education and skills of new entrants to the workforce. These are
substantial strengths which the Kingdom can leverage in the new decade.
Economic growth has been consistently strong, with a real average growth rate of over 6%
during the last decade. Some of that growth, however, depended on a real estate and property
development upswing, which was restrained by the global financial crisis. The boom brought with
it a sharp increase in the number of guest workers in Bahrain, and an accompanying fall in labour
productivity. Nearly as many additional guest workers were employed in wholesale and retail trade
as in construction. In contrast to construction, however, there was a negligible increase in the
output of trade and consequently a sharp decline in output per employee.
Over the coming decade, the growth model will change, with a markedly slower rate of increase
of the number of low wage guest workers, and more emphasis on industries capable of paying
higher wages.
1SPKFDUJPOTQSFTFOUFEIFSFJOUIJTFEJUJPOPGUIF"OOVBM&DPOPNJD3FWJFXTIPXUIBUXJUI
modest growth in the productivity of the Bahraini workforce and at the same time an increase
in labour force participation closer to the OECD average, Bahrain will be able to attain three
important objectives. The first is that it will be able to employ all those Bahrainis who seek jobs.
The second is that it will be able to substantially increase Bahraini real wages and household
income. The third is that it will be able to attain both those supremely important objectives while
at the same time restraining the growth rate of the foreign workforce to the growth rate of the
Bahraini workforce.
1
4JODFUIFOPO#BISBJOJXPSLGPSDFXPVMEVOEFSUIJTTDFOBSJPCFFYQBOEJOHNVDIMFTTSBQJEMZ
JOUIFDPNJOHEFDBEFUIBOJOUIFQBTUEFDBEF
UIFSBUFPG(%1HSPXUIOFDFTTBSZUPBUUBJOUIF
Kingdom’s objectives of providing Bahraini employment opportunities and increasing the standard
of living is somewhat slower than in the preceding decade.
But while Bahrain has every prospect of following a path of sustainable prosperity which permits
Bahrainis to remain in control of their national destiny, the Kingdom recognises that an essential
prerequisite is for the government’s own financing to also be sustainable. The decline of oil prices
in 2008 exposed a structural fiscal deficit, to which the Kingdom is responding with spending
SFTUSBJOUBOENPSFBUUFOUJPOUPSFWFOVFFOIBODFNFOU(PWFSONFOUTQFOEJOHJOXBTIFMEUP
the same level as 2008, and the Kingdom intends that spending increases for the remaining year
of the current budget (2010) and for the two years of the new budget (2011 and 2012) will be
held to only a little more than the inflation rate.
2
ECONOMIC OVERVIEW
Following the deep global economic downturn that began with the second half of 2008, a slow
but durable economic recovery was very evident in the first half of 2010. Unlike Europe and
North America, Bahrain avoided recession in 2009, though growth slowed sharply. At 3.1%,
ZFBSBWFSBHFSFBM(%1HSPXUIJOXBTIBMGUIFSBUFBDIJFWFEUIFQSFWJPVTZFBS0WFSBMM
employment rose. Construction and real estate activities declined through 2009 and the finance
sector was flat. Manufacturing was firm, however, and a government stimulus package together
with low interest rates and a more competitive real exchange rate cushioned the downturn. The
downturn in property development is likely to persist throughout 2010 in Bahrain, but the outlook
for most other sectors is quite favourable.
(-0#"-3&$07&3:5",&4)0-%
Output growth in most major advanced economies collapsed at the end of 2008 as the financial
crisis, which followed the bankruptcy of the US investment bank Lehman Brothers, hit confidence,
trade and credit. Through the first half of 2009, North America, Europe and the UK experienced
the deepest recessions since the 1930’s, with unemployment reaching 10% of the workforce in
both the United States and Europe, and government debt vastly increasing due to bailouts and
stimulus packages. A slow but durable economic recovery in North America, and to a lesser
extent in the UK and Europe, became evident by 2010. The expansion was slower in the mature
industrial economies than in emerging economies, a divergence that is expected to continue.
-8
China India
U.S.A European Union U.K. Source: China's National Bureau of Statistics, India's Central
Statistical Organization
Source: US Bureau of Economic Analysis, Eurostat, UK Office of
National Statistics
Moving into 2010, almost all member economies of the OECD are once again expanding, with
almost all the emerging economies of Asia, South America and Eastern Europe expanding
somewhat faster.
4
Even so, there remains some hesitancy in
global growth forecasts. The unemployment U.S. Unemployment Rate
%
rate remains high in both Europe and the
10
United States, and it will decline only very
8
slowly. 6
4
With these headwinds we expect only a modest rate of recovery in mature economies compared
to some past global upswings.
3&(*0/"-&$0/0.:5)306()
Annual, YoY GDP Growth for
Saudi Arabia
8JUIJOUIFTJYNFNCFSTUBUFTPGUIF(VMG %
9
Cooperation Council, output growth fell 8
7
during 2009. The major regional economy – 6
5
Saudi Arabia – recorded zero output growth 4
3
2
for the year mainly due to lower oil output 1
0
combined with a high level of imports.
5
#")3"*/(3085)4-084*/
3 Months 6 Months
Average Lending Rate Source: CBB
%
12
10
8
6
Bahraini Government
4
BD Expenditure and Deficit
2 Million
0 2,500
2,000
1,500
Business Personal 1,000
Source: CBB
500
0
-500
Bahrain’s export performance was supported by a small decline in the trade weighted value of the
Bahraini dinar, largely due to the decline of the US dollar.
#BISBJO(%1FYQBOEFECZ ZFBS
Real Effective Exchange Rate average) in 2009. This is a marked slowdown
Index Based on Consumer Price compared to the 7% average of recent
Index: Year 2005=100
years, but it also serves as evidence of the
92 resilience of the Bahrain economy in the
90
88 face of a serious and prolonged contraction
86
84 in Europe, the United States and Japan.
82
80 5ISPVHIUIFZFBSPVUQVUHSPXUIXBT
78
76 TUSPOHFS
XJUI(%1JOUIFGPVSUIRVBSUFS
of 2009 5.4% higher than the same
Source: IMF quarter a year before. See graph on the
following page.
6
The slowdown in Bahrain was most evident
in property development and construction, Bahrain's Real GDP Growth
%
which declined through 2009 as expectations
9
of future demand were cut back and 8
7
financing became more difficult. The decline 6
5
was most marked in the first quarter of the 4
3
ZFBS
BOEIBTTJODFTMPXFE5ISPVHIUIF 2
1
year construction sector output declined 0
Import growth remained strong in major Bahrain export markets, particularly Saudi Arabia.
Nonetheless, the disarray in the world economy at the end of 2008 hit Bahrain’s exports, both
through the decline in oil prices and the fall in trade volumes. In US dollar terms, Bahrain exports
plummeted in January 2009 from their
all time high in December of 2008, and
Bahrain Exports
bottomed out in February, before slowly
$
Billion increasing over the remainder of the year.
30 Even so, the third quarter level of exports
25
was still less than it had been two years
20
15 earlier.
10
5
0
Though output growth slowed markedly,
employment in Bahrain rose during 2009.
.PTUPGUIFJODSFBTFXBTJOOPO#BISBJOJ
Source: IMF
employment, but in year average terms
Bahraini employment also increased.
#"-"/$&0'1":.&/54
7
Trade Surplus BD Current Account Surplus
BD Million
Million
1,200
1,400
1,000
1,200
1,000 800
800 600
600
Current Account Surplus
400
400
200
200
0
0
#")3"*/&$0/0.:501*$,615)306()
(JWFOUIFXFJHIUPGPGGTIPSFQSPQFSUZEFWFMPQNFOUJOUIFQPSUGPMJPPGUIF#BISBJOCBTFEXIPMFTBMF
banking sector, the EDB expects the finance sector to recover only slowly from the downturn.
1SPQFSUZEFWFMPQNFOUXJMMMJLFMZSFNBJOnBUPSDPOUSBDUBMJUUMFGVSUIFSUISPVHI
BOESFDPWFS
only slowly in 2011 and 2012.
On the other hand, there is considerable investment planned for the oil and gas sector, regional
tourism to Bahrain continues to grow, manufacturing continues to perform well, and services such
as logistics, education and health are expanding. See graph below.
The EDB expects overall output growth to pick up to a little over 4% in 2010 and reach 5.5% in
2012. The forecasts are shown in table 1 on the following page.
8
TABLE 1
The economic slowdown in Bahrain through 2009 followed nearly a decade of persistent, firm and
XFMMCBMBODFEPVUQVUHSPXUI#BISBJOT(%1FYQBOEFEGSPNUP5IPTFZFBSTPG
exceptional prosperity demonstrate that continuing economic success is an attainable goal for the
Kingdom. There is no doubt that rising oil prices helped, as did a strong global economy and a
cheaper exchange rate as the US dollar depreciated. The five previous years had seen the biggest
FYQBOTJPOJOXPSMEPVUQVUJOIVNBOIJTUPSZ(MPCBMUSBEFBOEHMPCBMDBQJUBMnPXTIBEOFWFSCFFO
greater. But it is also true that economic reform within Bahrain permitted the Kingdom to expand
potential output and take advantage of favourable regional and global developments.
The five years to the end of 2008 confirmed Inward FDI (2005-2008) as a
Share of Nominal 2008 GDP
the wisdom of insisting upon the Kingdom’s %
9
Manufacturing output increased by 80% over the five years to 2008, the output of private
education services nearly doubled and the output of private health services more than doubled.
The output of hotels and restaurants – a proxy for tourism services – more than doubled, and
the annual number of foreign visitors increased by 80%. While it remained a vital component of
Bahrain’s economy, oil output was unchanged in the period. Employment in the oil and gas sector
(including refining) increased, but accounted for less than 1% of jobs in the Kingdom.
Oil revenues rose by 172% over the five years to 2008, total profit rose by 150% and total wages and
salary income nearly doubled (all in nominal terms), yet the Kingdom managed prosperity wisely.
While household consumption absorbed higher incomes in many other economies, consumption
in Bahrain declined as a share of GDP from 65% to 59% over the five years. And while
government spending rose as fast as or faster than government revenues in many other
economies, much of the additional revenue in Bahrain was saved in annual fiscal surpluses.
National saving increased from 39% of GDP in 2004 to 52% in 2008. Government debt declined
from 37% of GDP in 2003 to 15% of GDP in 2008. Over those five years, both private and public
investment rose strongly. The volume of public investment rose by 50% and the volume of private
investment by 135%. Even so, savings rose faster, so that Bahrain’s current account surplus
strengthened. The cumulative surplus over the five years was BD 3.3 billion, representing an
addition to Bahrain’s net foreign assets.
Bahrain enjoys considerable strengths in meeting the challenges of the coming decade. GDP
per capita was four fifths of New Zealand on 2009 average exchange rates, and Bahrain saving
is high as a share of GDP, as is total investment. There is a well-developed finance sector and
adequate local banking and financial intermediation. There are no substantial tariff barriers
against imports, and there are very few economic distortions or business impediments imposed by
Bahrain taxes, which are minimal. Bahrain has long fixed the Dinar against the US dollar, a policy
which in recent years has implied both relatively low short term interest rates and some increase
in currency competitiveness in respect of Japan, China, and Europe – all of which have currencies
which have appreciated against the US dollar.
10
3. BAHRAIN’S CHANGING INDUSTRY STRUCTURE
The Bahrain finance industry demonstrated considerable resilience in the face of a crisis that
savagely impacted the sector in North America and Europe. It will be some time, however, before
the industry returns to the trend growth rate of 9% evident in the five years before the crisis. The
contribution of finance in the coming five years is now likely to be below that of the last five years.
0ODVSSFOUHSPXUISBUFT
#BISBJONBOVGBDUVSJOHXJMMBDDPVOUGPSPWFSPOFmGUIPG(%1XJUIJO
a decade. It is a sector which clearly requires deeper consideration. Bahrain’s capacity for
additional manufacturing is now constrained by a shortage of industrial land, sometimes by long
delays in local government planning approvals, by lack of clarity and delays in registration and
licensing, by delays in energy connections and by lack of transparency about the Bahrainisation
requirements.
11
Another promising sector is the information and communications technology industry (ICT). This
is partly in response to the open and stable regulatory environment provided by Bahrain, partly in
response to regional opportunities and partly in response to changing technologies and consumer
demand. There is considerable scope for expansion of this sector. The ICT sector is both an
enabler and a major industry in its own right. It provides improved communications and better
information processing services to permit other industries to expand, and the ICT industry is itself
a major industry providing services to consumers and businesses.
*UIBTCFFOXJEFMZBTTVNFEGPSTFWFSBMEFDBEFTUIBUBTUIF(VMGTUBUFXJUIUIFTNBMMFTUPJMBOE
gas reserves, the Kingdom would need to build alternative sources of prosperity more urgently
than its neighbours. This certainly remains true. It is also true, however, that Bahrain is beginning
a major renovation of the oil and gas industry which will greatly prolong its effective life and its
contribution to the Kingdom’s prosperity.
1SPKFDUJPOTGPSSFDPWFSBCMFPJMBOEHBT
(]LYHNL+HPS`,_[YHJ[PVUVM6PS from improved techniques in indigenous
)HYYLSZ PU)HOYHPU-PLSK
fields have been scaled up. There is also
WLYKH`
120,000 the possibility of discoveries of new fields
100,000 within the four offshore exploration blocks.
80,000
NOGA's EDB's
Even without any new finds, the renovation
60,000
40,000
Estimate of the existing industry will over the next
20,000 decade make the single biggest contribution
0
to the growth of business investment in
Bahrain, and also make the single biggest
contribution to the growth of capital goods
Source: NOGA, EDB analysis
With finance, the single biggest sector, now expected to expand more slowly, the Kingdom needs
to give increased attention to lagging sectors which would make a greater contribution in coming
years. The most outstanding example is tourism. Currently relying on visitors from adjacent
countries, primarily the Kingdom of Saudi Arabia, there is considerable potential for Bahrain to
attract additional regional tourists and to diversify the tourist offerings of the Kingdom.
t "
NPSFEFNBOEJOHmTDBMPVUMPPL
XJUIUIFEFDMJOFJOPJMQSJDFTJOMBUFFYQPTJOHB
substantial government budget deficit.
t "
QSPEVDUJWJUZDIBMMFOHF0VUQVUQFSXPSLFSEFDMJOFEJO#BISBJOJOUIFmWFZFBSTUP8FSF
this trend to continue, living standards would eventually decline.
t %
FNPHSBQIJDUSFOET
XIJDITVHHFTUUIBU#BISBJOXJMMFYQFSJFODFTVCTUBOUJBMMZNPSFSBQJE
growth in the Bahraini workforce over the coming decade than previously expected. This
is both a challenge and an opportunity. The challenge is to maintain the pace of growth of
Bahraini jobs. The opportunity is that an increasing Bahraini workforce permits a higher rate of
output growth while stabilizing or even increasing the share of Bahrainis in the total workforce.
12
5)&'*4$"-$)"--&/(&
Bahrain accumulated fiscal surpluses and significantly reduced government debt as oil prices
SPTFGSPNUP5IFHPWFSONFOUEFCUUP(%1SBUJPNPSFUIBOIBMWFEGSPNJO
to 15% in 2008. Debt reduction totalled BD 137 million over the five years. Resisting the pressures
FWJEFOUJOTPNFPUIFS($$TUBUFT
HPWFSONFOUTQFOEJOHSFNBJOFEJOBSBOHFGSPNUP
PG(%1
4VQQPSUFECZSJTJOHPJMQSJDFT
UIFMFWFMPGHPWFSONFOUTQFOEJOHSPTFNBSLFEMZGBTUFSUIBOOPOPJM
SFWFOVFT"DDPSEJOHMZ
UIFOPOPJMEFmDJUXJEFOFEUISPVHIUP
FWFOBTPWFSBMMCVEHFU
surpluses accumulated.
This is both a challenge and an opportunity for Bahrain, and in both of these aspects it changes
the character of Bahrain’s economy. The new entrants to the Bahraini workforce over the next
decade will be more highly educated, better prepared for a technologically more demanding
work environment and more capable of continuous skills enhancement than the older members
of the workforce, who will be retiring over the same period. This powerful change in Bahrain’s
demography will both enable and require a continuing trend towards more highly skilled
work roles.
13
5)&130%6$5*7*5:$)"--&/(&
Growth Rate of Multifactor
Recent research concludes that Bahrain’s % Productivity
6
productivity, or output per unit of input 4
of capital and labour, has declined over 2
0
the past five years. Some of the decline -2
appears to be related to the rapidity of the -4
-6
business investment boom, which may well -8
-10
have created temporary excess capacity in -12
some sectors such as shopping malls. This -14
down and as work visa ceilings begin to 2003 2004 2005 2006 2007 2008
Growth rate of labour productivity
constrain the size of the foreign workforce. Growth rate of employment
There may also be a base effect exerting Source: LMRA, EDB analysis
Not all of the decline can be dismissed as temporary, however. The sharp decline in capital
productivity raises a risk that the market is not correctly signalling best returns on investment.
5IFSFNBZCFJODFOUJWFTUPPWFSJOWFTU5IFEFDMJOFJOMBCPVSQSPEVDUJWJUZSBJTFTUIFJTTVFPG
UIFFYUFOUUPXIJDI#BISBJOXJTIFTUPQFSNJUUIFHSPXUIPGBMPXXBHF
MPXQSPEVDUJWJUZGPSFJHO
worker economy alongside a high productivity Bahraini worker economy.
14
SPECIAL ARTICLES
1. POPULATION, PARTICIPATION AND PRODUCTIVITY FOR BAHRAIN OVER THE
COMING DECADE
,&:10*/54
t #BISBJOTQPQVMBUJPOJTQSPKFDUFEUPHSPXUPPWFSNJMMJPOCZ CFJOH#BISBJOJ
t 5
IF#BISBJOJEFQFOEFODZSBUJP1, which measures the ratio between those outside the labour
force to the number of people in the labour force, is expected to decrease from 88% in 2008
to 76% in 2020.
t "
TTVNJOHBIJHIFSXPSLGPSDFQBSUJDJQBUJPO
BMNPTU
BEEJUJPOBM#BISBJOJTXJMMCFJOUIF
workforce by 2020.
t 5
IJTXPVMEQFSNJU#BISBJOTPVUQVUUPHSPXCZBOOVBMMZ
XIJMFNBJOUBJOJOHUIFDVSSFOU
QSPQPSUJPOPG#BISBJOJUPOPO#BISBJOJXPSLFST
t (
JWFOUIFIJHIQBSUJDJQBUJPOBOEQSPEVDUJWJUZHSPXUITDFOBSJP
#BISBJOXPVMEFYQFSJFODF
HSPXUIJO(%1QFSDBQJUBPWFSUIFDPNJOHEFDBEF
#")3"*/4$)"/(*/(%&.0(3"1):
This article projects Bahrain’s population over the coming decades, and the likely distribution of
that population between working age people and dependents. The projections show that Bahrain
is entering a prolonged period in which the workforce will be growing quite rapidly, while the
ratio of dependents to working age people declines.
1016-"5*0/(3085)
1.5
Bahrain’s total population has grown by 67%;
1
BOBOOVBMBWFSBHFPG/PO#BISBJOJ
0.5
population, during the same period, grew at 0
an annual rate of 12.4%, whereas Bahraini
population grew by 3.9%. Total pop. Bahrain pop. Non-Bahrain pop.
5IFJODSFBTFJOUIFOPO#BISBJOJQPQVMBUJPOJTEJGmDVMUUPQSPKFDUBDDVSBUFMZBTNPTUOPO#BISBJOJ
workers are in Bahrain on a temporary basis and are not living with families. The massive growth
JOOPO#BISBJOJTJOSFDFOUZFBSTIBTCFFOBSFTVMUPGBCPPNJOMBCPVSJOUFOTJWFJOEVTUSJFTTVDIBT
construction and trade, which have grown by 210% and 277% respectively from 2002 to 2009.
(JWFOUIBUFDPOPNJDCPPNTBOENBSLFUSFHVMBUJPOTBSFHFOFSBMMZEJGmDVMUUPQSPKFDU
UIFOPO
Bahraini population is projected to grow at rates which are closer to those in the nineties, at about
3%, which is much lower than the double digit growth experienced in recent years.
%FQFOEFODZSBUJPJTEFmOFEBTEFQFOEFOUTEJWJEFECZOPOEFQFOEBOUT8FEFmOFEFQFOEFOUTBTUIPTFBHFE
BOEZFBSTPSPWFSBOEOPOEFQFOEBOUTBTUIPTFCFUXFFOUIFBHFTPG
16
#")3"*/*803,'03$&
employment.
In 2008, 49% of Bahrainis between the ages of 20 and 64 had jobs, and a further 4% were
registered as unemployed – making a total workforce participation of 53%. Only 30% of women
CFUXFFOUIFBHFTBSFFNQMPZFEBTPQQPTFEUPPGNFOJOUIFTBNFBHFHSPVQ
Although female employment as a share of working age females is low, it is growing fast; from 27%
in 2002 to 30% in 2009.
The current rate of participation is considered low by developed country standards, but it is
expected to increase as more women join the workforce and rising aspirations encourage more
males to also join the workforce.
The table below shows the number of nationals wishing to participate in the workforce under two
scenarios. Both scenarios show how many additional jobs would be needed by 2020 assuming
different rates of participation.
The first scenario assumes that there is no change in the participation rate for men or women.
This results in over 41,000 additional jobs needed by 2020. The second scenario assumes that
male participation increase by 5 percentage points to 70% while female participation increases to
45% by 2020. The second scenario shows over 77,000 jobs needed by 2020. Australia was used
as a point of reference as an OECD sample. It has a male participation rate of 72% and a female
participation rate of 58%3.
Additional
Total Male Female
Bahraini jobs
participation participation participation
needed
rate rate rate
by 2020
SCENARIO 1
LOW WORKFORCE
1"35*$*1"5*0/
SCENARIO 2
)*()803,'03$&
1"35*$*1"5*0/
17
(%1(3085)3&26*3&.&/54
(JWFOUIFBCPWFXPSLGPSDFQSPKFDUJPOT
XFNBZEFSJWFUIF(%1HSPXUIOFFEFEUPNFFUBEEJUJPOBM
KPCDSFBUJPOHJWFOBTTVNQUJPOTPOQSPEVDUJWJUZDIBOHFT1SPEVDUJWJUZJTCSPBEMZEFmOFEBT
PVUQVUQFSVOJUPGJOQVU8FVTFDIBOHFTJOFNQMPZNFOUDPNQBSFEUPDIBOHFTJO(%1UPHFUB
sense of this productivity level. Therefore, assuming productivity remains unchanged, growth in
FNQMPZNFOUTIPVMESFTVMUJOFRVBMHSPXUIPG(%1
OPO#BISBJOJXPSLGPSDF8JUICPUITDFOBSJPT
we show a case which would result from
0% productivity growth for total workforce Growth Rate of Workforce and
GDP
and 2% productivity growth for Bahrainis,
%
resulting in 4 outcomes shown in the above
16
graph. 14
12
10
The scenarios above show annual growth of 8
(%1CFUXFFOGPSMPXQBSUJDJQBUJPOBOE 6
4
productivity and 4.6% for high participation 2
and productivity. These growth rates may 0
2003 2004 2005 2006 2007 2008 2009
seem less impressive than recent growth;
IPXFWFS
QSFWJPVT(%1HSPXUIJTNJTMFBEJOH
due to the even higher workforce growth, Growth of total workforce
18
%FTQJUFBIJHIFSQBSUJDJQBUJPOSBUFBNPOHUIFOPO#BISBJOJQPQVMBUJPOBOESBQJEHSPXUITJO
PVUQVU
(%1QFSDBQJUBIBTCFFOEFDSFBTJOHTJODF(JWFOPVSTDFOBSJPT
POMZDVSSFOU
QBSUJDJQBUJPOSBUFTXJUIQSPEVDUJWJUZHSPXUIXPVMEDPOUJOVFUIFEFDMJOJOHUSFOE(JWFOUIFIJHI
QBSUJDJQBUJPOBOEQSPEVDUJWJUZHSPXUITDFOBSJP
#BISBJOXPVMEFYQFSJFODFHSPXUIJO(%1
per capita over the coming decade.
%&1&/%&/$:3"5*0
GDP Per Capita
The definition of dependency ratio used in
BD/person
UIJTBSUJDMFJTUIFSBUJPPGUIPTFBHFE
5,400
5,200 BOEUPUIPTFBHFE5IJTXBTOPU
5,000
4,800
the definition previously used in publications
4,600 TVDIBTUIF&%#&DPOPNJD2VBSUFSMZ
CVUIBT
4,400
4,200 been changed to conform to international
4,000
3,800 BOE0&$%TUBOEBSET)PXFWFS
UIFUSFOE
3,600 remains the same and shows a decreasing
SBUJPPGEFQFOEFOUTUPOPOEFQFOEFOUT
Current participation 48% - 0% productivity The Bahraini dependency ratio reached its
growth
Current participation 48% - 2% productivity peak in the late eighties and early nineties
growth
High participation 58% - 0% productivity growth
at 118%. In 1990, 51% of the population
were under 20 and 3% were 65 and older.
High participation 58% - 2% productivity growth
The dependency ratio decreased steadily,
Source: CIO, EDB analysis
reaching 88% in 2008, with 44% of the
population under 20 and 4% over 64 years.
The Bahraini dependency ratio is expected to continue to decrease until 2018, when it is
estimated to reach 75%. After 2018, we expect the dependency ratio to increase slightly, despite a
DPOUJOVFEEFDSFBTFPGUIFQSPQPSUJPOPGUIFBHFHSPVQ
EVFUPBHSPXJOHPMEFSQPQVMBUJPO
We expect that by 2030, the 65+ population will have reached almost 10% of the total population,
BOEUIFHSPVQ5IFUBCMFCFMPXTIPXTFTUJNBUFEEFQFOEFODZSBUJPTBOEBHFHSPVQTJ[F
in 2010, 2020 and 2030.
1SPQPSUJPOPGQPQVMBUJPOQFSBHFHSPVQ
/PO#BISBJOJEFQFOEFODZSBUJPIBT
% Dependency Ratio decreased dramatically from 20% in 2000
140 to 13% in 2008, due to the large increase
120
100 of foreign workers over the past decade,
80 who normally come to Bahrain without their
60
40 families.
20
0
19
2. MEASURING BAHRAIN’S PROGRESS
One of the main targets of the Bahrain Economic Vision 2030 is to double Bahraini household
income by year 2030. As the vision states:
“The ultimate aim is to ensure that every Bahraini household has at least
twice as much disposable income – in real terms – by 2030.”
Bahrain Economic Vision 2030
(%1QFSDBQJUB DBMDVMBUFECZEJWJEJOH(%1CZUPUBMQPQVMBUJPO
JTPGUFOVTFEBTBOJOEJDBUPS
of society’s standard of living, based on the rationale that all citizens would benefit from their
DPVOUSZTJODSFBTFEFDPOPNJDQSPEVDUJPO)PXFWFS
(%1QFSDBQJUBJTOPUBNFBTVSFPGBWFSBHF
personal income because it fails to take into account how a country’s wealth is divided.
In this article, we look at alternative measures of income for Bahraini households like median
Bahraini household income, the value of free education, healthcare, infrastructure and other
governmental public goods and services per Bahraini citizen and growth of real wages.
0VSmOEJOHTTIPXUIBUXIJMF(SPTT%PNFTUJD1SPEVDUQFSDBQJUBBOE(SPTT/BUJPOBM%JTQPTBCMF
Income per capita decreased by 3% and 1% respectively in the past decade, Bahraini median
household income increased by 30% between 1995 and 2006, and the value of government
services per Bahraini citizen increased by 26% between 2001 and 2009. Likewise, real wages in
Bahrain increased from a total of BD 1.13 billion in 2002 to BD 1.71 billion in 2008, making an
BOOVBMBWFSBHFHSPXUISBUFPG5IFTFmOEJOHTJOEJDBUFUIBU(%1QFSDBQJUB
BTBUPPMGPS
measuring Bahrain’s progress, has its shortcomings. Alternative indicators for welfare that could be
TUVEJFEJOUIFGVUVSFBSFUIF)VNBO%FWFMPQNFOU*OEFY )%*
XIJDIJTBDPNQPTJUFPGEJGGFSFOU
JOEJDBUPSTMJLFMJGFFYQFDUBODZBUCJSUI
FEVDBUJPOBOE(%1QFSDBQJUBBEKVTUFEGPSQVSDIBTJOH
power parity.
(%11&3$"1*5""/%(/%*1&3$"1*5"
"WFSBHF(%1QFSDBQJUBUFMMTVTIPXCJHFBDIQFSTPOTTIBSFPG(%1XPVMECFJGXFXFSFUP
divide the total into equal portions. In effect, we take the value of all goods and services produced
within a country’s borders, adjust for inflation, and divide by the total population. If average real
(%1QFSDBQJUBJTJODSFBTJOH
UIFSFTBTUSPOHMJLFMJIPPEUIBU J
NPSFHPPETBOETFSWJDFTBSF
available to consumers, and (ii) consumers are in a better position to buy them.
8FmOEUIBUXIJMFUIFHSPXUISBUFPGSFBM(%1XBTQPTJUJWFUISPVHIPVUXJUIBOBWFSBHF
SBUFPG
(%1QFSDBQJUBEFDSFBTFEGSPN#%JOUP#%JO
SFQSFTFOUJOHBO
annual average negative growth of 1%. This negative growth rate is due to an increase in the total
population by an average of 6% per year .
(SPTT/BUJPOBM%JTQPTBCMF*ODPNF (/%*
UBLFTJOUPBDDPVOUUIBUJODPNFCZSFTJEFOUTJO#BISBJO
is sent abroad, and some residents receive income from abroad. During the period between 2003
BOE
(/%*QFSDBQJUBTMJHIUMZEFDSFBTFEGSPN#%UP#%
%FTQJUFBQPTJUJWFHSPXUIPGUIFUPUBMWBMVFPG(/%*
(/%*QFSDBQJUBIBEOFHBUJWFHSPXUISBUFT
due to a larger constant population growth of about 7% per year over the period.
Growth Rates of GDP and GDP Growth Rates of GNDI and GNDI
Per Capita in Constant Prices Per Capita in Constant Prices
% %
8 15
6 10
4 5
2 0
0 -5
-2 -10
2004 2005 2006 2007 2008 2009 2004 2005 2006 2007 2008 2009
Growth rate of GDP per capita Real growth of GNDI per capita
Growth rate of GDP Growth rate of GNDI
Growth of population Growth of population
Source: CIO
Source: CIO
20
&$0/0.*$*/%*$"50345)"54)08104*5*7&(3085)
.&%*"/)064&)0-%*/$0.&
5IF)PVTFIPME*ODPNFBOE&YQFOEJUVSF
Survey published in 1995 and 2006, shed
some light on the distribution of Bahraini
Annual Median and Average
household income and the average size of Bahraini Median Household
Bahraini households. We find that median (2006 Prices)
BD
real Bahraini household annual income 16,000
14,000
increased from BD 6,428 in 1995 to BD 12,000
9,506 in 2006; an increase of 47% in real 10,000
8,000
terms. Median income is the amount which 6,000
4,000
divides the income distribution into two 2,000
0
equal groups, half having income above that
1994 2006
amount, and half having income below that
Median annual household income
amount. The median income is considered
Average annual household income
by many statisticians to be a better indicator
than the average household income as it is Source: CIO
The average annual income for Bahraini households also increase from BD 10,811 in 1995 to BD
14,502 in 2006; an increase of 34 percent.
5)&7"-6&0'16#-*$(00%4"/%4&37*$&4
Like in other oil exporting countries, the Bahraini government provides public goods and services
such as healthcare, education, infrastructure and defence to Bahraini households, mainly from
PJMSFWFOVFT*OPUIFSOPOPJMFYQPSUJOHDPVOUSJFT
IPVTFIPMETXPVMEOPSNBMMZQBZUBYFTJOSFUVSO
for these public goods and services. The value of these goods and services can be calculated by
dividing oil revenues received by the Bahraini government by the total size of Bahraini population.
In 2001, oil revenues per Bahraini citizen was BD 1,778 and in 2009 it increased to BD 2,310, an
increase of 26% in real terms over the period.
21
8"(&4
The figure below shows that average wages earned by privately employed Bahraini males around
BD 414 in 2003 and increased by 30% in 2009 to BD 542 in real terms. The median wage
for Bahraini males in the private sector increased from BD 214 in 2003 to BD 319 in 2009: an
increase of 49%.
Wage data from the LMRA reveal that the median Bahraini wage in 2008 is around BD 450 per
month and total Bahraini wage income is approximately 78 million Dinars per month or 938
million Dinars per year. The distribution of Bahraini wages is shown in the figure above.
"-5&3/"5*7&*/%*$"5034'03.&"463*/(#")3"*/4130(3&44
"OPUIFSTVQQMFNFOUUPDPOWFOUJPOBM(%1QFSDBQJUBNFBTVSFNFOUDPVMECFBOJOEJDBUPSTJNJMBS
UPUIF)VNBO%FWFMPQNFOU*OEFYXIJDIJTEFWFMPQFECZUIF6OJUFE/BUJPOT)VNBO%FWFMPQNFOU
Report. It is based on three components: income, education and life expectancy. In 2009, Bahrain
was among the “high human development” countries and among the top 5 Arab countries in UN’s
)VNBO%FWFMPQNFOU*OEFY )%*
"OPUIFSBMUFSOBUJWFJOEJDBUPSJT*OEFYPG&DPOPNJD8FMMCFJOH
which is a weighted average of four components of perceived economic well being: consumption
flows, stocks of wealth, inequality, and indicators of economic insecurity like unemployment and
poverty in old age.
22
3. JOBS
Despite the economic growth slowdown in 2009, employment in Bahrain increased. Almost all of
UIFHBJOXBTJOOPO#BISBJOJFNQMPZNFOU
UIPVHI#BISBJOJFNQMPZNFOUTIPXFEBTNBMMHBJOJO
year average terms.
0WFSUIFTFWFOZFBSTUPCPUI#BISBJOJBOEOPO#BISBJOJFNQMPZNFOUSPTFTUSPOHMZ
though OPO#BISBJOJ worker employment far outpaced Bahraini employment.
&.1-0:.&/5
Bahrain total employment grew by 10% in 2009 compared to 2008, in year average terms.
#BISBJOJFNQMPZNFOUHSFXCZ/PO#BISBJOJFNQMPZNFOUHSFXCZ
5)306()5)&:&"3&.1-0:.&/5*/
Total employment (including public and private sector) grew by 4% compared to 2008.
#BISBJOJFNQMPZNFOUEFDMJOFECZDPNQBSFEUP
XIFSFBTOPO#BISBJOJFNQMPZNFOU
grew by 6% over the same period.
Total Employment
Thousand
People YoY Change in Total
% Employment
700
600 16
500
12
400
300 8
200
4
100
0 0
2002 2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Total Employment
Bahraini
Source: LMRA, EDB analysis
Non-Bahraini
Source: LMRA
23
Overall public sector employment grew by 2% compared to 2008 whereas overall private sector
employment grew by 4% over the same period.
5IF#BISBJOJQVCMJDTFDUPSFNQMPZNFOUHSFXCZDPNQBSFEUP
XIFSFBTOPO#BISBJOJ
employment grew by 3% over the same period.
5IFQSJWBUFTFDUPSFNQMPZNFOUGPS#BISBJOJTEFDMJOFECZDPNQBSFEUP
XIFSFBTOPO
Bahraini employment grew by 6% over the same period.
&.1-0:.&/5#:4&$503 (&/%&3"/%$*5*;&/4)*1*/$0.1"3&%50
CONSTRUCTION:
t0WFSBMMDPOTUSVDUJPOFNQMPZNFOUSPTFCZJODPNQBSFEUP
t#SPLFOEPXOCZDJUJ[FOTIJQ
#BISBJOJFNQMPZNFOUEFDMJOFECZXIFSFBTOPO#BISBJOJ
employment grew by 8% in 2009 compared to 2008.
tBroken down by gender, overall male employment grew by 6% whereas female employment
dropped by 8% over the same period.
FINANCE:
t#SPLFOEPXOCZDJUJ[FOTIJQ
#BISBJOJFNQMPZNFOUHSFXCZXIFSFBTOPO#BISBJOJ
employment grew by 11% in 2009 compared to 2008.
tBroken down by gender, overall male employment grew by 5% whereas female employment
grew by 7% over the same period.
TRADE:
t#SPLFOEPXOCZDJUJ[FOTIJQ
#BISBJOJFNQMPZNFOUEFDMJOFECZXIFSFBTOPO#BISBJOJ
employment grew by 4% in 2009 compared to 2008.
tBroken down by gender, overall male employment and female employment grew by 2%.
24
&.1-0:.&/5*/#")3"*/07&35)&1"45:&"34
Over the last 8 years total employment in Bahrain grew by 96%. Bahraini employment grew by
BOEOPO#BISBJOJFNQMPZNFOUHSFXCZ
1VCMJDTFDUPSFNQMPZNFOUHSFXCZXIFSFBTQSJWBUFTFDUPSFNQMPZNFOUHSFXCZ
#30,&/%08/#:$*5*;&/4)*1*/5)&13*7"5&4&$503
#BISBJOJFNQMPZNFOUJOUIFQSJWBUFTFDUPSHSFXCZTJODFUP
XIFSFBTOPO#BISBJOJ
employment grew by 131% over the same period.
$0/4536$5*0/
t0WFSUIFQBTUZFBSTPWFSBMMDPOTUSVDUJPOFNQMPZNFOUHSFXCZ
t#SPLFOEPXOCZDJUJ[FOTIJQ
#BISBJOJFNQMPZNFOUHSFXCZXIFSFBTOPO#BISBJOJ
employment grew by 160% in the last 8 years.
'*/"/$&
t#SPLFOEPXOCZDJUJ[FOTIJQ
#BISBJOJFNQMPZNFOUHSFXCZXIFSFBTOPO#BISBJOJ
employment grew by 83% in the last 8 years.
tBroken down by gender, overall male employment grew by 66% whereas female employment
grew by 106% over the same period.
53"%&
t#SPLFOEPXOCZDJUJ[FOTIJQ
#BISBJOJFNQMPZNFOUHSFXCZXIFSFBTOPO#BISBJOJ
employment grew by 251% in the last 8 years.
tBroken down by gender, overall male employment grew by 225% whereas female employment
grew by 159% over the same period.
Bahraini Non-Bahraini
Source: LMRA
25
4. EXPORT PERFORMANCE AND EXPORT STRUCTURE
#")3"*/&910354
Data from the International Monetary Fund show that Bahrain’s exports have seen steady growth
EVSJOHUIFQFSJPE
XJUIBOBWFSBHFBOOVBMHSPXUISBUFPG5IJTXBTTJHOJmDBOUMZ
higher than the average growth rate of 2% seen in the three prior years to this period. The value
of exports reached 25 billion Dollars in December 2008, before dropping in January 2009 to
19.66 billion Dollars, most likely due to a decrease in oil prices. As oil prices and global growth
recovered so too did Bahrain’s exports, reaching 20.35 billion Dollars by the end of 2009.
$ Bahrain Exports
Billion $/bbl Oil Price (Brent)
30 160
25 140
120
20 100
15 80
60
10 40
5 20
0
0
Due to the absence of exports details for 2009, we focus on 2008 data.
$)"/(&4*/5)&(3085)0'
Change Growth of Exports &910354
% (GDP: 2001)
0 &910354#:4&$503$0/45"/5
2003 2004 2005 2006 2007 2008
13*$&4
Source: CIO
26
&910354#:4&$503$633&/513*$&4
Between the year 2000 and 2008, oil exports represented an average of 60% of the total exports.
Non oil exports in the same time period made up 22% of the total, with services constituting the
remaining 18% of the share. Oil exports continued to contribute at similar levels for a few years
later, up until 2004 when the services exports showed a dramatic increase by 112% from the
QSFWJPVTZFBS%FTQJUFUIFEPNJOBODFPGPJMFYQPSUTPWFSUIFUPUBMWBMVFPGFYQPSUT
OPOPJMBOE
services exports grew noticeably between 2000 and 2008, by 137% and 301% respectively.
BD Exports by Sector
Percentage Share of Exports by Million (Current Prices)
Sector 2000 - 2008
(Current Prices) 9,000
8,000
7,000
6,000
59% 57% 59% 54% 58% 59% 5,185
65% 62% 65% 5,000
4,059
3,466
4,000 2,927
20% 19%
3,000 2,087
26% 28% 26% 20% 17% 17%
22% 2,000 1,763 1,475 1,488
1,760
965 1,174 1,126 1,385
26% 793
15% 16% 23% 21% 20% 18% 1,000
13% 14% 585 652 726 767
1,249 1,325 1,406
1,006 1,146
351 357 402 474
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
Next, we explore oil exports for the years 2000 – 2009 and its components. (Due to the lack of
data, references to exports for the coming sections use current prices, not constant.)
0*-&910354
"DDPSEJOHUPEBUBGSPNUIF/BUJPOBM0JMBOE(BT"VUIPSJUZ
#BISBJOTPJMFYQPSUTHSFXHSBEVBMMZ
from 2001, making an average annual growth rate of 22%, and peaking in value in 2008.
The value of oil exports in 2009 dipped by 35% due to significant decreases in global oil prices.
Although these oil prices started to decrease in 2008, they were not reflected in Bahrain’s total
exports of 2008 because they saw both peaks and dips in 2008 that masked their effect.
Oil exports in 2009 have shown signs of a slight increase, with a monthly average growth of 8%.
3,000 400
300
2,000
200
1,000
100
0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: NOGA
Source: NOGA
27
0*-"/%("4*/%6453:&910354
PGUIJTUPUBM(BTQSPEVDUTDPOTUJUVUFE
1,000
500
only 2%. 0
Crude Oil Exports Petroleum Liquid Gas
Products Exports Exports
Source: NOGA
1&530-&6.130%6$54&910354
2009 2008
Source: NOGA
1FUSPMFVNQSPEVDUTFYQPSUTXFSFNVDI
higher in 2008 than 2009. The increment
was obvious in the five main products that
#BISBJOPGGFST/BQIUIB
(BTPMJOF
+FU'VFM
Diesel and Fuel Oil. These five products have Petroleum Products Exports
similar shares of total petroleum products BD
Million
exports in both years. Diesel represented 1,600
about 40% of total exports in 2008 and 2009, 1,400
1,200
followed by Jet Fuel with a share of 22%. 1,000
800
Naphtha and Fuel Oil have close percentage 600
400
TIBSFT
BCPVUFBDI(BTPMJOF
POUIF 200
0
other hand, represents only 3% of total
petroleum exports.
2008 2009
Source: NOGA
28
5. MICRO, SMALL AND MEDIUM ENTERPRISES IN THE BAHRAIN ECONOMY
Micro, small and medium enterprises also provide jobs for nearly 73% of private sector employees,
only 14% of which are Bahraini employees, however, and 86% are non-Bahrainis. Broken down by
gender, 90% of these employees are male, and only 10% are female. These male employees tend
to have higher wages than their female counterparts.
The following definition is approved by the SME committee headed by the minister of Industry and
Commerce.4
tMicro enterprises are defined as those businesses that hire up to 10 employees, and have
capital investment of up to: BD 20,000 for the manufacturing sector, and annual turnover of up
to BD 100,000 for all other sectors.
tSmall enterprises, on the other hand, are defined as those with 11 to 50 employees (and up
to 100 for the construction sector), and have a capital investment between BD 20,001 and BD
500,000 for the manufacturing sector, or alternatively an annual turnover between BD 100,001
and BD 1 million for all other sectors.
tMedium enterprises are those with 51 and 250 employees (and up to 400 for the construction
sector), and have a capital investment between BD 500,001 and BD 3 million for the
manufacturing sector, or alternatively an annual turnover between BD 1,000,001 and BD 5
million for all other sectors.
Small
Micro enterprises today represent around 10.18%
87.7% (41,033 establishments) of the total
SME and micro enterprises sector.
Small enterprises make up around 10%
(4,760 establishments), while medium
enterprises constitute the final 1.7% Micro
(808 establishments). 87.76%
4 Threshold limits of both employment and capital investment/annual turnover will have to be complied with.
5 This information has been collected recently for the first time in Bahrain and therefore cannot be compared with previous
years. The financial services sector is excluded.
6 Due to data restrictions, these estimations are based on the employment criteria only. The financial services sector is excluded.
29
SECTOR BREAKDOWN:
(%1$0/53*#65*0/4#:*/%6453:
Manufacturing
14%
FOUFSQSJTFTDPOUSJCVUJPOUP(%1JTUPUBM
of 28%. Nearly 6.4% come from those
companies within the trade industry, 5.6%
MSMEs GDP Contributions Q1 2010
within the manufacturing industry and finally
4% within the construction industry.
$0/53*#65*0/50&.1-0:.&/5
SMEs and Trade Manufacturing Construction Others
Total micro, small and medium enterprises Micro ent.
GDP
30
#")3"*/*7&3464/0/#")3"*/*
XJUIOPO#BISBJOJTDPOTUJUVUJOH
employees (or 86% of total employment). 18,443 21,160
7,175
5IJTDBOCFBUUSJCVUFEUPUIFGBDUUIBUOPO
Bahrainis make up the majority employment Bahraini Non Bahraini Non Bahraini Non
Bahraini Bahraini Bahraini
in industries like construction, wholesale and
retail, transportation, manufacturing, fishing, Micro Small Medium
hotels and restaurants (except the financial Source: GOSI, EDB analysis
.&/"/%80.&/*/.*$30 4."--"/%.&%*6.&/5&313*4&4
Male employees in micro, small and medium enterprises are10 times greater than females.
The number of men in this field is 297,416 (or 90% of total employment), compared to 31,464
women (or 10% of total employment). The nature of the industries that make up the most of these
enterprises (construction, manufacturing, transportation, agriculture, wholesale and retail) tend to
attract more men than women. The female workforce is more prominent in education, health and
social work.
31
"7&3"(&4"-"3*&4
.FEJVNTJ[FDPNQBOJFTQBZUIFIJHIFTU
salaries compared to micro and small Average Salaries in MSMEs Q1 2010
enterprises. Employees in medium
enterprises receive an average salary of 702
BD 529 per month, compared to BD 473 575 589
481
in small enterprises, and BD 328 in micro 467 441 473
348 382 369
enterprises. 254 244
medium enterprises. As shown, males are Bahraini Non- Bahraini Non- Bahraini Non-
Bahraini Bahraini Bahraini
paid more than females, the most probable
reason is the nature of the industries that Micro Small Medium
CONCLUSION:
SMEs are the engine of growth, and they are essential to sustaining competitive and diverse
markets. They play a particularly important role in developing countries, especially since they tend
to be the largest providers of employment opportunities and new jobs. They can also be a major
source of innovation.
32
6. REAL ESTATE DOWNTURN
0 -0.1
demolitions, new construction and finally
demolitions combined with new construction
Growth Permits
permits. Source: MOMAA
Annual Commercial
Commercial Registrations (CRs)10 issued
No. of
Registration by Type GPSDPOTUSVDUJPOSFMBUFEDPNQBOJFTBMTP
CRs
saw high growth around the same time
2,000
period, peaking in 2006 with 1,500 total
1,500
DPOTUSVDUJPOSFMBUFE$3TGPSUIFZFBS5IF
1,000 biggest percentage growth came a year
500 earlier, in 2005, when total CRs rose from a
total of 222 in 2004 to around 1,100 in 2005,
0
2004 2005 2006 2007 2008 2009 representing a 400% growth. Commercial
Construction registration for real estate, rentals and
Real Estate, Rentals and Associated Activities
associated activities also peaked in 2006,
Financial Services
nearly doubling in a matter of 3 years.
Source: MOIC, EDB analysis
33
Overall, the retail banking portfolio in Bahrain is highly exposed to construction and real estate,
XIJDINBLFVQBSPVOEPGUPUBMMPBOT/POQFSGPSNJOHMPBOTIBWFCFFOSFMBUJWFMZXFMM
contained in the construction and real estate
sector through September 2009, increasing
slightly to 3.7% for retail banks and 4.1%
Personal Property for wholesale banks, still nowhere near the
Mortgage, Construction & Real
BD Estate, and Personal Retail double digits which were seen in Bahrain
Million
2,000
loans in 2003.13 In the IMF’s view, provisioning to
1,500
/1-TJTIJHIJOUIF($$CZJOUFSOBUJPOBM
1,000 standards, and therefore the impact on the
500 financial sector of defaults due to the decline
0 in asset prices will be limited.
Source: LMRA
After years of positive growth in construction and real estate, Bahrain began to see a
decline in construction, commercial registration and permit issuance; declining the most in
$POTUSVDUJPODPOUSJCVUJPOUP(%1 JODPOTUBOUUFSNT
BMTPEFDSFBTFEBGUFSZFBSTPG
noticeable growth.
*.'QBQFS5IF($$#BOLJOH4FDUPS
Q
*.'
i*NQBDUPGUIFHMPCBMmOBODJBMDSJTJTPOUIF($$DPVOUSJFTBOEDIBMMFOHFTBIFBEw
*OUFSOBUJPOBM.POFUBSZ'VOE
i6OJUFE"SBC&NJSBUFT"SUJDMF*7$POTVMUBUJPOo4UBGG3FQPSU1VCMJD*OGPSNBUJPO/PUJDF
and Statement by the Executive Director for the United Arab Emirates”, p. 8.
*.'
i*NQBDUPGUIFHMPCBMmOBODJBMDSJTJTPOUIF($$DPVOUSJFTBOEDIBMMFOHFTBIFBEw
Q
34
*O
DPOTUSVDUJPOTTIBSFESPQQFEUPPG(%1
GSPNJO8IJMFUIJTQFSDFOUBHF
DPOUSJCVUJPOJTTUJMMIJHIFSUIBOQSFCPPNZFBST
JUJTOFWFSUIFMFTTTIPXJOHTJHOTPGPWFSBMMEFDMJOF
Construction spending experienced negative growth in 2009 for the first time in the last 5 years.
% Construction Contribution to
GDP Growth of Construction
20
% Spending
15
30
10 25
5 20
15
0
10
-5 2004 2005 2006 2007 2008 2009 5
-10 0
-15 -5 2003 2004 2005 2006 2007 2008 2009
-10
Construction Contribution to GDP
-15
Growth of contribution
Evidence also shows that Bahrain’s office property has seen moderating demand in 2009
compared to previous years.
These properties’ rental rates have decreased by nearly 20% over the year.17 In fact, office
rent prices seemed to have dropped significantly between the first and third quarter of 2009,
especially as the banking sector continues to resolve its financial problems. Residential property
also seemed to have shown signs of moderating demand, with fewer announced projects in 2009
than the previous boom years.18 There seems to be more focus on finishing the projects that have
already begun than on building new ones.
*UJTGBJSUPTBZUIBU#BISBJOIBTOPUFYQFSJFODFEUIFEJQUIBUTPNFPGJUT($$OFJHICPVSTIBWF
seen in 2009, nor were its financial sector troubles as alarming. The region and Bahrain, however,
should expect the downturn to continue in 2010.
35
7. PERFORMANCE OF THE FINANCE SECTOR
The finance sector also includes a vigorous insurance sector. It has doubled in size over the last
five years.
*.1"$50'5)&(-0#"-'*/"/$*"-$3*4*4
The global financial crisis has presented a considerable challenge to the finance sector.
In many major developed economies bank lending growth continues to contract, the risk premium
POMFOEJOHIBTTVCTUBOUJBMMZJODSFBTFE
DSPTTCPSEFSEFCUUSBOTBDUJPOTBSFXFMMEPXO
BOEEFCU
funded sectors such as property development are well down. All these trends are evident in the
($$BOEJO#BISBJO
After five years of vigorous expansion the property sector in Bahrain is now contracting. Though
UIFEFDMJOFJTNVDINJMEFSUIBOFMTFXIFSFJOUIF($$
UIF&%#FYQFDUTUIFDPOUSBDUJPOUPQFSTJTU
4JODFUIFZBSFQSFEPNJOBOUMZGPSFJHOMFOEFSTBOECPSSPXFST
#BISBJOMJDFOTFEXIPMFTBMFCBOLT
BSFBMTPBGGFDUFECZUIFEPXOUVSOFMTFXIFSFJOUIF($$5IFQSPMPOHFETMVNQJOQSPQFSUZXJMM
continue to impact the wholesale banking sector through next year and into 2011.
On the most recent numbers the contraction in the finance sector in Bahrain is much less evident
than elsewhere, and especially than the UK and the US. Overall sector output contracted by 1%
through 2009. Credit growth has slowed from an average rate of 28% per cent over the five years
to the end of 2007 to 5% from the third quarter of 2008 to the third quarter of 2009. Money supply
(M3)19 grew by 4% in 2009.
Despite the downturn in the financial sector, total employment grew by 215 jobs in 2009.
19 M3 is a broad measure of the money supply and includes currency, bank deposits and highly liquid instruments such as
institutional money market funds.
36
Within the finance sector there will be big changes in the pattern of expansion. Over the last five
years more than half of the total growth in the sector has been contributed by foreign banking,
almost all of it wholesale banking. Within wholesale banking, a small but significant part of the
growth has been provided by Islamic banking.
Both Islamic banking and wholesale banking more broadly are heavily dependent on real
QSPQFSUZUSBOTBDUJPOT(JWFOUIFPVUMPPLGPSQSPQFSUZ
XIPMFTBMFCBOLJOHJTVOMJLFMZUPFYQBOEGPS
some time, and Islamic banking will be more constrained than expected.
While wholesale banking continues to contract, retail banking within Bahrain has been much
steadier. So too, insurance. The insurance sector grew by 6% from BD 312.5 million in 2008 to
BD 332 million for 2009.
*.1"$50'3&(6-"503:$)"/(&4
37
8. TOURISM SECTOR PERFORMANCE
OVERVIEW 2009
The tourism sector in Bahrain contributed positively to the country’s economic growth in 2009.
1SPYJFECZIPUFMTBOESFTUBVSBOUT
UPUBMPVUQVUUISPVHIUIFZFBSFYQBOEFECZJOSFBMUFSNTJO
DPNQBSFEUP
EFTQJUFBEFDMJOFJOOPO#BISBJOJWJTJUPSBSSJWBMT UPVSJTUT
20, which
dropped to 7 million visitors compared to 8.6 million in 2008.
)PUFMTBOESFTUBVSBOUTBDDPVOUFEGPSPGUPUBM(%1 SFBMUFSNT
6
VISITOR ARRIVALS
3
7*4*503"33*7"-4#:."+03."3,&54
20
t (
$$OBUJPOBMTDPOTUJUVUFEPGUIF 0
total visitors to the Kingdom compared to
61.9% in 2008.
Source: MOCI
t 4
PVUI"TJBOTDPOTUJUVUFEPGUIFUPUBM
visitors compared to 15% in 2008.
t /PO($$"SBCTDPOTUJUVUFEPGUIFUPUBMWJTJUPSTDPNQBSFEUPJO
t /
FBSMZPG/PO($$WJTJUPSTDBNFGPSMFJTVSF
XJUIUIFPUIFSGPSCVTJOFTTBOE
journalism.
38
TOURISM REVENUE FROM FEES
COLLECTION
BD
Tourism Revenue From
Million Fee Collection
Tourism revenue from fees collection, such
10
as issuance and renewal of tourism licenses
8
and the mandatory 5% hotel services tax,
6
amounted to BD 8.4 million in 2009.
4
0
2003 2004 2005 2006 2007 2008 2009
Purpose of Visit Source: MOCI
Million
People
6
5
4
3
2
1 163104&0'7*4*5
0
Statistics show that the majority of visitors
Lesiure Business Transit Journalism
to Bahrain came for business activities and
Source: MOCI leisure.
)05&-*/%6453:1&3'03."/$&#:5*&3
Considering the limitations of our 2009 data regarding hotel performances in general
(only 4 and 5 star hotels information were available), the numbers show that the biggest hit in
terms of occupancy rate and number of hotel residents was experienced by the 5 star hotels.
Their room revenues have decreased, especially as their charges decreased by an average of
14% in this past year.
Occupancy rates in 5 star hotels for 2009 went down by 14%, the number of hotel residents went
up by 9%, the number of rooms sold went down by 13% and the number of nights went down
by 8%. At the same time, the average rate of the hotel rooms fell by 14% and revenue from these
rooms decreased by 12% over 2009.
Occupancy rates in 4 star hotels for 2009 also went down, by 9%. The number of hotel residents
dropped by 7% compared to 2008, the number of rooms sold went down by 1% and the number
of nights went down by 4%. At the same time, the average rate of these hotel rooms increased by
8% and revenue from the rooms increased by 6% compared to 2008.
39
CRUISE STATISTICS
Cruise Passengers
In Bahrain, the cruise season starts in Passengers
The new port of Sheikh Khalifa bin Salman which began operation in April 2009 is expected to
help increase the number of cruise ships docking in Bahrain given its capacity to accommodate
large cruise ships.
The following table shows the change in the number of cruise ships and the number of tourist
arrivals by these cruise ships to the Kingdom from 2007 to 2010.
/00'$36*4&4)*14
Source: MOCI
40
5)&5063*4.4&$50307&35)&-"45%&$"%&
Source: CIO
Number of Hotels
Hotels
120
90 The number of hotels in 2008 has increased
60 by 29% compared to 8 years previously, in
30 2000. The length of stay has increased by
0
34% over the same period.
Source: CIO
25
In the last 7 years government revenue 20
from tourism fees collection (issuance and
15
renewal of tourism licenses and 5% hotel
services tax) has also increased, by 161%, 10
Source: CIO
9
8
7
6 OPO#BISBJOJWJTJUPSTIBTJODSFBTFECZ
5
4
3
XJUIUIFOVNCFSPG($$WJTJUPSTJODSFBTJOH
2
1 by 47% as well.
0
41
9. ADDITIONAL INDIGENOUS OIL – FROM BAHRAIN FIELD
Bahrain has been able to benefit from an average oil production of 180,000 barrels/day over the
past years. Of the total production, an average of 30,000 barrels/day come from the Bahrain Oil
Field, while 150,000 barrels/day come from the offshore Abu Saafa Field (Table 2 on the following
page).
*O
UIF(PWFSONFOUPG#BISBJOMBVODIFEBOBNCJUJPVTQSPHSBNBJNFEBUJODSFBTJOHUIF
potential oil and gas output of the Bahrain Oil Field.
5IF0JMBOE(BT)PMEJOH$PNQBOZ /PHBIPMEJOH
XIJDIJTUIFJOWFTUNFOUBSNPGUIF/BUJPOBM
0JMBOE(BT"VUIPSJUZ /0("
GPSNFEBKPJOUWFOUVSFJO"QSJMXJUI6"&T.VCBEBMB
%FWFMPQNFOU$PNQBOZBOE0DDJEFOUBM1FUSPMFVN$PSQPSBUJPOUPEFWFMPQUIF#BISBJO'JFME
5BUXFFS1FUSPMFVNo#BISBJO'JFME%FWFMPQNFOU$PNQBOZXJMMTFSWFBTUIFPQFSBUPSGPSUIF#BISBJO
'JFMEVOEFSUIF%FWFMPQNFOUBOE1SPEVDUJPO4IBSJOH"HSFFNFOU %14"
TJHOFEJO"QSJM
5BUXFFS1FUSPMFVNJOUFOETUPJOWFTUCJMMJPOJOUIF#BISBJO'JFMEPWFSUIFOFYUZFBSTBOE
$15 billion over 20 years. The field’s oil production is expected to triple within 6 years and grow
to a peak level of 100,000 barrels/day thereafter. Tatweer also aims to double the field’s gas
QSPEVDUJPOUPCFUUFSTFSWFMPDBMOFFET6OEFSUIFUFSNTPGUIF%14"BHSFFNFOU
0DDJEFOUBMIPMET
a 48% stake in the venture, while Mubadala holds 32%, followed by Nogaholding with 20%.21
/0("UPEBZQSPKFDUTTJHOJmDBOUJODSFBTFTJO
oil extraction from the Bahrain Field based
(]LYHNL+HPS`,_[YHJ[PVUVM6PS
PU)HOYHPU-PLSK on these field developments. Estimates until
)HYYLSZ 2028 are shown in Table 3 on the following
WLYKH`
page.
120,000
100,000 Assuming that the Bahrain Field production
80,000 would gradually decline after 2028,
60,000 NOGA's EDB's
Estimates Estimate reaching 20,000 barrels/day in 2050,
40,000
Tatweer’s explorations would enable the
20,000
Kingdom to tap into an additional 890
0
million barrels over what was originally
thought to be recoverable from the field.
Source: NOGA, EDB analysis New technological advancements in oil
drilling and production, however, may
enhance the quantity that the Kingdom can
extract in the future from the estimated oil in
place, therefore changing extraction projections for the field.
It should be noted, however, that government oil revenue is less affected by changes in Bahrain
'JFMEQSPEVDUJPO5IFmFMEJTNBJOMZPQFSBUFEBOEIBOEMFECZ#"1$0
BOBUJPOBMDPNQBOZUIBU
JTXIPMMZPXOFECZ/PHBIPMEJOH/PHBIPMEJOHHJWFTBOOVBMEJWJEFOETUPUIF.JOJTUSZPG'JOBODF
from this field and retains the rest of the profit for purpose of investments. Therefore, oil revenue
related to the government budget (as handled by the Ministry of Finance), comes mainly from Abu
Saafa field revenues.
.VCBEBMB%FWFMPQNFOU$PNQBOZXFCTJUFIUUQXXXNVCBEBMBBFFOBCPVUNVCBEBMBJOWFTUNFOUTCBISBJOmFMEIUNM
42
TABLE 2
(thousands
of barrels) 2003 2004 2005 2006 2007 2008 2009
Total Crude Oil 68,866 68,585 68,096 66,908 67,262 66,865 66,510
Abu Saafa Field 55,146 54,938 54,748 53,823 54,710 54,838 54,760
TABLE 3
:FBS
"WFSBHF%BJMZ1SPEVDUJPO
(bbl/day) 35,508 47,528 62,136 81,137 90,268
:FBS
"WFSBHF%BJMZ1SPEVDUJPO
(bbl/day) 95,511 102,321 106,750 112,307 112,631
:FBS
"WFSBHF%BJMZ1SPEVDUJPO
(bbl/day) 109,167 108,643 108,856 106,741 106,221
:FBS
"WFSBHF%BJMZ1SPEVDUJPO
(bbl/day) 107,470 106,804 106,632 106,076
43
APPENDIX
SOURCES
Australian Bureau of Statistics
#BISBJO/BUJPOBM(BT$PNQBOZ
Central Bank of Bahrain
Central Bank of Lebanon
Central Bank of Luxemburg
Central Informatics Organization
China’s National Bureau of Statistics
%PJOH#VTJOFTT3FQPSU8PSME#BOL
Energy Information Administration
(FOFSBM0SHBOJ[BUJPOGPS4PDJBM*OTVSBODF
)POH,POH.POJUPSZ"VUIPSJUZ
International Monetary Fund
India Central Statistics Organization
,VXBJU.JOJTUSZPG1MBOOJOH
KSA’s Central Department of Statistics
Labour Market Regulatory Authority
/BUJPOBM0JM(BT"VUIPSJUZ
Ministry of Culture and Information
Ministry of Labour
Ministry of Finance
Ministry of Industry and Commerce
Ministry of Municipalities and Agriculture Affairs
Monitory Authority of Singapore
2BUBS4UBUJTUJDT"VUIPSJUZ
Saudi Central Dept of Statistics
Swiss National Bank
UAE Ministry of Economy
US Bureau of Economic Analysis
US Energy Information Administration
US Office of National Statistics
World Investment Report 2008, 2009, UNCTAD
2nd FDI survey, Central Informatics Organization
ABBREVIATION
#"/"("4#BISBJO/BUJPOBM(BT$PNQBOZ
CBB: Central Bank of Bahrain
CIO: Central Informatics Organization
EDB: Economic Development Board
FDI: Foreign Direct Investment
(04*(FOFSBM0SHBOJ[BUJPOGPS4PDJBM*OTVSBODF
IMF: International Monetary Fund
LMRA: Labour Market Regulatory Authority
MOCI: Ministry of Culture and Information
MOIC: Ministry of Industry and Commerce
MOMAA: Ministry of Municipalities Affairs and Agriculture
MOL: Ministry of Labour
MOF: Ministry of Finance
/0("/BUJPOBM0JM(BT"VUIPSJUZ
OECD: Organization for Economic Cooperation and Development
45
CONTACTS
'PSJORVJSJFTDPOUBDUUIF&DPOPNJD1MBOOJOHBOE%FWFMPQNFOUUFBNPO
or email AnnualReview@bahrainedb.com
Business hours are Sunday through Wednesday 8am to 5pm, and Thursday from 8am to 2pm
(.5IST
For more information on the Bahrain Economic Development Board and how we can help you
please visit www.bahrainedb.com