Area: 760.0 sq. km
Population: 1,294,000; 50% foreigners, mainly from Asian countries (2014, est.)
GDP: USD 33.9bn (2014, est.)
Exports: USD 20.0bn (2014, est.)
Imports: USD 14.28bn (2014, est.)
Currency: Bahraini Dinar (BHD, pegged to USD)
Exchange rate: 1 USD = 0.37 BHD (01/2016)
Economic Structure and Development:
Bahrain was the first Gulf country where oil was explored as well as the first country to strive for economic diversification, as a result of its relatively poor oil and gas reserves. Although the oil exports generate 70% of total revenues, Bahrain has an internationally and regionally successful banking sector. Other well-developed sectors are the downstream aluminium industry, tourism and retail. Despite the dispute between the leading Sunni minority and the Shiite majority of the population, Bahrain used to be the most advanced and fastest growing economy, attracting various foreign investors in recent years.
According to the International Monetary Fund, the estimated growth rate of 5.6% in 2014 shows increase compared with 2012 and 2013, when it totalled approximately 4.5%. The total GDP amounted to USD 28.36bn in 2013, consisting of 51.6% services (banking, insurances, and tourism) and 48.1% industry, including oil and gas, which makes up only 11% of the total industry production. With USD 9.6bn of spending, compared with revenues of USD 7.4bn, the state budget deficit reached USD 2.2bn and is expected to widen over the coming years. Nevertheless, the government’s decision to raise spendings on public welfare and structural development might be the key to settling political and social unrest and catalysing economic growth. Inflation has stayed low – not exceeding 3% - due to the established fixed exchange rate policy in 1981, which pegged the Bahraini Dinar to the USD at a rate of USD 1 = BHD 0.376.
With oil reserves of only 124.6m barrels, Bahrain has focused on economic diversification. Nevertheless, oil exports contribute 36% to the GDP and 70% to state revenues. In 2012, Bahrain produced 48,000 barrels per day (bpd), which is a relatively small amount compared to the production level of the United Arab Emirates (UAE), which amounted to 2.5m bpd. The state-owned Bahrain Petroleum Company will upgrade the only Bahraini refinery, Sitra, to reach an increased processing capacity of up to 360,000 bpd by 2019. The supply of crude oil for the Sitra refinery is ensured by the onshore Awali Site, which produces some 35,000 bpd, and the offshore Abu Saafa field, jointly exploited with Saudi Arabia, which provides 150,000 bpd. The whole production is being refined and processed. Practically, net exports for Bahrain are only about 5,000 bpd. The Bahraini government has introduced massive oil exploration programs, aiming to increase the daily production from its current level to 100,000 bpd. According to the National Oil and Gas Authority, more than USD 1.6bn will be invested in a five-year strategic action plan for energy. The gas sector, monopolized by the largely state-owned Bahrain National Gas Company (Banagas) is, like the one for oil, relatively small, with a production of 446bn cubic feet of dry natural gas in 2011. Future plans include the import of gas either from Qatar via a pipeline or through LNG terminals.
In 1968, the state-owned Aluminium Bahrain (Alba) was founded and the aluminium sector became the third most important sector for the country. Aluminium smelting, and energy-intensive process, was Bahrain’s main activity due to its ready supply of natural gas in the past. Today, the country is facing two new challenges: rising competition, as a response to Bahrain’s success, from Saudi Arabia, the UAD, Oman and Qatar; and at the same time a shortage in natural gas production, forcing Bahrain to import gas. The costs for energy and raw materials for the melting process account for 70% of total production costs. Nevertheless, the demand is also rising, and 3m tons of additional capacity will be required for the following years.
Bahrain, as one of the first countries to develop the aluminium sector, is well known for its excellent midstream production and exports a variety of products across the world. Downstream products are, at present, largely neglected in the GSS region. An additional capacity of 400,000 tons will be added through Alba’s sixth production line, which is under development. Besides cabling and automotive parts, the recycling process is an innovative part of the sector because of its low energy consumption of only 5%. The Bahraini Ministry of Finance has established a fund to develop the downstream aluminium sector, currently standing at USD 264m. The sector is also attracting numerous foreign investors.
Tourism is definitely gaining importance, especially with the annual Grand Prix having been the paramount event of the Formula 1 session since 2004. Due to the domestic unrest, the 2011 race did not take place. However, the event took place in 2012 and 2013 without any endangering interruptions. The most important and ambitious infrastructure project in the coming years will be a 45km bridge between Bahrain and Qatar. The beginning of construction has been postponed several times, most probably due to areas of discordance during negotiations between the two neighbours, but ultimately the project will be resumed.
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