Bahrain's government has been promoting the island as a major financial centre to diversify the economy. The country's strengths lies in commercial, investment and corporate banking, project finance, foreign exchange and money brokering. It is also the leading centre for Islamic financial institutions, and is the centre of the region's insurance industry. Financial services contributed in 2001 about 19 % of Bahrain's GDP, compared with 21% from the hydrocarbons industry and 12% from manufacturing. Banking sector assets currently stand at about US$100 billion. The Bahrain Monetary Agency (BMA) regulates the banking sector, and since the end of 2002 took over regulatory responsibility for the insurance sector and the stock exchange. At the end of 2001 the country had 21 commercial banks, 2 specialised banks, 47 offshore banking units, 37 representative offices, 32 investment banks, 18 money changers, four money brokers, and nine registered institutions classified as investment advisory and other financial services.
Islamic banking started in Bahrain in 1979. Islamic banking is based on the religious prohibition to take interest. Islamic banking products link their profits or losses directly to the returns from the investment itself rather than from a monetary investment that attracts interest. An increasing number of Islamic banks has set up operations in Bahrain, and international banks with operations here are also beginning to tap the market by offering Islamic investment products. Recently, the BMA ventured into the issuance of short and medium-term Islamic financing instruments, with its landmark issue of three-month government bills in June 2001, followed by its five-year Ijara Islamic leasing instruments. The International Islamic Financial Market (IIFM) began operations in Bahrain in April 2002, arising out of a cooperative agreement between the Islamic Development Bank, the Bahrain Monetary Agency, the Central Bank of Indonesia, the Labuan Offshore Financial Services Authority, the Central Bank of Sudan and Brunei. The primary purpose of the IIFM is to provide a cooperative framework to ensure the continued growth of an Islamic financial market based on sharia rules and principles.
The new Commercial Companies Law came into effect in January 2002 along with various intellectual property laws. The legislation allows limited liability companies (WLL), branch offices, regional offices, public joint stock companies, closed joint stock companies, sole proprietorship companies, and holding companies. A limited liability company (WLL) is a privately held company under which the liability of the shareholders is limited to the amount of issued capital. It is established on the basis of a memorandum of association, written in Arabic and notarised by a notary public. The company is incorporated under the Commercial Registration Law by being entered into the commercial register maintained at the ministry of commerce and industry. A WLL is not permitted to issue shares to the public and can have a maximum of 50 shareholders. A WLL may be 100% owned by foreigners and may engage in most commercial, industrial and service activities, with the exception of insurance, banking or investment management activities. A branch office allows a foreign company to establish a branch office in Bahrain without directly entering into a Bahraini partnership, provided that its business does not conflict with the Commercial Companies Law. There are no minimum capital requirements and the entity does not require incorporation, but rather, exists on the guarantee of the parent company. Operations are limited to Bahrain, unless the office is registered as a regional office. The regional office serves as the regional base for the main company, with business activities that cover a geographical area.
The public joint stock company is a private company whose shares are offered for public subscription and traded on the Bahrain Stock Exchange. The level of foreign ownership is restricted to a maximum of 49%. The closed joint stock company is a private joint stock company whose shares are not available for public subscription and whose partners' liability is limited to the amount of their capital investment. The legislation allows up to 100% foreign ownership for industrial and service activities where Bahrain serves as the regional base for the company. The sole proprietorship company structure provides limited liability for the sole owner of the company, provided the owner maintains personal and business assets separately. Foreign ownership is allowed at up to 100% for permitted activities. The holding company structure is established for the purpose of holding a controlling equity stake in Bahraini or foreign joint stock or limited liability (WLL) companies, or for the establishment of such companies. A holding company may take the following legal form of a joint stock company, a limited liability company or as a sole proprietorship.
A new anti-money laundering law, in line with the Financial Action Task Force's forty recommendations on money laundering, came into effect in 2001. This was followed by the establishment of a financial monitoring bureau and several specialist sub-committees to review money laundering legislation. Laws governing electronic transactions and the opening of the telecommunications market are currently being drafted.
Bahrain was not on the Financial Action Task Force's blacklist as 'non-cooperative' in preventing money laundering. In September 2001 Bahrain signed a letter of commitment with the Organisation for Economic Co-operation and Development agreeing to exchange information with overseas authorities in criminal tax matters by 31 December 2003 and in civil tax matters by 31 December 2005.
The Gulf Co-operation Council (GCC) Commercial Arbitration Centre was established in Bahrain in 1995. The Economic Development Board is the main promoter of investment into Bahrain. The agency also helps investors establish contacts with members of the public and private sectors. Bahrain is a member of the Gulf Co-operative Council. Since 1948 Bahrain has been the headquarters of US navy's Fifth Fleet. During the Gulf war, Bahraini pilots flew strikes in Iraq, and the island was used as a base for military operations in the Gulf.
Bahrain is a tax-free country. There is no corporate tax or personal income tax in Bahrain. All profits, dividends, or any other income is tax-free. There is no withholding tax, capital gains tax, gift tax or estate duty. Similarly there is no tax on sales such as a value added tax.
The Bahrain Stock Exchange (BSE) was established in 1987. Branches of foreign companies and exempt companies are permitted to trade on the exchange, provided that their activities as brokers and market makers are restricted to international market securities. Cross-listing agreements have been signed with the Muscat Securities Market (Oman), the Amman Financial Market (Jordan), the Egyptian Stock Market and the Kuwait Stock Exchange. The BSE is a member of the International Organisation for Securities Commissions. The BSE is in the process of introducing a set of international disclosure standards with which listed companies will be required to comply.
Latest available figures
Kingdom of Bahrain. Bahrain is a hereditary emirate under the rule of the Al Khalifa family.
Population (2001 estimated)
650,600. Ethnic groups: Bahraini 62%, Asian 20%, other Arab 10%, Iranian 8%. Languages: Arabic (official), English, Farsi, Urdu. English is widely used for business purposes and is usually understood. Shi'a Muslims make up about two-thirds of the population. Sunni Islam is the prevailing belief held by those in the government, military, and corporate sectors.
Manama, population 145,000
Bahraini dinar made up of 1000 fils. Fixed against the US dollar at US$! = BD0.3768
Bahrain has a system of courts based on diverse legal sources, including Sunni and Shi'a Sharia religious law, tribal law, and other civil codes and regulation. Government recently created the Supreme Judicial Council which is intended to regulate the country's courts and separate the administrative and judicial branches of government.
Bahrain is a hereditary emirate under the rule of the Al Khalifa family but has been slowly moving toward some form of constitutional democracy. Bahrain is a constitutional monarchy with the Amir as the chief of state, and a prime minister as the head of government. The council of ministers serves as the country's cabinet. Since 1998, the new Amir has moved to make Bahrain more democratic and open. The changes have included the return to the constitution as the supreme source for the country's laws and the legalisation of non-governmental organizations. On 14 February 2001, the people of Bahrain took part in a referendum, in which they approved by 98.4% a return to the constitution. The referendum established a bi-cameral system for the legislative branch of government. The first chamber will be formed through direct and free elections. A second council will be appointed. Municipal elections were held in 2002 with 320 candidates standing and 50 candidates elected. A general election was held in the autumn of 2002. Candidates for 40 seats were elected to the Consultative Council.
Amir: Hamad bin Isa Al Khalifa (since 1998)
Prime minister: Khalifa bin Salman Al Khalifa
Deputy prime minister: Muhammad bin Mubarak Al Khalifa
Deputy prime minister: Abdallah bin Khalid Al Khalifa
Court affairs: Ali bin Isa bin Salman Al Khalifa
Cabinet affairs: Muhammad bin Ibrahim Al Mutawa
Commerce: Ali Salih Abdallah Al Salih
Defence: Khalifa bin Ahmad Al Khalifa
Education: Majid Ali Al Nuaymi
Electricity, water: Daij bin Khalifa Al Khalifa
Finance and national economy: Abdallah Hasan Al Saif
Foreign affairs: Muhammad bin Mubarak Al Khalifa
Health: Khalil Ibrahim Al Hasan
Housing: Khalid bin Abdallah Al Khalifa
Industry: Hasan Abdallah Al Fakhru
Information: Nabil Yaqub Al Hamir
Interior: Muhammad bin Khalifa bin Hamad Al Khalifa
Justice and Islamic affairs: Abdallah bin Khalid Al Khalifa
Labour and social affairs: Majid Muhsin Al Alawi
Municipalities and agriculture: Muhammad Ali Al Sitri
Oil: Isa bin Ali bin Hamad Al Khalifa
Public works: Fahmi Ali Al Jawdar
Political parties: None.
Services such as banking, real estate and insurance make up 31% of GDP. Industry contributes 46% of GDP. The industrial sector is made up of manufacturing (21% of GDP), oil (16%), aluminum, ship repair, natural gas, and the fisheries sector.
Gross Domestic Product (2001)
US$8.1 billion at current market prices. Real growth: 4.8%
Total exports: US$6.4 billion of which petroleum made up 61% of total exports. Service exports made up 13.4% of the total. Imports: US$4.7 billion.
Labour Force (2001)
308,300. Industry and commerce: 74%; Services: 19%; Agriculture: 4%; Government: 3%
Government Accounts (2002)
Total revenues: BD675 million (US$1,791 million); recurrent expenditure: BD675 million (US$1,791 million); Capital expenditure: BD160 million (US$425 million). Deficit: BD160 million (US$425 million).
Public Holidays (2004)
1 January (New year's day); 2 February (Eid Al Adha); 22 February (Islamic new year); 2 March (Ashoora); 2 May (Prophet's birthday); 15 October (start of Ramadan - not a holiday); 14 November (Eid Al Fitr); 16-17 December (National day).
GMT plus three hours.
Bahrain Economic Development Board
Bahrain Monetary Authority
Ministry Of Finance and National Economy