Council for Australian-Arab Relations (CAAR)

Australia Arab Chamber of Commerce and Industry (AACCI)

Business Guides to the Arab Gulf

Bahrain

Prepared by 
Bayliss Associates Pty Limited

Part I:  A brief overview of Bahrain
The formation of Bahrain
The Government of the Kingdom of Bahrain
The Bahrain economy
Basic demographics
GDP trends
Foreign trade
Australian bilateral relations
Part II: The market environment
Legal System
Customs and regulatory environment
Documentation
Tenders
Investment
Distribution
Banking and finance
Part III:  Doing business in Bahrain
Practical advice on entering the market
Market research
Business customs
Agency representation
Visiting Bahrain
Trade promotion
Timing of visits
People to help you
Major industry sectors in Bahrain
Oil and petroleum industries
Infrastructure
Financial services
Public services, including health
Telecommunications
Australian Services Opportunity Grid

Part I:  A brief overview of Bahrain

The formation of Bahrain
The Kingdom of Bahrain is an archipelago of 33 small islands, with a total land area of 665 sq kms – or around a quarter of the size of the Australian Capital Territory. Bahrain is linked to Saudi Arabia by a 26km causeway, and plans are well advanced to construct a second causeway to link the country with Qatar in the east - a distance of some 45 kms.  

Bahrain, in Arabic, means ‘two waters’ or ‘two seas,’ and derived its name from the up–whelming of fresh, artesian springs along its coast, amid the salty waters of the Gulf. The fresh water flows through permeable rocks from the Hijaz and Najid Mountains of Saudi Arabia, and is the reason that Bahrain has been settled from the earliest of times. The land was repeatedly mentioned in Sumerian, Babylonian and Assyrian inscriptions as an important waypoint between Mesopotamia (today’s Iraq) and the Indus Valley (of modern-day Pakistan).

Bahrain’s more recent history can be traced from the second half of the 18th Century, when the Al-Khalifa tribe left Kuwait and settled on the northwest coast of Qatar, around the town of Zubarah, close to prized pearl beds in that area.  The Persians who were then in control of Bahrain, were suspicious of these new arrivals, and mounted a futile attack on the settlement. In retaliation, the Al-Khalifa tribe, under command of Ahmad bin Khalifa, invaded Bahrain in 1783 and ended Persian control of the islands.

The Al-Khalifas are Sunni Muslims, but the bulk of the population, given centuries of Persian rule, professed the Shi’a form of the faith. The-Al-Khalifas attracted Sunnis from other parts of Arabia to settle in Bahrain, and through the slow processes of accretion the Sunni community consolidated their position as the military and merchant classes of the state. Land ownership, power and influence thereby slipped away from the Shi’a majority.

Bahrain briefly became a tributary of the Saudis during the early 19th Century. When the Saudis sought to establish firmer control in the mid 19th Century, however, Britain stepped in, as Bahrain was viewed as a strategic port on the Gulf sea route to India. Britain based a naval squadron in Bahrain, and in 1861 signed a treaty of protection with the Al-Khalifas. In 1931 Bahrain joined the emirates that today form the United Arab Emirates (UAE), to become one of the then-termed Trucial States, under a broader British protectorate.

Oil was discovered in Bahrain in 1932, bringing with it rapid modernisation. Reserves were limited, however, and soon it was clear that other enterprises were needed to develop the nation. The Bahrainis are very conscious that they were the first Arab Gulf country to embark upon a path of modernisation. They point with pride to the early development of their state bureaucracy, and to the first schools established (for both girls and boys) as amongst the many examples of that progress. Bahrainis also note their long history as a pre-eminent trading, shipping and later-day banking centre in the Gulf.

Bahrain declared its independence from Britain on August 15 1971. It chose (along with Qatar) not to join the other former Trucial States that subsequently formed the United Arab Emirates, and which came into existence in December the same year. Moreover the United Nations backed Bahrain’s claim to independence, by voting down a counter-claim from the Shah of Iran that Bahrain revert to Iran, having been occupied by Persia for many centuries prior to the arrival of the Al-Khalifas. 

Given its strategic location, Bahrain has long been a focal point for sea power in the Gulf. Its strategic importance continues as the base for the US Fifth Fleet in the region. 

Bahrain was also a major regional refuelling point for air travel (including for Qantas) through the Middle East and to Europe during much of the 20th Century. The advent of longer-haul aircraft, however, has reduced Bahrain’s relative role in the region’s aviation as an industry, although Gulf Air, owned and operated from Bahrain, remains a major international carrier, serving over 100 destinations from Bahrain around the world. 

Bahrain has remained an important transport, logistics and financial centre in the Gulf, although in recent years it has been overtaken by Dubai. 

The Government of the Kingdom of Bahrain
Bahrain became a constitutional monarchy in 2002. The title of the head of state at that time was changed to King. The current head of state is King Hamid bin Isa Al-Khalifa. The heir apparent is Crown Prince Salman bin Hamad Al-Khalifa.

The executive branch of government consists of the Prime Minister, Sheikh Khalifa bin Salman Al-Khalifa, who is appointed by the King. There is also a cabinet, or Council of Ministers, also appointed by the King, and headed by the Prime Minister.

In addition there is a bicameral parliament (al-Majlis al-Watani), consisting of a 40-member, elected Council of Representatives (first elected in 2006, with the next election due in 2010) and a 40-member Shura (Consultative Council) appointed by the King. Members of both chambers serve four-year terms.

Bahrain is a member of:

•	The Arab League
•	The International Labor Organization (ILO),
•	The Organization of the Islamic Conference (OIC), 
•	The Organization of Arab Petroleum Exporting Countries (OAPEC), 
•	The World Trade Organization (WTO), and
•	The United Nations (UN) and its various agencies.
•	In 1981 Bahrain was a founding member of the Gulf Co-operation Council (GCC) which also includes Kuwait, Oman, Qatar, the United Arab Emirates (UAE) and Saudi Arabia.  
•	Bahrain is a partner in the World Bank’s Technical Co-operation Program, which has provided support in major infrastructure projects, such as the Bahrain-Saudi Arabia Causeway.

See the DFAT Economic and Trade webpage on Bahrain for further detail.

The Bahrain economy
Basic demographics
•	Bahrain’s population is around 760,000 residents. 
•	26% of the population is under 14 years of age, with a median age of 30 years. 
•	About 62% of the population are Bahraini nationals, with the balance being expatriates - principally Iranians (8%), other Asians (19%), and other Arabs (10%).
•	About two thirds of the indigenous population are Shi’a Muslims. The balance are Sunni. The Muslim population (of both Sunni and Shi’a) is around 82% of the total population. Of the remaining residents of Bahrain, approximately 9% are Christians – with the remaining 9% professing various other religions. 
•	Whilst Arabic is the language of the country, English is widely spoken and considered by some as the language of business.

GDP trends
Revenues from oil and gas account for about 19% of the GDP of Bahrain and account for about three-quarters of government revenues. 

Bahrain has developed a strong financial centre, offering both onshore and offshore facilities. Some 400 financial institutions are based in Bahrain. The financial sector now contributes almost 28% of Bahrain’s GDP.

The production of aluminium and related products is a major manufacturing industry with the manufacturing sector accounting for about 16% of GDP. Aluminium Bahrain (Alba) is majority owned by the Bahrain Government, with SABIC of Saudi Arabia holding 20% equity. The smelter is one of the world’s largest, with production capacity of more than 830,000 tonnes per year. 

Other major components of Bahrain’s GDP are government services (14%) and building and construction (14%). 

Bahrain’s GDP grew by 6.2 % in 2007, and GDP growth for 2008 is estimated to be in the region of 6.4%.

Indicator 	2002	2003	2004	2005	2006	2007e	2008e	
GDP (US$bn)	8.4	9.6	11.2	13.4	15.2	16.7	18.4	
GDP per capita (US$)	12,571	13,942	15,811	18,482	20,565	21,839	23,353	
Current account balance ($bn)	-0.50	0.20	0.30	1.50	1.80	2.30	2.40	
Fiscal balance (% GDP)	-0.13	1.83	4.66	7.60	4.91	8.07	12.86	
Trade balance (% GDP)	9.30	10.0	1.60	6.30	10.60	na	na	
Real growth (%)	5.2	7.2	5.6	7.8	6.8	6.2	6.4	
Inflation (%)	-0.5	1.6	2.4	2.6	2.0	2.7	3.8	
Debt (% GDP)	32.1	36.9	34.8	29.3	25.3	24.0	22.3	
Debt/revenue (%)	99.9	118.1	113.1	88.8	81.8	76.3	68.5	
Oil (% GDP)	na	16	13	11	15	19	19	
Non-oil (% real GDP)	na	84	87	89	85	81	81	
       e = estimate |na = not known | Source: Central Bank of Bahrain, HSBC, Moody’s Investor Service

The Government of Bahrain has produced an economic strategy for the future development of the national economy. It is known as Economic Vision 2030.

Foreign trade
Bahrain’s merchandise exports for 2007 are recorded as US$14 billion (CIA), with hydrocarbon-related products accounting for 80% and with aluminium and iron ore pellets accounting for most of the balance.

Bahrain negotiated a Free Trade Agreement with the USA in 2004. 

For more details see the DFAT website.

Australian bilateral relations
Australia has a long association with Bahrain and enjoys cordial relations. Australia does not have an embassy or consulate in Bahrain. The Australian Embassy in Saudi Arabia is responsible for Bahrain. Austrade Riyadh is responsible for commercial matters in Bahrain.

Bahrain does not have an Embassy in, or diplomatic accreditation with, Australia.

Australian exports to Bahrain were A$ 177.8 million in 2008. Of this total, A$ 63.4 million was passenger motor vehicles and A$ 57 million was live animals (mainly sheep).

Australia imported A$213.5 million from Bahrain, principally fertilisers and aluminium.

Services trade is an important element of the bilateral commercial relationship that, unfortunately, is not captured in trade statistics. A number of Australian companies are active in the services sector, including engineering consultancy, financial and office services. 

Meat and Livestock Australia (MLA) has a long-standing presence in the Gulf, and bases its regional office in Bahrain to service Australia’s important meat and livestock trade throughout the GCC. 

On 30 July 2007 Australia commenced negotiations for a free trade agreement (FTA) that would encompass Bahrain, as a member state of the GCC. 

The DFAT website Australia-GCC FTA has further details.

Part II: The market environment
Legal System 
The legal system of Bahrain is based on Islamic (sharia) law and British common law. Since independence in 1971 Bahrain has also followed a pattern similar to other GCC states in the development of its legal framework, and has drawn also upon Egyptian legal codes.  

Bahrain’s judiciary is divided into secular and sharia courts, which are themselves divided into Sunni and Shi’a jurisdictions. There is an independent judiciary, and the courts have been granted powers of judicial review. A Higher Judicial Council supervises the courts.

Although only local firms are permitted to practise Bahraini law, there are a number of major international law practices based in Bahrain, with a focus on international corporate finance, energy and infrastructure etc.  These include such firms as: Trowers and Hamlins; Norton Rose; Baker McKenzie; and Freshfields Bruckhaus Deringer. Prominent local firms with international linkages include: Al-Twaijri & Partners; Qays H. Zu’bi, Attorneys & Legal Consultants; and Haya Rashed Al-Khalifa Attorneys at Law. 

Customs and regulatory environment
Bahrain has been a trading centre for many years and its regulatory systems are efficient and business-oriented.

There is no general import licensing system. Imports of firearms and ammunition, alcohol, pearls and jewellery, drugs and pharmaceuticals, and some electronic and camera equipment are controlled.

Customs duties are in line with GCC practice, with many food and other items being either duty-free or dutiable at 5%. Tobacco and alcohol attract higher rates of duty.

Documentation, labelling and certification
Documentation requirements are also standard for the GCC, with legalisation required. 

The full details of Bahrain’s certification requirements, including labelling, packaging, product certification and quarantine requirements are set out on the Austrade website for doing business in Bahrain.

Tenders
The Bahrain Tender Board was established in 2003 to provide a central authority for the issue and negotiation of government tenders. 

To be eligible to bid for government tenders, your company will usually need a local representative who understands procedures, and is recognised by the end-user agency.

A guide to current tenders can be found on the Bahrain tenders website.

Investment
Bahrain has a liberal investment environment. 

Personal and corporate income taxes are not imposed.

There is a variety of company types, most of which permit 100% foreign ownership. 

The Bahrain Economic Development Board produces a guide (in PDF format) to describe the various company options, including partnerships, limited liability companies (WLL) and joint stock companies. 

The Bahrain Investors Centre within the Ministry of Industry and Commerce also provides similar information, with descriptions of each of the company structures.

Foreign companies can establish representative and branch offices but, in common with other GCC jurisdictions, these companies are usually not allowed to transact business, but are limited to providing corporate, marketing and promotional services.

Bahrain ranks a creditable 18th on the World Bank’s Ease of Doing Business ratings covering 181 countries for 2009. 

Foreign Direct Investment (FDI) statistics published by UNCTAD indicate inwards FDI of US$ 1.8 billlion in 2007. 

Distribution
Bahrain has a well-organised and efficient transport and logistics infrastructure. A network of modern roads and causeways links the major islands. 

A 26km, four-lane causeway between Bahrain and Saudi Arabia was opened in 1986 and carries a high volume of passenger and commercial traffic between the two countries.

A 40km two-lane, dual carriage causeway between Bahrain and Qatar is planned. A consortium led by the French Vinci Construction Grands Projects has been awarded the contract for the design and construction of what is regarded as the world’s longest bridge. The cost of the project has been estimated in the region of US$ 3 billion.

Banking and finance
Given formidable competition from Dubai, Bahrain nevertheless remains one of the significant banking centres of the Gulf region, also with one of the largest concentrations of Islamic banks. 

Bahrain is noted as having more licensed financial institutions than anywhere else in the Gulf, and is a well-regarded finance hub with amongst the lowest operating and living costs in the region.

International banking groups operating in Bahrain include BNP Paribas, Citibank, HSBC and Standard Chartered, as well as Asian banks such as the Bank of China and India’s ICICI.

Part III:  Doing business in Bahrain
Practical advice on entering the market
Market research 
Bahrain is a well-developed and sophisticated commercial centre. Information is readily available and government e-services are efficient. 

Commercial market reports are readily available covering a variety of industry and market sectors. The following are a selection:

•	Business Monitor
•	Report Buyer  
•	MarketResearch.com 
•	Bahrain Gateway provides a good selection of commercial and industry news items on Bahrain business developments. 

Business customs
Bahrain has an open market environment, and a well-established business community, with a long and strong trading tradition. Bahraini companies are generally open to new business offerings – but obviously it helps to demonstrate a sound value proposition.

The major impediment to market entry for both goods and services suppliers is the extent of existing, well-entrenched competition. Being a relatively small and compact market, key suppliers to Bahrain have a strong local presence and extensive local networks.

Government-related business is an important factor in this market and, as is the case elsewhere in the GCC, there are generally long lead times involved in establishing a position in the market.

Bahrain, however, is a good market for many services.

The registration requirements for technical consultants need to be studied carefully and local advice sought in order to budget the time and costs for the registration process. 

Advice on identifying and screening an agent, distributor or local associate has been provided in the GCC Market Overview of this series of Business Guides to the Arab Gulf. 

Agency representation
Bahraini law requires that distributors be Bahraini national companies that are registered with the Ministry of Industry and Commerce. 

The Bahrain Economic Development Board website provides information on agency representation.

Bahrain amended its commercial agency law in 1998, and has liberalised a number of provisions. An important change has been the ability of foreign principals to appoint more than one agent, ending previous exclusivity requirements.  The revisions also allow fixed-term agency agreements and the right for a principal to terminate an unproductive agreement through the Ministry of Commerce. 

Termination actions should, wherever possible, be a negotiated settlement, as legal proceedings are inevitably expensive and can be very time-consuming. Australian exporters may wish in various circumstances to consider options other than formal agency appointments.

The Bahrain Economic Development Board also provides advice on registration for companies offering business and professional services. See the EDB website Business and Professional Services.

The Committee for Organising Engineering Professional Practice (COEPP) licenses all engineering offices in Bahrain. The licence granted permits the applicant to practise in the licensed field only. 

Branches of foreign engineering companies are licensed on a case-by-case basis following evaluation by the COEPP. See the Bahrain Economic Development Board website for details. 

Visiting Bahrain
Bahrain is readily accessible with many air connections. Gulf Air, based in Bahrain, offers direct flights from major South East Asian cities. 

There are also many flight connections via Dubai or Kuwait.

The King Fahd Causeway, linking Bahrain to Saudi Arabia (Dhahran), also provides a connection for business people working in both countries.

Getting around Bahrain is straightforward, with good taxi and hire car services. While the central business district of the capital, Manama, is fairly compact, if you have a tightly-scheduled program with multiple calls, hiring a car or taxi on a standby basis can prove the most efficient means of getting around. 

Visas are available on arrival at Bahrain International Airport and at the King Fahd Causeway. 

Please also see the Australia Arab Chamber of Commerce and Industry website AACCI visa information.

Trade promotion
The Bahrain Exhibition and Convention Authority (BECA) provides a calendar of exhibitions and conferences, many of which are staged at the Bahrain International Exhibition Centre (BIEC).

Bahrain has a range of Arabic and English press, including trade media. In a relatively small market such as Bahrain, press publicity can be highly effective and there are numerous local communications companies that can provide PR services.

Timing of visits
The Islamic calendar has an overarching influence on business activity in Bahrain, and the availability of key contacts.

As with other Gulf States, you are strongly recommended to study and observe the Islamic calendar when planning business visits. The AACCI website is an excellent source of this information.  Many senior executives take extended leave in the months of July and August, at the time of school holidays, to escape very hot and humid summer weather.

Also check Bahrain public holidays, as they will include the National Day and other local holidays. 

People to help you
Australia does not have a resident diplomatic mission in Bahrain. 

The Australian Ambassador to Saudi Arabia, based in Riyadh, who is accredited to Bahrain, visits regularly and is responsible for diplomatic and consular relations with Bahrain. 

Austrade Riyadh has responsibility for trade-related matters in Bahrain. The Senior Trade Commissioner and his staff visit Bahrain on a regular basis. 

Prior to travel please register your travel details online at: www.orao.dfat.gov.au. 

Also please consult the Department of Foreign Affairs and Trade website at Smartraveller before planning a visit.

Major industry sectors in Bahrain
Bahrain’s industries offer a range of opportunities for Australian companies.

Oil and petroleum industries
The oil and petroleum industry dominates, and presents offerings for companies with capabilities in the hydrocarbons sector. State-owned Bahrain Petroleum Company (BAPCO) is the principal potential client in this sector.

Bahrain produces around 188,000 barrels of oil per day, which includes production from Bahrain’s share in the offshore Abu Saafa field – jointly exploited with Saudi Arabia. Bahrain has a large refining capacity, so that it also imports crude from Saudi Arabia for refining and re-export.

Natural gas production is principally utilised domestically for energy production (one-third) and for industry, such as petrochemicals and fertilizers, as well as injection for additional oil recovery. Gas production has increased significantly in 2008, allowing for higher production of downstream products. 

Infrastructure
Infrastructure and construction developments encompass a wide range of activities including water resources, ports and harbours, energy and major commercial building developments.

Financial services
The banking and financial sector is well developed. Around 10,000 people are employed in the financial services industry and 72% of those are citizens of Bahrain. 

International banking groups based in Bahrain include BNP Paribas, Citibank, HSBC and Standard Chartered. 

Insurance companies active in Bahrain include ALICO, AXA and Zurich.

The financial sector is supervised by the Central Bank of Bahrain which has, since 2002, functioned as the single regulator for the financial system. This arrangement has enabled businesses in Bahrain to operate throughout the Kingdom without ‘free zone’ restrictions.

Public services, including health
Increased government spending on public services provides a range of opportunities, notably in healthcare, but also in areas such as vocational training. 

Aus Health International, representing the NSW Department of Health, has undertaken several projects in Bahrain.

The privatization of areas such as wastewater is also presenting new opportunities for sectors previously operated by government.

Telecommunications
Telecommunications is an advanced sector. Bahrain has a very high penetration rate for cellular phones. A recent survey of mobile phones usage indicated that 17% of Bahrainis have two mobile phones. 

Bahrain was one of the first GCC countries to start liberalising its telecoms market. Further liberalisation is planned, including local loop unbundling and number portability.

There were 250,000 internet users in Bahrain, as at March 2008, representing a penetration rate of 34.9%.

There are two incumbent operators, Batelco (a local Bahrain company established in 1981, with a network of subsidiaries and joint ventures in Bahrain, Saudi Arabia, Jordan, Kuwait and Egypt) and the local subsidiary of Kuwaiti operator, Zain Telecommunications Network.

The following grid provides a summary of some of the major opportunity sectors for Australian services.

Australian Services Opportunity Grid
Service	Market needs	New business potential 	
Engineering
	•	Consulting services	Sound opportunities but high market entry costs as established companies protect their business. Major project activity is likely to slow. Registration is necessary. 
	
Building services
	•	Contracting	A crowded field with many local companies well established. 
  	
Business services

	•	Management consulting
•	Project management
•	ICT
•	Communications
•	Recruitment
•	Training
•	MICE
	These are priority sectors for the Bahrain government. The financial sector offers good opportunities and is mature. Training is a sound growth area. Bahrain has sound IT and communications infrastructure and skills and innovative services will attract attention. 
	
Entertainment
	•	Fireworks displays
•	Laser shows
•	Event management
•	Music – live shows
	Good potential, particularly for ‘name’ and icon events.  
	
Sports & recreation
	•	Motor sports
•	Powerboats
•	Sports training
•	Facility design
•	Event management
•	Sports medicine
•	Lifeguard training
•	Diving services
	Bahrain has become a destination for Formula One as well as V8 Supercars from Australia. Water sports activities provide potential, with new marinas under development. Powerboat racing is popular, with Bahrain hosting several major events.
	
Financial and legal services
	•	Accounting/audit
•	Investment services
•	Legal services
•	Equities
•	M&A
	The Bahrain Financial Centre has about 400 companies operating in a well-developed environment. Services such as captive insurance and other specialised areas may yield opportunities. 
	
Building
	•	Facility management
•	Landscaping
•	Surveying
•	Asset management
•	Interior décor
	The real estate market has undergone strong growth but major project activity is likely to reduce in 2009.	

Australian Services Opportunity Grid (Continued)
Service	Market needs	New business potential 	
Health
	•	Training
•	Hospital and clinic management
•	Telemedicine
•	Personnel supply
•	Health insurance
	A high priority for Bahrain and a designated priority sector. Incidence of ‘lifestyle’ diseases such as incipient diabetes is causing concern.
 	
Education

	•	Graduate courses
•	Post grad courses
•	Vocational training

	Moderate potential.
 	
Hospitality
	•	Training
•	Menu creation
•	Restaurant design
•	Facility management
	A mature market but always seeking innovation. Bahrain has a well-developed hospitality industry. Good connections and references are essential.
	
Transport
	•	Maritime
•	Air services
•	Road and highway design

	All areas subject to strong competition and referrals are important in gaining new business. Ports and related infrastructure are undergoing upgrades.
	
Franchises
	•	Fast food
•	Hairdressing salons
•	Business services
•	Personal care
•	Training & coaching
	Second-tier franchises have potential, but this is a crowded and competitive area in a relatively small market.  	
Environmental management
	•	Water
•	Solid waste
•	Air pollution
•	Coastal development 
	Water resources are a high priority. This sector will continue to offer opportunities.