Bahrain: Pearl of the Gulf

The Middle East, March 1996 | Go to article overview

Bahrain: Pearl of the Gulf


Bahrain, site of the famous Dilmun, the ancient "land of immortality" was a major port of call in the sea trade routes between Mesopotamia and India centuries ago. The island was a natural stopover for trading vessels because of its plentiful supplies of sweet water. Today, the island is still playing host to a multitude of visitors from across the globe but the Bahrain of the 1990s has much more on offer than sweet water supplies.

Even before the discovery of oil in 1932, Bahrain was one of the wealthiest areas in the Gulf because of its well established pearling industry and its reputation as a thriving agricultural and trading centre. Bahrain was the first Gulf Arab state oil producer and also the first to diversify its economic base. As a result the country now has a more complex and developed economy than most of its neighbours.

Its strategic geographical location has made it an important trading entrepot and service centre. Even before the Iran-Iraq conflict in the 1980s and the Gulf crisis of 1990/91, Bahrain was well established as a regional centre of commerce. However, since the end of hostilities the country has adopted a more radical approach to economic development and diversification. Foreign investment regulations have been liberalised, allowing wholly foreign-owned companies to operate for the first time and the development of small and medium sized enterprises have been given priority.

Weakening oil prices and the subsequent cuts in government spending over recent years have made the pursuit of business in Bahrain a highly competitive business. There is no doubt many have found the last couple of years or so to be fairly testing. A number of political skirmishes in a country which for years was able to boast of its political calm and stability have not helped matters. At the end of 1994 a political demonstration against the expulsion of a religious scholar, ended in violence. These events coincided with an appeal for the reconvention of the country's National Assembly, disbanded in 1975, which fell on deaf ears. There have been other flare ups which appear to have been successfully contained by the security forces but these incidents and threats of incidents, have naturally given some cause for concern in the business community as well as in the population at large.

The government has ploughed vast resources into diversification projects over the years. However, it is the private sector, recognised as the real key to economic prosperity, which has become the focus for development. To encourage private sector investment the government has instituted an unprecedented series of industrial development and investment initiatives. Together with the legislation allowing 100% foreign ownership to onshore agencies and a more equitable agency law, the government has also maintained its staunch commitment to maintaining zero taxes on corporate and personal income and the freedom of capital movement, making it an increasingly attractive regional prospect.

A bustling financial centre, Bahrain remains a key player in world banking and financial services. Its central location between East and West time zones, linked through one of the world's most advanced digital telecommunications network, established by Batelco, enables it to communicate with virtually all financial and business centres during the working day.

Over the last 20 years or so, many major Arab financial institutions have located in Bahrain and large numbers of international banks swiftly followed suit. The country is an international and regional wholesale interbank money market, centred on its offshore banking sector. First established in 1975, the offshore banking units today have assets estimated at around $70 billion and the daily foreign exchange turnover of all Bahrain's financial institutions totals around $4 billion.

International law firms, insurance companies, certified public accountants and management and public relations consultants, financial analysts and advisers are all represented in the well integrated services sector, which has also stimulated the evolution of other, related, financial establishments including the Bahrain Stock Market, the money exchange sector, the real estate and construction business and other commercial enterprise. …

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