Bahrain Annual Economic Review 2010

Annual Economic Review 2010
Sustainable Prosperity
A successful decade for Bahrain completed,

a challenging new decade begun
Annual Economic Review 2010
Welcome to the inaugural edition of the Economic Development Board’s Annual Economic
Review 2010. Its role is to monitor major economic trends in the Kingdom of Bahrain, and to
identify global trends which affect us here in Bahrain.
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.
Mohammed bin Essa Al Khalifa

CE – Economic Development Board
The Economic Development Board’s first Annual Economic Review focuses on Bahrain’s recent
economic performance. It also surveys the experience of the previous decade and assesses some
of the challenges of the decade to come.
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.
Special articles included in the Review discuss:
• T
he potential GDP growth over the next two decades implied by projections of population,
labour productivity and Bahraini participation in the workforce.
• Alternative ways of measuring changes in the real incomes and living standards of Bahrainis.
• The growth of employment in recent years.
• The changing composition of Bahrain’s exports.
• The strength and composition of the small and medium enterprise sector in Bahrain.
• The performance of the tourism, banking and construction sectors during the global downturn.
• T
he likely impact of the new recovery program on Bahrain’s onshore oil production, investment,
and the Kingdom’s oil revenues over the next fifteen years.
This publication was issued in July 2010

Contents
Executive Summary. ................................................................................................ 1
Economic Overview................................................................................................ 4
1. Bahrain’s economic performance in the global crisis ............................................................ 4
2. Bahrain’s strong decade......................................................................................................... 9
3. Bahrain’s changing industry structure ................................................................................. 11
4. Challenges in the new decade............................................................................................. 12
Special Articles....................................................................................................... 16
1. Population, participation and productivity for Bahrain over the coming decade ................. 16
2. Measuring Bahrain’s progress.............................................................................................. 19
3. Jobs ...................................................................................................................................... 23
4. Export performance and export structure............................................................................. 26
5. Micro, small and medium enterprises in the Bahrain economy............................................ 29
6. Real estate downturn............................................................................................................ 33
7. Performance of the finance sector ....................................................................................... 36
8. Tourism sector performance . .............................................................................................. 38
9. Additional indigenous oil – from Bahrain field . ................................................................... 41
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
performed rather better than some of its GCC neighbours. Bahrain’s success in continuing to
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
and diverse economy in the GCC. Over the last decade, the volume of non-oil-related Bahraini
exports has grown so rapidly that it is today twice the volume of oil-related exports. Even within
oil-related exports, the share of manufactured products, such as gasoline, is considerably higher
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
global economy, matching the UAE with the highest ratio of foreign trade to GDP in the GCC.
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
private sector employment. Population projections by the EDB point to a considerable expansion
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.
Projections presented here in this 2010 edition of the Annual Economic Review show that with
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
Since the non-Bahraini workforce would under this scenario be expanding much less rapidly
in the coming decade than in the past decade, the rate of GDP growth necessary to attain the
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
restraint and more attention to revenue enhancement. Government spending in 2009 was held to
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
1. Bahrain’s economic performance in the global crisis
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%,
year average real GDP growth in 2009 was half the rate achieved the previous year. Overall
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.
Global recovery takes hold
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.
Real, YoY GDP Growth

% China and India's Real YoY GDP
% Growth
6
16
4 14
2 12
10
0 8
-2 6
4
-4 2
-6 0
-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.
In the three major mature economies of Japan, the US and Germany, capital goods orders are
rebounding, profit shares are rising and consumer confidence is beginning to recover. China, the
second largest economy in the world, expanded at just under 12% in the year to March 2009.
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
2
A significant share of the recovery so far has
0
depended on restocking, as it usually does in
the early stage of an upswing. This source of
growth will fade through 2010. The upswing
Source: IMF
has also depended on the substantial fiscal
stimulus and extraordinarily low interest rates
deployed to arrest the rapid deterioration
in the global economy, particularly after the
OECD Unemployment Rate
collapse of Lehman Brothers in September %
2008. 10
8
6
Throughout 2010 and into 2011, the fiscal 4
positions in most major economies will 2
0
become less expansionary as the growth of
deficits is arrested, and policy interest rates
will be gradually increased. Meanwhile,
Source: OECD
bank lending growth remains feeble.
Consumers in Europe and North America are
cautious in the face of high unemployment
and the loss of considerable financial wealth since the peak of the upswing in 2007. The
debt-dependent property development sector remains under pressure in most economies.
With these headwinds we expect only a modest rate of recovery in mature economies compared
to some past global upswings.
Regional economy through 2009

Annual, YoY GDP Growth for
% Saudi Arabia
Within the six member states of the Gulf
9
Cooperation Council, output growth fell 8
7
during 2009. The major regional economy – 6
5
4
Saudi Arabia – recorded zero output growth 3
2
for the year mainly due to lower oil output 1
0
combined with a high level of imports.
Throughout the GCC also, property Source: KSA's Central Department of Statistics
development was weak as lending became

more cautious. The problems of the property
development sector were most apparent
in Dubai, where debt reconstruction Oil Price - Brent
$/bbl
proved necessary. Oil prices picked up but
160
remained well off their peak of mid 2008. 140
120
100
The IMF’s April 2010 World Economic 80
60
Outlook expected Middle East and North 40
20
Africa output growth to be 4.2% in 2010 and 0
4.3% in 2011 after contracting 0.6% in 2009. 02/01/2007 02/01/2008 02/01/2009 02/01/2010
Source: British Petroleum
5
Bahrain Growth Slows in 2009
In Bahrain, monetary policy settings became

more accommodating through 2009 as the Average Inter-bank Rate
global recession deepened. The policy rate %
cuts in Bahrain were largely in line with US 6
Federal Reserve settings. The policy change 5

4
was necessary to support the US dollar peg
3
to the Bahraini dinar, but was also helpful in
2
cushioning Bahrain from the severity of the 1
global recession. 0
2003 2004 2005 2006 2007 2008 2009
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
Fiscal policy also switched to a more -1,000
expansionary stance, with the national Budget Balance Total Expenditure

budget moving into a deficit after five years
Source: MOF
of firm surpluses. The deficit was partly due * Figures as initially budgeted by Ministry of Finance for 2009
to increased public spending, as private

development spending faltered, and partly
due to the downturn in revenue as oil prices fell.
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.
Bahrain GDP expanded by 3.1% (year

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 Through-the-year output growth was
78
76 stronger, with GDP in the fourth quarter
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
year, and has since slowed. Through-the- 2
1
year construction sector output declined 0
by 9.7%. The finance sector declined by

less than 1% overall, with insurance and
domestic retail banking expanding. Offshore Source: CIO
(wholesale) banking, however, contracted

by 15% through the year due to increased
caution in property-related lending and the fall in property prices associated with the global
financial crisis. Wholesale and retail trade also declined relative to 2008, but other sectors of the
Bahrain economy remained firm. Manufacturing was particularly strong, with a 6.5% gain through
the year. Hotels and restaurants increased output by a hefty 15.2%, transport and communication
was up 10.1% and government services output increased by 7.7%.
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.
Most of the increase was in non-Bahraini
Source: IMF
employment, but in year average terms
Bahraini employment also increased.
Balance of Payments
In preliminary forecasts by the Central Bank

of Bahrain, Bahrain’s current account surplus BD Net International Investment
Million Position (IIP)
fell sharply in 2009. The fall was mainly due 7,000
6,000
to investment income falling by 60% and 5,000
net trade surplus falling by 25%. Current 4,000
3,000
transfers, which mainly consists of workers’ 2,000
1,000
remittances decreased by 22% in 2009. 0
Despite a fall in assets, the net international

Source: CBB
investment position increased by 4% due to * Provisional data
** CBB forecast
a larger decrease in foreign liabilities.
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
Source: CBB Source: CBB

* Provisional data * Provisional data
** CBB forecast ** CBB forecast
Bahrain economy to pick up through 2010
Given the weight of offshore property development in the portfolio of the Bahrain-based wholesale
banking sector, the EDB expects the finance sector to recover only slowly from the downturn.
Property development will likely remain flat or contract a little further through 2010, and recover
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.
Looked at from the spending side, the EDB

expects household consumption to continue
to strengthen over the next few years, while
investment spending continues to moderate Through-the-Year Growth by
Industry - GDP by Sector
reflecting the downturn in property % Constant Price
development. 20
15
10
Exports are also expected to strengthen in
5
response to a more competitive exchange 0
rate and higher oil prices. As the aluminium -5

-10
production and petroleum refining sectors -15
build additional capacity, import growth will -20
moderate, reflecting the impact of slower -25

Q1 Q2 Q3 Q4
investment spending on capital equipment
imports, and the replacement of some 2009
imported oil by higher local production. Hotels & Restaurants

Government Services
Trade
Manufacturing
Global inflation has remained subdued, and Financial Corporations
Construction
we expect this to continue throughout 2010. Real Estate
Consumer price inflation in Bahrain was a Source: CIO, EDB analysis
little less than 2% during 2009, and we do
not expect any substantial acceleration for
2010.
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
2008 2009 2010 2011 2012 2013 2014 2015
GDP 4,734 4,881 5,081 5,320 5,612 5,955 6,360 6,817

Constant:
2001
(BD mn)
Growth 6.3% 3.1% 4.0% 4.7% 5.5% 6.1% 6.8% 7.2%
GDP 8,235 7,744 8,380 9,063 9,586 10,240 11,011 11,865

Current
(BD mn)
Growth 18.6% -5.97% 8.96% 8.2% 5.8% 6.8% 7.5% 7.8%
2. Bahrain’s strong decade
The economic slowdown in Bahrain through 2009 followed nearly a decade of persistent, firm and
well balanced output growth. Bahrain’s GDP expanded 70% from 2000 to 2009. Those years of
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
expansion in world output in human history. Global trade and global capital flows had never been
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.
These reforms built on earlier foundations,

% 2000-2009
and included the corporatisation and
140
116% privatisation of government businesses,
120
100 minimisation of corruption in government
80 70%
contracts and in the public sector through
60
39%
40 25% the National Audit Court, additional
20 transparency through creation of the Tender
0
Real GDP 2000 Bahraini Real exports Real Bahraini Board, removal of impediments to foreign
- 2009 employment 2000 - 2008 wages 2002 -
2002 - 2009 2009 investment in Bahrain, accession to a GCC
Source: LMRA, CIO, EDB analysis
customs union based on low tariffs, signing
free trade agreement with the United States,
reforms in the labour market, liberalisation
of the telecommunications sector, the establishment of a telecommunications market regulator
and improvements to public education. As a result of the reforms, Bahrain is ranked in the top 20
nations in the World Bank’s Doing Business Report, and scores well in the World Economic Forum’s
Global Competitiveness Report.
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 %
openness to the global economy and 40

35
maintaining the pace of economic reform. 30
25
The Kingdom’s economy diversified. Output 20
15
in the finance sector nearly doubled. By
10
2008, the finance sector accounted for over 5
0
one quarter of output, compared to less Oman KSA Kuwait UAE Bahrain Qatar
than a fifth five years earlier. Output also
increased in education services, tourism, Source: UNCTAD World Investment Report 2009, CIO, EDB analysis
manufacturing and logistics.
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.
As the economy became more open, both

exports and imports increased. Over the
five years to 2008, exports increased by
166% in value and doubled in volume. By
2008, Bahrain was one of the most open
economies in the world. It ranked with the
UAE as the most open economy measured by
trade share in the GCC. Bahrain’s exports
plus imports, a common measure of trade
intensity, totalled 128% of GDP in 2008.
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.
While there is substantial room for

improvement in educational standards,
Bahrain has high rates of literacy in both Year Average Total
Arabic and English and a high rate of Employment Growth by
% Citizenship
participation in colleges and universities.
20
Bahrainis also participate in the workforce
16
to a much higher degree than of the local 12
populations in other GCC economies. 8
4
Bahrainis, for example, account for most of
0
the workforce in the finance, aluminium and 2003 2004 2005 2006 2007 2008 2009
oil and gas sectors. These are three of the Bahraini Non Bahraini
biggest commercial activities in the Kingdom, Source: LMRA, EDB analysis
and each requires high levels of education,

training and skills.
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.
Furthermore, the structure of the industry will

GDP by Sector (Constant Prices) likely change. Wholesale banking is unlikely
% Year Average Growth to expand as rapidly as before, while there
40 are new opportunities in funds management,
30
insurance and in associated professional
20
activities, such as accounting and legal
10
0
services.
-10
-20 While finance may expect somewhat slower
2004 2005 2006 2007 2008 2009 growth, manufacturing has been performing
The Financial Corporations
Construction
well. Over the last five years manufacturing
Crude Petroleum & Natural Gas
Trade output has increased by 80%, and the
Real Estate & Business Activities
manufacturing sector is now markedly
Source: CIO, EDB analysis
bigger than the oil extraction sector. Refined
petroleum and aluminium are the biggest
elements in manufacturing output, but more
diversity has become apparent in recent
GDP by Sector (Constant Prices)
% Year Average Growth years, as businesses leverage the potential
30
of the expanding regional market for food
25
and beverages, electrical machinery and
20
15 fabricated metal products.
10
5 In the basic manufacturing industries of
0
oil refining and aluminium, meanwhile,
2004 2005 2006 2007 2008 2009
Transport and Communication
there is increasing evidence of renovation
Government Services
Manufacturing and renewal. New investment will put the
Source: CIO, EDB analysis oil refining industry in Bahrain on the front
rank of global technology and permit solid
increases in output. There has also been
increased investment in additional production facilities for aluminium, which in the long term will
benefit from the plentiful supply of gas in the region.
On current growth rates, Bahrain manufacturing will account for over one fifth of GDP within
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.
It has been widely assumed for several decades that as the Gulf state with the smallest oil and
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.
Projections for recoverable oil and gas
Average Daily Extraction of Oil from improved techniques in indigenous
Barrels in Bahrain Field
fields have been scaled up. There is also
per day
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
imports into the Kingdom.
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.
4. Challenges in the new decade
Strengthened by a successful decade of economic performance, Bahrain is well equipped to meet

the formidable challenges of the new decade. These challenges include:
• A
more demanding fiscal outlook, with the decline in oil prices in late 2008 exposing a
substantial government budget deficit.
• A
productivity challenge. Output per worker declined in Bahrain in the five years to 2008. Were
this trend to continue, living standards would eventually decline.
• D
emographic trends, which suggest that Bahrain will experience substantially more rapid
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
The fiscal challenge
Bahrain accumulated fiscal surpluses and significantly reduced government debt as oil prices
rose from 2003 to 2008. The government debt to GDP ratio more than halved from 37% in 2003
to 15% in 2008. Debt reduction totalled BD 137 million over the five years. Resisting the pressures
evident in some other GCC states, government spending remained in a range from 25% to 29%
of GDP.
Supported by rising oil prices, the level of government spending rose markedly faster than non-oil
revenues. Accordingly, the non-oil deficit widened through 2003 to 2008, even as overall budget
surpluses accumulated.
This underlying deterioration meant that the

structure of Bahrain’s government budget
Non-Oil Deficit Compared to
Overall Budget Surplus
was exposed when oil prices collapsed
BD in late 2008. Bahrain moved swiftly into a
Million
fiscal deficit. The average oil price has since
2,500
2,000 recovered from the plunge to below $35/
1,500
1,000
bbl in the first quarter of 2009, yet average
500 prices through the second half of 2009 were
0
-500 only half the record price in mid 2008.
-1,000
-1,500
-2,000 The demographic challenge
2003 2004 2005 2006 2007 2008
Non-oil Surplus New demographic assessments prepared

Budget Surplus
Non-oil Expenditure by the EDB suggest Bahrain is on the cusp
Non-oil Revenue
Source: MOF, EDB analysis
of a major and prolonged expansion of the
Bahraini workforce. The EDB estimates that
the number of Bahrainis in the age band
20-64 will increase from 268,000 in 2008
to 398,000 in 2019, a cumulative annual average increase of 3% over the ten years. A somewhat
higher proportion of men and particularly a higher proportion of women of working age are likely
to have jobs or seek jobs. The increase in the working age population will thus be amplified by an
increase in the proportion of those who wish to participate in paid employment.
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
The productivity challenge
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
would be indicated by an increase in capital

spending, without a corresponding increase Source: CIO, EDB analysis
in output. As the business investment boom

cools, much of this excess capacity will
be worked off. A sharp decline in labour
productivity was also associated with a very
rapid increase in the foreign workforce, Growth Rates of Employment
and Labour Productivity
which more than doubled between 2003 %
15
and 2008. Since most foreign workers are
paid less than Bahraini workers, the sudden 10
large increase permitted a rapid expansion 5
in jobs with lower marginal productivity. This 0
is to some extent a temporary effect which -5
will be mitigated as the property boom turns -10
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
downward pressure on productivity in an

economy diversifying into new industries
from a base of industries with very high
capital intensity such as oil and gas extraction, oil refining and aluminium production.
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.
There may be incentives to over-invest. The decline in labour productivity raises the issue of
the extent to which Bahrain wishes to permit the growth of a low-wage, low-productivity foreign
worker economy alongside a high productivity Bahraini worker economy.
Accordingly, the Kingdom is placing greater emphasis on policies to improve productivity.

Major influences include education and training, and also policies designed to encourage a
swifter and more pervasive proliferation of technologies in Bahraini industries. These policies
include a framework for the ICT industry to help make information and communications
technologies cheaper, faster, and more widely accessible, and also a framework for supporting
a faster rate of innovation in Bahrain industry.
14
Special Articles
1. Population, Participation and Productivity for Bahrain over the
coming decade
Key points:
• Bahrain’s population is projected to grow to over 1.5 million by 2020, 46% being Bahraini.
• T
he Bahraini dependency ratio1, 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.
• The Bahraini working age population will grow by 41% by 2020, to over 400,000 people.
• A
ssuming a higher workforce participation, almost 80,000 additional Bahrainis will be in the
workforce by 2020.
• T
his would permit Bahrain’s output to grow by 4.6% annually, while maintaining the current
proportion of Bahraini to non-Bahraini workers.
• G
iven the high participation and productivity growth scenario, Bahrain would experience 19%
growth in GDP per capita over the coming decade.
Bahrain’s Changing Demography
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.
Population Growth
Bahrain’s population has seen rapid growth

Million
in the past ten years. From the 2001 census people
Bahraini Population
2.5
to the latest 2008 numbers, the Central
2
Informatics Organization estimates that
1.5
Bahrain’s total population has grown by 67%;
1
an annual average of 7.6%. Non-Bahraini
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.

From the CIO baseline data for 2008, the
EDB projects that Bahrain’s population will
increase from 1.1 million in 2008 to over
2 million2 by 2030, with 44% of those being Bahrainis. The average annual growth rate expected
over the next ten years is 2.8%.
The increase in the non-Bahraini population is difficult to project accurately as most non-Bahraini
workers are in Bahrain on a temporary basis and are not living with families. The massive growth
in non-Bahrainis in recent years has been a result of a boom in labour intensive industries such as
construction and trade, which have grown by 210% and 277% respectively from 2002 to 2009.
Given that economic booms and market regulations are generally difficult to project, the non-
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.
1 Dependency ratio is defined as dependents divided by non-dependants. We define dependents as those aged 0-19
and 65 years or over and non-dependants as those between the ages of 20-64.
2 T
he key assumptions used in making these projections are:
* Growth rate of Bahraini 0-4 population will continue at 2.5%, until 2012, and then decrease by 0.5% every 5 years
with eventual growth rate of 1% at 2027.
* Bahraini age groups 0-64 will increase by 2% every 5 years when moving to the 5-69 age groups.
* Non-Bahraini growth will slow from 11% to 4% in 2009 to 2012 and then decrease to 3%.
16
Bahraini Workforce
The number of Bahrainis in the age band

20-64 is estimated to increase from 287,000 Bahraini Population by Age
People Group, 1981-2030
in 2008 to 404,000 in 2020, making a 600,000
cumulative annual average increase of 500,000
400,000
2.9% over ten years. A somewhat higher
300,000
proportion of men and particularly a higher 200,000
proportion of women of working age are 100,000
likely to have jobs or seek jobs. The increase 0
in the working age population will thus be

amplified by an increase in the proportion 0-19 20-64 65+
of those who wish to participate in paid
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
between the ages 20-64 are employed as opposed to 62% of men in the same age group.
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
participation 48% 65% 31% 41,903
Scenario 2
High workforce
participation 58% 70% 45% 77,773
3 Australian Bureau of Statistics.
17
GDP growth requirements
Given the above workforce projections, we may derive the GDP growth needed to meet additional
job creation given assumptions on productivity changes. Productivity is broadly defined as
output per unit of input. We use changes in employment compared to changes in GDP to get a
sense of this productivity level. Therefore, assuming productivity remains unchanged, growth in
employment should result in equal growth of GDP.
However, Bahrain is in a unique position, with the majority of the workforce being non-Bahraini.
In addition, certain sectors have a disproportionate amount of non-Bahraini workers. As a result,
we may assume that the contribution to GDP by Bahrainis is not proportionate to the contribution
to GDP by non-Bahrainis. For example, while financial services made up 25% of GDP in 2009, it
only made up 3% of total employment, of which 63% were Bahraini, a high proportion considering
over 80% of all private sector workers are non-Bahraini.
As a result of the disproportionate

Constant GDP Growth
contributions to GDP by nationals versus
Projections Under Workforce non-nationals, we use average wages to
BD Scenarios
represent the difference in productivity
Million
9,000 between Bahrainis and non-Bahrainis.
8,000
According to the LMRA, average Bahraini
7,000
6,000 wages are around 3 times higher than
5,000 non-Bahraini wages. This means that if the
4,000
3,000
Bahraini workforce is a third of the non-
Bahraini workforce, and three times more
productive, Bahrainis have an almost equal
Current participation 48% - 0% productivity
growth contribution to GDP despite making up one
Current participation 48% - 2% Bahraini
productivity growth quarter of the total workforce.
High participation 58% - 0% productivity
growth
High participation 58% - 2% Bahraini Using the above assumptions we project
productivity growth
Source: CIO, EDB analysis the two participation scenarios shown in the
previous section. Each increase in Bahraini
workforce will have three times the effect of
non-Bahraini workforce. With both scenarios

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
6
GDP between 2.7% for low participation and
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;
however, previous GDP growth is misleading
due to the even higher workforce growth, Growth of total workforce
leading to lower productivity, as in the graph Growth of GDP

shown here. Source: CIO, EDB analysis
18
Despite a higher participation rate among the non-Bahraini population and rapid growths in
output, GDP per capita has been decreasing since 2000. Given our scenarios, only current
participation rates with 0% productivity growth would continue the declining trend. Given the high
participation and productivity growth scenario, Bahrain would experience 19% growth in GDP
per capita over the coming decade.
Dependency Ratio
GDP Per Capita
The definition of dependency ratio used in
BD/person
this article is the ratio of those aged 0-19
5,400
5,200 and 65+ to those aged 20-64. This was not
5,000
4,800
the definition previously used in publications
4,600 such as the EDB Economic Quarterly, but has
4,400
4,200 been changed to conform to international
4,000
3,800 and OECD standards. However, the trend
3,600 remains the same and shows a decreasing
ratio of dependents to non-dependents.
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,
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
continued decrease of the proportion of the 0-19 age group, due to a growing older population.
We expect that by 2030, the 65+ population will have reached almost 10% of the total population,
and the 0-19 group 36%. The table below shows estimated dependency ratios and age group size
in 2010, 2020 and 2030.
Proportion of population per age group
Year Bahraini population 0-19 20-64 65+ Dependancy ratio
2010 562,491 41% 55% 4% 83.5%
2020 712,012 38% 57% 6% 76.2%
2030 880,524 36% 55% 9% 82.4%
Non-Bahraini dependency ratio has

% 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
Bahraini dependency ratio

Non-Bahraini dependency ratio
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
GDP per capita (calculated by dividing GDP by total population) is often used as an indicator
of society’s standard of living, based on the rationale that all citizens would benefit from their
country’s increased economic production. However, GDP per capita is not a measure of average
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.
Our findings show that while Gross Domestic Product per capita and Gross National Disposable
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
annual average growth rate of 7% . These findings indicate that GDP per capita, as a tool for
measuring Bahrain’s progress, has its shortcomings. Alternative indicators for welfare that could be
studied in the future are the Human Development Index (HDI), which is a composite of different
indicators like life expectancy at birth, education and GDP per capita adjusted for purchasing
power parity.
GDP per Capita and GNDI per Capita
Average GDP per capita tells us how big each person’s share of GDP would be if we were to
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
GDP per capita is increasing, there’s a strong likelihood that: (i) more goods and services are
available to consumers, and (ii) consumers are in a better position to buy them.
We find that while the growth rate of real GDP was positive throughout 2000-2009 with an average
rate of 7%, GDP per capita decreased from BD 4337 in 2004 to BD 4276 in 2009, representing an
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 .
Gross National Disposable Income (GNDI) takes into account that income by residents in Bahrain
is sent abroad, and some residents receive income from abroad. During the period between 2003
and 2009, GNDI per capita slightly decreased from BD 4019 to BD 3972.
Despite a positive growth of the total value of GNDI, GNDI per capita had negative growth rates
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
Economic Indicators that Show Positive Growth
Median Household Income
The Household Income and Expenditure

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
10,000
9,506 in 2006; an increase of 47% in real 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
Source: CIO
than the average household income as it is
not dramatically affected by unusually high
or low values.
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.
The Value of Public Goods and Services
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
oil revenues. In other non-oil exporting countries, households would normally pay taxes in return
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.
Oil Revenues Per Bahraini

Citizen Oil Revenues Per Bahraini
BD Household
BD
4,500
4,000 25,000
3,500
20,000
3,000
2,500 15,000
2,000
1,500 10,000
1,000
500 5,000
0 0
Source: MOF, CIO, EDB analysis

Source: MOF, CIO, EDB analysis
21
Wages
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%.
Distribution of Bahraini Labour

Average and Median Monthly by Wage Group in 2009
Wage of Privately Employed People
Bahrainis 20,000
18,000
BD 16,000
600 542 14,000
12,000
500 414 10,000
400 319 8,000
300 214 6,000
4,000
200
2,000
100 0
0
2003 2009
Average monthly wage
Median monthly wage
Male
Source: GOSI, EDB analysis
Source: LMRA
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.
alternative indicators for measuring Bahrain’s Progress
Another supplement to conventional GDP per capita measurement could be an indicator similar
to the Human Development Index which is developed by the United Nations Human Development
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
Human Development Index (HDI). Another alternative indicator is Index of Economic Well-being,
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. J obs
Despite the economic growth slowdown in 2009, employment in Bahrain increased. Almost all of
the gain was in non-Bahraini employment, though Bahraini employment showed a small gain in
year average terms.
Over the seven years 2002 to 2009 both Bahraini and non-Bahraini employment rose strongly,
though non-Bahraini worker employment far outpaced Bahraini employment.
Employment 2009
Bahrain total employment grew by 10% in 2009 compared to 2008, in year average terms.
Bahraini employment grew by 3%. Non-Bahraini employment grew by 13%.
Year Average Total

Year Average Total Employment Employment Growth by
%
% Citizenship
20
16
16
12
12
8
8
4
4
0 0
2003 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 2009
Bahraini Non Bahraini

Source: LMRA, EDB analysis
Source: LMRA, EDB anaylsis
Over the last 8 years, 2002-2009, Bahrain total employment grew by 105%.
Bahraini employment grew by 39% and non-Bahraini employment grew by 139%.
Through-the-year employment in 2009
Total employment (including public and private sector) grew by 4% compared to 2008.
Bahraini employment declined by 3% compared to 2008, whereas non-Bahraini employment

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.
The Bahraini public sector employment grew by 2% compared to 2008, whereas non-Bahraini
The private sector employment for Bahrainis declined by 5% compared to 2008, whereas non-
Bahraini employment grew by 6% over the same period.
Total Employment by Sector YoY Change in Employment by

People Sector
%
500,000 20
400,000 15
300,000
10
200,000
5
100,000
0 0
2002 2003 2004 2005 2006 2007 2008 2009 -5 2003 2004 2005 2006 2007 2008 2009
Public Sector Private Sector Public Sector Private Sector

Source: LMRA Source: LMRA, EDB analysis
Employment by sector, gender and citizenship in 2009 compared to 2008
Construction:
• Overall construction employment rose by 6% in 2009 compared to 2008.
• Broken down by citizenship, Bahraini employment declined by 13% whereas non-Bahraini

employment grew by 8% in 2009 compared to 2008.
• Broken down by gender, overall male employment grew by 6% whereas female employment
dropped by 8% over the same period.
Finance:
• Overall finance employment rose by 6% in 2009 compared to 2008.
• Broken down by citizenship, Bahraini employment grew by 3% whereas non-Bahraini

Trade:
• Overall trade employment rose by 2% in 2009 compared to 2008.
• Broken down by citizenship, Bahraini employment declined by 7% whereas non-Bahraini

• Broken down by gender, overall male employment and female employment grew by 2%.
24
Employment in Bahrain over the past 8 years (2002-2009)
Over the last 8 years total employment in Bahrain grew by 96%. Bahraini employment grew by
31% and non-Bahraini employment grew by 130%.
Public sector employment grew by 25% whereas private sector employment grew by 105%.
Broken down by citizenship in the private sector (2002-2009)
Bahraini employment in the private sector grew by 38% since 2002 to 2009, whereas non-Bahraini
Construction (2002-2009)
• Over the past 8 years overall construction employment grew by 137%.

employment grew by 160% in the last 8 years.
Finance (2002-2009)
• Over the past 8 years overall Finance employment grew by 76%.

Trade (2002-2009)
• Over the past 8 years overall trade employment grew by 218%.

Jobs Created between 2002-

2009
Jobs
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Bahraini Non-Bahraini
Source: LMRA
25
4. Export performance and export structure
Bahrain Exports
Data from the International Monetary Fund show that Bahrain’s exports have seen steady growth
during the period 2003-2008, with an average annual growth rate of 4.8%. This was significantly
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
Source: IMF Source: US Energy Information Administration
Due to the absence of exports details for 2009, we focus on 2008 data.
hanges in the Growth of

C
Change Growth of Exports Exports
% (GDP: 2001)
25 22% Bahrain’s export growth fluctuated between

20 18% the years 2003 and 2008. The average
16%
15 growth rate in volumes was about 14%
10%
8% 9%
10 annually.
5
0 xports by sector: constant

E
2003 2004 2005 2006 2007 2008
prices
Source: CIO
Bahrain’s exports have seen tremendous

growth between 2002 and 2008, increasing
by a total of 116% over the period despite
Percentage Share of Exports by decreasing oil exports. Moreover, non-
Sector 2000-2008
oil commodities, and services exports
(GDP:2001 BD Million)
significantly increased their share of total
exports in 2004. Non-oil exports continued
49% 49%
36% 36% 33% to register strong growth up to 2008, with
60% 60% 67% 67%
an increase of 50% from 2000 as well as the
51%
26% 29%
40% 46%
services exports which grew 6% in the same
26% 26% 19%
20%
26% 28% 24% 21% 22%
period. In 2008, oil exports represented only
14% 14% 13% 16%
33% of total exports, a decrease of 50% from
2000 2001 2002 2003 2004 2005 2006 2007 2008
the year 2000.
Services Non Oil Oil
26
Exports by sector: current prices
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
previous year. Despite the dominance of oil exports over the total value of exports, non-oil and
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
62%
65% 65% 5,000
4,059
4,000 2,927
3,466
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
474
0 351 357 402
2000 2001 2002 2003 2004 2005 2006 2007 2008
Services Non-Oil Goods Oil

Source: CIO, EDB analysis Services Non-Oil Goods Oil
Source: CIO
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.)
Oil exports (2000-2009)
According to data from the National Oil and Gas Authority, Bahrain’s oil exports grew gradually
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%.
Oil Exports 2007-2009

BD Oil Exports 2000-2009 (Monthly)
BD
Million
Million
6,000
700
5,000 600
4,000 500
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
il and Gas industry exports
O
(2008-2009)
Oil and Gas Industry Exports
2008 - 2009
BD
In 2008 and 2009, the average share Million
3,500
of crude oil to total oil and gas exports
3,000
reached 37%. The share of manufactured 2,500
2,000
oil products, on the other hand, represented 1,500
1,000
61% of this total. Gas products constituted 500
only 2%. 0
Crude Oil Exports Petroleum Liquid Gas
Products Exports Exports
Crude oil exports 2008 2009
Source: NOGA
The value of crude oil exports varied

significantly between 2008 and 2009, which
was a reflection of world oil prices. The value
of the crude oil exports was much higher in
2008 than in 2009 and reached its peak in
BD Crude Oil Exports
July 2008 before dropping dramatically in Million
250
the fourth quarter of the same year. Then, in
200
2009, oil prices began to rise again, slowly, 150
100
with small fluctuations until the end of the
50
year. 0
Petroleum products exports

2009 2008
Source: NOGA
Petroleum products exports were much

higher in 2008 than 2009. The increment
was obvious in the five main products that
Bahrain offers: Naphtha, Gasoline, Jet Fuel,
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
1,400
about 40% of total exports in 2008 and 2009, 1,200
followed by Jet Fuel with a share of 22%. 1,000
800
Naphtha and Fuel Oil have close percentage 600
400
shares, about 15% each. Gasoline, on the 200
0
other hand, represents only 3% of total
petroleum exports.
2008 2009
Source: NOGA
BD Liquid Gas Exports

Million
14 Liquid Gas exports
12
10
8
6 Total liquid gas exports in 2008 were 1.5
4
2
times higher in value than in 2009. The main
0
liquid gas products that are offered are:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Propane, Butane and Naphtha.
2008 2009
Source: NOGA, BANAGAS
28
5. Micro, Small and Medium enterprises in the Bahrain economy
Bahrain is focusing on developing a competitive SME sector, delivering international quality

products and services and contributing to quality employment opportunities. Statistics show that
micro, small and medium enterprises represent a significant part of the Bahraini economy. As
the Central Informatics Organization estimates, these enterprises contribute nearly 28% of total
nominal GDP. Construction, manufacturing and trading are the three main industries within this
sector.
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.
Definition of Micro, Small and Medium enterprises
The following definition is approved by the SME committee headed by the minister of Industry and
Commerce.
• Micro enterprises are defined as those companies that hire up to 10 employees, and have
capital investment of up to: BD 20,000 for the manufacturing sector, and BD 100,000 for all
other sectors.
• Small enterprises, on the other hand, are defined as those companies that hire from 11 to 50
employees (and up to 100 for the construction sector), and have capital investments as the
following: between BD 20,001 and BD 500,000 for the manufacturing sector, and between BD
100,001 and BD 1 million for all other sectors.
• Medium enterprises are those companies that hire between 51 and 250 employees (and up to
400 for the construction sector), and have capital investments as follows: between BD 500,001
and BD 3 million for the manufacturing sector, and between BD 1,000,001 and BD 5 million for
all other sectors.
icro, Small and Medium

M
enterprises in Bahrain4
Number of MSMEs in Bahrian Q1 2010
umber of Micro, Small and Medium
N
Medium Others
Enterprises5: 1.73% 0.33%
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 T
his 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.
5 Due to data restrictions, these estimations are based on the employment criteria only. The financial services sector is excluded.
29
Sector Breakdown:
Bahrain’s micro, small and medium MSMEs Sector Breakdown

2009
enterprises are focused mostly in three
main industries, based on the number of
commercial registration certificates (both Others
30%
companies and individuals). These industries Trading
42%
are: trading, which represents 42% of
total micro and SME industry, followed by
manufacturing and then construction, which
represent 14.48% and 13.73% respectively. Constructions
14%
GDP contributions by Industry:

Manufacturing
14%
The total micro, small and medium Source: MOIC
enterprises contribution to GDP is total

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.
This is followed by real estate (3%),

transportation (1.6%), mining (1.5%) and
private education services (1%).
Contribution to employment:
SMEs and Trade Manufacturing Construction Others
Micro ent.
Total micro, small and medium enterprises GDP
employees represent 73% of total private

Source: CIO, EDb analysis
sector employees (328,880 employees).
Data shows that 28% of employees in the

private sector work in micro companies
Employees in the MSMEs Q1 2010
(124,777 employees), 25% in small
companies (109,551 employees) and 21% in People
medium companies (94,552 employees). 140,000 28%
25% 26%
120,000
21%
100,000
80,000
60,000
40,000
20,000
0
Micro Small Medium Others
30
Bahraini Versus Non-Bahraini:
The majority of people working in the micro,

small and medium enterprises sector are
Bahraini vs Non-Bahraini Q1 2010
non-Bahrainis. The total number of Bahrainis
117,602
in this sector reached 44,778 in Q1 2010
91,108
(14% of total employees in the sector), 73,392
with non-Bahrainis constituting 282,102

employees (or 86% of total employment). 18,443 21,160
7,175
This can be attributed to the fact that non-
Bahrainis make up the majority employment Bahraini Non Bahraini Non Bahraini Non
Bahraini Bahraini Bahraini
in industries like construction, wholesale and
Micro Small Medium
retail, transportation, manufacturing, fishing,
hotels and restaurants (except the financial Source: GOSI, EDB analysis
services industry which recorded 5,139

Bahrainis compared to 4,140 non-Bahrainis).
Men and Women in Micro, Small and Medium Enterprises
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.
Females v.s. Males Q1 2010 Male vs Female by Industry Q1 2010

115,531
No. Male Female
97,957
100,000
83,928 90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
9,246 11,594 10,624 0
Females Males Females Males Females Males
Micro Small Medium

31
Average Salaries
Medium-size companies pay the highest

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
The following graph shows the salary details

for the employees in micro, small and F M F M F M F M F M F M
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
micro, small and medium enterprises are

mostly focused on. Source: GOSI, EDB analysis
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
Bahrain, much like its GCC neighbours, has witnessed a period of remarkable real estate and
construction growth between the years 2003 and 2008. Following the rise in oil prices and the
growth of financial services activity, asset prices, and particularly those related to real estate and
property development, increased noticeably. Investment banks, both conventional and Islamic,
showed much interest in this area. Average real growth in credit to the private sector as a whole
was well above 20% per year during those 5 years, compared to around 17% growth in Kuwait
and around 26% for the UAE.6 The share of this credit to real estate and construction sectors in
Bahrain doubled, from 15% in 2002 to around 32% in 2008 (well above those of Qatar, Saudi
Arabia and the UAE, and below only Kuwait).7
On the ground, the number of construction

permits8 rose by nearly 21% in two years Annual Construction Permits by Type
No. of Growth
(between 2003 and 2005), when it peaked Permits Rate
at 11,500 permits in 2005 and remained 14,000 0.15
12,000
at a similar level in 2006. Specific types of 10,000
0.1
permits saw higher increases than others 8,000 0.05

6,000 0
during this boom period, particularly 4,000
-0.05
additions to existing construction permits, 2,000
0 -0.1
demolitions, new construction and finally
demolitions combined with new construction
Growth Permits
permits. Source: MOMAA
Annual Commercial
Commercial Registrations (CRs)9 issued
No. of
Registration by Type for construction-related companies also
CRs
saw high growth around the same time
2,000
period, peaking in 2006 with 1,500 total
1,500
construction-related CRs for the year. The
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
Between the years 2004 and 2008 (our data

years), Bahrain also saw noticeable growth
in retail loans for construction and real estate activity, climbing by 91% (nearly doubling) in value
between 2007 and 2008. Personal mortgage loans also increased in value, growing by 51% from
2006-2007, and by 62% in 2008, reaching BD 375 million.10 We suspect, however, that this growth
has slowed down in 2009. The growth in loans during this period corresponds to rapid credit
growth to the private sector, which in Bahrain reached approximately 26% from 2003 to 2008.
Such high rates of credit growth during a boom often leads to high levels of default after the
boom, which could then increase the likelihood of an economic downturn.11
6 International Monetary Fund, “Impact of the Global Financial Crisis on the GCC Countries and Challenges Ahead”, p. 9.
7 International Monetary Fund, “Impact of the Global Financial Crisis on the GCC Countries and Challenges Ahead”, p. 13.
8 Issued by the Ministry of Municipalities Affairs and Agriculture.
9 Issued by the Ministry of Industry and Commerce.
10 Central Bank of Bahrain data.
11 IMF Paper: The GCC Banking Sector, Topography and Analysis.
33
Overall, the retail banking portfolio in Bahrain is highly exposed to construction and real estate,
which make up around 33% of total loans. Non-performing loans have been relatively well
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
loans in 2003.12 In the IMF’s view, provisioning to
2,000
1,500
NPLs is high in the GCC by international
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.
Personal Property mortgage loans (BD millions) Construction Employment

Outstanding Loans: Retail Banks: NR: Number of
Business: Construction and Real Estate Growth rate
Employed
Source: CBB
160,000 25%
140,000
20%
120,000
100,000 15%
80,000
Employment in the construction sector has 60,000 10%
40,000
also seen high growth in Bahrain. Over the 20,000
5%
past few years, this growth rate has varied 0 0%
from year to year but it kept a positive trend,

even in 2009. Growth rate Total Employment
Source: LMRA
Bahrain, however, was not immune to the

effects of the global financial crisis. These
effects lagged for a short while and were at first concealed by the GCC’s relatively small exposure
to US subprime mortgages.13 By the end of 2008 and into 2009, the real estate and property
development sector began to show signs of weakness, especially with the beginning of the Dubai’s
property bust in 2008.14 Other GCC countries, including Bahrain, began to experience the
same. By the end of 2009, nearly $575 billion worth of projects in the GCC were put on hold, out
of a total of $2.5 trillion at the end of 2008. Of these projects, which were in different stages of
planning and implementation, Bahrain saw a total of $13 billion worth being halted at the end of
2009, from the $64 billion worth that was estimated for the country at the end of 2008.15
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
2008. Construction contribution to GDP (in constant terms) also decreased after years of
noticeable growth.
12 IMF paper: The GCC Banking Sector, p. 21.

13 IMF, “Impact of the global financial crisis on the GCC countries and challenges ahead”.
14 International Monetary Fund, “United Arab Emirates: 2009 Article IV Consultation – Staff Report; Public Information Notice;
and Statement by the Executive Director for the United Arab Emirates”, p. 8.
15 IMF, “Impact of the global financial crisis on the GCC countries and challenges ahead”, p. 1.
34
In 2009, construction’s share dropped to 6.4% of GDP, from 7.19% in 2008. While this percentage
contribution is still higher than pre-boom years, it is nevertheless showing signs of overall decline.
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.16 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.17 There seems to be more focus on finishing the projects that have
already begun than on building new ones.
It is fair to say that Bahrain has not experienced the dip that some of its GCC neighbours have
seen in 2009, nor were its financial sector troubles as alarming. The region and Bahrain, however,
should expect the downturn to continue in 2010.
16 CB Richard Ellis, “Market View – Bahrain Office Market, Q3 2009”, p. 1.

17 CB Richard Ellis, “Market View – Bahrain Residential Market, Q3 2009”, p. 1.
35
7. Performance of the Finance Sector
The finance sector is crucially important to

the economy of Bahrain. It now accounts for
roughly one quarter of Bahrain’s GDP by
Financial Sector Growth Rate
volume. The sector has contributed nearly %
50
26% of the total increase in GDP over the last
40
six years. It employs over 14,000 people, two 30
20
thirds of them Bahraini. Jobs in the industry
10
are generally well paid and highly skilled. 0
-10
The sector has grown by an average of
-20
13% per year over most of the past decade.
However, for the first time since 2001, the
sector experienced negative growth in 2009.
In recent years its growth has been

significantly driven by an expansion of foreign wholesale banks. These are Bahrain-licensed
institutions that are not permitted to seek retail deposits but may seek wholesale funds directly from
investors or from the inter-bank market. Their assets are often loans to property developments.
Most of this sector is engaged in offshore transactions, predominantly, though not only, within the
GCC. Offshore liabilities account for four fifths of total bank liabilities. The proportion for assets
is similar. Nine tenths of wholesale bank assets and liabilities originate offshore. Over the last five
years offshore business has accounted for half of the growth of the finance sector as a whole.
The finance sector also includes a vigorous insurance sector. It has doubled in size over the last
five years.
Impact of the Global Financial Crisis
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
on lending has substantially increased, cross border debt transactions are well down, and debt-
funded sectors such as property development are well down. All these trends are evident in the
GCC and in Bahrain.
After five years of vigorous expansion the property sector in Bahrain is now contracting. Though
the decline is much milder than elsewhere in the GCC, the EDB expects the contraction to persist.
Since they are predominantly foreign lenders and borrowers, Bahrain-licensed wholesale banks
are also affected by the downturn elsewhere in the GCC. The prolonged slump in property will
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)18 grew by 4% in 2009.
Despite the downturn in the financial sector, total employment grew by 215 jobs in 2009.
18 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
property transactions. Given the outlook for property, wholesale banking is unlikely to expand for
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.
Impact of regulatory changes
The US, Europe and the UK have responded

to the turbulence in their finance sectors
Banks Liabilities to GDP
2008 by reaching broad agreement on
regulatory changes to diminish the risks of
Bahrain Hong Kong Lebanon
a recurrence. These changes, still being
Switzerland Singapore Luxembourg discussed within the G20, the Financial
32 Stability Board and the Bank of International
24 Settlement (BIS), are likely to involve
additional capital requirements for banks,
11
6
3 3 limits on bank leverage, and limits on
maturity mismatches. All these changes are
Source: CBB, Hong Kong Monetary Authority, Swiss National Bank,
likely to reduce bank profits.
Central Bank of Lebanon, Monetary Authority of Singapore, Central
Bank of Luxumburg
The Bahrain finance sector has survived

relatively well despite the biggest financial
market crisis since the Great Depression.
Credit growth is down, but not nearly
as severely as in many major developed
Growth of the Finance Sector economies. The sector has contracted,
%
50 but again not as severely as in some
40
30
major OECD economies. This is a major
20 achievement for which the CBB deserves
10
much credit. Going forward, however, it is
0
-10 2004 2005 2006 2007 2008 2009 evident that the development model for the
-20 Bahrain finance sector, which has depended
Local Foreign Insurance heavily on the rapid growth of offshore
Source: CIO, EDB analysis wholesale banking, will change.
37
8. Tourism Sector Performance
Overview 2009
The tourism sector in Bahrain contributed positively to the country’s economic growth in 2009.
Proxied by hotels and restaurants, total output through the year expanded by 10% in real terms in
2009 compared to 2008, despite a 19% decline in non-Bahraini visitor arrivals (tourists)19, which
dropped to 7 million visitors compared to 8.6 million in 2008.
Hotels and restaurants accounted for 3.2% of total 2009 GDP, real terms.
Jobs in this same industry also increased

in 2009 compared to the previous year. Total Number of Visitors
According to the 2009 GOSI private sector
%
statistical report the number of people Change
employed by hotels and restaurants 20

15
totalled 30,739 in 2009, which is up by
10
5% compared to 2008 (29,285 people). 5
This accounts for a share of 7% of the total 0
-5
insured employees in the private sector.
-10
-15
-20
-25
Non-Bahraini Visitor Arrivals
Million Source: MOCI,CIO,EDB anaylsis
People
12
Millions
6
Visitor Arrivals
3
0 According to the Ministry of Culture and

Information, nearly 54% of the total number of
visitors to the Kingdom were tourists in 2009.
Source: MOCI, CIO
Overall arrivals in Bahrain fell by 19% in
2009 compared to the previous year. The
number of visitors from all nationalities decreased, except for those from Central America and the
Mediterranean.
Visitor Arrivals by Major Markets
GCC nationals, South Asians, and non-GCC GCC Nationals

% Of Total
Visitors
Arabs dominated the visitors market and were
80
the top three in terms of number of visitors in
60
2009. In more detail, these numbers can be
40
broken up as the following:
20
• G
CC nationals constituted 61.4% of the 0
total visitors to the Kingdom compared to
61.9% in 2008.
Source: MOCI
• S
outh Asians constituted 16.6% of the total
visitors compared to 15% in 2008.
• Non-GCC Arabs constituted 8.6% of the total visitors compared to 7.4% in 2008.
• Nearly 16% of Non-GCC visitors came for leisure, with the other 84% for business and
journalism.
19 Tourist includes visitors for leisure and business purposes.
38
ourism revenue from fees
T
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 Purpose of Visit
0
Statistics show that the majority of visitors
Lesiure Business Transit Journalism
to Bahrain came for business activities and
Source: MOCI leisure.
Total number of business arrivals rose by

47% in 2009 compared to the previous
year. The number of people visiting for leisure rose by 31%, and for journalism by 18%, whereas
number of visitors rose by 26%.
Hotel Industry Performance by Tier
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
October and ends in March. 180,000

150,000
120,000
Between 2007 and 2009, Bahrain saw an
90,000
increase in the number of cruise ships and 60,000
cruise passengers landing in the country, 30,000
0
The increase in the number of cruise ships
2007-2008 2008-2009 2009-2010
was noticeable when comparing the cruise
Source: MOCI
season of 2007-2008 to the 2008-2009
season, where the rate of increase is 67%.
There has also been an increase in the
number of cruise passengers coming to Bahrain, reaching 109% over the same period.
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.
2007-2008 2008-2009 2009-2010
No. of Cruise ship passengers 57,400 120,050 151,850
No. of cruise ships 3 5 6
No. of cruise ship calls 46 54 64
% Change in passengers 109% 27%
% Change in cruise ships 67% 20%
% Change in cruise ship calls 17% 19%
Arrivals by Port of Entry

Million
People In 2008 the highest number of arrivals,
8
excluding Bahrainis, was through
6
the King Fahd causeway followed by
4
Bahrain International airport, with the
2
least number through Mina Salman Port
0
Bahrain King Fahd Mina Salman at 80,340 persons only.
International Causeway Port
Airport
Source: MOCI
40
The Tourism Sector over the last decade
Hotels and Restaurants

% Contribution to GDP
Over the last decade, the tourism sector
4
(proxied by hotels and restaurants) grew 3
3
by 156% in real prices. The sector’s 2
2
contribution to GDP grew from 2% in 2000 1
1
to 3.2% in 2009 at real prices. 0
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
Output Growth for Hotels &

Restaurants
%
25
In the last 7 years government revenue 20
from tourism fees collection (issuance and
15
renewal of tourism licenses and 5% hotel
10
services tax) has also increased, by 161%,
between the years 2003 and 2009. 5
Source: CIO
Non Bahraini Visitor Arrivals

Million
People
10
9 Over these last 10 years, the number of
Millions
8
7
6 non-Bahraini visitors has increased by 81%,
5
4 with the number of GCC visitors increasing
3
2
1 by 47% as well.
0
Source: MOCI, CIO
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).
In 2009, the Government of Bahrain launched an ambitious program aimed at increasing the
potential oil and gas output of the Bahrain Oil Field.
The Oil and Gas Holding Company (Nogaholding), which is the investment arm of the National
Oil and Gas Authority (NOGA), formed a joint venture in April 2009 with UAE’s Mubadala
Development Company and Occidental Petroleum Corporation to develop the Bahrain Field.
Tatweer Petroleum–Bahrain Field Development Company will serve as the operator for the Bahrain
Field under the Development and Production Sharing Agreement (DPSA) signed in April 2009.
Tatweer Petroleum intends to invest $1.7 billion in the Bahrain Field over the next 5 years and
$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
production to better serve local needs. Under the terms of the DPSA agreement, Occidental holds
a 48% stake in the venture, while Mubadala holds 32%, followed by Nogaholding with 20%.20
NOGA today projects significant increases in

oil extraction from the Bahrain Field based
Average Daily Extraction of Oil
in Bahrain Field on these field developments. Estimates until
Barrels 2028 are shown in Table 3 on the following
per day
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
Field production. The field is mainly operated and handled by BAPCO, a national company that
is wholly-owned by Nogaholding. Nogaholding gives annual dividends to the Ministry of Finance
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.
20 Mubadala Development Company website: http://www.mubadala.ae/en/about-mubadala/investments/bahrain-field.html
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
Bahrain Field 13,720 13,647 13,348 13,085 12,552 12,027 11,750
Abu Saafa Field 55,146 54,938 54,748 53,823 54,710 54,838 54,760
Table 3
Year 2010 2011 2012 2013 2014
Average Daily Production
(bbl/day) 35,508 47,528 62,136 81,137 90,268
Year 2015 2016 2017 2018 2019
(bbl/day) 95,511 102,321 106,750 112,307 112,631
Year 2020 2021 2022 2023 2024
(bbl/day) 109,167 108,643 108,856 106,741 106,221
Year 2025 2026 2027 2028
(bbl/day) 107,470 106,804 106,632 106,076
43
APPENDIX
Sources
Australian Bureau of Statistics
Bahrain National Gas Company
Central Bank of Bahrain
Central Bank of Lebanon
Central Bank of Luxemburg
Central Informatics Organization
China’s National Bureau of Statistics
Doing Business Report-World Bank
Energy Information Administration
General Organization for Social Insurance
Hong Kong Monitory Authority
International Monetary Fund
India Central Statistics Organization
Kuwait Ministry of Planning
KSA’s Central Department of Statistics
Labour Market Regulatory Authority
National Oil & Gas Authority
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
Qatar Statistics Authority
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
BANAGAS: Bahrain National Gas Company
CBB: Central Bank of Bahrain
CIO: Central Informatics Organization
EDB: Economic Development Board
FDI: Foreign Direct Investment
GOSI: General Organization for Social Insurance
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
NOGA: National Oil & Gas Authority
OECD: Organization for Economic Cooperation and Development
45
Contacts
For inquiries contact the Economic Planning and Development team on +973 175 89 962
or email AnnualReview@bahrainedb.com
Business hours are Sunday through Wednesday 8am to 5pm, and Thursday from 8am to 2pm
(GMT +3 hrs)
For more information on the Bahrain Economic Development Board and how we can help you
please visit www.bahrainedb.com

Bahrain Annual Economic Review 2010

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Bahrain Annual Economic Review 2010

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Annual Economic Review 2010

A successful decade for Bahrain completed,

Mohammed bin Essa Al Khalifa

Special articles included in the Review discuss:

• The growth of employment in recent years.

• The changing composition of Bahrain’s exports.

This publication was issued in July 2010

Executive Summary. ................................................................................................ 1

1. Bahrain’s economic performance in the global crisis ............................................................ 4

2. Bahrain’s strong decade......................................................................................................... 9

3. Bahrain’s changing industry structure ................................................................................. 11

4. Challenges in the new decade............................................................................................. 12

2. Measuring Bahrain’s progress.............................................................................................. 19

4. Export performance and export structure............................................................................. 26

5. Micro, small and medium enterprises in the Bahrain economy............................................ 29

6. Real estate downturn............................................................................................................ 33

7. Performance of the finance sector ....................................................................................... 36

8. Tourism sector performance . .............................................................................................. 38

9. Additional indigenous oil – from Bahrain field . ................................................................... 41

1. Bahrain’s economic performance in the global crisis

Global recovery takes hold

Real, YoY GDP Growth

Regional economy through 2009

development was weak as lending became

Source: British Petroleum

In Bahrain, monetary policy settings became

cuts in Bahrain were largely in line with US 6

Federal Reserve settings. The policy change 5

Fiscal policy also switched to a more -1,000

expansionary stance, with the national Budget Balance Total Expenditure

to increased public spending, as private

Bahrain GDP expanded by 3.1% (year

by 9.7%. The finance sector declined by

(wholesale) banking, however, contracted

In preliminary forecasts by the Central Bank

Despite a fall in assets, the net international

a larger decrease in foreign liabilities.

Source: CBB Source: CBB

Bahrain economy to pick up through 2010

Looked at from the spending side, the EDB

rate and higher oil prices. As the aluminium -5

moderate, reflecting the impact of slower -25

imported oil by higher local production. Hotels & Restaurants

2008 2009 2010 2011 2012 2013 2014 2015

GDP 4,734 4,881 5,081 5,320 5,612 5,955 6,360 6,817

Growth 6.3% 3.1% 4.0% 4.7% 5.5% 6.1% 6.8% 7.2%

GDP 8,235 7,744 8,380 9,063 9,586 10,240 11,011 11,865

Growth 18.6% -5.97% 8.96% 8.2% 5.8% 6.8% 7.5% 7.8%

2. Bahrain’s strong decade

These reforms built on earlier foundations,

openness to the global economy and 40

manufacturing and logistics.

As the economy became more open, both

While there is substantial room for

and each requires high levels of education,

Furthermore, the structure of the industry will

imports into the Kingdom.

4. Challenges in the new decade

Strengthened by a successful decade of economic performance, Bahrain is well equipped to meet

This underlying deterioration meant that the

Non-oil Surplus New demographic assessments prepared

would be indicated by an increase in capital

in output. As the business investment boom

large increase permitted a rapid expansion 5

Bahrain economy to pick up through 2010

Bahrain’s Changing Demography

GDP per Capita and GNDI per Capita

alternative indicators for measuring Bahrain’s Progress

Through-the-year employment in 2009

Employment by sector, gender and citizenship in 2009 compared to 2008

• Broken down by citizenship, Bahraini employment declined by 13% whereas non-Bahraini

• Overall finance employment rose by 6% in 2009 compared to 2008.

• Broken down by citizenship, Bahraini employment grew by 3% whereas non-Bahraini

• Overall trade employment rose by 2% in 2009 compared to 2008.

• Broken down by citizenship, Bahraini employment declined by 7% whereas non-Bahraini

Broken down by citizenship in the private sector (2002-2009)

• Broken down by citizenship, Bahraini employment grew by 18% whereas non-Bahraini

• Over the past 8 years overall Finance employment grew by 76%.

• Broken down by citizenship, Bahraini employment grew by 71% whereas non-Bahraini

• Over the past 8 years overall trade employment grew by 218%.

• Broken down by citizenship, Bahraini employment grew by 130% whereas non-Bahraini

hanges in the Growth of

0 xports by sector: constant

Oil exports (2000-2009)

Definition of Micro, Small and Medium enterprises

icro, Small and Medium