Doing Business With Bahrain (Global Market Briefings) (2005) by Marat Terterov, Anthony Shoult

GLOBAL MARKET BRIEFINGS
Doing Business with
A Guide to Investment Opportunities

and Business Practice
SECOND EDITION
Series editor:
Anthony Shoult
Consultant editor:
Dr Marat Terterov
Associate publisher:
Jonathan Wallace
Published in association with:

Economic Development Board, Bahrain
Big On Group
UK Trade & Investment
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GMB
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This edition first published 2005 by GMB Publishing Ltd.
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Hardcopy ISBN 1-905050-02-X E-book ISBN 1905050526
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Contents
Foreword xvii
HE Abdulla Bin Hassan Saif
Minister of Finance and National Economy and Acting Chief
Executive Officer, Economic Development Board
Foreword xix
Mr Esam Janahi, Chairman
Bahrain Financial Holding Company BSC (c)
List of Contributors xxi
Part One: Country Background
1.1 Geography and History 3

Economic Development Board
1.2 The Political System 6
1.3 Bahrain’s Economy 11
Denzil Pereira, Senior Economist, Arab Bank plc (OBU), Bahrain
1.4 Foreign Trade 21
Ministry of Commerce and Industry, Kingdom of Bahrain
1.5 The Bahrain–US Free Trade Agreement 30
Ministry of Finance and National Economy, Kingdom of Bahrain
Part Two: The Investment Climate
2.1 Current Strategies in Attracting Investment and Fostering 41

Development
2.2 Investment Flows in Bahrain 48
Rima M Bhatia, Group Economist, Gulf International Bank,
B.S.C.
2.3 The Development of Corporate Governance in Bahrain 58
Dominic O’Neil and Roly Denman, Trowers & Hamlins
Law Firm, Bahrain
Contents
2.4 Living and Working in Bahrain 64

Leon Fabrikanov, Ecka Granules GmbH & Co
2.5 Market Research in Bahrain 69
Aldrin Stephen Luiz, Research Director, InCite Marketing
Research WLL
Part Three: Bahrain: The Regional Financial Hub
3.1 Bahrain: The Financial Capital of the Middle East 77

Bahrain Monetary Agency
3.2 The Regulatory Framework for the Financial System 84
Law Firm, Bahrain
3.3 Bahrain as an International Centre for Islamic Banking 93
Farah Khalid, Supervising Consultant, Islamic Financial
Services Group, Ernst & Young, Bahrain
3.4 Retail Banking in Bahrain: An Overview 103
Elham Al-Koohiji, Project Manager, Research & Development,
Business Development Division, Bank of Bahrain & Kuwait
3.5 Bahrain Financial Harbour: Reinforcing Bahrain’s Position
as the Financial Capital of the Middle East
Bahrain Financial Harbour 109
3.6 Company Profile: Gulf Finance House 116
3.7 Company Profile: Stratum 120
Part Four: Prospective Sectors for Investment
Natural Resources
4.1 The Oil and Gas Sector 127
Mohammed Al Sayyad, Director, Economic Research,
Ministry of Oil, Kingdom of Bahrain
4.2 Bahrain’s Electricity Sector 135
Ministry of Electricity and Water, Planning and Studies
Directorate, Kingdom of Bahrain
Manufacturing Sectors
4.3 Bahrain’s Aluminium Industry 138
Taimour Raouf, Senior Public Relations Officer, Aluminium
Bahrain
4.4 Company Profile: Midal Cables 147
4.5 Company Profile: Bahrain Atomisers International BSC 152
Services
4.6 Bahrain’s Telecommunications Sector 158
Bahrain’s Telecommunications Regulatory Authority (TRA)
4.7 Bahrain’s Telecommunications Sector: The Regulatory 164
Framework
Bahrain’s Telecommunications Regulatory Authority (TRA)
Contents
4.8 Tourism Development 170

Department of Tourism, Ministry of Information,
Kingdom of Bahrain
4.9 The Residential Property Market 179
Susan Neal, Cluttons, Bahrain
4.10 The Commercial Property Market 184
Andy Hinson, Cluttons, Bahrain
4.11 The Insurance Environment 189
Richard Morrison MA ACII, Country Manager, Bahrain,
Norwich Union Middle East
4.12 Company Profile: The Bahrain International Circuit 198
Part Five: Bahrain Business Guide
5.1 The Legal Regime and Regulatory Environment for 205

International Business
Law Firm, Bahrain
5.2 Business Structures and Company Incorporation 214
Hugh Stokes, AlMahmood & Zu’bi, Attorneys and
Legal Consultants, Bahrain
5.3 Accounting, Auditing and Taxation in Bahrain 222
Doug Tait, KPMG
5.4 Employment Law and Work Permits for Foreigners 230
Hugh Stokes, AlMahmood & Zu’bi, Attorneys and Legal
Consultants, Bahrain
5.5 Commercial Agency Agreements 235
5.6 Legal Regulation of the Ownership of Land and Real Estate 240
Law Firm, Bahrain
5.7 The Legal Environment and Settlement of Disputes 242
5.8 Forms of Intellectual Property and their Registration 246
Mazin M Ajawi, Intellectual Property Manager, Abu-Ghazaleh
Intellectual Property, TMP Agents, Bahrain
Part Six: Appendices
Appendix I: Transport Infrastructure 255

Appendix II: Contributor Contact Details 261
Index 269
Index of advertisers and sponsors 279
Ahli United Bank: A banking solution
for the Gulf and beyond
Ahli United Bank BSC (AUB) is a fully-fledged commercial and
investment banking group, providing wealth management,
retail, corporate, treasury, offshore and private banking
services through wholly-owned subsidiaries in Bahrain and the
UK, and in Kuwait, through the Bank of Kuwait and the Middle
East, in which it has a 48 per cent stake.
AUB was formed following the merger of United Bank of
Kuwait Plc and Al-Ahli Commercial Bank in 2000. Based in
Bahrain, AUB has strengthened its position in the regional
markets and its strategic prospects by expanding its base of
experienced staff, capital and technical resources. Today, AUB
is able to offer a comprehensive range of services to a wider
customer base in the Gulf and beyond, and benefits from diver-
sified sources of risk income and business flows with Gulf
counterparts.
AUB’s stated mission is to create an unrivalled ability to
meet customer needs, provide fulfilment and development for
staff and to deliver outstanding shareholder value. AUB’s
strategy is to expand through both organic growth and acqui-
sition, in order to act as a ‘multifaceted financial bridge’
between the international financial markets and its Gulf
clients. To this end, AUB continues to develop and invest to
increase its ability to acquire new businesses and rapidly inte-
grate them with the bank’s systems. This has helped accelerate
progress in the delivery of financial services and penetration
into targeted geographical markets.
The business area strategies are geared to achieve stable and
sustainable income growth, operational competitiveness, a
higher quality of service, maximum cost efficiencies and greater
risk assessment capabilities.
Clearly the bank’s strategic direction has yielded excellent
results. AUB has continued to show a solid increase in revenues
and assets, together with a substantial reduction in its cost-
income ratio over the past four years. Some of the highlights of
the bank’s performance have been:
• net profit has grown from US$40 million in 2000 to US$87
million in 2003;
• total assets have grown from US$3.51 billion in 2000 to
US$6.27 billion in 2003;
• cost-income ratio has come down from 50.2 per cent in
2000 to 39.4 per cent in 2003.
In 2003, AUB registered strong financial progress, with net
profit growing by 46 per cent and total assets growing by
22 per cent year on year. This growth was underpinned with
very solid capital adequacy and liquidity ratios. The cost-to-
income ratio also improved due to enhanced revenues and
continued rationalization of non-essential expenditure.
Solid performance across all the bank’s activities have
contributed to this result and reflect the progress made in
developing business lines, despite the competitive market
environment.
2003, was also marked by an increasing external recog-
nition of AUB’s financial performance and risk profile, AUB
received a long-term investment grade rating of BBB+
(stable) from Fitch. The bank was also selected Bank of the
Year for Bahrain by The Banker in 2003 and 2004. It is also
interesting to note that AUB’s shares are currently the most
actively traded stock on the Bahrain Stock Exchange and one
of the largest in terms of market capitalization.
AUB also has a 40 per cent share in Ahli Bank QSC
(formerly known as Al-Ahli Bank of Qatar QSC), a
commercial bank in Qatar with the second largest capital
base, post 100 per cent participation by AUB in its capital
increase.
AUB has also entered into a joint venture with Bank Melli
Iran and Bank Saderat Iran, and formed Future Bank BSC (c),
a joint venture commercial bank in the Kingdom of Bahrain,
with an equal one-third shareholding.
Going forward, AUB will continue to pursue new growth
opportunities while remaining focused on strict cost and risk
management, thereby maximizing shareholder value.
The Arab Bank Group
The Arab Bank Group is one of the principal financial institutions in the
Arab world and ranks among the leading international banks in terms of
equity, earnings and assets. Established in 1930 in Jerusalem, Arab Bank’s
general management was subsequently moved to Amman in 1948 and was
later reincorporated in Jordan as a public shareholding company.
The Arab Bank Group has a diversified network of over 400 branches,
subsidiaries, affiliates, representative offices and sister institutions
worldwide. It is engaged in providing a wide variety of financial services to
individual, corporate and institutional customers and government agencies.
These services include corporate, institutional, private and retail banking.
Arab Bank takes pride in its professional and experienced global team,
which is committed to further solidifying the future success of the bank.
Ongoing efforts continue to be made in providing premium quality services,
increasing operational effectiveness, fortifying the strategic position, and
further building on the bank’s 75 years of outstanding achievements.
A worldwide network
Arab Bank has maintained a policy of steady geographic expansion from its
earliest days. In our first decades we concentrated on establishing a solid
branch network throughout the Arab world, moving steadily from Palestine
into Jordan, Syria, Lebanon, Egypt and Iraq. In the 1970s the rapidly
expanding oil economies of the Gulf were a major focus.
From 1960 onwards we began to take our services out to Arab indi-
viduals and communities around the world. We were the first Arab financial
institution to establish a presence in Switzerland with the opening of Arab
Bank (Overseas) in Zurich in 1962 and Geneva in 1964. These, plus other
European branches in the United Kingdom, France, Italy, Greece, Cyprus
and sister companies in Austria and Germany, have subsequently been
joined by our branches in the United States and our wholly-owned
subsidiary in Australia.
The opening of our representative offices in China and most recently in
Kazakhstan in addition to our branch in Singapore are a recognition of the
growing importance of economic ties between Asia and the Arab world.
Today we have a presence in every Arab country in which private sector
banking services are permitted – a global network of more than 400
branches and offices on five continents – and we are still growing.
Arab Bank Bahrain

Arab Bank Bahrain established its commercial operations in Bahrain in the
late 1950s, and since then it has been providing all commercial services to its
clients in Bahrain. Furthermore, Arab Bank established its Offshore
Banking Unit in 1975 to participate in the mega projects outside Bahrain.
Today this Unit has a specialized team working in its Corporate and Project
Finance, Financial Institution, Sovereign and Islamic Banking and Treasury
sectors. This Unit covers, in addition to GCC countries, subcontinent coun-
tries, CIS countries, Iran, Turkey, South Africa and Central Europe.
Spreading the Seeds of Growth
In 1930, when Arab Bank was established in Jerusalem, our capital was
15 thousand Palestinian Pounds. Today, we have grown with an equity
AQUAMEDIA
of over US$ 3 billion and a network of 400 branches, subsidiaries and

affiliates spanning the globe. We are one of the largest financial
institutions in the Arab world, and we continue to grow in order to meet
the demands of our clients.
www.arabbank.com
Message from HE The Governor,
The Kingdom of Bahrain is the financial capital of the Middle
East, enjoying a geographical and time-zone location mid-way
between the Asian and European markets. The economic and
financial environment, amongst the freest in the world and
first in the Middle East, is underpinned by a transparent
legal system. The currency is fully convertible and has been
pegged effectively to the US dollar since 1980. There is no
corporate or personal income tax and capital movement is
unrestricted. Intellectual property rights are recognized and
protected.
The Bahrain Monetary Agency (the central bank of the
Kingdom) is the single regulator for the whole financial
sector and oversees a clearly defined regulatory and super-
visory framework constructed to the highest international
standards.
BMA currently licenses over 360 banks, insurance
companies and other financial institutions incorporating
local, regional and international names. These institutions,
applying both conventional and Islamic principles, offer a
wide range of services.
The Kingdom of Bahrain is internationally regarded as the
regional banking and financial centre, as well as a global
leader in Islamic banking services. The consolidated balance
sheet of the banking sector alone is over US$100 billion. The
Bahrain Monetary Agency has gained international credi-
bility due to its rigorous supervisory and regulatory regime,
which is based on latest international standards of best
practice. Consequently Bahrain enjoys a long-standing,
worldwide reputation as a safe place in which to conduct
business.
Ahmed bin Mohammed Al Khalifa

Governor
Foreword
Long recognized as a regional pioneer in the fields of education,

healthcare and economic diversification, Bahrain is once again in the
process of reinventing itself to confront the new challenges posed by a
fast growing population and depleting natural resources.
Under the leadership of HM the King, Shaikh Hamad bin Isa
Al-Khalifa, and with the support of his government headed by
HH the Prime Minister, Shaikh Khalifa bin Salman Al-Khalifa,
HH the Crown Prince Shaikh Salman bin Hamad Al-Khalifa, and the
additional support of the people of Bahrain, the country has embarked
on an ambitious programme of political and economic reform.
In the last few years, Bahrain has witnessed far-reaching changes
that have altered its political reality, transforming it from a sheikhdom
to the Gulf ’s first constitutional monarchy. The nascent democracy has
had two immediate effects: it has led to the forging of a partnership
between Bahrain’s leadership and civil society, which has given rise to
an all-inclusive national dialogue; and it has set the stage for sweeping
economic reforms.
Today, Bahrain is putting in place the mechanisms and policies that
will allow the economy to realize its potential. Bahrain is pursuing a
comprehensive approach to development by focusing on two principal
objectives: first, strengthening the Bahraini labour force to constantly
improve its competitive position, and second, spurring the creation of
high value added private sector jobs. Achieving these objectives
requires reform in three key areas: labour, education and the economy.
What this translates into is reinforcement of a business envi-
ronment that is highly conducive to free enterprise, and an economy
equipped to compete regionally and globally through its highly-skilled,
highly-motivated human capital.
I thus invite you to be a part of this promising future that is
unfolding here in our country and explore the various opportunities
that Bahrain presents as gateway to the region.
HE Abdulla Bin Hassan Saif

Minister of Finance and National Economy
Acting Chief Executive Officer
Foreword
The Kingdom of Bahrain stands out in the Arab world as a pioneer of

economic, social and political reforms. Bahrain has laid out the path for
economic reforms much ahead of others in the GCC.
Credited with a high GDP growth rate, which Moody’s has forecast
to be in the range of 5–6 per cent in the medium term, the Kingdom has
been ranked as the freest economy in the Arab world by the UN report
on economic freedom, and in the Middle East and North Africa (MENA)
region by the US-based Heritage Foundation.
According to the provisional data by the Bahrain Ministry of
Finance and National Economy, GDP growth rate in 2003 was to the
tune of 6.8 per cent compared with 5.2 per cent in 2002. Bahrain has a
highly qualified workforce, ranked first in the Arab world in the UNDP
Human Development Index (2002).
The Kingdom is also the undisputed hub of the financial industry in
the Middle East. Thanks to its policies of fiscal prudence and trans-
parency in its policies, Bahrain continues to attract foreign, regional
and local financial institutions.
According to the Bahrain Monetary Agency (BMA), the region’s
single most well-known regulator, there are more than 360 financial
institutions in Bahrain. At the end of September 2003, the total asset
size of the consolidated balance sheet of the banking system in Bahrain
stood at US$94.8 billion, an increase of 28.1 per cent compared with
US$73.9 billion in 2002.
Oil still contributes a large share to Bahrain’s GDP, but the non-oil
sector is experiencing an accelerated pace of development. The
Kingdom, like many other countries in the GCC, is actively pursuing
economic diversification to reduce dependence on oil and the results
are increasingly being felt with the non-oil sector’s contribution to the
GDP on the rise.
The development of the non-oil sector also entails attracting inward
investments. Bahrain has an array of economic sectors that are ideal
investment avenues for potential investors. These include the financial
industry, manufacturing, tourism and a host of others. The government
Foreword
of Bahrain, in partnership with a dynamic private sector, is actively

engaged in creating investment avenues for investors from across the
world.
The Kingdom, the only country in the GCC that has a Free Trade
Agreement with the USA, offers a tax-free environment to investors.
Investors are permitted to own 100 per cent and there are no restric-
tions on the movement of capital.
In keeping with its status as the financial industry hub of the
Middle East, Bahrain is now developing the US$1.3 billion Bahrain
Financial Harbour (BFH), which will offer a vantage point for global
financial industry players keen on the region. BFH is envisaged as a
mixed-use development, offering opportunities to invest in the
financial sector, real estate, tourism, financial media-related indus-
tries and leisure.
The Kingdom of Bahrain offers world-class infrastructure, tech-
nology, education, healthcare and a cosmopolitan lifestyle. With a pro-
active government and a vibrant private sector, the Kingdom is the
ideal choice for investors.
Mr Esam Janahi
Chairman
Bahrain Financial Holding Company BSC (c)
Foreword
I am delighted to introduce this edition of Doing Business with

Bahrain, the latest in the Global Market Briefings line of UK Trade
and Investment endorsed publications on how best to approach
business in this market. I know that the previous version was well
received and am certain that this updated edition will prove just as
successful.
We have seen Bahrain’s reputation as a regional hub grow in recent
years. The Tourism, Financial Services and Healthcare sectors are
particular areas of current direct focus, while Bahrain’s traditional role
as a regional trading point, reinforced in modern times by the
Causeway linking it to other regional markets on the mainland,
remains strong.
Diversification in the market has paid off for Bahrain. Economic
growth is solid with over 6% seen in 2004. Work on large-scale
government projects picks up, and the signs look good for a further
increase in 2005. We are fortunate that many British companies have
been doing business with Bahrain for many years, ensuring a
continued high business profile here for the United Kingdom.
The recently opened Bahrain Investment Centre, a joint initiative
between the Ministry of Commerce and Bahrain’s Chamber of
Commerce and Industry, paves the way for a seamless introduction to
the business world for the new investor. This, and recent moves by the
Economic Development Board to attract investors and encourage
foreign business participation, are to be commended. The US/Bahrain
Free Trade Agreement (FTA), signed in 2004 is expected to generate
increased interest and activity in the market, as will the conclusion in
due course of an equivalent EU/GCC FTA.
Doing Business with Bahrain brings together in one handy
reference work a great deal of useful information for newcomers to the
market. A breakdown by sector industries, followed by practical advice
on living and working here, makes for a useful guide to this vibrant
and friendly Kingdom where exciting market opportunities are to be
found for those who look. Doing Business with Bahrain is undoubtedly
useful for newcomers to Bahrain’s market – but those of us who are
Foreword
already familiar with the local business environment will also find
something of interest.
I commend this useful publication to you and would encourage UK
companies to contact my trade and investment team who stand ready
to welcome you to our market. For further information on how we can
help you succeed in Bahrain, email the head of my trade team:
Rebecca.Eriksson@fco.gov.uk.
H.E. Robin Lamb
British Ambassador to the Kingdom of Bahrain

List of Contributors
AlMahmood & Zu’bi was established in 1971 by Mr Hatim S Zu’bi,

Barrister-at-Law, and specializes in banking, company and commercial
law and arbitration.
E Hugh Stokes of the law office AlMahmood & Zu’bi has practised
law in the Arabian Gulf for over 30 years. He received an MA from
Oxford University and is a Solicitor of the Supreme Court of England
and Wales.
Aluminium Bahrain (Alba) is a 526,000 tonnes per annum

aluminium smelter. As well as its reduction lines and cast houses, the
company has a dedicated carbon department and a 1500MW power
plant. A 450,000 tonnes per annum coke calcining plant is also in oper-
ation at the company’s marine terminal.
The company was officially opened in 1971 and its shareholders,
today, are the Government of Bahrain (77 per cent), SABIC Industrial
Investments (20 per cent) and Breton Investments (3 per cent).
The entire plant operates to the Environmental Management
System standard ISO 9001:2000 and the cast houses and marketing
functions are also operating to the ISO 9002 Quality Management
System.
Alba’s Line 5 Expansion, due for completion in 2005, will expand
Alba’s annual production by a further 307,000 tonnes per annum,
making it the largest smelter in the world outside of eastern Europe.
The US$1.7 billion expansion includes a new power station, carbon,
cast house and other facilities.
Abu-Ghazaleh Intellectual Property (AGIP) was established, as

TMP Agents, in 1972 in Kuwait. Since then it has devoted its efforts
to promoting the importance of IP protection throughout the Arab
countries.
AGIP can now not only boast being the largest IP firm in the region
with 18 offices in the Arab countries and a network of associates that
are the equal of any firm in the world, but also the fact that its advice
and encouragement to the governments of the region have frequently

played a significant role in the introduction of new laws.
Operating from our central headquarters in the Jordanian capital of
Amman, AGIP is dedicated to providing excellence in the quality of
services it renders, the quality of people it employs and the ethical and
professional approach it adopts.
As a member of Talal Abu-Ghazaleh Organization (TAGO), its
licensing department has access to a database made up of thousands of
clients across the Arab countries and around the world, providing it
with the capabilities to find the right partners for each licensing and
franchising venture.
To ensure services of the highest quality, AGIP’s 21 offices report to
its regional office in Amman, Jordan. In addition to monitoring the
administrative and technical work of the offices, the Regional Office
provides them with a full range of services including quality control,
training, technical know-how, consultations, financing and state-of-
the-art communication technology through its own servers. The
centralized accounting system at the Regional Office enables clients to
attend to financial matters easily and effectively through a single
contact.
In July 2005, Arab Bank will celebrate its 75th year of operation. The
bank has been, and will continue to be, a pillar of the Arab region’s
economies, safeguarding the mission for which Arab Bank was estab-
lished by its founder, the late Abdul Hameed Shoman, who aimed to
build a pioneering financial institution to serve all Arab countries and
to cover the most important financial centres in the world. In the 21st
century, Arab Bank will remain loyal to its mission and will continue to
distinguish itself by protecting its clients’ interests, meeting their
financial needs and helping them to reach their goals. In 2003, the
Arab Bank Group’s net income was US$227.7 million, its total assets
stood at US$24.5 billion and shareholders’ equity at US$2.9 billion.
The Bahrain Monetary Agency (the central bank of the Kingdom) is

the single regulator for the whole financial sector and oversees a
clearly defined regulatory and supervisory framework constructed to
the highest international standards.
BMA currently licenses over 360 banks, insurance companies and
other financial institutions incorporating local, regional and interna-
tional names. These institutions, applying both conventional and
Islamic principles, offer a wide range of services.
The Bank of Bahrain & Kuwait (BBK) is a Bahrain Stock

Exchange-listed shareholding company that was established in 1971.
The Bank began operations in 1972 with a capital of US$2.5 million.
Today, it has grown to become one of the largest commercial banks in

Bahrain, with a capital base of more than US$300 million and a strong
regional presence. In addition to 18 domestic branches, BBK also has a
branch in Kuwait, as well as two branches in the Republic of India and
a representative office in Dubai, United Arab Emirates. BBK provides
a full range of lending, deposit, and treasury and investment services
to various sectors of the domestic and regional markets, using state-of-
the-art technology. The Bank plays a major role in financing infras-
tructure and industrial projects in Bahrain and the Gulf, while also
carrying a wide array of products and services that cater to the needs of
individual borrowers, depositors and investors.
Elham Al-Koohiji is Project Manager in the Business
Development Division and has been with Bank of Bahrain and Kuwait
for three years.
Cluttons is a private partnership, which can trace its origins to 1765

when it was originally founded in the UK. Since opening its first
Middle East office in 1976, Cluttons has established itself as one of the
leading firms of property consultants operating in the region and now
has an office network with representation in Saudi Arabia, Bahrain,
Oman and the UAE. The total staff of nearly 50 includes 15 qualified
property consultants.
The firm specializes in providing valuation, management and
consultancy services on all forms of property ownership and actively
manages many of the region’s most prominent landmark projects,
representing members of ruling families, government organizations,
international and regional banks and leading merchant families. The
result of almost 30 years of experience, Cluttons has unrivalled expe-
rience and expertise in the region.
Cluttons provides specialist expertise and real estate services as
follows:
• property management, real estate asset advice and facilities
management;
• property valuation and investment appraisal;
• property marketing, leasing and brokerage;
• consultancy advice, market research and feasibility studies; and
• international property services.
For more information contact Donald Bradley or Richard Botham on
+973 17 227 667 or email to cluttons@batelco.com.bh.
The Economic Development Board (EDB) was established in April

2000 as the main agency responsible for the formulation of the
Kingdom of Bahrain’s economic development strategy and the facili-

tation of investment. Chaired by HH the Crown Prince Shaikh Salman
bin Hamad Al-Khalifa, Board membership comprises top representa-
tives from both the private and public sectors. The composition of the
Board was designed to ensure the integral participation of the private
sector in Bahrain’s economic development.
EDB works alongside the relevant ministries and private sector
organizations to ensure sustainable economic development and job
creation. EDB makes active efforts to initiate and optimize public–
private partnerships in order to identify the main areas in which
reforms and investment environment enhancements can be made to
facilitate private sector led economic growth.
The EDB’s main functions are as follows:
1. Developing six main economic clusters in line with the overall
economic vision of transforming Bahrain into a knowledge-based
economy:
– information and communications technology;
– education and training;
– healthcare services;
– business services;
– tourism;
– downstream industries.
The EDB works to enhance the capabilities, infrastructure and
policies that are directly related to these clusters, with the ultimate
goal of attracting investment in these areas and thereby
contributing to economic growth.
2. Recommending areas for investment environment enhancement
EDB examines and provides recommendations on key areas in the
business environment that enable direct investment. This consti-
tutes privatization and deregulation, streamlining government
procedures and providing investment facilitation incentives.
3. Recommending areas for infrastructure enhancements
In order to enable investment, EDB works to ensure that the hard
infrastructure required by investors is in place.
4. Promoting and marketing Bahrain
As the first point of contact for international investors wishing to
explore business opportunities in Bahrain, EDB uses several tools
through which it promotes Bahrain, regionally and internationally:
– overseas network of offices (currently in Hong Kong, Bangalore,
India and Tokyo, Japan);
– EDB’s overseas representative offices play a key role in spreading
awareness of Bahrain and providing local assistance to interested
investors. EDB’s active presence abroad is laying the foundation
for business development and expanding Bahrain’s reach to the
international business community. EDB also works closely with

Bahrain’s embassies across the world to promote Bahrain and its
available business opportunities;
– event participation, in Bahrain and abroad
In an effort to increase awareness of Bahrain and the unique
features of its open market economy amongst the international
investment community, EDB attends and hosts seminars, during
which it establishes contacts with interested parties and helps
them organize visits to Bahrain to further explore investment
opportunities;
– marketing collateral, including the EDB website that has
updated business news about Bahrain, and other promotional
publications.
5. Special projects
In addition to being responsible for the development of the clusters,
EDB is also involved in large scale macroeconomic projects. Current
examples of these include labour market reform, economic reform
and industrial policy. EDB acts as both a leader and enabler in such
projects, ensuring that the different stakeholders are integrated in
the process and that the outcomes are aligned with the overall
economic development policies.
EDB continues its efforts in these areas, while actively engaging
the Kingdom’s public and private sectors in its work. The ongoing
efforts have resulted in several key milestones for Bahrain’s
economy, including the privatization law, the ability of foreign
investors to own land, as well as strategic benefits such as several
well-established relationships with key specialized organizations
and high-level individuals in each of the countries in which EDB has
a local presence. Moreover, EDB plays an important role in strength-
ening and promoting international trade ties and agreements,
including the Free Trade Agreement with the US, and cooperation
programmess with several countries in Asia.
6. Investment facilitation
– First point of contact for investors: EDB serves as the first point
of contact to first-time investors who are interested in learning
about and investing in Bahrain.
– Network-building: EDB helps introduce the investor to Bahrain,
highlighting the services and facilities available. EDB also
initiates a network building process, introducing the investor to
members of both the private and public sectors.
– Information resources: EDB provides the investor with all the
necessary information to support the investment decision. This
includes, but is not restricted to, information about the
investment environment, including investment and commercial
laws, economic data, the commercial registration process, and the
government agencies within the framework of the national objectives

and priorities, notably social welfare, employment and growth.
The economic objectives have much to do with the diversification of
the economy away from oil. In particular, they include enhancing the
competitive advantage of Bahrain as a leading regional centre for
financial, banking and business services. The vision of MOFNE for the
coming decade involves building and expanding a knowledge-based
economy, with six clusters of activities being selected to lead the drive.
These clusters are Information Technology-based Services, Financial
Services, Business Services, Healthcare, Education & Training and
Tourism, while developing downstream industries to accelerate
economic growth.
In the context of fiscal policy, the Ministry’s vision seeks to balance
the budget over the medium term, while maintaining low levels of
external debt. In order to achieve this objective, the Ministry is in the
process of diversifying the revenue base through enhancing non-oil
revenues and increasing the role of the private sector in the economy.
Norwich Union Insurance opened its first office in the Gulf in 1950.
Today the company has a well-developed regional network of offices
covering Bahrain, Saudi Arabia, the UAE and Oman. A full range of
products and services for both corporate and individual clients are
available at each location, as well as the provision of risk management
services.
The Telecommunications Regulatory Authority (TRA) was

established by Legislative Decree No. 48 promulgating the
Telecommunications Law. The TRA is an independent body and its
duties and powers include, among other things, protecting the
interests of subscribers and users and promoting effective and fair
competition among existing and newly licensed operators. More infor-
mation regarding the TRA can be viewed at www.tra.org.bh.
Trowers & Hamlins is a City of London-based legal practice, which

provides broadly-based legal services to a wide range of clients
including banks and financial institutions, oil and petrochemical
companies, property companies and investors, governments and
government bodies, professional advisers and consultants, and accoun-
tancy firms.
InCite Marketing Research is a full service market research agency

with operations throughout the Arabian Peninsula. Established in
1994, the company has offices in Bahrain, Qatar and the United Arab
Emirates. With quantitative and qualitative research expertise, InCite
conducts studies among consumers, as well as business-to-business
and industrial levels.
Farah Khalid is a Supervising Consultant and a core team member of

the Islamic Financial Services Group, Ernst & Young, Bahrain.
She has over two years’ experience in Islamic finance. Her main work
with IFSG involves strategic advisory and structured finance. Prior to
joining Ernst & Young, she was working with an Islamic investment
bank in Pakistan and involved in advisory, structured finance and
capital markets. Prior thereto, Farah was an Investment Banking
Analyst with JP Morgan in New York, providing advisory services to
the Asset Management industry group.
KPMG is one of the world’s largest professional services firms, oper-

ating in over 825 cities in 157 countries, and is the global leader in
providing services to businesses around the world. KPMG’s strength is
its international network, made up of strong national practices,
combined with its emphasis on proving market-specific added service
to meet its clients’ needs in a rapidly changing business environment.
The Ministry of Electricity and Water (MEW) is a totally

government-owned utility, whose function it is to provide electricity
and water services to the Kingdom of Bahrain. The Ministry in its
present status was formed in 1995 from the former Ministry of Works,
Power and Water. The Ministry is divided into four Assistant
Undersecretariats, each headed by an Assistant Undersecretary, who
report directly to the Undersecretary for Electricity and Water. The
highest authority within the organization is the Minister of Electricity
and Water.
The Ministry currently has about 3,600 employees and services
more than 200,000 customers. It has seen rapid growth on the demand
for these two services over the past decade and currently has a number
of vital ongoing projects to ensure that the required infrastructure is in
place and that the demand for these two services is met in a timely
fashion.
The Ministry of Finance and National Economy (MOFNE) of the

Kingdom of Bahrain is charged with the dual responsibility of over-
seeing the development of the economy and managing the finances of
the Kingdom. To this effect, it formulates and implements the economic
policy of the country in close coordination with other ministries and
government agencies within the framework of the national objectives
and priorities, notably social welfare, employment and growth.
The economic objectives have much to do with the diversification of
the economy away from oil. In particular, they include enhancing the
competitive advantage of Bahrain as a leading regional centre for
financial, banking and business services. The vision of MOFNE for the
coming decade involves building and expanding a knowledge-based
economy, with six clusters of activities being selected to lead the drive.
These clusters are Information Technology-based Services, Financial
Services, Business Services, Healthcare, Education & Training and
Tourism, while developing downstream industries to accelerate
economic growth.
In the context of fiscal policy, the Ministry’s vision seeks to balance
the budget over the medium term, while maintaining low levels of
external debt. In order to achieve this objective, the Ministry is in the
process of diversifying the revenue base through enhancing non-oil
revenues and increasing the role of the private sector in the economy.
Norwich Union Insurance opened its first office in the Gulf in 1950.
Today the company has a well-developed regional network of offices
covering Bahrain, Saudi Arabia, the UAE and Oman. A full range of
products and services for both corporate and individual clients are
available at each location, as well as the provision of risk management
services.
The Telecommunications Regulatory Authority (TRA) was

established by Legislative Decree No. 48 promulgating the
Telecommunications Law. The TRA is an independent body and its
duties and powers include, among other things, protecting the
interests of subscribers and users and promoting effective and fair
competition among existing and newly licensed operators. More infor-
mation regarding the TRA can be viewed at www.tra.org.bh.
Trowers & Hamlins is a City of London-based legal practice, which

provides broadly-based legal services to a wide range of clients
including banks and financial institutions, oil and petrochemical
companies, property companies and investors, governments and
government bodies, professional advisers and consultants, and accoun-
tancy firms.
Part One
Country Background
1.1
Geography and History

Geography
The Kingdom of Bahrain is an archipelago of low-lying islands in the
Arabian Gulf, situated midway in the large bay that separates Qatar
from the east coast of Saudi Arabia. The islands’ total landmass is just
over 700 square kilometres. The largest island in the group is Bahrain
Island, measuring 50 kilometres in length and between 13 and
25 kilometres across. The island is low and flat, rising gradually to
form a plateau with an oval depression in its centre, out of which rises
the 400 foot Jebel al-Dukhan (mountain of smoke), the island’s
highest point. Other significant islands include Muharraq, Bahrain’s
historic capital and economic centre, Sitra and Hawar.
Population
Bahrain is the Arab world’s smallest country and its only island state,
with a population of a little under 0.7 million people, 60 per cent
of whom are Bahraini. The growth rate is high, averaging about
2.7 per cent annually. The population is a young one, with almost
44 per cent below the age of 25 years (2001 census).
History
Archeological evidence suggests that Bahrain has been inhabited for
at least the last 7,000 years. The first civilization appears to be a
Stone Age one, spanning the period from 5000–3200 BCE. This civi-
lization fashioned tools and weapons from flint. The climate was much
cooler and wetter than it is now, allowing the pre-Dilmun civilization
to depend on farming and animal husbandry. Pottery shards indicate
that trade with Mesopotamia (modern day Iraq) may have been
carried out.
4 Country Background
Located on the Mesopotamia–Indus Valley trade route, the island

soon became a watering stop for ships carrying goods between these
two shores. The trading vessels that frequented Dilmun’s shore
brought with them tin and copper, heralding in a new age known as
Formative Dilmun (3200–2200 BCE). Although initially no more than a
number of stone houses scattered along the shore, this civilization
grew to become a strategic trading post between Mesopotamia and the
Indus Valley, with well developed political, economic and social struc-
tures. In order to serve its trade network, which included Mahan
(modern day Oman), Mesopotamia, Ebla (northern Syria) and
Meluhha (Indus Valley), Dilmun developed shipbuilding and secured a
hold on the metal and sea trades.
By 2200 BCE, Dilmun had developed into a major city playing a
central role in trade along the Mesopotamia–Indus Valley route. Early
Dilmun, as the era is known to historians, lasted to around 600 BCE,
during which most of Bahrain’s ancient temples were built.
It was during the Middle Dilmun period (1600–1000 BCE) that the
Kassite Kings of Babylon took power. Before the coming of the
Kassites, Dilmun appears to have suffered an economic and social
decline. The mining of copper had stopped in Oman, and Cyprus had
replaced Dilmun as the main exporter of copper to Mesopotamia. The
Kassites repaired the city, rebuilt the temples and revitalized Dilmun
economically through a resumption of trade with Mesopotamia.
The Kassite domination of Dilmun ended in 1150 BCE when the
rulers of Syria and Elam waged war against the Kassite leadership in
Babylon. This coincided with the beginning of the Late Dilmun period
(1000–330 BCE), also known as the Iron Age. During this period,
Dilmun was an independent business community and economic centre.
Arabian tribes from the mainland appeared on the island. Dilmun, still
a prosperous merchant economy, was also well known for its artisans.
Iron was introduced, as was bronze. Evidence of domesticated camels
has also been found, which led to the development of desert trading
routes, particularly the incense routes from the south of Arabia to
Mesopotamia and the Mediterranean.
In 330 BCE, Alexander the Great defeated the Persians and brought
to an end the Persian Empire’s dominance of the region. Although
there is no evidence that the Greeks conquered Bahrain, Greek
influence was extremely strong on the island, to the extent that texts of
that period referred to Bahrain by its Greek name, Tylos. The Greeks
also built a large fortress on the northern shore of Bahrain between
100 and 200 BCE. Greek influence also pervaded Tylos’ architecture,
jewellery, burial traditions and its administrative practices.
In 629 AD, the king of Bahrain received a letter from the Prophet
Mohammed calling upon him and his people to embrace Islam, a call
that many of the people answered. Thus began a new era in Bahrain’s
Geography and History 5
development. Islam’s impact on the country’s social and cultural life was
evident in artifacts and texts of the period, as well as the architecture.
The country was still dependent on agriculture, fishing and the
pearl trade. By 1000 AD, Bahrain had developed extensive trade rela-
tions with China, as well as its traditional regional trade partners. In
addition to pearls, Bahrain was exporting date honey and breeding
horses for export to India. Bahrain had also developed a variety of
industries such as weaving, boat building and sail making, making it a
highly prosperous economy.
This attracted the attention of the Portuguese, who, in 1523, took
control over the islands and held them until 1602 when they were
ousted by the Persians, until they in turn ceded power to the Al-Khalifa
family in 1783. The Al-Khalifa family has ruled Bahrain ever since,
overseeing the development of Bahrain’s educational and healthcare
systems, the discovery of oil and the resultant economic growth, as well
as the diversification of the economy. Under the rule of HM the King
Shaikh Hamad bin Isa Al-Khalifa, Bahrain has also instituted an
ambitious political and economic reform programme to see the
Kingdom into the twenty-first century. (Please see also Chapter 1.2
‘The Political System’.)
1.2
The Political System

Introduction
The Kingdom of Bahrain is a sovereign, independent Arab State and
the first true democracy in the Gulf region. Islam is the official religion
and Islamic (Sharia) Law is one of the principle sources of legislation.
Its Constitution fully embraces the diversity of its population,
securing equal rights and freedoms for all the different groups that
constitute its rich social and cultural mix.
Over the years, Bahrain has been able to retain flexible structures
and innovative platforms for growth and expansion due to its
political maturity vis-à-vis the region, the development of which has
been reinforced by various political, economic and social changes on
global and regional levels.
Established political structures, such as Bahrain’s National Action
Charter and Constitution, have provided an environment conducive to
the development of the democratic process and have been instrumental
in further grounding stability.
A brief history
Bahrain has been ruled by the Al-Khalifa family since 1783, when
members of the Al-Khalifa family succeeded in deposing the Persians.
In 1861, Bahrain signed a treaty of perpetual peace and friendship
with Britain.
In 1971, Bahrain declared its independence and signed a new
treaty of friendship with Britain. His Highness Shaikh Isa bin
Salman Al-Khalifa became the first Emir of the newly independent
State and the Council of State became the first Cabinet, led by the
Emir’s brother, the Prime Minister, His Highness Shaikh Khalifa bin
Salman Al-Khalifa.
The Political System 7
The development of the democratic process

Bahrain’s second move towards democracy took place in 1992 when the
late Emir, His Highness Shaikh Isa bin Salman Al-Khalifa established
the Shura (Consultative) Council. The members of the Shura Council
were appointed by the Emir and included senior figures chosen from
among business, civic and political arenas competent to give advice on
matters of state and policy. This tentative move signalled the
beginning of the democratization process, but it would be another 10
years before a full-scale democratic shift was to take place.
Bahrain’s new system of government

Political liberalization started with the accession of His Highness
Shaikh Hamad bin Isa Al-Khalifa in 1999.
In 2001, an overwhelming majority of Bahrainis approved a new
and explicit social contract, the National Action Charter, which set out
the basic principles of society, economy, government, national security
and foreign relations.
Bahrain’s next step towards democracy followed shortly afterwards
with municipal elections in May 2002, when all Bahrainis above the
age of 21 exercised their right to vote. Bahrain, predominantly
urbanized and densely populated, had until then functioned under a
nominal municipal system that divided the country into 12 adminis-
trative areas with little autonomy. A new municipal law was promul-
gated that created a new decentralized municipal system, under which
the 12 administrative areas were consolidated into five autonomous
municipal areas. The law gave the municipalities administrative and
financial autonomy and clearly demarcated their responsibilities over
public spaces, roads, beaches and the environment. Municipal elections
were held that saw the election of 50 members to represent civil society
at a local level.
While the election of municipal councils is not unique to Bahrain
within the Gulf region, it indicated a move towards the branching out
of the political systems and the decentralization of authority.
In October 2002, Bahrain completed its metamorphosis into a
constitutional monarchy. As a constitutional monarchy, Bahrain’s
reigning monarch is His Majesty the King, Shaikh Hamad bin Isa Al-
Khalifa. The new bicameral government consists of a parliamentary
council of elected representatives, the Chamber of Deputies, as well as
an advisory Shura Council of appointed members. The two bodies work
in tandem, sharing legislative responsibilities.
Under the new political system, government is based on a distinct
separation of executive, legislative and judicial authorities.
Executive authority
Executive authority rests with the Council of Ministers headed by the
Prime Minister. The Council of Ministers is entrusted with overseeing
the interests of the country, the laying down and implementation of
general government policy, and the supervision of the course of
business in the government system.
Legislative authority
Legislative authority is vested in the National Assembly, Bahrain’s
bicameral parliament, made up of the Consultative Council and the
Chamber of Deputies. Each of the two houses is made up of 40
members.
The King or the Prime Minister presents bills to the Chamber of
Deputies. The Chamber of Deputies then refers the bills to the
Consultative Council. Each house has the right to amend or reject the
proposed legislation.
In addition, any member of either the Consultative Council or the
Chamber of Deputies has the right to propose a law. Fifteen members
of either chamber may propose a constitutional amendment. If the
chamber accepts the proposal, however, it is then referred to the
government, which formulates it as a draft amendment or law for
future deliberation.
The Chamber of Deputies may submit its requests to the
government regarding public matters. If the government is unable to
meet these requests, it must give its reasons in writing to the Chamber.
The Chamber may also at any time form commissions of inquiry.
Both houses have equal legislative powers. The two chambers meet
together if they disagree twice over any bill or if they disagree over
economic or financial legislation that is considered urgent by
government. The bill may then be passed by simple majority of the
members present and transmitted to the King for ratification and
promulgation.
Judiciary authority
The Constitution states that the judiciary in Bahrain is an inde-
pendent body whose function and organization are to be regulated by
law. The Supreme Judicial Council is responsible for all issues related
to the judiciary, including the nomination, training, promotion and
dismissal of judges.
The judiciary is made up of two branches: the Sharia Law Courts,
which have jurisdiction over family matters affecting Muslims only,
and the Civil Law Courts, with jurisdiction over civil, commercial and
The Political System 9
criminal matters, as well as family matters relating to non-Muslims.

An independent body, the Constitutional Court, is empowered to
review the constitutionality of all laws.
The Sharia Law Courts are made up of two tiers: the Senior Sharia
Court and the High Sharia Court of Appeal, which rule on all matters
related to the personal status of Bahraini and non-Bahraini Muslims.
This includes all matters relating to inheritance, gifts, wills and chari-
table donations (waqf).
Civil Law Courts in Bahrain are made up of three tiers: the Lower
Court and the Senior Court preside over civil, commercial and criminal
cases, as well as family matters related to non-Muslims. In addition,
the Lower Court is also responsible for the execution of judgements.
While Senior Court cases are appealed before the High Court of
Appeal, Lower Court cases are appealed before the Senior Court. In
1989, the Supreme Court of Appeal (Court of Cassation) was estab-
lished to serve as a final court of appeal for all civil, commercial and
criminal matters of all courts.
The official language of the courts is Arabic. The Ministry of Justice
does make English and other translators available.
Bahrain in the international arena

Bahrain’s political reform was watched with great interest both
regionally and internationally. Bahrain has fared well under interna-
tional scrutiny and has set the standard for political reform in the
region.
In 1981, Bahrain became a founding member of the Gulf
Cooperation Council, or the GCC, as it is known within the region.
Other members include the Kingdom of Saudi Arabia, Kuwait, the
United Arab Emirates (UAE), Oman and Qatar.
The GCC has provided the Kingdom of Bahrain and the rest of the
member states with a new platform for a unique regional mentality of
cooperation regarding the exchange of information, research, political
and economic strategic thinking and the flow of trade. All efforts in the
GCC have assisted in the development of common regional laws and
practices.
The political implication of the GCC and its evolution into a part-
nership held together by formal agreements resulted in Bahrain
receiving crucial assistance and backing during its dispute with Qatar
over the Hawar Islands in the 1980s and 1990s.
Furthermore, Bahrain plays a lead role politically as the first
democracy in the Gulf and as such, is looked upon as a model for the
democratization of its neighbours.
Bahrain is also a member of the Arab League.
On an international front, the Kingdom of Bahrain has maintained

strong relationships with the countries of the EU and the US. It is the
host of the US fifth fleet and has been a major US non-NATO ally since
2001. Bahrain is also the signatory of 30 bilateral agreements on trade
and investment, including a free trade agreement with the US, and is a
founding member of the WTO.
The Kingdom of Bahrain has evolved in the last few years into an
open political system formalizing its respect for civil liberties. With its
recent political reforms, Bahrain has ensured a system whereby civil
society and government are partners in its future development.
1.3
Bahrain’s Economy
Denzil Pereira, Senior Economist,
Arab Bank plc (OBU), Bahrain
Introduction
Bahrain’s open and well-diversified economy is the result of an
acknowledgement, at an early stage in its development, that economic
progress could not be supported by its limited oil and gas resources.
Consequently, the government has an ongoing commitment to
implement macroeconomic, investment and monetary policies that will
diversify the economy, provide employment opportunities for its
indigenous population and improve the quality of life in the country. As
far back as the late 1960s and 1970s, the results of its efforts were
evident in such world-class industries as that of the Aluminium
Bahrain Company (Alba), a broad range of other heavy and light
manufacturing industry, the development of the country as a regional
hub for several service-oriented companies and the regional and inter-
national importance of the country’s offshore banking centre.
Following a period of relative consolidation in the 1980s and 1990s,
the beginning of the new millennium has seen another wave of
economic initiatives in Bahrain that has coincided with the political
reforms introduced by King Hamad. The number of obstacles that were
overcome, including a very tight construction deadline to stage the first
Formula One race in the region in April 2004, is a testimony of the confi-
dence that will underpin the success of this new major effort to meet the
country’s long-term challenges. Such challenges include the growing
regional competition to Bahrain’s well-established services and indus-
tries. These are being addressed directly with, for example, the Bahrain
Financial Harbour complex, the first phase of which will be completed
in 2006. It will be home to the Bahrain International Insurance Centre,
which is the project of the Bahrain Monetary Agency (the Kingdom’s
monetary and regulatory authority) to create a world-class insurance
market. Bahrain is pressing ahead with plans to privatize its power
generation and desalination sector, which as a first step, will include a
new privately-owned and constructed 400 MW capacity power plant

that will sell power to the Ministry of Electricity and Water. The
government is also actively supporting the development of new tourist
resorts by taking minority stakes in one or two of them as a gesture of
its confidence and support. Alba itself may become the world’s first
million tonnes per year aluminium smelter if it takes its expansion
plans another step further. These and other initiatives will serve the
country well in achieving its long-term plans and aspirations.
Economic structure
The transformation of Bahrain’s economic structure to its present state
occurred mainly during the period from the mid-1970s through to the
end of the 1980s. The broadening of the economic base that the
government sought to engineer by the introduction of new manufac-
turing and service industries has provided the underlying stability of
this structure in the past 15 years. The halving of the share of the oil and
gas sector in real gross domestic product (GDP) from over 35 per cent in
the 1970s has reflected not only the ascendancy of these new industries
but also, since 1970, the 50 per cent drop in oil production from the
country’s one onshore oilfield (which was discovered in 1932) to 38,000
barrels per day (b/d) currently. Crude oil output has, however, been
stable at this level in the past few years. In contrast to crude oil, natural
gas production has been rising steadily and has been fully utilized for oil
field injection, electricity generation, by Alba and in the domestic petro-
chemical industry.
The Kingdom has a more balanced structure of GDP (see Figure
1.3.1) than its fellow GCC members. The oil and gas sector accounted for
15.7 per cent of GDP in 2003. The proportion of agriculture and industry
(the latter including electricity and water and construction) was stable
at 19.1 per cent. Transport and communications and the category of
government, education, health and personal services had stronger rises
in their share of GDP; the former grew from 7.8 per cent of GDP in 1998
to 8.4 per cent in 2003, while the latter expanded to 13.6 per cent from
11.9 per cent. The shares of hotels and trade contracted to 14.9 per cent
in 2003 from 17.2 per cent of GDP in 1998, but that of financial, real
estate and business services rose to 28.3 per cent from 27.8 per cent.
The manufacturing sector, which contributed 11.9 per cent of GDP
in 2003, is dominated by the heavy industries such as aluminium,
refined oil products, petrochemicals and iron and steel. But light
manufacturing, including food, textile articles, paper goods etc, are
also important, not least because they are labour intensive. At
current prices, aluminium industries accounted for 33.7 per cent of
the manufacturing sector’s output in 2003, followed by oil-related
Bahrain’s Economy 13
100%
80%
60%
40%
20%
0%
1998 2003
Oil & Gas Agriculture & Industry

Hotels & Trade Transport & Comms.
Financial & Related Services Gov. & Other Services
Figure 1.3.1 Structure of GDP
activities with 31 per cent, metals made up 11 per cent and the share
of food industries was 6.3 per cent. The ascendancy of transport and
communications mainly reflects recent strong growth in communica-
tions, which, in nominal terms, accounts for close to 50 per cent of the
sector. While land transportation has seen steady expansion over the
years because of the Saudi–Bahrain causeway, which has facilitated
considerable cross-border trade and tourism, air transportation has
tended to fluctuate over time. The contribution of marine trans-
portation (the smallest category in this sector) has been stable
recently, but government transportation has declined.
The proportion of the financial sector (local commercial banks,
insurance and the offshore banks (OBUs)) in GDP recovered in 2003 to
over 19 per cent, following a couple of years where its share fell below
that of oil and gas. The OBUs and the insurance companies were
responsible for the decline of the sector, as their recovery following the
Asian and regional crisis in 1997–98 was soon followed by more
difficult operating conditions in the wake of the slowdown in the US
and Europe in 2001–02. Finally, it is noteworthy that the proportion of
government services (other than in education and health) in the GDP
structure has been falling since the 1980s. While this development has
partly been due to revenue considerations, it is also evidence of an
economic philosophy that shifts the provision of such services to the
private sector where feasible.
Economic policies
A market-oriented economic philosophy and revenue constraints have
made the country very receptive to domestic and foreign private
investment. The government has concerned itself primarily with the
task of providing the necessary infrastructure and a liberal business

environment to attract firms interested in regional transactions. It
has, moreover, shown itself willing to cut back on non-essential
government projects rather than risk stifling new business through
increasing tariffs and imposing other restrictions. In fact, in the last
couple of years, import duties have been slashed to provide for new
competition and investment initiatives. To provide for a smoother and
more orderly development process Bahrain has, since 1978, worked a
system of biennial budgets. With the government actively cooperating,
the new parliament is also providing oversight of public sector finances
and lack of transparency of such finances should become less of an
issue over time. The Bahrain government has also been forthright in
its support of GCC-wide economic initiatives, including taking steps to
achieve the goal of monetary union by 2010.
Monetary and regulatory policy has been conducted by the Bahrain
Monetary Agency (BMA) with the view of maintaining the stability and
confidence in the economy, the Bahraini dinar and the country as a
regional financial centre. The Bahraini dinar is pegged to the US dollar
at the rate of BD0.377 = US$1. Bahrain as a centre for the Islamic
banking industry is being actively promoted through the BMA and by
participants who see the strong regulatory environment as giving cred-
ibility to their activities in other jurisdictions. An earlier
announcement of a new law to regulate the financial industry and
change the BMA to the Central Bank of Bahrain was confirmed by the
government at the beginning of 2004 and will be debated by
parliament.
External trade and payments

Bahrain’s trade balance has been in surplus during most of the 1990s.
This has reflected an increase in the volume and export of refined oil
products and aluminium. In 1996, Saudi Arabia handed over its share
of the offshore Abu Safah oilfield, which was then directly marketed
by Bahrain. The sharp fall in oil and aluminium prices in 1998 was
mitigated by a drop in the value of imports, including Saudi Arabia’s
oil subvention. The gap in net services and income has traditionally
been moderate, but large outgoing private transfers from its expa-
triate population have often contributed to deficits on the current
account.
Table 1.3.1 Bahrain economic indicators
Population (2003): 0.69 million

GDP per capita (2003): US$13,987
1998 1999 2000 2001 2002 2003
Nominal GDP (US$ mn) 6,168 6,603 7,949 7,908 8,395 9,581
Real GDP (% change) 4.8 4.3 5.3 4.6 5.2 6.8
Broad money (M2) (% change) 16.8 4.1 10.2 9.2 10.3 6.3
Domestic credit (% change) 23.3 27.5 5.8 5.3 22.7 12.0
Consumer prices (% change) –0.2 –1.5 –0.7 0.2 1.3 1.5
Exports (US$ mn) 3,270 4,363 6,243 5,657 5,887 6,690
Imports (US$ mn) –3,299 –3,468 –4,394 –4,047 –4,697 –5,079
Trade balance (US$ mn) –29 895 1,849 1,610 1,190 1,611
Current account balance –778 –36 830 226 –513 –68
(US$ mn)
Foreign exchange reserves 1,079 1,369 1,564 1,684 1,726 1,778
(US$ mn)
Trade by Commodity in 2003 Non-oil Trade by Country in 2003

(% of total) (% of total)
Exports Imports Exports Imports
Animal and animal products – 2.6 Arab Countries 40.2 17.7
Vegetable products – 2.4 Saudi Arabia 23.5 9.1
Prepared foodstuffs, – 4.1 Asian Countries 34.3 33.2
beverages etc
Mineral products 74.7 42.3 Japan 3.3 12.6
Chemical and related 2.8 7.9 Taiwan 10.4 –
products
Plastic and rubber articles – 2.0 India 5.9 4.0
Wood pulp and paper – 1.2 European 6.4 30.3
Countries
Textiles and textile articles 4.3 4.0 Germany – 7.1
Articles of stone, cement – 1.8 UK – 5.6
etc
Base metals and related 13.7 4.9 The Americas 15.0 9.2
articles
Machinery and electrical – 11.8 USA 14.8 5.7
equipment
Transport equipment – 10.6 Oceanic – 9.0
Countries
Optical, photographic, – 0.9 Australia – 8.7
medical equipment
Others 4.5 3.4 Others 4.2 0.6
Total 100.0 100.0 Total 100.0 100.0
Sources: Bahrain Monetary Agency (BMA); Ministry of Finance and National Economy; IMF.
Recent economic developments

Real GDP and sector growth
By expenditure activity, real GDP growth (at market prices) picked up
to 5.2 per cent in 2002, following an expansion of 4.6 per cent in 2001.
This was more or less in line with the trend since the second half of the
1990s. The main impetus to growth in 2002 came from government
investment, which surged by a remarkable 70 per cent, and
government consumption, which grew by 3.2 per cent. Growth of
private consumption, which accounts for the largest share of expen-
diture activity, was weak while the sector’s capital spending rose by
3.3 per cent. The contribution of the external balance was markedly
negative, as strong domestic demand fuelled a 16.2 per cent increase in
import volumes as against 5.8 per cent in exports. Real GDP growth
accelerated by 6.8 per cent in 2003 as private sector capital spending
surged by 65 per cent, although much of this probably reflects
construction of the Formula One racetrack and Alba’s expansion.
Private consumption also recovered somewhat, but the net external
balance was again a restraint on GDP growth.
On the supply side, the main industries boosting real GDP growth (at
producers prices) were manufacturing (which expanded by 5.5 per cent,
although aluminium output declined), construction (up 11.7 per cent),
trade (11.5 per cent), transport and communications (8.8 per cent), real
estate and business activities (7.1 per cent) and education services
(22.4 per cent). The largest sectors of the economy performed
marginally: crude petroleum and natural gas rose by 1.3 per cent, while
financial institutions increased by 1.7 per cent. In the case of the former
14
12
10
0
1998 1999 2000 2001 2002 2003
GDP Non-oil GDP Oil & gas GDP
Figure 1.3.2 Volume changes in GDP (non-oil GDP and oil and gas
GDP)
sector, natural gas output grew by 1.1 per cent and that of crude oil by
0.7 per cent. With regard to financial institutions, there were, however,
some contrasting performances: commercial banks recorded a surge of
22.5 per cent, but offshore banks and the insurance sector contracted by
8.5 per cent.
In 2003, the main development was an impressive performance by all
categories of financial institutions, including the OBUs, which topped
35 per cent. Manufacturing growth slowed somewhat but aluminium
production recovered. Construction decelerated, although this was
surprising given developments in investment spending. Activity in
other sectors also moderated but overall the levels were firm.
Price trends
Consumer prices actually contracted slightly in the late 1990s and
earlier this decade, partly because prices of some essential consumer
goods as well as services provided by the government are subsidized.
Moreover, during this period the strength of the dollar (to which the
Bahraini dinar is tied) restrained the cost of imports. In the latter
instance, however, the strength of non-dollar currencies since 2002 has
been having an impact on the prices of some imported goods and
services, which was reflected in a pick-up in inflation of 1.3 per cent in
that year and by an estimated 1.5 per cent in 2003.
External payments
In 2002 the trade surplus narrowed again to US$1.2 billion (see Figure
1.3.3) but in contrast to the year earlier period (when the surplus
amounted to US$1.6 billion) this was the result of a decline in the value
of non-oil exports and higher imports. Aluminium prices, in particular,
fell by 7 per cent and, while oil prices were relatively stable compared
with the previous year’s level, increased shipments of crude and
refined products contributed to an overall increase in receipts. Import
values rose in 2002 because of the jump in local demand for machinery
and transport goods. A widening invisibles deficit, due to bigger gaps in
income, and transfers contributed to the current account sinking into a
deficit of US$513 million (6.1 per cent of GDP) as against a surplus of
US$227 million (2.9 per cent of GDP) in 2001.
In 2003, the trade surplus rebounded to US$1.6 billion because of an
18 per cent surge in crude oil and product exports (due to higher prices
rather than volumes) and a recovery in non-oil export receipts because
of better aluminium prices and shipments. Imports also picked up
reflecting continued solid domestic demand, as well as higher costs
related to the decline in the dollar. The invisibles gap was similar to the
previous year at US$1.7 billion, with the result that the current
account deficit contracted sharply to US$68 million (0.7 per cent of
GDP). Trade data in the first quarter of 2004 indicate a twofold

increase in the trade surplus, compared with the same period in 2003,
but this surprisingly reflects a drop in imports in 2004 rather than an
increase in exports. The latter, in fact, were the same as in 2003,
despite stronger oil and aluminium prices this year.
Foreign exchange reserves and assets

Bahrain’s published foreign exchange reserves increased to US$1.8 billion
in 2003 from US$1.7 billion in 2002; in February 2004 they amounted to
US$1.9 billion. Unlike some other GCC states, Bahrain is not thought to
have large undisclosed public sector foreign assets, although the non-bank
sector’s deposits with BIS banks totalled US$4 billion in March 2004.
Public finance
The government has recently embarked on a more expansionary fiscal
policy (reflected in both budgetary and non-budgetary spending) that
will give new impetus to its task of providing the infrastructure to
attract foreign investment while also financing non-budgetary initia-
tives such as the construction of the Formula One racetrack in
2003–04. Many transactions covering public sector finances, however,
are not known including support for Alba and Bapco. Of total revenues,
60–70 per cent are earned from oil (including the 70,000 b/d subvention
from Saudi Arabia from the joint Abu Safa offshore field, which has
been producing at a greater rate than its normal 140,000 b/d) and the
balance from equity interests and investment income, customs duties
and indirect taxes. The Abu Safa capacity expansion to 300,000 b/d will
presumably give Bahrain its half share of 150,000 b/d but it is not
known whether the Saudi subvention will also be included.
2 50
40
1.5
30
% change
1 20
US$ bn
10
0.5
0
-10
0
1998 1999 2000 2001 2002 2003 -20
-0.5 -30
Trade balance (US$) Foreign exchange reserves (US$)
Export growth (%) Import growth (%)
Figure 1.3.3 Trade balance, foreign exchange reserves and export

and import growth
A prudent move by the government was the setting aside as reserves

most of the budgetary surplus of US$1.1 billion in 2000 and 2001 as a
‘sovereign and strategic projects’ item to be utilized for projects in
2002–05. It is not known, however, whether the funds will be used in
budgetary or non-budgetary financing. Excluding this reserve item
from spending (it is included in official presentations) produces
surpluses in 2000 and 2001 of 8.7 per cent and 5 per cent of GDP
respectively. Although total revenues increased by 4.7 per cent in 2002,
with most of the increase coming from non-oil revenues, spending on
manpower and projects resulted in total expenditure climbing by
24 per cent. Despite the surge in expenditures the deficit was barely
0.1 per cent of GDP. Unlike in the previous two years, however, nothing
was set aside for sovereign and strategic projects (see Figure 1.3.4).
In the budgets for 2003 and 2004 announced in November 2002, the
total of expenditures of BD2.3 billion is close to 40 per cent over that
budgeted in 2001–02, but 25 per cent above the actual levels
(excluding, again, sovereign and strategic project spending) in those
years. The projected deficits are significantly higher than those in
earlier budgets, but revenues are based on an assumed oil price of
US$18 per barrel. This price was well exceeded in 2003 and will be
again in 2004. There is, therefore, less cause for concern than would
otherwise have been the case. Moreover the surpluses set aside in
2001–02 will also provide some comfort.
Financing the deficits, where these occur, and non-budgetary
spending should not pose a problem. The government has an estab-
lished debt programme, which includes medium- and long-term dinar-
denominated development bonds and short-term treasury bills of up to
one year. Since 2001, the BMA has also been issuing medium- and
short-term Islamic instruments in dollars. In addition, there is the
foreign currency borrowing of both sovereign (for example, in 2003
2
US$ bn
0
2000 2001 2002 2003b 2004b
-1
-2
Total Revenues Oil & Gas Receipts
Total Expenditures Fiscal Balance
b = estimate
Figure 1.3.4 Revenues expenditures and fiscal balance

there were the US$600 million Abu Safa loan facility and the US$500
million eurobond) and quasi-sovereign entities (for instance, Alba).
Monetary policy
Reflecting the peg to the dollar, the BMA’s monetary policy stance has
closely mirrored that of the US Federal Reserve Bank. Thus, interest
rate developments have been in line with those of the American
currency. By the end of 2003, the money market rate and treasury bill
rate had fallen from an average of 6.9 per cent and 6.6 per cent respec-
tively in 2000, to 1.4 per cent and 1.1 per cent. Domestic banks’
lending rates also declined from 11.3 per cent and 9 per cent for
personal and business loans respectively in 2000, to 7.9 per cent and
5.3 per cent at the end of 2003. In real terms interest costs to
borrowers were even lower, with inflation rising in this period.
Interest rates are now likely to increase, however, reflecting the
changing economic situation in the US.
Conclusion
Sound economic policies and a strategy that has shown itself willing to
adapt to changing regional and international circumstances have
enabled Bahrain to firmly establish itself as a major centre for services
and manufacturing that are not only regionally-oriented but also
global in scope. These attributes will continue to provide the basis for
Bahrain’s economic prosperity and the aspirations of its people for the
foreseeable future.
The views expressed in this article are those of the author and do not in any way
reflect those of Arab Bank plc. While every care has been taken in preparing this
article, Arab Bank plc and its officers have no liability whatsoever for the
accuracy of its contents or for the consequences of any reliance that may be
placed on it.
1.4
Foreign Trade
Ministry of Commerce and Industry,
Kingdom of Bahrain
Introduction
The Kingdom of Bahrain’s strategic geographic position makes it an
attractive hub for investment and trade in the Gulf and the Middle
East. Coupled with the Government of Bahrain’s encouraging and
positive vision for the future, it establishes the Kingdom as a stable
and attractive regional centre for foreign trade activities in diversified
areas such as sales, marketing, manufacturing and distribution of
goods and services.
The Kingdom, through its three branches (Executive, Legislative
and Judiciary), is committed towards improving the country’s infras-
tructure in order to support new investments and continued economic
growth, and is actively taking steps to further liberalize the trade and
investment climate in the Kingdom. In this context, the government’s
efforts with its diversification programme have obviously borne fruit.
Additionally, the strong growth in the performance of various sectors
across the board and the deepening of economic relations between the
Kingdom and other countries, serve to highlight the positive perfor-
mance of the Bahraini economy.
Due to its historical status as a regional trading centre, the Kingdom
of Bahrain is considered to be one of the major ‘Gateways to the Middle
East’, a business and financial nucleus. A number of multinational
corporations have recognized its importance as a foreign trade centre
by establishing their regional offices in the Kingdom – Citicorp,
American Express, Nomura Investment Banking, Arab Banking corpo-
ration, Investcorp, Arig, DHL, and Gulf International Bank, are just a
few examples.
Over the last few years, the Kingdom of Bahrain’s foreign trade
policy witnessed major developments that have led to a positive impact
on its economy. The affirmative steps taken by the Kingdom towards
the creation of healthier political and economic reforms, its role and
membership in the World Trade Organization (WTO), various Free

Trade Agreements (FTAs) whether on bilateral basis or with inte-
grated economic blocs through the Gulf Council Cooperation (GCC), its
new and updated trade and investment regulations, bilateral agree-
ments, and its progress towards the integration of its economic policies
in accordance with the GCC initiatives are a testimony to such a
positive impact.
The Ministry of Commerce’s new commercial laws, which have been
implemented by the Kingdom, have paved the way for a more open,
transparent and flexible commercial environment. Government
agencies have been working hard to push the government’s initiative
further to achieve excellence in all vital sectors on the domestic and
international fronts.
Furthermore, the Ministry of Commerce issued its new Electronic
Transaction Law and Certification Authority Regulations, recognizing
the importance of E-commerce as a business delivery channel, thus,
affirming the government’s dedication and ensuring Bahrain’s pre-
eminence in this field. Additionally, the government continuously
upgrades its commercial laws such as the Trade Law, E-Transaction
Law, Commercial Agency Law, Trade Mark Law, Patents and Utility
models laws, to ensure that its commercial and legal infrastructure
remains conducive to growth, and serves to maintain the legitimacy of
the island as an important business centre. As a result of such dedi-
cated endeavour, the Kingdom of Bahrain has emerged as one of the
most dynamic economies, and has created a welcoming business
climate that has served to encourage inward and foreign direct
investment.
The Kingdom of Bahrain’s foreign trade policy is based on economic
openness and integration into the global economy. The political and
economic reforms, which the country witnessed during the last few
years, have enhanced its role as a regional financial centre, and in such
a short time has managed both to strengthen its economic ties with
neighbouring countries and become a founding member of the WTO in
1995.
The Kingdom of Bahrain has also recently concluded negotiations of
an FTA with the US. In this context, the Kingdom of Bahrain has
become the first country in the Arab world to submit draft proposals to
the WTO on the opening of its trade in the services and other related
sectors. Therefore, its seriousness and its commitment towards the
global economy were appreciated by the WTO when the Kingdom
submitted its trade in services sectors proposals on 31 March 2003.
The initial offers submitted by the Kingdom of Bahrain were in line
with the recommendations of the fourth WTO ministerial meeting held
in Doha in 2002. The Kingdom remains committed to its obligations,
and has fulfilled all requirements under the WTO agreement in trade
Foreign Trade 23
in the services sector and other trade sectors and will continue to
participate in successive negotiating rounds.
In its 2003 Index of Economic Freedom, the US-based Heritage
Foundation and the Wall Street Journal, rated Bahrain as the freest
economy in the Gulf Region. The survey concluded that Bahrain’s
government is actively promoting foreign investment, and ranked
Bahrain 16th in the Index of Economic Freedom. The ranking puts the
Kingdom in line with countries such as Malaysia, Singapore and
Thailand, with structural capabilities to attract foreign direct invest-
ments (FDIs). In addition, Bahrain has been regularly mentioned as
one of the top ten freest economies in the world by various institutions.
One of the more far-reaching positive trade developments will be the
impact of the GCC Customs Union. As of January 2003, all goods and
services traded within the six members (Bahrain, Kuwait, Oman,
Qatar, Saudi Arabia and United Arab Emirates) will face no customs or
trade related restrictions. Given Bahrain’s sophisticated service
companies and its close ties with Saudi Arabia, this offers huge trade
and investment potential.
To date, Bahrain has signed an FTA, alongside the GCC members,
with Lebanon as well as Syria, and is presently negotiating an FTA
with the European Union (EU). It will commence negotiating similar
FTAs with other countries such as China, India, Morocco, and other
potential countries.
GCC member states are in the process of coordinating their trade
policies and relations with other economic blocs in order to create and
guarantee transparent and equal conditions for trade and investment
relations. Due to the fact that the GCC’s economic cooperation strategy
is considered as one of the major objectives of the GCC, the Council’s
goal is to move from cooperation and coordination to an advanced stage
of economic integration. In this regard, the GCC member states have
already made impressive progress to unify their economic policies,
such as signing various FTAs collectively, which will reinforce their
positions at the WTO negotiations and will provide for the economic
development of all members of the GCC.
All these positive developments will contribute toward escalating
the country’s export potential and toward attracting foreign invest-
ments. In this perspective, new projects in the Kingdom such as the
expansion of Aluminum Bahrain (Alba), (in February 2004, Alba
started the first phase of adding a fifth expansion line to increase
production by more than 300,000 tonnes per year, and when completed,
smelter capacity will increase to 830,000 tonnes per year), which would
make it the largest aluminum smelter in the world outside of Eastern
Europe, and will increase its contribution to the national economy to
over BD113 million, and in addition the creation of much needed
permanent jobs for locals.
Furthermore, the Bahrain Financial Harbour (BFH), (a US$1.3 billion

development, and a home to the financial services sector), will reinforce
Bahrain’s position as the international financial centre of the Middle East
by evolving a highly focused, committed and advanced financial envi-
ronment. Moreover, in 2003 the BFH project authority completed the
work on phase one development, which included US$250 million
Financial Centre and Bahrain International Insurance Centre (BIIC).
Finally, the Bahrain International Circuit (Formula One), is the
second most important sport after the World Cup in terms of spectators,
and Bahrain’s hosting of such an event, which commenced on 4 April
2004 had, and will have, a significant future impact on the Kingdom’s
economy – for instance, a definite increase in financial revenues from
tourism, an increase in FDIs, an increase in joint ventures firms, the
creation of jobs, an increase in advertising and promotion, an increase
in sponsorship deals, and an increase in technologies and manufac-
turing enterprises associated with car manufacturing.
All the abovementioned projects will provide a strong stimulus to
the economic growth of the Kingdom, serve as a key indicator of the
country’s vision, and will pave the way for new foreign investments,
transparency, continued economic growth and further liberalization of
the trade and investment climate in the Kingdom of Bahrain.
The economy, imports and exports

The improvement in non-oil sectors (see Figure 1.4.1), such as financial
corporations, manufacturing, transportation, communication,
government services, education and health services, had a major impact
on the economic growth rate in 2003, which increased by 6.8 per cent
compared with 2002 where the economic growth rate was 5.2 per cent.
The gross domestic product (GDP) at constant prices rose to
BD3,058.2 million in 2003, from BD2,864.3 million in 2002 (see Table
1.4.1). On the basis of prices at the time of writing, 2003 GDP rose by
13.7 per cent over 2002, from BD3,176.5 million to BD3,612 million
(see Figure 1.4.2). The growth was mainly due to the rise in world oil
prices and the performance improvement of the financial, commercial
and trade sectors.
Foreign Trade 25
Table 1.4.1 Main national accounts aggregates at current prices

(BD million)
1999 2000 2001 2002 2003*
GDP at Purchases’ Prices 2,489.27 2,996.93 2,981.24 3,176.45 3,611.98

Population 620,989.00 637,582.00 654,621.00 672,123.00 689,418.00
GDP per Head (BD) 4,008.56 4,700.46 4,554.15 4,725.99 5,239.18
Net Primary Income from –101.60 –84.10 –120.80 –197.30 –196.00
Abroad
Gross National Income 2,387.67 2,912.83 2,860.44 2,979.15 3,415.98
GNI per Head (BD) 3,844.95 4,568.55 4,369.61 4,432.45 4,954.88
Net Current Transfer from –308.10 –372.30 –475.30 –496.10 –503.80
Abroad
Gross National Disposable 2,079.57 2,540.53 2,385.14 2,483.05 2,912.18
Income (GNDI)
GNDI per Head (BD) 3,348.81 3,984.63 3,643.54 3,694.34 4,224.12
* provisional data
Source: Ministry of Finance and National Economy.
The value of exports of goods and services rose by BD303 million

or 11.7 per cent to BD2,883.3 million in 2003, from a 2002 level of
BD2,580.3 million, and this was due to the increase in the value of oil
exports, which improved from BD1,562.6 million in 2002 to
BD1,851.5 million in 2003.
The value of imports of goods and services registered an increase of 5.8
per cent to BD2,237.2 million in 2003, compared with BD2,114.2 million
in 2002. This rise is attributed to oil imports, which increased from
BD699.1 million in 2002 to BD848.7 million in 2003. Bahrain’s trade with
Imports Exports Re-export Trade balance Trade volume

2,500
2,000
1,500
BD, Millions
1,000
500
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
–500
–1,000
Years
Figure 1.4.1 Kingdom of Bahrain’s non-oil trade

4,000.00
3,500.00
3,000.00
2,500.00
2,000.00
1,500.00
1,000.00
500.00
0.00
1999 2000 2001 2002 2003*
* provisional data
Source: Ministry of Finance & National Economy.
Figure 1.4.2 GDP at purchase prices (BD million)
the world in 2003 was BD2.1 billion, a 4 per cent increase over the 2002
level of BD1.95 billion.
The Kingdom of Bahrain’s imports from the world in year 2003
registered BD1.3 billion, a 3 per cent increase over 2002 (see Table
1.4.2). Bahrain’s exports to the world in 2003 increased by 2 per cent
over 2002 to reach BD666.5 million (see Table 1.4.3). Re-export in 2003
was BD66.5 million, a massive 96 per cent increase over 2002 where it
was BD34 million.
Table 1.4.2 Kingdom of Bahrain imports (excluding oil imports)

(millions) 2003*
Rank Country Name BD % of Total
1 Japan 159.05 12.37

2 Saudi Arabia 119.97 9.33
3 Australia 106.83 8.31
4 Germany 92.34 7.18
5 USA 72.99 5.68
6 UK 71.32 5.55
7 China 69.40 5.40
8 UAE 61.50 4.78
9 India 52.17 4.06
10 France 44.92 3.49
Remaining 112 countries 435.23 33.85
TOTAL (in all 122 countries) 1285.72 100.00
*provisional data
Source: Central Information Organization
Foreign Trade 27
Table 1.4.3 Kingdom of Bahrain exports (excluding oil imports)

(millions) 2003*
Rank Country Name BD % of Total
1 Saudi Arabia 136.63 20.50

2 USA 105.39 15.81
3 Taiwan 74.91 11.24
4 India 41.64 6.25
5 UAE 35.01 5.25
6 Qatar 26.58 3.99
7 Japan 23.83 3.58
8 Malaysia 21.75 3.26
9 Iran 19.67 2.95
10 Kuwait 18.99 2.85
Remaining 80 Countries 162.19 24.33
TOTAL (In all 90 countries) 666.59 100.00
* provisional data
Trade relations
The Kingdom of Bahrain has trade relations with around 149 coun-
tries, and this varied trade portfolio is facilitated by the existence of an
efficient seaport and airport, as well as advanced telecommunications,
a strategic geographic position, and the King Fahad causeway.
These trade relations helped to develop economic relations with
other countries and to attract foreign investments. In this context, the
government of Bahrain has signed different types of bilateral agree-
ments with some 25 countries in the following areas:
1. Agreements on the promotion and protection of investment:
promoting and protecting investments of nationals and enterprises
of one contracting party in the territory of the other contracting
party by providing an appropriate legislative environment to stim-
ulate and increase investments, trade and industrial activity.
2. Agreements on the avoidance of double taxation and the prevention
of fiscal evasion with respect to taxes on income: eliminating the
double payment of taxes by nationals and enterprises of a
contracting state in the territory of others, and creating an appro-
priate economic environment to attract capital between the two
contracting parties.
3. Agreements on reciprocal exemption with respect to taxes on income
arising from the business of international air transport: establishing
a reciprocal exemption from taxes on income, profits and gains
derived from the operation of aircraft in international traffic and
from customs duties on equipments and materials imported by the

air transport enterprises of the two contracting parties.
4. Agreements on economic, trade and technical cooperation: devel-
oping economic, trade and technical cooperation in accordance with
the laws of each contracting party and creating appropriate condi-
tions to develop cooperation on the basis of reciprocal interests. This
allows the free inflow of goods, capital and services and the free
movement of individuals and investments between the two
contracting parties.
The Kingdom of Bahrain’s geographic location makes it an important
and attractive site for US firms intending to do business within the
neighboring Gulf countries. The US is Bahrain’s sixth largest trading
partner – the second in terms of exports, and the sixth in terms of
imports, while Bahrain is the 78th largest trading partner of the US.
The Kingdom of Bahrain’s major exports to the US include
aluminium, fertilizers, mineral fuels, organic chemicals, plastic, fish,
articles of apparel and clothing accessories; whereas, Bahrain’s major
imports from the US are aircraft, machinery, vehicles, fuels, oils, waxes,
medical equipment, pharmaceutical products, toys, sports equipment,
frozen poultry, garments and apparel items, electronic products,
construction equipment, tobacco, beverages, cosmetics and miscella-
neous food items (see Table 1.4.4).
Table 1.4.4 Kingdom of Bahrain imports (excluding oil imports)

from the US in (January–December 2003)
No. Product Section BD US$
1 Private cars, current, spark ignition, over 3000 cc 9,138,920 24,177,037

2 Cigarettes containing tobacco 5,368,392 14,202,095
3 Parts of the machines of heading 84.71 3,045,016 8,055,598
4 Cotton, not carded or combed 1,759,049 4,653,569
5 Private cars, current, spark ignition, 1500–3000 cc 1,627,491 4,305,532
6 Parts of boring or sinking machinery 1,553,144 4,108,847
7 Other medical equipment 986,591 2,610,029
8 Private cars, 4+ years, spark ignition, 1501–3000 cc 887,870 2,348,862
9 Parts for aircraft engines 879,742 2,327,360
10 Other medicaments put in forms or pickings for retail sale 853,744 2,258,582
TOTAL 26,099,959 69,047,511
* provisional data
Foreign Trade 29
The FTA between the Kingdom of Bahrain and the US aims to achieve
extensive liberalization across a wide spectrum of trade issues, both in
terms of goods and services. It will attract capital to the region, which
will help to boost Bahrain’s economy, and Bahrain would become the
point of entry for US companies looking to do business in the region.
Furthermore, US exporters would use Bahrain as a gateway to other
markets. Bahrain will also benefit from access to the world’s largest
economy, and economic opportunities will be created for businesses in
both countries.
Conclusion
In conclusion, the Kingdom of Bahrain’s foreign trade policy is based
on providing choices for investors in the most efficient and solid
business environment, and to be recognized worldwide for setting stan-
dards of excellence in creating these environments and to provide
value added business support for foreign investors in the Kingdom.
The investment climate in Bahrain is already very healthy but is antic-
ipated to become even stronger with the existence of FTAs and the
continuous development process of liberalization and stronger
economic and trade ties with other countries that will promote
economic growth and sustainable development and prosperity for
Bahrain.
1.5
The Bahrain–US Free

Trade Agreement
Ministry of Finance and National Economy,
Kingdom of Bahrain
Introduction
The Kingdom of Bahrain and the United States have a long-standing
economic partnership and a history of cooperation in support of
economic developments in the Kingdom. A regional pioneer in political,
economic, and social reform, the Kingdom of Bahrain has launched a
wide range of economic initiatives aimed at diversifying the economy
and stimulating growth and economic stability. Liberalization of trade
is complementary to the economic reform agenda espoused by the
Kingdom of Bahrain and applauded by the United States. Bahrain’s
economic prosperity can be best served by embracing open market
strategies, encouraging inward investment, and engaging in interna-
tional competition.
Aspiring to deepen the US–Bahrain economic partnership, improve
bilateral economic ties, and reduce barriers to the flow of investment,
the Kingdom of Bahrain and the United States signed a Bilateral
Investment Treaty (BIT) in 1999, which came into force in 2001. It is
the first such treaty signed between the United States and a member of
the GCC and is aimed at stimulating the flow of private capital
between the two countries.
The Bahrain–US BIT guarantees investors from both countries the
right to invest on terms no less favourable than those accorded to
domestic or third-country investors, in most sectors. It also guarantees
the free transfer of capital, profits and royalties, freedom from perfor-
mance requirements that distort trade and investment flows, access to
international arbitration, and internationally recognized standards for
expropriation and compensation. In addition, the Treaty obligations
ensure maximum transparency in investment.
The Bahrain–US Free Trade Agreement 31
In 2002, the two countries signed the bilateral Trade and

Investment Framework Agreement (TIFA). The TIFA was designed as
a forum for ongoing dialogue with the US Government on economic
reform and trade liberalization. It promotes the establishment of legal
protection for investors, improvements in intellectual property
protection, more transparent and efficient customs procedures, and
greater transparency in government and commercial regulations.
The Bahrain–US TIFA established the Bahrain–US Council on
Trade and Investment, comprising representatives from both countries
and co-chaired by the Ministry of Finance and National Economy and
the Office of the United States Trade Representative. The Council was
formed to establish a permanent bilateral dialogue with the goal of
expanding trade and investment relations. In the same year, the
Kingdom of Bahrain was named a Major Non-NATO US Ally.
Negotiating a Free Trade Agreement (FTA) with the United States
constitutes the next step towards the further strengthening of this
economic partnership and the creation of new areas of cooperation that
are of mutual benefit. The FTA serves the essential objectives of stimu-
lating economic growth, creating job opportunities, and promoting
transparency and reform.
The FTA provisions were carefully designed to liberalize trade in
goods and services, facilitate free market competition, stimulate
investment and expansion in key manufacturing and services sectors,
encourage the exchange of technology and expertise, and promote the
creation of employment opportunities in the local market.
The FTA will liberalize trade between the two countries and reduce
barriers to trade through the elimination of tariff and non-tariff
barriers and the attainment of National/Most Favoured Nation
Treatment. It will thus enable Bahraini consumers to acquire US goods
and services at reduced costs, and expand the market for Bahraini
goods and services by providing greater access to the US market – the
largest in the world.
Coupled with the Bilateral Investment Treaty, the FTA is struc-
tured to further stimulate the flow of investment into Bahrain. It reaf-
firms the commitments of the BIT and includes extensive
services-related provisions that provide American investors with
incentives and sector-specific benefits available to entrepreneurs
wishing to establish in Bahrain and provide their services to the local
and regional markets.
The Agreement facilitates the establishment of Bahrain as a
regional hub and service centre to the surrounding region. US service
providers will acquire the chance to service the greater Gulf and Arab
region by establishing a gateway in Bahrain, and in doing so, stimulate
economic activity in Bahrain and provide local job opportunities. Vice-
versa, producers and suppliers of neighbouring countries will have the
option of establishing ventures in Bahrain in order to gain access to US

markets. Moreover, the Agreement provides substantial market access
benefits for those wishing to supply services across the border, for
example by electronic means.
In addition to commitments directly related to trade in goods and
services, the Agreement covers a wide spectrum of issues that indi-
rectly affect the trade and investment regime and are of interest to
those conducting business in both countries. The FTA ensures that all
matters of trade and investment are regulated in a transparent,
objective, and predictable manner. Commitments related to the
protection of intellectual property rights, labour rights, and the envi-
ronment are integrated into the Agreement. Taken as a whole, the
Bahrain–US Free Trade Agreement provides for a state-of-the-art
business environment, and advances the highest standards for
conducting trade and investment.
The negotiation process

Bahrain and the United States first announced their intention to nego-
tiate a Free Trade Agreement on 21 May 2003. HH the Crown Prince
Shaikh Salman Bin Hamad Al-Khalifa and Ambassador Robert
Zoellick, United States Trade Representative, then discussed the
preparatory steps for the launch of the Free Trade Negotiations. On
4 August 2003, Ambassador Zoellick formally notified the United
States Congress of the Administration’s intent to initiate FTA negotia-
tions with Bahrain in January 2004.
The Government of Bahrain FTA Negotiating Team was led by HE
Abdulla Hassan Saif, Minister of Finance and National Economy, and
the US team was led by Ms Catherine Novelli, Assistant United
States Trade Representative for Europe and the Mediterranean.
Individual chapters of the Proposed Free Trade Agreement were
negotiated by specialists from the ministries and government
agencies concerned.
On 26 January 2004, the first round of Bahrain–US negotiations
was launched in Manama. The second round of negotiations took place
in Washington, DC on 1–5 March, with an interim round of technical
discussions taking place in London starting 19 April 2004. The negoti-
ation process was concluded on 28 May 2004.
The Bahrain–US Free Trade Agreement was signed on 14 September
2004 in Washington DC. HE Abdulla Hassan Saif, Minister of Finance
and National Economy, signed the Agreement on behalf of the Bahrain
Government, and United States Trade Representative Ambassaor
Robert Zoellick signed on behalf of the Government of the United
States. Upon signing, the Agreement passed through the constitutional
ratification mechanisms in both countries before entering into force by

decree of law.
Overview of the Agreement

The following is an overview of the major commitments of the
Agreement:
Market access for goods

• 96 per cent of Bahrain industrial and agricultural products will
receive immediate duty-free access to the US markets upon entry
into force of the Agreement.
• Tariffs on the remaining products, which are not currently produced
in Bahrain, will be phased out according to the following staging
categories:
– Category A: immediate duty-free access (96 per cent of industrial
and agricultural products);
– Category B: duties will be eliminated in 10 equal annual stages
(one per cent of industrial and agricultural products);
– Category C: goods that are already duty free and will continue to
receive duty-free treatment;
– Category D: duties will be eliminated in five equal annual stages
(three per cent of industrial and agricultural products).
• Bahrain will provide immediate duty-free access on all US indus-
trial and agricultural products, except 80 products for which the
duties will be phased out over 10 years.
Rules of origin
• The Agreement lays out specific rules of origin to ensure that only
Bahrain and US goods benefit from the preferential duty treatment
of the Agreement.
• Two types of goods produced in Bahrain will receive preferential
treatment:
– goods originating in Bahrain;
– goods that have undergone a substantial transformation with at
least 35 per cent value added.
Textiles and apparel

• Textiles and apparel products of both countries will receive imme-
diate duty-free access upon entry into force of the Agreement,
provided they meet the rules of origin requirement.
• The Agreement provides for a 10-year transition period, during

which up to 65 million square metres of Bahraini textiles and
apparel products that do not meet the rules of origin requirement
may be exported to the US duty free.
Customs procedures
• The Agreement includes commitments to ensure transparency and
efficiency in customs administration, including publication of laws
and regulations on the Internet and procedural certainty and
fairness.
• Both governments agree to share information to combat the illegal
transshipment of goods and implement special customs cooperation
measures to prevent fraud.
Technical Barriers to Trade (TBT) and Sanitary and

Phytosanitary Measures (SPS)
• The Agreement ensures that policies and regulations on food
labelling, biotechnology, and shelf-life standards are transparent,
science-based, and in accordance with international standards.
• It reaffirms Bahrain’s WTO commitment on TBT and SPS measures
and ensures that technical regulations, standards, and conformity
assessment procedures are not an impediment to trade.
Trade in services and cross-border services

• Service providers from each country will enjoy substantial market
access to the services market of the other country and will be
accorded National or Most-Favoured Nation Treatment.
• The Agreement uses the ‘negative list’ approach, meaning that all
sectors are covered unless specifically excluded.
• Key services sectors covered by the Agreement include telecommu-
nications, computer and related services, healthcare, education,
advertising, tourism, transportation, engineering, construction,
audiovisual, and express delivery services.
• The Agreement provides benefits for businesses wishing to supply
services cross-border (eg electronically), as well as businesses
wishing to establish local presence in the other party’s territory.
• All policies and measures affecting services trade are to be applied
in a fair, objective, and non-discriminatory manner.
Financial services
• The chapter covers traditional as well as Islamic financial services.
• Financial service providers from each country will enjoy access to
the other country’s financial services market and be accorded
National or Most Favoured Nation Treatment.
• The Agreement offers benefits for US financial institutions wishing
to supply services and establish ventures in Bahrain, holding the
promise for greater expansion in the financial services sector in
Bahrain, especially in emerging key service areas such as insurance
and Islamic Banking.
• The Agreement underscores both countries’ commitment to the
liberalization of the financial services markets and to legislative and
procedural transparency in the financial services sector.
Telecommunications
• The Agreement ensures that telecommunications service providers
of each country have reciprocal access to the telecommunications
market of the other country.
• Users of the telecommunications network will have reasonable and
non-discriminatory access to the network.
• Firms of each party seeking to build a physical network in the other
party’s territory will have non-discriminatory access to infras-
tructure and facilities.
• There are no restrictions in terms of technology.
Electronic commerce
• The Agreement promotes a liberalized, non-discriminatory trade
environment for E-commerce.
• Each government commits to non-discriminatory treatment of
digital products and agrees not to impose customs duties on digital
products.
• For digital products delivered on hard media (such as a DVD or CD),
customs duties will be based on the value of the media rather than
the content.
• The E-Commerce commitments will help develop Bahrain’s
E-commerce infrastructure and promote Bahrain as an E-commerce
leader in the region.
Government procurement
• Bahraini suppliers will be granted National Treatment and non-
discriminatory access to bid on contracts from various US central
government entities and government-owned enterprises, in excess
of agreed monetary thresholds. Similarly, US suppliers will have
access to bid on contracts from various Bahrain government
entities.
• The Agreement reinforces the transparency and predictability of
government procedures, such as advance public notice of purchases and
timely and transparent bid review procedures and decision-making.
Intellectual property rights

• The Agreement covers the most updated international standards for
copyrights, patents, and trademark-related commitments to lock-in
intellectual property protections and enforcement to deter counter-
feiting and piracy.
• It builds on the foundations established in the WTO Agreement on
Trade-Related Aspects of Intellectual Property (TRIPS Agreement)
and other international agreements, such as the World Intellectual
Property Organization (WIPO) Copyright Treaty, the WIPO
Performances and Phonograms Treaty, and the Patent Cooperation
Treaty.
• Commitments are included to strengthen Bahrain’s procedures to
enforce intellectual property rights’ protection, provide for compen-
sation of rights holders for infringements of intellectual property
rights, and provide for criminal penalties for violators of intellectual
property rights under Bahrain law.
Labour rights
• Each government reaffirms its obligations as a member of the
International Labour Organization (ILO), and commits to strive to
ensure that its laws provide for the highest labour standards. The
Agreement makes clear that it is inappropriate to weaken or reduce
domestic labour protections to encourage trade or investment.
• Each government is required to enforce its labour laws effectively,
and this obligation is enforceable through the Agreement’s dispute
settlement procedures. Procedural guarantees guarantee workers
and employers access to fair, equitable, and transparent labour
tribunals or courts.
• A Labour Cooperation Mechanism is established to promote higher
labour standards and to further advance common commitments,
including the principles embodied in the June 1998 Declaration on

Fundamental Principles and Rights at Work, and compliance with
ILO Convention 182 on the Worst Form of Child Labour.
Environmental protection
• Each government will be required to enforce effectively its environ-
mental laws. This obligation is enforceable through the Agreement’s
dispute settlement procedures.
• Each government commits to establishing high levels of environ-
mental protection, and not to weaken or reduce environmental laws
to attract trade or investment.
• The Agreement also promotes a comprehensive approach to environ-
mental protection. Procedural guarantees that ensure fair, equitable
and transparent proceedings for the administration and
enforcement of environmental laws are married with provisions
that promote voluntary, market-based mechanisms to protect the
environment.
• Parallel to the Agreement, a Memorandum of Understanding was
signed to establish a Joint Forum on Environmental Cooperation to
strengthen Bahrain’s capacity to protect the environment through
the promotion of sustainable development.
Legislative and procedural transparency

• The Agreement requires that trade-related laws and regulations are
published and that proposed regulations are published in advance
and open to public commentary, as far as possible.
• Each government is required to apply fair procedures in adminis-
trative proceedings covering trade and to ensure that traders from
the other country can obtain a prompt and fair review of final
administrative decisions affecting their interests.
• The Agreement requires each government’s commitment to prohibit
corrupt practices, such as bribery, to enforce such prohibitions, to
enforce penalties for violators, and to adopt or maintain measures
protecting whistle-blowers.
Technical assistance
Parallel to the Agreement, the US has committed to providing tech-
nical assistance to the Kingdom of Bahrain in order to facilitate the
implementation and effective administration of its FTA commitments.
The two parties agreed that technical assistance is to take various

forms and will start on a needs-based timescale. FTA-related technical
assistance includes funding an FTA-related impact assessment and
business development study; assistance in the implementation of
internet-based systems of law publication, advance notice, and public
commentary; training of personnel and officials; assistance in the
development of policy manuals and electronic systems; and various
forms of assistance related to the protection of the environment and
labour rights.
Enforcement of the Agreement

The Agreement emphasizes compliance through consultation and
trade-enhancing remedies. It provides for mechanisms of state-to-state
consultations and dispute settlement procedures to address any
potential sources of conflict or disputes that may arise in the course of
implementing the Agreement. A joint committee shall be established to
oversee the implementation of the Agreement. This committee will
meet annually or as otherwise agreed by the parties to review the
progress in implementation of the FTA commitments and review trade
relations between the two parties.
The Agreement also emphasizes transparency and openness in
implementing its provisions, including considering the views of inter-
ested parties and other members of the public. The Agreement requires
that efficient and transparent dispute panel procedures be established
(or maintained), including open hearings, public release of legal
submissions by governments, and mechanisms for interested third-
parties to provide their input. Finally, all investment-related disputes
will be handled in accordance with the procedures set out in the
Bilateral Investment Treaty.
Part Two
The Investment Climate
2.1
Current Strategies in
Attracting Investment
and Fostering
Development
With his accession to power as Emir in March 1999, Sheikh Hamad bin
Isa Al-Khalifa began a new era in Bahrain’s political and economic
development. In 2001, the population voted overwhelmingly (98.4 per
cent) in favour of a National Charter to create a constitutional
monarchy, with an elected parliament and a government based on the
separation of powers. The Kingdom of Bahrain was thereby
announced, under the reign of His Majesty the King Sheikh Hamad bin
Isa Al-Khalifa.
Integral to the new era is a combination of economic and political
reforms. On the political front, the National Charter provides a
legislative system consisting of two chambers, including one with
legislative attributes, to be elected directly and freely by citizens. This
came into existence in 2003 with the first open elections held. The
second chamber (Majlas al-Shura), or the Consultative Council, is
appointed and includes senior experts competent to give advice on
matters of state and policy. The Charter allows universal suffrage, and
the Consultative Council consists of several female members.
Moreover, the National Charter also sets the overall parameters
within which future economic development would be formed. The
economic principles of the National Charter reflect Bahrain’s visionary
leadership and direction. With an emphasis on promoting economic
freedom, safeguarding private ownership, ensuring economic justice
and contractual adherence, facilitating economic diversification and
environmental protection, and investing in human capital and
training, this framework positions Bahrain as a regional leader in
economic development.
42 The Investment Climate
The vision
The economic vision of Bahrain is to establish the Kingdom as a
knowledge-based services economy.
Developing knowledge-based industries

As part of Bahrain’s economic diversification strategy, the Economic
Development Board (EDB) was established with the aim of developing
key industries that support this vision, namely:
• information and communications technology (ICT);
• education and training services;
• tourism;
• healthcare services;
• business services; and
• downstream industries.
The EDB aims to create the right climate to attract more foreign
investment to Bahrain in these key sectors in order to ensure
sustainable GDP growth and to create increased employment opportu-
nities. This mission has the overall aim of diversifying Bahrain’s
economy, thereby ensuring continued economic development.
Pivotal to the successful development of these clusters is the creation
of a solid supporting investment environment and infrastructure.
Recommending areas for investment environment enhancement and

development
EDB examines and provides recommendations on key areas in the
business environment to enable direct investment. This constitutes
privatization and deregulation (as demonstrated by the successful
opening of the telecommunications market), streamlining government
procedures, and providing investment facilitation incentives (such as
allowing foreign ownership of land). EDB was the initiator of the
deregulation of the telecommunications market, and was instrumental
in bringing about the privatization law.
Recommending areas for infrastructure enhancements

In order to enable investment, EDB works to ensure that the hard
infrastructure required by investors is in place. In addition, EDB
works to streamline and enable coordination between the different
government and private agencies involved in infrastructure devel-
opment, to ensure that Bahrain’s infrastructure is constantly
enhanced in line with global market requirements.
Current Strategies in Attracting Investment and Fostering Development 43
Encouraging private sector growth

Privatization
In line with its strategy of enabling private sector-led growth, Bahrain
embarked on a privatization programme with the introduction of the
Privatization Law in 2002. The privatization programme is to include
services and production sectors, in particular tourism, communica-
tions, transport, electricity and water, ports and airports, the oil and
gas services sector and postal services. Some state-owned industries
have already been privatized, including transportation and the meat
processing industry.
One of the biggest success stories of Bahrain’s moves towards
building a free market economy to enhance private sector activity is
the opening up of the telecommunications industry, which was opened
to competition in 2002, with the implementation of the new
Telecommunication Law. This Law, which was a result of a National
Plan for the industry, emphasizes opening the market to private
entrants with no restrictions on foreign ownership and investment.
The Telecommunications Regulatory Authority (TRA) was established
to regulate the sector and to promote effective and fair competition
among existing and new licensed operators (see Chapter 4.7).
Currently, the power industry is undergoing privatization, with
ports expected to follow shortly. These moves are in line with the
overall economic vision of Bahrain, and will result in a marked
increase in the role of the private sector in the nation’s economy.
Investment strategy
Bahrain has formulated its investment strategy in line with its
economic vision and diversification into non-oil industries, capitalizing
on the Kingdom’s competitive strengths. This strategy has successfully
resulted in a diverse economic base (see Figure 2.1.1)
In addition to the six economic clusters listed earlier that are being
developed through EDB’s efforts, Bahrain also has vibrant manufac-
turing and financial services industries.
Manufacturing
Alba
One of the greatest successes of Bahrain’s industrialization strategy has
been Aluminium Bahrain (Alba). Alba, Bahrain’s first major economic
diversification initiative and the region’s first aluminium smelter, was
incorporated in 1968, primarily to take advantage of the plentiful supply
of natural gas. Alba has become not only Bahrain’s major non-oil
industry, but also a major contributor to the national economy through
Oil & Gas

15.67%
Government
Services Services
33.14% 18.52%
Others
1.55%
Downstream Financial Sector

Industry 19.24%
11.88%
Figure 2.1.1 Bahrain’s economic base
the generation of revenue, the employment of Bahrainis and in providing

a base for ever-increasing aluminium downstream industries.
In January 1969, a contract was signed for the construction of an
aluminium smelter with a designed capacity of 120,000 tonnes per
year (tpy). Alba’s first aluminium alloy was smelted under the
patronage of the late Shaikh Isa Bin Salman Al-Khalifa, the then Emir
of Bahrain in May 1971. Alba’s current annual capacity stands at
520,000 tonnes, half of which is consumed by the country’s aluminium
downstream industry. Hot metal is produced at a purity rate of 99.7 per
cent. Alba’s products include rolling slabs and extrusion billets, as well
as standard ingots for local companies and export. This, today, compro-
mises a wide range of downstream industries, including the production
of atomized aluminium powder, aluminium profiles, metal coating,
cables and conductors, wheels and automotive parts.
By 2005, production will increase to about 280,000 tpy, and proposed
further expansions of the production lines will bring the total
production output to well over one million tpy, which would make Alba
the largest smelter anywhere in the world. The increase in production
of prime aluminium presents a unique opportunity for the further
development of the aluminium downstream industries, which is one of
the top priorities for the Bahrain government in order to increase the
added value for the aluminium industry.
GPIC
The petrochemical industry ranks high on the priority list of industrial
development in Bahrain. As a result, the Gulf Petrochemical Industries
Company (GPIC) was established as a joint venture between Bahrain,

Saudi Arabia and Kuwait, with the objectives of utilizing Bahraini
natural gas to produce ammonia and methanol. GPIC commenced
production in 1985 at a daily capacity of 1,000 tonnes of each product.
In 1987, the output capacity was expanded to 1,200. A third expansion
was implemented in 1998 by constructing a urea plant, with a daily
1,700 tonnes capacity, contributing to the creation of new downstream
industries in Bahrain.
South Hidd Industrial Area

This industrial estate, upon completion, will provide a total of 640
hectares of industrial area. An area of 247 hectares equipped with
state-of-the-art infrastructure oriented to modern industrial needs has
been completed and was handed over to Ministry of Industry in May
2004. A marine jetty will be available for the direct loading and
unloading of inter-Gulf shipping, in addition to an area for ware-
housing, storage, and distribution. Furthermore, this new industrial
area will be subject to a zoning system to distribute small and medium
industries according to their specialization. The most important
advantage of this area is its proximity to the new Shaikh Khalifa inter-
national seaport, which is core to government strategy for ensuring
that Bahrain has the world-class infrastructure needed by industry.
The area is linked to the Island of Muharraq by a causeway origi-
nally constructed to serve the Arab Shipbuilding & Repair Company,
and is only a few kilometres from both Bahrain International Airport
and Mina Salman port.
The project will be implemented in three phases as follows:
• Phase One (completed): This is an area of 246 hectares, excluding the

existing Gulf Industrial Investment Company (GIIC) housing site
on this area. Nearly 92 hectares is allocated for car parks and other
facilities, including a 10-hectare water treatment plant, and a
15-hectare services corridor and power plant. The remaining area of
154 hectares is available for industrial investment.
• Phase Two: This will comprise further reclamation of the area next
to Phase One and other land on the western side. It will provide
industrial plots with a water frontage. The total area of this phase is
196 hectares.
• Phase Three: This will comprise the development of three remaining
areas on the eastern side and along the dredged channel. By then all
the work associated with port should have been completed and the
areas for cargo handling constructed. The area of this phase,
excluding the new port, is 136 hectares. It is planned to construct
warehouses related to the port on this site.
Financial services
Bahrain is the financial capital of the Middle East, with a well-
established and diverse financial and banking industry; boasting
over 350 financial institutions (see banking chapter). Perhaps the
most striking pillar of the banking industry is Bahrain’s central
bank, the Bahrain Monetary Agency (BMA), which has been
paramount in establishing a well-regulated sector with a regulatory
framework unmatched elsewhere in the Middle East.
One of the most evident success stories of the BMA is the estab-
lishment of a rapidly growing Islamic banking sector, governed within
an innovative and comprehensive regulatory framework that incorpo-
rates international best practice.
AAIFIOI
Accounting and Auditing standards for Islamic Financial Institutions
(AAIFOI) was established, in accordance with the agreement of associ-
ation signed by Islamic Financial Institutions, in 1990 in Algiers. The
organization was registered in 1991 in Bahrain as an international
autonomous non-profit-making corporate body. The AAIOFI has been
extremely successful in achieving its objectives. As of 2001 the organi-
zation has released 16 financial accounting standards, four auditing
standards, four governance standards and one code of ethics. This is in
addition to one standard on the Purpose and Calculation of the Capital
Adequacy Ratio for Islamic Banks. AAIOFI has also been working hard
in persuading regulatory authorities to adopt its standards. To date the
BMA, the Bank of Sudan and the Central Bank of Jordan have
mandated the adoption of AAIOFI standards by the Islamic Financial
Institutions operating within their jurisdiction.
Islamic banking regulations

In addition to the application of rigorous regulatory standards the
BMA has also pioneered a range of innovations designed to broaden the
depth of Islamic financial markets and to provide Islamic institutions
with wider opportunities to manage their liquidity.
The Kingdom of Bahrain now hosts the newly-created Liquidity
Management Centre (LMC) and the International Islamic Financial
Market (IIFM):
• LMC: The establishment of the LMC in February 2002, based in
Bahrain, represents a historical landmark for the Islamic banking
industry. The LMC addresses the critical need for liquidity
management in line with Sharia principles. The objective of the
LMC is to enable Islamic financial institutions to manage asset
liability mismatch, to create a pool of quality assets for Islamic
financial institutions, to create liquidity for conventional players, to
enhance Sharia creditability and, finally, to achieve higher returns

for investors and shareholders.
• IIFM: An agreement establishing the IIFM was signed in Paris, on
13 November 2001. The IIFM is designed to facilitate a cooperative
framework among the financial institutions involved in Islamic
finance. It is designed to boost the creation of Islamic financial
products and to address the liquidity requirements of the industry.
International Islamic Rating Agency (IIRA)

The first rating agency for the Islamic banking sector was established
in Bahrain, to serve as an assessment body of compliance and regu-
lation. This move reaffirms Bahrain’s efforts to apply best practice in
its business and to boost transparency.
Conclusion
Bahrain’s strategic economic direction has clearly translated into
active steps that have positioned the Kingdom as a frontrunner in
economic progress. Bahrain enjoys a business environment that
adheres to international standards, and this is constantly being
enhanced to meet the growing requirements of an increasingly sophis-
ticated global investment community.
2.2
Investment Flows in
Bahrain
Rima M Bhatia, Group Economist,
Gulf International Bank, BSC
Since 1990, the influence of globalization has led to growing interde-

pendence between economies around the world, creating increased
demand for cross-border finance mechanisms. The potency of this force
has catalyzed financial innovation and fostered the emergence of an
internationally mobile pool of capital and liquidity.
Attracting these capital flows is a key challenge for any country, and
Bahrain is no exception. Such investment, particularly foreign direct
investment (FDI), has enormous potential to create employment, raise
productivity, boost exports and attract knowledge and technology,
which together form the core ingredients for sustainable long-term
economic growth and development.
As an established and highly-regarded financial centre, Bahrain has
long pursued a liberal policy towards attracting various forms of
inward private investment. In recent years, however, this policy has
been fine-tuned and the orientation is now decidedly towards
enhancing the attractiveness of the island to international investors
and businesses in a broad spectrum of economic sectors.
The pro-investment posture

Bahrain has always had one of the most liberal regulatory environments
in the Middle East, including a complete absence of corporate, personal
and withholding taxes and no restrictions on the repatriation of profit or
capital.The only exceptions are oil and gas companies, which are subject to
a 46 per cent tax rate on income derived from the sale of finished or semi-
finished products manufactured from natural hydrocarbons in Bahrain.
The year 1999 marked a pivotal year for investment in Bahrain. In
March 1999, restrictions on the foreign ownership of shares in the
Investment Flows in Bahrain 49
Bahrain Stock Exchange (BSE) were relaxed, allowing GCC nationals

100 per cent ownership of listed companies’ shares and non-GCC foreign
nationals up to 49 per cent ownership of listed companies’ shares.
The following year in June 2000, the autonomous, semi-private
Economic Development Board (EDB) was created to reorient the thrust
of economic policy towards enhancing the attractiveness of Bahrain for a
wide range of foreign investment and ensuring the active participation
of the private sector in economic development. Six main economic
clusters have been identified as the focal point of EDB’s strategy to capi-
talize on Bahrain’s competitive advantages and attract foreign direct
investment: information and communications technology; education and
training services; tourism; healthcare services; business services; and
downstream industries. International companies are permitted
100 per cent ownership in these economic clusters.
Bahrain also embarked on a programme of democratization, which
began with the unveiling of a new constitution (the National Charter)
that was overwhelmingly backed following a referendum. In February
2002, Bahrain established itself as a constitutional monarchy
alongside the implementation of a host of political reforms, including
allowing women to vote and hold public office. Municipal and parlia-
mentary elections followed in May 2002 and October 2002 respectively.
Other important developments during this time that have been
conducive to significantly elevating Bahrain’s pro-investment posture
include the following.
In 2001:
• the creation of the Supreme Privatization Council to promote priva-
tization in sectors such as transport, electricity and water, ports and
airport services, postal services and oil and gas;
• the introduction of a new Commercial Companies Law in place of
the previous law, which dates back to 1975;
• the United States signed a Bilateral Investment Treaty (BIT) with
Bahrain, which obligates national treatment for US investments
across sectors with the following exceptions: 1) US investments will
receive Most Favoured Nation (MFN) status (and not national status)
for ownership of television, radio and other media; fisheries; and
privatization of oil, dredging and exploration. 2) With regards to air
transportation, the buying or ownership of land, and the buying or
ownership of shares traded on BSE, Bahrain is exempt from providing
MFN or national status to US investments until January 2005.
In 2002:
• an official decree places privatization as a key economic policy goal;
• a new labour and unions law was unveiled which promotes more
flexibility in the labour market for both locals and expatriates;
• 100 per cent foreign ownership was permitted in new industrial and
service companies that establish representative offices or branches
in Bahrain. Local sponsors are no longer required;
• 100 per cent foreign-owned companies were also permitted to be
established for regional distribution purposes, ie commercial sales
should be in Bahrain and one more Gulf Cooperation Council (GCC)
country;
• 100 per cent foreign ownership of land was permitted for all foreign
companies.
In 2003:
• a Tenders Law went into effect outlining standard procedure in
government tenders and promoting transparency in the process,
and thereby enhancing the potential for wider private sector partic-
ipation. The significance of this law lies in the fact that outside of the
financial services sector, the economy is still dominated by paras-
tatals (both wholly- and quasi-owned).
In 2004:
• Bahrain and the United States successfully concluded Free Trade
Agreement (FTA) negotiations. This is expected to improve flows of
trade and investment between the two countries.
Investment incentives
Bahrain also offers a host of other incentives for inward investment:
• duty-free access to the GCC market;
• duty-free merchandise for re-export;
• duty-free import of materials and machinery for manufacturing;
• duty-free zones at ports and industrial estates;
• US$10,000 subsidy for the first three years for each Bahraini
employed in a newly-established firm involved in a pioneering
industry; US$7,950 for downstream industries; and US$2,650 for
factories in existing industries;
• 50 per cent tax rebate on electricity charges for the first five years
for all industries;
• 10–20 per cent tariff protection applicable on pioneering or down-
stream industries.
Patterns in investment flows

Bahrain has traditionally remained a net external creditor in terms of
its net International Investment Position (IIP). The net IIP has
increased substantially since 1996 and is estimated at US$6.1 billion for
year-end 2003, according to latest available official data (see Table 2.2.1).
Table 2.2.1 Bahrain international investment position (IIP)

(2000–2003)
(US$ million) 2000 2001 2002 2003*
IIP (net) 5,305 5,570 6,101 6,100

Foreign assets 97,082 93,367 65,252 89,920
Direct investment abroad 1,857 2,122 2,122 2,918
Portfolio investment 12,732 14,058 19,363 22,281
Other investment** 80,902 75,332 42,175 62,865
Foreign liabilities 91,777 87,798 59,151 83,820
Direct investment in Bahrain 5,836 6,101 6,101 6,631
Portfolio investment 531 531 1,592 1,857
Other investment** 85,411 81,167 51,459 75,332
* provisional data
** includes loans, currency and deposits
Source: Bahrain Monetary Agency Annual Reports – 2002 and 2003
Trends and composition

Despite the dramatic increase in global capital flows since the early
1990s, only a trickle has entered Bahrain, indeed the Middle East
region as a whole.
Global
Consider these statistics by the International Monetary Fund (IMF).
Global net capital flows, as measured by aggregate net resource flows,1
to developing countries expanded three-fold between 1990 and 1996,
from under US$100 billion to over US$330 billion. The rise is attributed
to capital flows from private sources to developing countries, comprising
foreign direct investment (FDI), portfolio investment, bank lending, and
international bond issuance by developing countries. Such flows
accounted for nearly 80 per cent of the total net resource flows by 1996.
1
Net resource flows are total new capital inflows (gross disbursements) minus amortization
or principal repayments.
Thereafter, global net capital flows into developing countries have

since halved (to an estimated US$175 billion in 2001), despite a brief
recovery in 1999. Nevertheless, private flows have continued to dominate
net resource flows, remaining around 60–70 per cent since 1997.
Bahrain
Up until 1996, Bahrain’s capital inflows did not exhibit any sustainable
trend. For example, after declining nearly 15 per cent between 1989 and
1990 (largely due to the Gulf War), capital inflows remained volatile
between 1990 and 1996, and stood at US$65 million (0.7 per cent of
nominal GDP), 0.2 per cent of aggregate international capital flows by
year-end 1996. Over 93 per cent of these inward flows comprised ‘other
investment’, primarily in the form of transactions in currency and
deposits, while FDI accounted for only 7 per cent of total flows (US$4.5
million in 1996). Portfolio flows were also negligible in this period. The
large size of the ‘other investment’ component is a typical characteristic
of capital flows in financial centres such as Bahrain.
It was only after 1996 that capital inflows started exhibiting
sustained growth, by expanding over 41 per cent to reach US$92 billion
up to year-end 2000. In the following year, capital inflows dropped
marginally, primarily reflecting the impact of the 11 September 2001
terrorist attacks on the United States.Although this drop was temporary
and inward investment quickly recovered, the 2002 year-end inflows still
displayed a dramatic drop as a result of Citibank’s (Bahrain) temporary
withdrawal of an estimated US$30 billion of its asset book ahead of the
invasion/war of Iraq in March 2003 (see Figure 2.2.1). This was returned
following the conclusion of hostilities by May 2003.
Despite the generally amorphous nature of Bahrain’s capital flows,
there have been some very positive developments in the overall nature
of these flows in recent years:
• For the first time, the stock of portfolio investment crossed the
US$1 billion mark in 2002 by recording a robust 150 per cent jump
in inflows to reach US$1.5 billion. These flows are estimated to
have jumped at least an additional 80 per cent if not more in 2003,
although no official figures are available.
• Underscoring the expansion in portfolio investment was the increase
in inflows into debt securities, which began with the September 2001
launch of the highly popular Islamic Sukuk Bonds2 programme by
2 Islamically structured leasing bonds (Sukuk Al-Ijarah) provide investors with an
avenue to invest along Islamic principles. As the host country for the International
Islamic Financial Market (IIFM), Bahrain was the first sovereign to issue Ijarah Sukuk
bonds in the world. The bonds are supplemented on a monthly basis by short-term Sukuk
Al-Salam bills, ie Islamic government bills. Bahrain was also the first sovereign to issue
Salam Sukuk bills.
100,000
90,000
80,000
70,000
60,000
US$ Mn
50,000
40,000
30,000
20,000
10,000
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Year
Sources: International Monetary Fund (IMF), International Financial Statistics (IFS)

May 2004; IFS Yearbook 2002
Figure 2.2.1 Bahrain’s total capital inflow trends (1989–2002)
the Bahraini government. The total value of listed bonds on the BSE
has grown from US$511 million in 2001 to US$1.3 billion by 2003.
This is largely attributed to the increase in the number of listed
Islamic Sukuk bonds from one at a value of US$100 million in 2001,
to four at a value of US$480 million by 2003. In addition, there were
two non-Bahraini bonds listed on the BSE for the first time in 2003 at
a value of US$601 million, while the value of corporate bonds also
increased from US$40 million in 2001 to US$260 million in 2003.
Finally, in January 2003, Bahrain also launched its US$500 million
sovereign Eurobond.
• Portfolio equity investment inflows also recorded an unprecedented
increase from US$1.2 million in 2001 to under US$400 million by
2002 (see Figure 2.2.2). Figures for 2003 are unavailable. However,
the inflow level is likely to have been equal if not higher than the
previous year. Underlying such a dramatic growth trend are a
combination of factors, primarily events in United States including
the start of a protracted downturn in the NASDAQ and other stock
market indices in 2000, the 11 September 2001 terrorist attacks;
and the subsequent low interest rate environment. Together, the
confluence of these developments led to higher inward investment
inflows into both the BSE and the numerous mutual funds listed on
the island. For example, the value of shares traded on the BSE grew
from US$191.5 million in 2001 to US$265.5 million by 2003. More
notably, in the year up to March 2003, investment in mutual funds
registered in Bahrain grew from US$2.9 billion to US$4 billion
(a large part of which was also attributed to a jump in new fund
1,600
1,500
1,400
1,300
1,200
1,100
1,000
900
US$ Mn
800
700
600
500
400
300
200
100
0
2000 2001 2002
Year
Equity Securities Debt Securities
Sources: International Monetary Fund (IMF), International Financial Statistics (IFS)

May 2004
Figure 2.2.2 Bahrain’s portfolio investments (2000–02)
listings during the period), with the total number of funds at 1,478
(29 of which are listed on the BSE – 20 open-ended and 9 close-
ended).
Foreign direct investment

According to the United Nations Conference on Trade and
Development (UNCTAD) World Investment Report (2003), total global
FDI inflows stood at US$651 billion in 2002, the lowest level since 1998
and less than half the US$1.4 trillion level in 2000. Flows declined in
108 of 195 economies, with the main factor underlying the drop being
the slow economic growth in most parts of the world and the poor
short-term economic prospects. Other contributing factors were falling
stock market valuations, lower corporate profitability, a slowdown in
the pace of corporate restructuring in some industries and the winding
down of privatization in some countries. A large drop in the value of
cross-border mergers and acquisitions featured prominently in the
overall decline.
During this time, FDI inflows into Bahrain were not only negli-
gible but also very erratic; FDI inflows peaked at US$454 million in
1999 before declining to US$81 million by 2001 and then rising by

US$218 million the following year. As a percentage of total global FDI
flows, Bahrain’s share has averaged a mere 0.027 per cent for most
years, with the exception of 1997, when the share stood at 0.068 per
cent. Moreover, Bahrain’s share in total FDI inflows into West Asia3 –
the grouping under which Bahrain is classified by UNCTAD – is also
low at only 9 per cent in 2002. The bulk of FDI into the West Asia
region was into Cyprus, Saudi Arabia (in some years) and Turkey (see
Table 2.2.2).
Bahrain’s FDI inflows performance stands in stark contrast to
UNCTAD’s FDI Performance and Potential Index matrix.4 Bahrain has
been identified as a high potential and high performance investment
destination in the periods 1993–1995 and 1999–2001, while all other
GCC states under-performed. Bahrain’s ranking out of 140 countries
was 91 for the period 1999–2001.
Looking ahead
A cursory overview of domestic investment in Bahrain, and indeed
the Gulf region as whole, reveals that equity tends to be privately and
informally raised, while there is a complete absence of any structured
venture capital industry. As such, businesses have generally not used
the stock market to raise capital, while daily trading has tended to be
dominated by the small retail investor (albeit that a change in this
pattern is underway as mentioned above). Debt financing tends to
feature prominently in investments, largely in the form of
commercial loans. Bond markets are developing, although the
primary market remains dominated by government Islamic Sukuk
bonds while corporate debt issuance is still very limited. Finally, in
spite of Bahrain’s tremendous potential to attract FDI, overall
inflows remain limited and erratic.
However, there is little doubt that Bahrain is in the midst of a tran-
sition, with inward portfolio investment and FDI likely to exhibit
healthy growth going forward. The pro-investment policy stance of the
government coupled with supporting external factors is creating a
fertile domestic environment to attract such flows. Moreover,
numerous other drivers are likely to provide further impetus to this
investment growth including:
3 West Asia comprises Bahrain, Cyprus, Iran, Iraq, Jordan, Kuwait, Lebanon, Oman,
Occupied Palestinian Territory, Qatar, Saudi Arabia, Syria, Turkey, United Arab
Emirates and Yemen.
4 UNCTAD’s FDI Performance and Potential Index matrix ranks countries according to how
they do in attracting inward direct investment and what their potential is in that respect.
Table 2.2.2 Bahrain’s Foreign Direct Investment (FDI) inflows

(1991–2002)
1991–1996 1997 1998 1999 2000 2001 2002

(annual
(US$ million) average)
Global FDI 254,326 481,911 686,028 1,079,083 1,392,957 823,825 651,188

flows
of which
West Asia 2,228 5,918 6,893 754 1,523 5,211 2,341
Bahrain 650 329 180 454 364 81 218
Cyprus 81 491 264 685 804 652 297
Iran, Islamic
Republic of 47 53 24 35 39 50 37*
Iraq 2* 1* 7* 7* 3* 6* 9*
Jordan 4 361 310 158 787 100 56
Kuwait 55 20 59 72 16 147 7
Lebanon 28 150 200 250 298 249 257*
Oman 91 65 101 21 44 42 40*
Occupied
Palestinian
Territory 8** 7 58 19 62 11 41*
Qatar 120* 418* 347* 113* 252* 296* 326*
Saudi Arabia 201 3,044 4,289 780 1,884 20 350*
Syrian Arab
Republic 105 80 82 263 270 205* 225*
Turkey 751 805 940 783 982 3,266 1,037
United Arab
Emirates 220* 232* 258* 985* 515* 257* 95*
Yemen 274 139 226 328 6 136 64
* estimates
** 1996 figures
Sources: UNCTAD, World Investment Report, 2003
• The government is keen to further enhance the already stable and

prudently managed banking sector, alongside gradually deepening
capital markets. In this regard, the authorities are spearheading a
strategy to boost Bahrain as a world-class financial hub through
building a niche in seven asset classes: Islamic banking and
insurance; private banking; debt; equity; conventional insurance;
corporate finance; and remote services.
• As part of the financial sector development strategy, Bahrain is
developing a US$1.3 billion financial city, the Bahrain Financial
Harbour (BFH), through which it aims to attract inward investment
and further bolster the island’s position as a premier financial
centre. BFH will comprise financial institutions, investment
companies and corporations, and will also house institutions oper-
ating in capital and retail banking markets, and asset management
as well as insurance.
• Investment promotion efforts are being supported by the

government at the highest level, while free zones are being estab-
lished to foster such investment. Currently, the Hidd Industrial
Area is being developed with state-of-the-art infrastructure, power
and gas supply, and advanced networks of roads and communica-
tions to attract foreign investment.
• Bahrain is a member of the World Trade Organization (WTO) and,
as such, is lowering barriers to entry as part of the organization’s
non-discriminatory and liberal rules-based system.
• The government has recently signed numerous bilateral agree-
ments (ie with Thailand, China, Malaysia, Singapore, Philippines,
Bangladesh and India), which seek to encourage trade and
investment (portfolio and FDI) flows.
• Mergers and acquisition (M&A) typically comprise a large part of
FDI flows, and this has yet to occur for Bahrain. There are numerous
M&A opportunities in the Gulf region, most notably in the financial
services sector. Given Bahrain’s prominence as a financial centre,
there is increasing potential for cross-border M&A opportunities
between Bahrain-based banks and other regional, or even inter-
national banks.
• There are growing opportunities for private sector participation,
particularly in utilities. Bahrain’s first independent power plant
(IPP), Al-Ezzal is underway while, partial privatization in numerous
other economic sectors is being undertaken or under consideration.
In late 2002, the telecommunications sector was liberalized,
following which MTC Vodafone was awarded a mobile telecommuni-
cations licence.
• Opportunities for foreign investment are also emerging in estab-
lished industries. For example, it has recently been reported that
negotiations are underway for Alcoa (US) to undertake a 26 per cent
stake in Aluminium Bahrain (Alba).
Acknowledgment
Many thanks Ms. Mala Javeri, Research Analyst, (Gulf International
Bank, BSC) for her assistance in the data compilation for this paper.
The views and interpretation of data in this paper reflect the opinion of the
writer and not necessarily those of Gulf International Bank (GIB), BSC. GIB
has no liability whatsoever for the accuracy of the paper’s contents or the conse-
quences of any reliance which may be placed on it.
2.3
The Development of
Corporate Governance
in Bahrain
Dominic O’Neil and Roly Denman,
Trowers & Hamlins Law Firm, Bahrain
Introduction
Corporate governance may be defined as the system by which
companies are directed and controlled. Whilst there is no legislation
that specifically relates to corporate governance in Bahrain, various
provisions in existing legislation have the effect of regulating the way in
which companies are directed and controlled. In particular, the way in
which companies are permitted to operate is governed by the
Commercial Companies Law (Legislative Decree No. 21 of 2001) and its
Implementing Regulations (Ministerial Order No. 6 of 2002) (the Law).
All companies operating in Bahrain must take one of the legal forms
provided for in the Law and comply with its provisions, and there are a
number of different corporate vehicles available to investors. In this
chapter, references to a company are to a Bahrain public joint stock
company unless otherwise indicated.
Corporate governance can be placed in the context of duties of
directors, the company secretary, financial reporting and the company
auditor. Governance now also embraces issues such as the annual
general meeting, communications with third parties and relationships
with shareholders.
Directors
Any discussion of corporate governance must be placed in the context
of directors’ duties. One aspect of the function of directors is to ensure
the preservation and enhancement of the company’s assets, whilst the
The Development of Corporate Governance in Bahrain 59
other concerns the duties and liabilities of directors with respect to the
company, its employees and third parties.
A Bahraini joint stock company, be it public or closed (ie private),
must establish a board of directors to administer its operations. In the
case of a public joint stock company, there must be a minimum of five
directors, whilst for a closed joint stock company the minimum
required number is three. In each case, the term of office of a director
must not exceed three years.
The Ministry of Commerce retains a qualified right to dissolve a
company’s board of directors if the company:
• experiences adverse financial or management conditions;

• suffers substantial losses affecting the rights of shareholders or
rights of its creditors; or
• commits serious breaches of the Commercial Companies Law.
The Ministry may only exercise this right where, on an inspection of

the company’s accounts and records, it has prepared a report that
confirms that one of the above events has taken place. In addition, the
Ministry may dissolve the board if the board is unable to conduct its
business due to an inability to attain the necessary quorum.
First and foremost, company directors in Bahrain are responsible to
their shareholders. They are required to exercise due care and dili-
gence in the course of their duties and will be held jointly liable to any
damages that may be sustained by the company or by third parties as a
result of a failure to do so.
Non-executive directors
Article 177 permits a company’s general meeting to appoint a number
of experienced members to the board of directors who are neither
shareholders nor promoters of the company (non-executive directors).
As members of the board, non-executive directors must comply with
the duties and obligations placed on directors by the Commercial
Companies Law and other related laws. Notwithstanding this, the
specific role of the non-executive director, over and above his/her role
as a member of the board, is to assist in the development of the
company’s strategy by: bringing his or her own expertise to the board;
voicing an independent opinion (being one step removed from the exec-
utive management of the company); reviewing the performance of the
board and the executive management; assisting in areas of conflict or
potential conflict; and ensuring that directors are accountable to the
company’s shareholders.
In this regard, a non-executive director will attend board meetings

and general meetings and will be remunerated in recognition of his
independent and expert contribution on various issues, including risk,
strategy and performance and of his/her supervision of the executive
directors.
Directors’ remuneration
A company’s articles of association must specify the remuneration of
directors and non-executive directors. The Law limits the amount of
such remuneration to 10 per cent of the company’s net profit after the
deduction of legal reserves.
Article 189 of the Commercial Companies Law prohibits a director
of a company, or any of its managers, from having an interest, whether
directly or indirectly, in any transactions or contracts made on behalf of
the company, unless the director has obtained the consent of the
general meeting. Any such contract entered into will be declared null
and void.
In addition, a director must declare to the board any personal
interest, whether direct or indirect, that he has or may have in any
matter placed before the board for discussion. The declaration must be
noted in the minutes of the board meeting and the interested director
is not permitted to participate in the discussions or voting in respect of
the matter. The chairman of the board must specifically inform the
general meeting of the outcome of discussions in connection with the
matter and must table a special auditor’s report. Any such contracts or
transactions entered into by the company must be disclosed in the
company’s financial statements.
Board meetings
Board meetings may be convened upon the summons of the Chairman
or alternatively, by at least two members of the board. To constitute a
quorum, the presence of more than one half of the Board’s members
including the Chairman must be present.
The majority voting system is to be adopted. However, in the case of
equality of votes, the Chairman shall have the casting vote.
Article 194 states that minutes of board meetings must be entered
on a regular basis after every meeting in a special register. The said
minutes ought to be signed by the Chairman, any members who
attended the meeting and the Board Secretary; thus, they shall ulti-
mately be liable for the accuracy of the minutes. In addition, the
minutes must contain information concerning the names of the
members and non-members of the board present at the meeting,
including those who failed to attend providing a reason for their
absence. A detailed summary of all the board’s discussions, including

developments and requirements of members must be also be recorded.
In the event of a dissenting member who wishes to object to a reso-
lution by the board, his objections must be recorded in the minutes.
The Annual Report

The annual report is a primary instrument in communicating to share-
holders all corporate governance issues. An open approach in
discussing such matters must be adopted in order to produce an effi-
cient working environment for the market economy, enabling the board
to take prompt action whilst simultaneously allowing the shareholders
to scrutinize the company’s actions more thoroughly.
The Board of Directors must publish a copy and a detailed summary
of the annual report in a local daily newspaper in Arabic at least 15
days before convening the general meeting. The publication of a
balance sheet, profit and loss account and a full text of the auditor’s
report must also be provided.
The annual report must state that the company is committed to high
standards of corporate governance. The characteristics of the annual
report ought to cover: remuneration; nomination; audit and internal
control and communications.
Articles 362(g) provides a fine of BD5,000 for breaches of the
Companies Law, which includes the preparation of any reports that
come under the responsibilities of any director.
The Annual General Meeting

The Board uses the AGM essentially to communicate with private
investors and encourage their participation. However, it has also
become the forum to discuss a wide range of governance issues. The
power to convene an AGM may be exercised by the Chairman, the
Board of Directors and auditor. The Ministry of Commerce and
Industry may also summon an AGM in the event that one month has
elapsed from the date fixed for its convention without it being
summoned, or in the event that the number of the members of the
Board of Directors is less than the minimum required for the validity of
its convention, or provided there are legitimate grounds for requisition
by shareholders holding at least 10 per cent of the capital. The Minister
of Commerce and Industry also has the power to convene an AGM if it
is felt that there are serious grounds for such a meeting. In such an
event, the Agenda shall be prepared by the individual who convened it.
The summons must include the date and the venue prescribed in the
company’s Articles of Association and must convene at least once every
year within the six months following the date on which the financial
year of the company ends. The summons must be published in at least

two Arabic newspapers, one of which must be local. Copies of the
summons must also be forwarded to the Ministry of Commerce and
Industry at least 10 days prior to the date of the meeting.
Only topics mentioned in the Agenda may be discussed at the
meeting; however, if an urgent matter has arisen subsequent to the
preparation, it may be discussed. Any resolutions resulting from such
matters must be referred to the Ministry of Commerce and Industry,
otherwise they will be deemed null and void.
Governance and insider dealing

Poor performance and abuse of authority by the directors of the
company paves the way for corporate failure. It is essential for a
company to implement internal mechanisms that ensure the
compliance of the company’s objectives and underpin the overall
management and running of the company.
Article 185 states that all directors owe a duty to the company, its
shareholders and any third parties to fulfil all their duties and to act in
good faith. Any act involving betrayal of trust, misuse of power, breach
of the Law or of the company’s Articles of Association or misman-
agement of the company can result in action against the board.
The company has the right to institute an action against any of the
directors involved if the wrongful acts committed by them resulted in
damage to all shareholders. A resolution needs to be passed at a
general meeting to institute the action.
Shareholders
Shareholders play an additional role in good corporate governance.
The right to vote

The owner of ordinary shares in a company has the right to vote at the
ordinary and extraordinary general meetings of the company. Notice of
general meetings, including the Agenda, must be published in at least
two Arabic newspapers at least 15 days prior to the scheduled date of
the meeting. Resolutions of the ordinary general meeting are passed by
a simple majority of the shares represented at the meeting and the
following matters, together with any matters included on the Agenda
that do not fall within the jurisdiction of the extraordinary meeting,
are to be decided upon at the ordinary general meeting:
1. the election or dismissal of board members;

2. decisions with respect to the remuneration of the board;
3. consideration of the company’s annual report and financial statements;
4. the absolution of the directors from liability;
5. the appointment of an auditor;
6. review of the auditor’s report;
7. the approval of financial statements, together with the allocation of
net profit and the payment of any dividends; and
8. the discussion of any recommendations for issuing bonds,
borrowing, mortgaging, or issuing guarantees.
Any proposals to amend a company’s Memorandum and Articles of
Association, to increase or reduce its share capital, to dispose of the
entirety of a company’s business and to dissolve, convert or merge the
company must be dealt with at an extraordinary general meeting
(EGM).
An EGM is not valid unless attended by shareholders representing
two-thirds of the company’s capital. Resolutions of the EGM are passed
by a majority of two-thirds of the shares represented at the meeting,
with the exception of resolutions in connection with a change to the
company’s share capital, an extension of its duration or its winding-up,
or conversion or merger with another company – all of which require a
majority of three-quarters of those shares present.
Institutional shareholders
Changes in regulations have resulted in a drive towards the local
Bahraini market, due to the ill-performance of overseas markets. This
paved the way for institutional investment in Bahrain to flourish, as
there has been an increase in foreign ownership and a growing number
of investment funds actively investing on local stocks.
Accordingly, institutional shareholders are increasingly demanding
a voice in corporate governance. This requires a greater level of
accountability, transparency and provision of back-office resources to
ensure that they can play an effective role as concerned and active
shareholders.
The involvement of institutional investors will ultimately lead to
the enhancement of corporate governance, as they may be classed as
controlling shareholders in class actions against the company.
Therefore, institutional investors are most likely to undertake their
duties with the utmost scrutiny.
2.4
Living and Working in

Bahrain
Leon Fabrikanov, Ecka Granules GmbH & Co
Introduction
Bahrain is an archipelago of 33 islands and has a very long and distin-
guished history that is considered unique in the Arabian Gulf region. It
has been a cradle for civilization for the past 5,000 years and it is even
mentioned in the first recorded travel records by Gilgamesh, the
ancient king of Samaria. It has also been historically referred to as the
Garden of Eden, as the island has a natural abundance of fresh water
from subterranean sources and hence is green with farming planta-
tions and palm trees in its northern third. Being the major source of
fresh water between the trade routes of the civilisations of the subcon-
tinent and those on the rivers Tigress and Euphrates, has meant that
Bahrain has been a major trading hub for thousands of years. This
exposure to other cultures has created a people that are friendly and
tolerant of those from other cultures, and Bahrainis are renowned
within the region for their friendliness.
Working environment
Since the mid-1990s, Bahrain has undergone a shift in the workforce

demographic. Under this shift, called Bahrainization, there is a very
high proportion of Bahrainis in the workforce and this workforce is
augmented by western and Asian expatriates with specific skills in key
areas. Hence, in most companies, expatriates will be mixed and
interact with a high percentage of Bahrainis, which leads to a very
friendly and relaxed work environment. However, potential expatriate
employees should understand that their employment in most
companies is for the use of their specialist knowledge to add value
wherever there is a lack of local expertise; hence, in some cases, there is
Living and Working in Bahrain 65
a great reliance on the skills and commitment of expatriate employees

in order to allow the company to function as intended. It may also be a
requirement to act as a mentor for junior Bahraini employees in the
company as part of a transfer of skills and knowledge that is informal
but serves to enhance the local skills base. This is looked upon as an
honourable undertaking because it is seen as a way in which Bahrain
can evolve the local skills base for its long-term competitive advantage
and development. It is also important for any potential expatriate to
understand that he or she will be looked at not only as an individual
but as a representative of his/her country. This fact is important
because Bahrain, as well as the rest of the Gulf, is a very well-
networked community. Therefore a good reputation, whilst taking a
while to establish, can be a very important professional and personal
asset.
Recreation
While expatriates freely mix with Bahrainis in the workplace, friend-
ships are usually along the lines of gender. Although Bahrain is a
developing constitutional monarchy and undergoing great democratic
and economical changes, society is still conservative in some aspects.
Men and women do mix freely in the workplace. However, this is on a
professional level and is quite limited on a social level. Social interac-
tions are based on traditional values, so one should not automatically
expect to bring one’s spouse when asked to dinner at a Bahraini
colleague’s home; such interactions are usually undertaken in single
gender gatherings. As a precaution it is always a good idea to check
these details first with your Bahraini work colleagues. Having said
this, Bahraini people are generally very warm and friendly and are
open to questions about their culture and country. They also respond
well to expatriates who have a similar mind-set.
Other important facts relate to the different approach to children
as Arabic culture is very open and tolerant of them, especially in
public where one should not be surprised if expatriate young children
are given special attention by Bahraini women or girls. Their
forwardness in touching or talking to children is natural and innocent
and is a sign of the friendliness and the family orientation of the local
community.
Given the boom in development that Bahrain has undergone in the
last decade, there are a number of large shopping malls that are well air-
conditioned and contain everything from western groceries to designer
labels to amusement parks. This proliferation has had an effect on the
local lifestyle as, being a very socially and family-orientated people, a
large part of their time is taken up in these shopping malls, especially
during the hot summer months, where families can interact in large
social groups with friends in air-conditioned comfort.
For expatriates, Bahrain represents a very safe, family-orientated
lifestyle that is beyond the reach of many middle class people in the
western world. It is particularly easy for English speakers to work and
live in the Kingdom, as English is understood and spoken by the vast
majority of local people. Furthermore, as Bahrain is only one to two
hours ahead of Europe, it is very easy to do business in real time with
EU countries. The sun sets quite early in comparison with European
summer time, but the warm weather and high standard of recreational
facilities allows most sporting and recreational activities to continue
after dark.
Whilst being able to enjoy the lifestyle and economic benefits offered
in Bahrain, expatriates can also drive around the country as there is no
restriction on driving, provided an individual has a valid local or inter-
national driving licence. The road infrastructure is also very good and
makes up for the lack of a proficient public transport system.
Bahrain is almost unique in the Gulf, in that is has a great number
of high-quality restaurants that are located in stand-alone premises (ie
not part of hotels) and where alcohol can be served to patrons without
the need for special permits. There are also many affordable recre-
ational options for expatriate families via a number of clubs that are
open to all residents. Such clubs usually offer a mixture of inexpensive
high-quality food, pubs, swimming pools, gyms and other sporting facil-
ities that are designed to cater for the needs of the entire family. These
are highly popular with expatriate residents as they are inexpensive
and the sunny weather is conducive to water sports and many other
types of outdoor activity.
This is also enhanced by the fact that most families find they have a
new degree of freedom in their social lives because they can afford to
hire a housemaid and/or nanny. Having a live-in nanny, who is usually
an expatriate from Asia, to act as a baby-sitter and housemaid, signifi-
cantly changes the lifestyle of most expatriate families.
Education
Other facilities for families include a very highly regarded school
system catering for British, American, Indian and other curricula.
These are long-established schools operating with selected expatriate
teachers. The schooling system for expatriates is operated for all levels
up to university matriculation.
Living and Working in Bahrain 67
Dress code
There is also no official dress code as Bahrain has such a diverse
number of people from all around the world, and one can see several
national dress styles within a single trip to the supermarket. However,
there are some guidelines for dress that should be followed based on
respect for the local community, which can still be conservative by
nature. Such guidelines are only voluntary, but to show sensitivity to
local culture is seen as good manners. For example, women can wear
almost anything, although long sleeves and knee-length skirts would
be more appropriate and would not stand out from the crowd. For men,
again nothing is prohibited, although long trousers are culturally
respectful, especially when out in village markets and shops.
Permits
When dealing with legal and financial matters, as well as for all
aspects of immigration and residency permits, the sponsoring company
usually has a ‘fixer’ who is a specialized office assistant or manager
and who takes care of all such details. Therefore, the process is fairly
easy for most individuals and families. However, it is important to
understand that the bureaucratic process takes time and there are
usually several processes required before most official paperwork is
completed. This point is meant to highlight the fact that delays are
common but do not cause problems in the vast majority of cases, and it
is helpful, on many occasions, to have patience. In addition, once an
expatriate is established, the company’s office assistant, in most cases,
will also take on the task of paying the bills and do all the running
around that is normally associated with that.
Tax
From a business perspective it should be noted that Bahrain is totally
tax-free for personal income and allows unrestricted movement of
money, whilst adhering strictly to WTO rules.
Accomodation
In comparison with most other countries in the region, it has compara-
tively low commercial and private residential rental costs, whilst
having an exceptionally high standard of accommodation for profes-
sional expatriates and their companies.
Security
Much has been made in the western media about how the Middle East
has many security issues pertaining to local and expatriate workers.
Bahrain has often been the victim of collectivization, where all the
countries in the broader Middle Eastern region are seen as one entity.
In reality, the Kingdom of Bahrain is a safe and well-secured island –
as attested by the almost total lack of historic or recent terrorist
activity. This situation is maintained through a combination of many
factors, including the manageable size of the country, effective
controlled access to and from the island, and the proficiency of the
security forces, who have been integrated into the broader interna-
tional community. Other factors that reduce the risk include the demo-
graphic make-up of Bahrain’s population and the process of
democratization that has allowed society to move away from radical
views.
2.5
Market Research in
Bahrain
Aldrin Stephen Luiz, Research Director,
InCite Marketing Research WLL
Existing published data

When considering doing business in any country, companies need
statistics that provide a basic understanding of the potential the
market can offer. The population size with a demographic analysis is
the most obvious requirement. Reliable import and export data,
economic indicators such as GDP and information regarding domestic
household expenditure are other useful guidelines a marketer keenly
uses when considering market entry or development.
Even specialist market research agencies operating in the Gulf find
it difficult to source reliable secondary data for most GCC states, let
alone companies based overseas that are less familiar with the region.
Bahrain is one of the few Gulf countries where a wealth of vital
statistics is readily available. The Statistics Directorate, part of the
Central Statistics Organization (CSO), publishes various statistics
tracking Bahrain’s socioeconomic developments including the
following:
• Population census. Last conducted in 2001, the census records
comprehensive statistics on the population, residential buildings
and business establishments.
• Statistical abstracts. Researchers consider this book, updated
annually since 1968, an important statistical publication, revealing
vital information about the social, economic, education and health
conditions in Bahrain.
• Foreign trade statistics. This annual publication provides researchers
and businesses with accurate and up-to-date statistics relating to
Bahrain’s import, export, re-export and transit trade.
• Bahrain in figures. A concise yet information-packed leaflet

published annually that summarizes the statistical abstracts and
foreign trade statistics.
• Household income and expenditure survey. This survey provides
useful insights into the consumer habits of families in Bahrain. The
last one was conducted in 1993–94 and the exercise is normally
repeated every 10 years.
All publications with the exception of the household income and expen-
diture survey are available online (free of charge) at the Directorate’s
website (www.bahrain.gov.bh). For information not already available,
researchers can approach the CSO office, where helpful staff normally
furnish the required information (subject to availability) within a day
or two.
Research agencies in Bahrain eagerly use the services of the
Directorate as a reliable secondary data source to help calibrate recom-
mendations from research findings based on interviews. The more data
is available about the population of a country – be they consumers,
businesses or retail outlets – the more accurately research agencies
can project their findings to ensure that they are representative of the
population as a whole.
Off-the-shelf data available from research

agencies
Market research agencies have been operating in Bahrain for decades
and therefore the industry is well established. Continuous multiclient
surveys such as retail audits and media tracking services have been
available for many years. Their findings are mostly relevant to multi-
national manufacturing companies marketing fast-moving consumer
goods. The retail-based audits provide brand share, distribution and
allied data on consumer goods, and they are a useful tool in monitoring
the development of brands in terms of demand and retail visibility.
Some manufacturing companies and advertising agencies also
subscribe to tracking studies for consumer media habits in helping to
optimize their advertising spend. There are other syndicated and
continuous surveys operated by various research agencies with the
aim of offering regular market research data cost effectively.
Research agencies and their services

There are half a dozen specialist research companies in Bahrain. An
encouraging sign of the growing market research industry on the
Market Research in Bahrain 71
island is the emergence – in addition to well-known international

research groups – of smaller and medium-sized research agencies.
Their research consultants work and live in Bahrain and they have,
therefore, an unrivalled insight into the domestic market, with a sound
grasp of the local culture. The notion that all Gulf states are more or
less similar is incorrect and therefore a local perspective adds value.
This does not mean that research agencies in Bahrain only have
national capabilities; on the contrary, Bahrain’s somewhat modest
domestic market in terms of population size encourages the business
community to explore export opportunities in neighbouring countries
and beyond. Practically all research agencies respond either by
extending their capabilities – their own or through networking – into
other Gulf states and even into the Levant. To research users the
convenience of working with one agency for multinational studies with
the reassurance of uniform execution in all relevant countries is often
preferable and more economical than dealing with separate agencies in
each country.
All research companies in Bahrain are full service agencies offering
both qualitative and quantitative expertise. Essentially qualitative
research (eg focus groups) is exploratory in nature and often used to
generate ideas and to probe (mostly) consumer attitudes. Quantitative
research adds a numeric perspective by interviewing large numbers of
respondents with a structured questionnaire. Understanding is gained
through measurement.
Reputable agencies are staffed by research professionals who are
well-versed in mainstream market research techniques in both quanti-
tative and qualitative disciplines. Larger international research
groups in Bahrain offer a wider range of research models for in-depth
analysis. These are primarily designed for the needs of multinational
clients to monitor their brand or advertising performance.
Historically, most research practitioners in Bahrain were expa-
triates from Europe or South Asia. In the last decade, thanks to the
higher educational standards on the island, professional Bahraini
researchers have come to the fore, offering unmatched understanding
of their own market. Although few agencies are wholly staffed by
Bahrainis, their contribution to the market research community is
accelerating. As is common in this part of the world, most research
agencies employ part-time staff for conducting the interviews.
Some of the more common surveys that research agencies handle
are on the following topics:
• advertising concept/positioning development;

• advertising tracking;
• brand equity evaluation;
• brand switching opportunities;

• census surveys;
• consumer lifestyle;
• customer satisfaction;
• retail distribution/merchandising;
• corporate image;
• employee surveys;
• feasibility/market entry studies;
• market experiments (shop tests, test markets);
• mystery shopper surveys;
• new product development;
• packaging research;
• price sensitivity;
• product placement tests;
• usage and attitude surveys.
Unlike in the West, the concept of online (internet) surveys is still very
much a novelty and traditional survey instruments such as telephone,
face-to-face and postal interviews dominate.
Research agencies employ a number of quality control procedures to
enhance the quality of the data collection. The scope and type of proce-
dures vary substantially from agency to agency. Typical procedures for
field operations include logic checking of completed questionnaires and
back checking a random sample of interviews. These also extend to
data processing where match verification ensures accuracy of the data
entry.
Practicalities of market research

As is the case with many other Gulf states, Bahrain has a sizeable expa-
triate population of nearly 40 per cent. At an annual rate of almost 4 per
cent, the population is growing steadily and this rejuvenates the
dynamics of change: 37 per cent of the Bahraini population is younger
than 15. Bahrain is an Islamic country, with both Shi’a and Sunni
Muslims, but other religions are also tolerated. Expatriate workers
(58 per cent), mainly from the subcontinent and Southeast Asia,
dominate the country’s labour market. In short, the population of
Bahrain is richly diverse in lifestyle – traditional as well as progressive.
Market Research in Bahrain 73
Research consultants must understand, respect and accommodate

in their research practice the sensitivities of different lifestyles, espe-
cially when driven by Islamic or ethnic values. Any survey that aims to
represent the Bahraini population at large deals with different nation-
alities and, even among the Bahrainis, a multiplicity of lifestyle values.
Bahrainis are hospitable and this helps the researcher to find willing
respondents. However, cordiality may extend into providing overly
accommodating answers. The gap between what is said and what is
actually done is influenced by the culture of the respondent. It is
generally wider with Asians compared with Westerners. This is espe-
cially of concern when dealing with concept or feasibility studies whose
aim is to predict future behaviour. An understanding of this
phenomenon is critical in the interpretation of findings when the
researcher is preparing recommendations. Answers from respondents
cannot always be taken at face value.
In all of the GCC states, random sampling in quantitative research
is at best difficult because the method relies on intercepting respon-
dents freely. In Bahrain, this is generally not possible with females for
cultural and religious reasons. Research agencies usually resort to a
method based on referrals to achieve a required sample, but this
inevitably leads to an inherent bias. Various techniques are used to
minimize this effect, but it cannot be completely eradicated. Similarly,
in arranging focus groups great care needs to be taken with the compo-
sition of respondents and the choice of the moderator. Mixing gender
for Bahraini groups is not only counter-productive, but is considered
embarrassing and offensive. Of course, research agencies advise their
clients in this respect, but companies considering research need to be
aware of the parameters within which surveys in Bahrain are
conducted.
The importance of market research
Generally, just under 65 per cent of new businesses fail within their first
three years and, according to The Wall Street Journal, as many as
86 per cent of new brands suffer the same fate. Listening to customers –
be they prospective or existing – and adapting to their constantly
changing wants and needs is critical in creating as well as maintaining
excitement and demand for products or services. Market research can
definitely help maximize the potential of initiatives – in whichever area
of the marketing mix – or prevent costly misjudgements by bridging the
perilous cleft between the marketer’s perceptions and the reality of
market dynamics. This applies to any idea – a new business, changing or
developing new services/products, advertising, packaging etc – that
demands precious investment of a company’s time and capital.
Fundamental to this is obtaining accurate and relevant infor-

mation. However, more important, making sense of it all with well-
reasoned recommendations is the kind of calibrated understanding
companies need to steer clear from sombre statistics. Bahrain’s market
research agencies are well equipped to provide solid guidance, but as
with choosing any supplier, companies interested in conducting a
survey need to ensure that the range of capabilities and credentials
suit the particular need at hand. Selecting an agency registered with
the European Society for Opinion and Market Research (ESOMAR)
offers the best reassurance on standards. ESOMAR is a global organi-
zation of research practitioners and it sets out as concisely as possible
the basic ethical and business principles that govern the practice of
marketing and social research. It also specifies the rules that are to be
followed in dealing with the general public and with the business
community, including clients and other members of the profession.
Part Three
Bahrain: The Regional
Financial Hub
3.1
Bahrain: The Financial

Capital of the Middle
East
Bahrain has been at the heart of international trade for many

millennia, first as an entry-point between Mesopotamia and the Indus
Valley and then as a focal point for the trade in pearls with merchants
across the Indian Ocean.
Today, however, Bahrain is best known as the leading international
financial centre in the Middle East.
Banking first came to Bahrain in 1921 and remained modest in
scale for the succeeding 50 years. Then, in the early 1970s, increased
wealth across the Middle East, the result of the oil boom, created a
demand for a high level of banking and financial services, which
Bahrain was well placed to provide.
Concurrent with this was the formation of the Bahrain Monetary
Agency (BMA), which was to play an important role in developing
Bahrain into the international financial market it is today, with more
than 360 banks, financial institutions, insurance firms and capital
market companies.
The growth of Bahrain into a financial centre of international
stature has taken little more than a quarter of a century and could not
have been achieved without government policies that have achieved
political and economic stability. Recognizing the need to diversify the
national economy away from a dependence on oil, the government
adopted a policy to develop other industries. The emergence of a
vibrant financial services industry of international repute is ample
testimony of the undoubted success of that policy.
The formation of the BMA in 1973 gave an added impetus to
Bahrain’s aspirations to establish a banking centre of excellence.
Today, the country is well established as the financial capital of the
Middle East and the BMA has earned an international reputation as
78 Bahrain: The Regional Financial Hub
the most highly regarded and innovative regulator in the Middle East
region.
The financial services industry has grown to become a major sector
of the national economy. In 2003, the industry’s contribution to GDP
was almost 20 per cent, compared with 1.1 per cent in 1970. Foreign
direct investment (FDI) in the industry is also substantial, currently
standing at about US$6 billion.
The growth and development of the industry has been underpinned
by a buoyant, free market economy, which posted real growth of 6.8 per
cent in 2003. The government has, over the years, pursued a prudent
fiscal policy to ensure ongoing diversification and to maintain
monetary stability.
This approach has clearly paid dividends as Bahrain enjoys a
sovereign rating of A- from international rating agencies Standard &
Poor’s (S&P) and Fitch. In December 2003, S&P upgraded Bahrain’s
foreign debt outlook to positive, from stable, while Moody’s upgraded
the country’s ceiling for foreign currency bonds. The ratings are ample
testimony of the inherent strengths of the country’s economy.
Management of Bahrain’s economy has also earned accolades from
such organizations as the US-based Heritage Foundation, which has,
in recent years, consistently ranked Bahrain as the freest economy in
the Middle East/North Africa (MENA) region.
The Kingdom also tops all other Arab countries in terms of FDI
inflows, according to the United Nations Annual World Investment
Report for 2002, as well as in terms of industrial performance, according
to the 2002–2003 Industrial Development Report of the United Nations
Industrial Development Organization (UNIDO).
These ongoing positive developments have been a result of
Bahrain’s position today as the financial capital of the Middle East. For
its part, the BMA has pursued a regulatory and policy framework in
line with international standards, as an essential basis for financial
services to flourish. In addition, an absence of foreign exchange
controls and a policy of pegging the Bahraini dinar to the US dollar
have provided a mixture of flexibility and stability that facilitates
international financial flows.
As a result, an international financial services industry of depth and
breadth has developed in Bahrain. As the industry continues to
develop, Bahrain remains focused on its evolving needs. A more recent
phenomenon has been the growing inter-dependencies and synergies
across different sectors within the industry. Such an expansion of the
financial sector, indicative of Bahrain’s coming of age as a financial
centre, has been the reason behind the move to create a single regu-
lator for the industry.
In August 2002, BMA assumed responsibility for regulating the
entire financial sector, including banking, insurance and capital
Bahrain: The Financial Capital of the Middle East 79
markets. The move is yet another demonstration of the government’s

strong commitment to the continuous development of Bahrain as an
international financial centre and to maintain its leadership position in
this arena.
The country’s well-established, mature and vibrant banking and
financial services industry represents the largest concentration of
financial institutions in the Middle East. The institutions, a unique
blend of international, regional and domestic players, offer a diverse
range of services, including money market and portfolio management,
investment advice and insurance products involving risk transfer and
capital accumulation.
Commercial banking
Modern day commercial banking in Bahrain traces its beginnings to
the 1920s, with the establishment of the Standard Chartered Bank.
The sector witnessed rapid growth in the late 1960s and early 1970s
when the country began enjoying enhanced revenues. The more recent
licensing of GCC-based banks has arisen, at least in part, from intra-
GCC agreements to allow institutions based in one member country to
operate in another as a local bank. As at May-end 2004, there were 25
full commercial banks (FCBs) operating in Bahrain; of these, eight are
locally incorporated and 17 are branches of foreign banks. The consoli-
dated balance sheet of FCBs stood at US$12.8 billion at March-end
2004.
Following the early growth in local commercial banks, BMA recog-
nized in 1973 that the local banking community at that time had
limited capacity for dealing with the large amounts of money then
circulating. With this and the country’s desire for economic diversifi-
cation in mind, BMA recognized the country’s potential for becoming
an international financial centre. Thus, it was that BMA took what was
to be a landmark decision to allow offshore banking units (OBUs) to
operate out of Bahrain as a channel for investing the region’s surplus
liquidity.
Crucially, Bahrain was able to offer potential participants political
stability and a relatively free economic system; a tax efficient envi-
ronment; adequate infrastructure, including world-class telecommuni-
cations; readily available office and commercial accommodation and a
comfortable environment in which to live and work. However, whilst
encouraging international banks to come to Bahrain, BMA continued
to remain selective, only licensing those banks of high international
standing and from as wide a geographical spread as possible.
The first OBUs to start operations, Citibank and Algemene Bank, did
so in 1975 and, by the end of 1977, 30 OBUs had been formed and their
assets had increased from US$1.7 billion in 1975 to US$6.2 billion in

1977. Today, there are 51 OBUs based in Bahrain. The assets of the
OBUs stood at US$83.6 billion at March-end 2004, representing the
82.1 per cent of the consolidated balance sheet of the banking system in
Bahrain.
Islamic banking
Bahrain has also firmly emerged as the global centre of Islamic
banking and finance. The country hosts the region’s largest concen-
tration of Islamic financial institutions, with 28 Islamic financial insti-
tutions and nine Islamic insurance (takaful) companies. BMA was
quick to recognize the growth potential of the Islamic banking and
finance industry, following the establishment of the first Islamic bank
in Bahrain, Bahrain Islamic Bank, in 1979.
The country also plays host to five key industry-support organiza-
tions: the General Council for Islamic Banks and Financial
Institutions (GCIBFI); the Accounting and Auditing Organization for
Islamic Financial Institutions (AAOIFI); the International Islamic
Financial Market (IIFM); the International Islamic Rating Agency
(IIRA); and the Liquidity Management Centre (LMC).
Bahrain’s Islamic financial institutions offer a diverse range of
products, which include traditional Islamic structures such as
Murabaha, Ijara, Mudaraba, Musharaka, Al-Salam and Istisna’a, as
well as restricted and unrestricted investment accounts, syndications
and other structures used in conventional finance, which have been
modified to comply with Sharia principles.
Recognizing the unique characteristics of Islamic finance, BMA was
the first central bank to develop and issue comprehensive prudential
regulations for Islamic financial institutions. The Prudential
Information and Regulatory Framework for Islamic financial institu-
tions (PIRI), introduced in 2002, covers issues related to capital
adequacy, asset quality, the management of investment accounts,
corporate governance, earnings quality and liquidity management.
To support the growth and advancement of the industry, BMA has
also been at the forefront of developing and issuing Islamic bonds
(sukuk). A rolling programme of monthly issuance of short-term secu-
rities, Sukuk Al-Salam, has been in place since June 2001. The BMA
has played a pioneering role in developing the medium- and long-term
Ijara Sukuk asset class, which has universal appeal as an Islamic
variant of a conventional fixed income tradable instrument. Recently,
BMA acquired the unique status of being the issuer of a longest tenor
Sukuk Al Ijara, when it made a 10-year issue in the market. The BMA
also made its debut entry in the eurobond market in June 2004, by
issuing under Regulation S format. As of October 2004, BMA has made

10 Sukuk Al-Ijara issues, with a cumulative outstanding value of
US$1.136 billion and 41 issues of Sukuk Al-Salam, worth a total of
US$1.025 billion, of which US$75 million is outstanding.
The success of Bahrain as a centre of excellence for conventional and
Islamic banking and finance is also due to BMA’s commitment to
implementing rigorous regulation that conforms to the highest inter-
national standards. The regulations are continuously reviewed,
upgraded and modified whenever appropriate. BMA implemented the
1988 Basel Capital Accord in 1992 with market risk capital require-
ments in 1998. It has been adopting IAS for over 10 years.
BMA works closely with other multilateral agencies, such as the
International Monetary Fund (IMF), World Bank, Basle Committee on
Banking Supervision, International Association of Insurance
Supervisors (IAIS) and the International Organization of Securities
Commissions (IOSCO), to stay abreast of international developments
related to the world of finance. BMA also works closely with other
monetary authorities and maintains especially close relations
with authorities in London, New York, Hong Kong, Singapore and, with
particular regard to Islamic banking matters, Malaysia, as well as with
those within the neighbouring GCC and Arab countries via committees.
Such cooperation has been of vital importance in recent years as
governments around the globe have sought to prevent money laun-
dering and the financing of terrorist activities. BMA implements the
Financial Action Task Force’s recommendations on money laundering
and terrorist financing. In the past two years, BMA has significantly
upgraded its legal and regulatory framework aimed at combating
money laundering and terrorist financing issues in the banking sector.
This year, BMA has issued anti-money laundering (AML) regulations
for the country’s capital market, while similar regulations are being
finalized for the insurance industry.
Insurance
Bahrain’s insurance industry first emerged in 1950 and has grown to
become a prominent element within the country’s financial services
sector. In the 1950s and 1960s, Bahrain was the Arabian Gulf ’s major
trading centre, with its merchants having established commercial
links with producers worldwide, a situation that continues to this day.
As trade grew, there became an increasing need for insurance to
protect merchants’ interests which, in turn, led to the establishment
not only of an increased number of local agents of international
insurance companies but, over time, to the establishment of locally-
owned insurance companies.
Today, Bahrain’s insurance industry totals 163 firms, of which 21

operate in the domestic market, which generated gross premiums
worth US$180 million in 2002. The country also hosts the leading Arab
reinsurer, Arab Insurance Group (Arig), as well as two insurance
syndicates, the Arab War Risks Insurance Syndicate (AWRIS) and the
Federation of Afro Asian Oil and Energy Insurance Syndicate.
Having taken charge of regulating the insurance industry from the
Ministry of Commerce in 2002, BMA is currently implementing a
number of initiatives to further advance the insurance sector. Among
these are the introduction of a framework specifically tailored to
takaful companies and to captive insurers. The initiatives include a
major project to upgrade regulation. A complete insurance rulebook,
covering all aspects of regulating insurance, is now being finalized. It
will be issued in January 2005. For new licensees, the rules will be
effective as soon as they are issued; for existing licensees, the rulebook
takes effect on 1 April 2005.
Capital markets
BMA is also focusing its attention on the country’s capital market, with
the aim to position Bahrain as the Middle East region’s premier
market for debt and equity instruments. To achieve this, the BMA
seeks to make Bahrain’s capital market regulations friendly to non-
Bahraini issuers and investors. Since the Bahrain Stock Exchange
(BSE) began operations in 1989, it has grown to become one of the
leading stock markets in the region. At the outset, 29 companies were
listed. This had increased to 44 companies by the end of May 2004, with
a market capitalization of US$11.4 billion; as well as 28 mutual funds
and 16 bond issues.
BMA is currently implementing a comprehensive strategy to promote
credibility, transparency and efficiency in the capital market. A number
of new rules have been recently issued, setting strict new standards on
disclosure requirements by listed companies; issuance, offering and
listing of debt securities; and prevention and prohibition of money laun-
dering activities and guidelines on insiders. In addition, BMA is in the
process of drafting a securities and exchange regulation (SER), which
will serve as an enabling law for the securities industry in Bahrain.
BMA also has ambitions to make Bahrain an increasingly recog-
nized international centre for collective investment schemes. Under
this banner, BMA permits the marketing and establishment of unit
trusts and mutual funds and began regulating such schemes in 1992.
By March-end 2004, a total of 1,401 collective investment schemes,
with invested funds worth about US$4.8 billion, were registered with
the BMA.
Human resources
A major element in the growth of Bahrain’s financial services industry
has been the government’s recognition that its primary asset is its
people, and it has made a commitment to ensure the availability of an
educated and bilingual workforce. BMA has been the driving force
behind education and training initiatives in the banking and financial
sector since the 1970s. The employment of Bahrainis in the banking
and finance sector, which is the largest single private sector employer
in Bahrain, has been one of the foremost aims of the BMA. Equally
important has been the level of education and training made available
for employees in the sector, to enhance their knowledge and expertise.
BMA initially provided training courses at banks having such facil-
ities. Subsequently, the Bankers’ Training Centre was established in
1981 and, following the construction of purpose-built premises in 1989,
it was renamed The Bahrain Institute of Banking & Finance (BIBF).
The institute has, over the years, acquired a first-rate reputation for
financial education and training. It offers full-fledged degree
programmes, diploma programmes and short-term courses in conven-
tional and Islamic banking, insurance and capital market-related
subjects.
More recently, BMA, with the support of the government, has
initiated the Human Resource Development Fund, which is aimed at
addressing the evolving needs of the financial services industry by
bridging specific skills gaps and financing specific training
programmes of a professional and technical nature. BMA is also spear-
heading a project to establish an Islamic finance research, education
and training institute.
The future
Going forward, BMA is encouraging the expansion of certain identified
growth areas, such as private and corporate banking, debt and equity
capital markets, insurance, Islamic finance and remote services. BMA
also intends to remain focused on reinforcing its own reputation as a
rigorous, yet innovative, regulator.
3.2
The Regulatory
Framework for the
Financial System
Introduction
At present the role of regulator and supervisor of banking and financial
services in the Kingdom of Bahrain is performed by the Bahrain
Monetary Agency (BMA). The BMA is a creature of statute, having been
established under the Bahrain Monetary Agency Law (Decree No. 23 of
1973) (the BMA Law). In addition to acting as regulator, the BMA is also
responsible both for the issuance and circulation of Bahrain’s currency,
in its capacity as the central bank, and also acts as banker to the
government. In this final capacity, the BMA is responsible for coordi-
nating Bahrain’s public sector borrowing requirements through
monthly issues of government bills and through issues of medium and
longer-term Islamic-compliant Sukuks (or bonds).
The composition and administration of the BMA

Article 3 of the BMA Law states that the BMA is to:
• organize the issue and circulation of currency in the State of
Bahrain,1 as well as foreign exchange operations;
1
Bahrain became a constitutional monarchy on the accession to power of the country’s
present ruler, Shaikh Hamed bin Isa Al-Khalifa. Its position as a constitutional
monarchy was enshrined in the new Constitution of Bahrain, which came into effect on
14 February 2002.
The Regulatory Framework for the Financial System 85
• maintain the value of the currency of Bahrain and endeavour to

ensure monetary stability;
• organize the banking business and control the banking system;
• control and direct bank credit so as to realize the objectives of the
economic policy of the state; and
• participate in the creation of a developed monitory and financial
market.
The BMA was established with a separate legal personality, although it
acts as the government’s banker. There is no express provision in the
BMA Law purporting to give the BMA sovereign immunity. So far as
this writer is aware however, no person(s) have ever commenced
proceedings against the BMA for any actual or alleged acts or omis-
sions in fulfilling its statutory duties.
The BMA is administered by a board, which is comprised of the
chairman, who presides over the board’s meetings, a representative of
the Ministry of Finance and National Economy and three other
members. All board members are appointed for a renewable period of
three years. All members of the board must be Bahraini nationals, and
experts in financial affairs. No member of the board may be an agent,
representative, employee or official of any financial organization, nor
may a member hold more than 10 per cent of the capital of a financial
organization. A board member must not have been previously
convicted of a crime affecting his honour or integrity, nor may he have
been adjudicated bankrupt or have suspended payment of his debts.
The board is the ultimate authority within the BMA, but may seek the
assistance of experts and invite consultants to attend its meetings. Within
the limits prescribed by the BMA Law, the board may exercise all powers
necessary for the performance of its role. In particular, the board will:
• set the monetary and credit policy to be followed by the BMA;
• decide on matters related to the issue, circulation and recall of
currency;
• fix interests and commissions to be charged by the BMA for loans,
advances and the discount of commercial papers;
• lay down the special regulations required for the application of the
provisions of the BMA Law with respect to organization of the
banking business and the exercise of strict control over banks and
other financial organizations;
• approve the annual financial statements of the BMA;
• issue regulations, to be approved by the Minister of Finance and
National Economy, pertaining to the staff and employees of the BMA;
• issue such financial, accounting and other regulations necessary for

the enforcement of the BMA Law; and
• deal with such other matters as may fall within the competence of
the board.
The licensing process

Under the BMA Law, banks and other financial institutions are only
permitted to operate within the Kingdom of Bahrain if they have been
granted a licence by the BMA.
In addition, as with the carrying on of any other commercial
activity in Bahrain, banks and financial institutions will be required
to establish a formal corporate presence in Bahrain, which must be
registered with the Ministry of Commerce. There are various types of
corporate entity that may be established but the most common form
for a bank or financial institution to establish is a joint stock
company.
There are two types of joint stock company:
1. the closed joint stock company (BSC (c)), which is not permitted to
offer its shares to the public; and
2. the public joint stock company (BSC), which is permitted to offers its
shares to the public, and the shares of which will be listed on the
Bahrain Stock Exchange.
The licences currently offered by the BMA are somewhat prescriptive.
The licences permit the licensee to conduct business and operations
within the narrowly defined areas to which the licence relates.
Banks and financial institutions may currently apply to the BMA to
be licensed under one or more of the following licence categories.
1. Full Commercial Bank (conventional)
This licence permits the bank or other financial institution to carry
out all banking activities in local and foreign currencies and with
both residents and non-residents of Bahrain, subject to such condi-
tions that are agreed with the BMA.
2. Full Commercial Bank (Islamic)
This licence permits the bank or other financial institution to carry
out the same activities as the Full Commercial Bank (conventional)
licence, except that the bank must ensure that its activities are in
accordance with the terms of the Islamic Sharia. In addition, the
bank must appoint a Religious Supervisory Board, which is subject
to duties and obligations imposed on it by the bank’s shareholders
and is accountable to them.
3. Investment Bank (conventional)
This licence permits banks to carry out traditional investment and

merchant banking activities (especially in the field of securities)
with non-residents, other banks in Bahrain and the government of
Bahrain. In particular, loans and advances may be made to non-resi-
dents but overdrafts to non-residents are specifically prohibited.
4. Investment Bank (Islamic)
This licence permits the bank to carry on the same activities as are
permitted under the Investment Bank (conventional) licence,
provided that those activities comply, at all times, with the Islamic
Sharia. The bank must appoint a Sharia Advisory Board, which
operates in an identical manner to the Religious Advisory Board
prescribed by the Full Commercial Bank (Islamic) licence.
5. Offshore Banking Unit (conventional)
This licence permits the bank to conduct all banking activities with
non-residents. Unless otherwise agreed with the BMA, and other
than required in the course of its normal business, all the bank’s
activities must be conducted in a foreign currency. The terms of the
licence specifically prohibit the bank from dealing with residents of
Bahrain, with the exception of the government of Bahrain and
licensed banks. Notwithstanding this prohibition, a bank may
participate in domestic development projects with the specific
approval of the BMA.
6. Offshore Banking Unit (Islamic)
This licence permits the bank to carry on the same activities as are
permitted under the Offshore Banking Unit (conventional) licence,
provided that those activities are in accordance with the principles
of the Islamic Sharia. Again, a Sharia Supervisory Board
accountable to the bank’s shareholders must be appointed.
7. Representative Office
The terms of this licence limit a bank to carrying out the following
activities:
– gathering financial, economic and commerical information;
– carrying out general promotional activities; and
– providing assistance of a non-specific nature to resident and non-
resident customers of overseas office.
8. Money Changer
This licence permits the licensed institution to enter into any trans-
action involving the sale, purchase and exchange of foreign
currencies, currency transfer from Bahrain and the purchase and
sale of travellers’ cheques. In addition, the licensed institution is
permitted to deal in precious metals within certain authorized limits.
9. Money and Foreign Exchange Brokers
Subject to such conditions as are agreed in writing with the BMA,
this licence permits the licensed institution to undertake all forms of
money broking and foreign exchange business with institutional,
corporate and governmental customers. The licence prohibits the

licensee from undertaking margin trading or margin finance activ-
ities on behalf of its customers.
10. Investment Advisers/Consultants
This licence limits the licensee to giving advice in relation to:
buying, selling, subscribing for or underwriting investments; the
exercise of any right conferred by an investment; or an
arrangement or scheme involving an investment.
11. Investment Advisers/Brokers
This licence permits the licensee to conduct all the activities
permitted under the Investment Advisers/Consultants licence, as
well as authorizing the licensee to make arrangements acting as
an intermediary on behalf of another person who wishes to conduct
those activities. This licence does not extend to permitting the
licensee to act as principal in investment transactions, margin
trading or holding/managing clients’ funds.
Furthermore, unless such organizations are operating as branches or
representative offices of foreign banks (see below), such organizations
will also need to be registered with the Ministry of Commerce (MOC) in
one of the acceptable forms.
Generally, banks will be established as Bahrain joint stock
companies (BSCs). A BSC may either be closed (in which case its share
capital will be privately held) or open (in which case its share capital
will be listed on the Bahrain Stock Exchange). The rules for listing of
Bahraini and foreign companies on the Bahrain Stock Exchange are
discussed below.
The licensing system currently operated is somewhat prescriptive,
as it involves the granting of a licence only to conduct business and
operations within the particular areas to which such licence applies.
In May 2002, the government announced that regulatory responsi-
bility for the insurance sector and stock exchange would move to the
BMA. This was completed late in 2002.
Supervision of BMA licensees

The BMA issues regulations in respect of the organization of the
banking sector and controls over banks and other financial entities
registered in Bahrain. It also issues financial and accounting regula-
tions, covering required levels of cash reserves and liquidity
percentages.
Investigation
The BMA has wide powers of investigation. It may investigate a bank if
it deems an investigation to be necessary to determine whether the
bank is financially sound and has complied with the BMA Law.
Inspectors must be either the BMA’s own officials or technically qual-
ified consultants appointed by the BMA.
Banks are required to comply fully with the requirements of the
inspectors and must submit all books, minutes of meetings, accounts in
relation their operations in Bahrain and any other such information as
is requested by the inspectors.
If the BMA decides that the bank under investigation is, or has been,
carrying out its operations in contravention of the provisions of the
BMA Law, it may require the bank to take such action as is required to
remedy the breach of the Law. Alternatively, with the approval of the
Ministry of Finance and National Economy, either appoint a suitably
qualified advisor (for whose fees the bank will be liable) to advise the
bank on a remedial course of action or suspend the bank’s licence for a
period not exceeding six months.
Administration of banks by the BMA

In addition to the above powers of investigation, the BMA has the power to
assume the administration of a bank if it becomes insolvent, if its liquidity
is in jeopardy, if there is a risk of it becoming insolvent, if continuing its
operations would be detrimental to the rights of depositors, or if it commits
serious contraventions of the BMA Law. Where the BMA assumes admin-
istration, it assumes all powers with respect to the management and
control of the bank, including, without limitation, the power to continue
the bank’s operations, to suspend the bank’s operations and to suspend or
limit the discharge of the financial obligations of the bank.
Once it has assumed the administration of a bank, the BMA has a
period of six months within which it must apply to the Minister of
Finance and National Economy to liquidate the bank or to return the
administration to the bank. Liquidation is effected by the BMA
submitting an application to the Court. The liquidator enjoys a wide
range of powers, which are set out in the BMA Law. Nonetheless,
he/she must obtain the Court’s approval in order to be able to take one
of the following measures:
1. sell any asset or property of the bank, the value of which is greater
than BD100,000;
2. charge any of the bank’s assets of funds by way of security to one of
the bank’s creditors;
3. enter into any settlement or waiver of rights when the amount
involved exceeds BD50,000.
Capital requirements
The following capital requirements apply in respect of the different
types of banking licence available:
• Full Commercial Bank (conventional): minimum capital paid in

(usually at least BD20 million) is agreed with the BMA on a case-
by-case basis. In addition, an adequate level of capital funds should
be maintained (measured on a risk-weighted basis in accordance
with the Basle arrangements). Minimum risk–asset ratio is set at
12 per cent. Deposit liabilities should not exceed 20 times the
capital and reserves.
• Full Commercial Bank (Islamic): the same provisions in respect of
minimum share capital apply as for conventional full commercial
banks.
• Investment Bank (conventional): minimum paid-up capital is
US$30 million, but appropriate levels are agreed with the BMA on a
case-by-case basis. Adequate levels of capital funds must be main-
tained (measured on a risk-weighted basis in accordance with the
Basle arrangements). Minimum risk–asset ratio is 12 per cent.
Deposit liabilities may not exceed 10 times the capital reserves.
• Investment Bank (Islamic): minimum paid-up capital is US$30 million,
but appropriate levels are agreed with the BMA on a case-by-case basis.
Funds placed with the bank (on-balance sheet items), whether by way
of call or unrestricted investment accounts or otherwise, may not exceed
10 times the capital and reserves (paid-up capital, share premium,
statutory and general reserves).
• Offshore Banking Unit (conventional): minimum paid-in capital is
US$50 million, but appropriate levels are agreed with the BMA on a
case-by-case basis. An adequate level of capital funds must be main-
tained (measured on a risk-weighted basis in accordance with the
Basle arrangements). The BMA has currently set a minimum risk–
asset ratio at 12 per cent. Deposit liabilities may not exceed 20 times
the capital and reserves.
• Offshore Banking Unit (Islamic): minimum required paid-in capital
is US$50 million, but appropriate levels are agreed with the BMA on
a case-by-case basis. Funds placed with the bank (on-balance sheet
items), whether by way of current or unrestricted investment
accounts or otherwise, should not exceed 20 times the capital and
reserves (paid-up share capital, share premium, statutory and
general reserves).
• Money Changer: minimum required paid-in capital of not less than
BD150,000 to be determined by the BMA. In addition, a bank guar-
antee of not less than BD50,000 is required.
• Money and Foreign Exchange Brokers: minimum required paid-in
capital is US$400,000. In the case of a branch entity, the BMA may
require endowment capital. The BMA may also require a letter of
guarantee from one or more shareholder and/or a bank guarantee

for US$1 million.
• Investment Advisers/Consultants: minimum paid-up capital is
BD10,000. In addition, the BMA may require a letter of comfort or a
guarantee in respect of the applicant’s obligations.
• Investment Advisers/Brokers: minimum paid-in capital is
US$400,000. In the case of a branch entity, the BMA may require
endowment capital. In addition, the BMA may require a letter of
comfort or a guarantee in a form acceptable to the BMA and/or a
bank guarantee for US$400,000.
Deposit insurance
A Deposit Protection Scheme and a Deposit Protection Board were
established in 1993. Each eligible depositor under the scheme is
entitled to a maximum of the lesser of (a) three-quarters of the
combined total amount of all eligible deposits with the relevant bank,
and (b) BD15,000, irrespective of the number, type, value and currency
of eligible deposits. An overall limit payable under the scheme in any
one calendar year is set at BD25 million, although the Governor of the
BMA can change this figure. Procedures for making a claim are set out
in the regulations.
Full commercial banks must notify potential depositors of the
scheme using prescribed wording, and are encouraged to notify account
holders as to the existence of the scheme.
Rules on loss provisioning, asset quality standards and

liquidity standards
The BMA has issued guidelines as to the categories of loans to
borrowers experiencing difficulties, against loans to countries with
current or potential debt servicing difficulties, and the level of
provision that a bank should make.
Specific provisions for bad and doubtful debts (and non-performing
assets) should be maintained in the books of the branches of foreign
banks in Bahrain. If not possible, the branch’s head office must advise
the BMA annually in writing of the amount of provision for bad debts
(and non-performing assets) made in respect of the branch.
The BMA has also issued guidelines on the need for realistic assess-
ments of asset quality to be made, as an essential feature of effective
risk management.
For all types of bank, the maintenance of adequate liquidity is the
responsibility of management. Liquidity policy must be agreed with
the BMA with regard to a stock of high-quality liquid assets and ability
to meet obligations as they fall due. For conventional banks, primary
liquid assets should be held of not less than 25 per cent of total deposit
liabilities. Arrangements for local liquidity of branches of foreign banks
should be considered on a case-by-case basis.
For Islamic banks, primary liquid assets (which include cash and
balances with the BMA, balances with other banks and financial insti-
tutions maturing within one month, investments in commodities,
trading and marketable securities) should be held of not less than
25 per cent of total on-balance sheet funds placed with the bank
(whether by way of current or unrestricted investment accounts).
In addition, conventional full commercial banks should maintain a
daily cash reserve balance of five per cent of Bahraini dinar deposits
from non-bank customers and Bahraini dinar-denominated certifi-
cates of deposit with the BMA. Full commercial Islamic banks are also
subject to similar requirements as specified by the BMA.
3.3
Bahrain as an
International Centre
for Islamic Banking
Farah Khalid, Supervising Consultant,
Islamic Financial Services Group,
Ernst & Young, Bahrain
Introduction
The Islamic financial industry was formally established in the 1970s in
Bahrain with the formation of Bahrain Islamic Bank. At that time the
level of sophistication and reach of the industry was limited. Over the
last two decades, the Islamic financial industry has emerged as a
powerful force, with Bahrain at its centre, and has become one of the
fastest growing sectors of the financial industry. The rise and rein-
forcement of the industry can, in part, be attributed to the Kingdom of
Bahrain, the hub for Islamic financial services in the Middle East.
This chapter aims to highlight the Islamic financial services
industry in Bahrain. It will first examine the overall industry and how
Bahrain has become the centre for Islamic financial services. The
current initiatives underway to further cement Islamic finance as a
major sector of the financial industry and the current activities in the
industry will also be brought to light.
The industry
The Islamic financial industry as a whole has experienced growth
rates of 10–15 per cent1 (in assets) over the last few years, with total
assets estimated by various industry sources to be in the range of
1
Industry Perspective 2004, Islamic Banking Hub, January 2004; a BMA publication.
US$200–300 billion in the banking sector alone. Total assets for the
industry, including asset management and insurance are estimated to
be double that size. Islamic banking and finance exists in over 75 coun-
tries and includes commercial and investment banking, asset
management, and Islamic insurance and reinsurance (takaful and
retakaful) operations (see Figure 3.3.1). In addition to the countries of
the Middle East, North Africa and Asia, western countries such as the
US and Europe are also home to Islamic financial operations through
Islamic windows.2 Multinational institutions, spotting the opportunity
in the industry, have also started Islamic operations, including:
• Citibank (Citi Islamic Investment Bank);
• HSBC (Amanah Finance);
• UBS (Noriba);
• Standard Chartered Bank (SCB Islamic);
• Hannover Re (retakaful pool).
The fastest growing sector in the Islamic financial services industry is
often quoted to be takaful. Takaful premiums amounted to US$2
billion (at the end of 2002) and are expected to reach US$12 billion by
2015.3 Takaful companies or operators are mushrooming in the region
and conventional insurers are also launching takaful divisions to
capture some of this demand.
Islamic Banking Assets Takaful Premiums

Other Asia
Asia 6% Europe & Europe
Pacific 3%
US 2% Arab 0.2%
Africa 4% countries Iran 38%
21%
Rest of Malaysia
M. East 38% GCC 50% 38%
Assets as of 2003 Premiums as of 2002
Figure 3.3.1 Islamic banking assets and takaful premiums
2
Sub-operations of full-service banks, offering Islamic banking products thorough a
separate ‘window’ – department, for example, without its own legal or brand identity.
3 Takaful – Global Overview and Opportunities Ahead, Ajmal Bhatty.
Bahrain as an International Centre for Islamic Banking 95
Islamic vs conventional banking: in the interest

of profit
What are the cornerstones of Islamic banking and finance that distin-
guish it from conventional finance and make it a unique system unto
itself? The main principles guiding the activities of Islamic financial
institutions are:
• the prohibition of ‘Riba’ or interest-based activities;
• avoidance of ‘Maisir’ or speculation and/or gambling;
• removal of ‘Gharar’ or uncertainty from transactions;
• participation in only ‘Halal’ activities (prohibition in the financing of
activities involving alcohol, pork-based products, gambling institu-
tions, tobacco, cinema, pornography, arms and ammunition,
interest-based financial institutions, etc);
• the principle of profit and loss sharing. There is a burgeoning retail
banking market with consumer finance, deposit and saving schemes
based on profit sharing principles. Islamic banks accept deposits in
the form of Investors’ Accounts whereby the Investors (depositors)
share in the profits (and losses) of the bank, with the bank acting as
a fund manager rather than a financial intermediary paying
interest for the use of depositors’ funds;
• asset-backed financing. The Islamic bank acts as a financier or equity
partner/provider to a tangible asset, and receives profits generated
from such a tangible asset (commodity-backed transactions);
• returns based on risk-taking (there exists no risk-free rate in
Islamic financing). For example, in takaful structures, the insured
parties take on the insurance liability of the entire pool of insured,
thus receiving dividends for the risk they have underwritten. As the
takaful operator does not assume the risk per se, it does not derive
profit from the technical surpluses arising out of an insurance pool,
but rather receives a commission or fee for the management of the
funds and investment profits.
The implications of Islamic principles in the realm of finance make for
a varied form of banking, asset management and insurance, but in no
way undermine the sector’s strength. The Islamic financial system is
based on profit rather than interest, and thus all transactions are
structured in a manner different from conventional financing transac-
tions. Table 3.3.1 outlines a brief description of some Sharia-compliant
financing structures used in Islamic finance.
Table 3.3.1 Sharia-compliant financing structures
Structure Unique Characteristics Application
Murabaha Cost plus asset backed financing Consumer financing

Islamic bank (‘bank’) purchases Corporate financing
an asset for the client Working capital
Bank sells the asset to the client, Capital expenditure funding
with a built-in profit element Term lending
Client purchases asset on a
deferred payment basis
Mudarabha Partnership involving a financier Asset management
and entrepreneur and/or fund Liability products (deposits)
manager
Bank manages funds for a client
into a project for a fee
Client receives profit from the
projects revenues
Musharika Financing through equity Venture capital
participation Equity financing
Joint venture capital participation Treasury (equity portfolio)
into an enterprise (clients partner
with the bank)
Profit and loss sharing model
Ijara A lease transaction – can be Consumer and corporate
structured as a financing or leases
operating lease Securitizations
Bank purchases the asset to
lease it to the client
Client usually leases on a
buy-back basis
Islamic bank receives either rental
payment or profit
Salam Deferred delivery sale contract Commodity finance
Bank makes spot payment for
future delivery of asset
(finances purchase)
Client purchases asset from bank
and pays bank on delivery
Istisna Similar to Salam Trade finance
Deferred delivery sale contract Work in progress financing
where payments made on (construction)
progressive basis
Takaful Structured as pools of insured risk, Property and casualty
with the risk underwritten by (general takaful)
participants in the pool Life insurance (family takaful
(the insured parties) – savings schemes, life,
Takaful operator acts as manager health and medical takaful
and investor of insurance/takaful and retakaful)
premiums and earns a fee
Participants receive returns on their
invested funds and possible
dividends from technical surpluses
Retakaful or Islamic reinsurance is
structured similarly
While Table 3.3.1 is not exhaustive, it is representative of Islamic

financial transactions. However, Islamic financial institutions are able
to tailor transactions for their clients according to the broad stipula-
tions of the Islamic structures. Continuous work is being conducted by
the industry to arrive at innovative Islamic structures to increase the
depth of the industry and satisfy increasing client sophistication and
demand. The trend mostly revolves around the development of new
and more sophisticated products to serve the Islamic banking and
asset management industry. Initiatives are underway for Sharia-
compliant money market instruments. Also, Islamic banks have moved
away from ‘plain-vanilla’ financing structures to more complex and
structured transactions, and this movement is seen as continuing to
grow in the face of increased competition and demands from investors.
The real estate sector has become an important asset class for
investment banking transactions and other alternative investment
classes are also being explored. With the increased sophistication of the
Islamic banking model, competitive service offerings, and the proven
success of the industry, more investors and clients are turning towards
Islamic institutions to meet their needs.
In the pursuit of the above, the industry faces certain limitations. The
most pressing challenge is that of a lack of an active Islamic interbank
fund market. The industry, growing at such a rapid pace, is flush with
liquidity, and has limited short-term investment options for liquidity
management. Other issues facing the industry include the lack of
harmony between Sharia boards (especially between the Middle East
and Asia). The industry as a whole and its main supporters are
addressing these issues to promote further growth of the industry. Much
of the future of the Islamic financial industry rests on the resolution of
these issues, as they are proving to be roadblocks in the way of progress.
Bahrain: The centre for Islamic finance

Bahrain is one of the few global financial markets operating a dual
banking regulatory environment. The conventional and Islamic financial
sectors operate in parallel, in the same market, and are governed by one
regulator – the Bahrain Monetary Agency (BMA). The BMA has been
innovative in its approach to the financial sector, devising separate
prudential regulations for both financial systems, thus providing the
framework that has enabled Bahrain to become the financial capital of
the Middle East and arguably the hub of Islamic finance.
The financial sector in Bahrain established itself out of the need for
diversification of the economy. Despite being a country located in the
oil-rich Arabian Gulf, Bahrain was not characterized by vast reserves
of oil as its neighbours were (although a large portion of the economy
did, and continues to, rely on the oil sector). The government, to reduce
reliance on the oil sector, turned to a policy of diversification, focusing
its efforts on the financial sector. This was a natural choice as Bahrain,
traditionally a trading hub with much commercial and financial
activity, lent itself to a formal and institutionalized financial industry.
With its open yet sophisticated regulations, tax-friendly environment,
and enabling institutions, Bahrain emerged as the financial centre in
the region promoting all areas of financial activity – including Islamic
banking and finance (see Figure 3.3.2).
5 commercial Islamic banks

16 investment banks
45 Islamic mutual funds
3 offshore banks
1 representative office
2 investment advisors/brokers
16 takaful operators
Total assets of the Islamic banks – US$4.5 billion
Figure 3.3.2 Bahrain’s Islamic finance industry
Key initiatives for the promotion of Islamic

banking
Bahrain has taken on the immense responsibility of being the main
promulgator of the Islamic financial industry. To fulfil this role,
Bahrain has become home to many institutions that form the infras-
tructure for the industry (see Figure 3.3.3). The different institutions
were established to meet certain objectives, all with the common goal of
aiding the growth and strengthening the Islamic financial sector. The
institutions range from large, multilateral sponsored organizations to
smaller, focused bodies.
The supporting institutions are making an effort to smoothen out
the challenges currently facing the industry. Bahrain has instituted
the Liquidity Management Centre in an effort to address the issue of
lack of short-term investments for liquidity management. The BMA
has taken a personal interest in the liquidity management of Islamic
banks, and launched a regular, monthly programme of the issuance of
short-term Islamic bonds or Sukuk, showcasing its strong support for
the betterment of the industry. The Sukuk programme has encouraged
development and growth in the industry by providing an avenue for
investment of Islamic funds.
The BMA, through the use of the Ijara financing model, structured
Sukuk-al-Salam, which are asset-backed, short-term, Sharia-
compliant bonds that can be traded on secondary markets. The BMA
AAOIFI LMC
The Accounting and Auditing The Liquidity Management
Organization for Islamic Centre was established in 2002
Financial Institutions. It was in Bahrain to develop an active
established in 1990 in Bahrain secondary market of Sharia
as the international standard compliant treasury products. The
setter for the industry, focused main mandate of the LMC is to
on accounting, auditing, facilitate the creation of an
governance and transparency. interbank money market, provide
investment opportunities,
provide short-term liquidity,
IIRA tradeable instruments, and act
The International Islamic Rating as market maker.
Bahrain’s
Agency was instituted to
Enabling
provide rating services to the
Institutions GCIBFI
industry and Islamic financial
instruments. (It has yet to The General Council for Islamic
commence operations.) Banks and Financial Institutions
was set up to promote market
understanding of the industry.
IIFM The GCIBFI organizes seminars
The International Islamic and provides employee training
Financial Market started programmes.
operations in 2002 in Bahrain
with the objective to provide a
cooperative framework for the BIBF
growth and promotion of the The Bahrain Institute of Banking
Islamic financial market. Its and Finance provides training in
roles are to encourage cohesion the form of courses to the
of Sharia interpretations, and to financial industry with special
encourage the creation of the courses focused on Islamic
secondary market. finance.
Figure 3.3.3 Bahrain’s enabling institutions
has been committed to bringing to market a new issue, amounting to

US$25 million on a monthly basis due to its acknowledgment of the
dearth of tradable money market instruments for the liquidity
management of Islamic institutions (see Table 3.3.2).
Table 3.3.2 BMA’s Sukuk programme
No. of issues Total amount issued Listing
Sukuk al Ijara 10 US$1,130,000,000 BSE & Luxembourg,

Labuan4
Sukuk al Salam 37 US$950,000,000 Bahrain Stock
Exchange
Total 47 US$2,080,000,000
Source: BMA
4 Other stock exchange listings in relation to the international Sukuk issue.

The BMA has recently launched its first international Sukuk worth
US$250 million, listed on the Luxembourg exchange (also listed in
Bahrain with a secondary listing in Labuan).5 Witnessing the potential
of the BMA Sukuk, other Sukuk issues have been launched, including
sovereign issues (Qatar: US$700 million; Malaysia: US$600 million),
multilateral institutions issues (IDB: US$400 million) and corporate
issues (UAE’s National Central Cooling Co: US$100million).6
The Accounting and Auditing Organization for Islamic Financial
Institutions (AAOIFI) has been instrumental in increasing investor
confidence in Islamic institutions. AAOIFI has released reporting stan-
dards for the Islamic industry, inspired by conventional standards
(IFRS), which have been widely acknowledged by the industry, and are
being adopted by Islamic banks in the country and the region, as well
as in Malaysia.
Private institutions have also been established to serve the Islamic
financial industry, including consulting firms and investment advisory
companies. One such specialized organization is the Islamic Financial
Services Group (IFSG) of Ernst & Young (E&Y) in Bahrain. The Middle
East practice of E&Y is an independent professional firm, which has
operated in the region since 1923 and is a full member firm of Ernst &
Young International. The Bahrain practice of E&Y is home to IFSG.
IFSG is a specialist group providing advisory and consulting services
to the Islamic financial industry. IFSG has built strong relationships
with key Islamic financial institutions in Bahrain and the Middle East
region, and is now branching out to provide similar services to other
global Islamic financial institutions. IFSG’s roster of services includes
strategic business plans, market feasibility studies, structured finance
and business restructuring advice, regulatory advice and risk
management solutions. IFSG is run by a team of dedicated profes-
sionals with a strong track record in the industry.
Recent activity on the Islamic financial front

While the institutions were set up to support the Islamic banks on a
macro level, Bahrain has also taken on initiatives with more focused
objectives and results (see Table 3.3.3).
Other major initiatives in Bahrain for the Islamic financial sector
include:7
• The launching of the first US-dollar denominated Sukuk, which is the
industry’s longest tenor Sukuk to date – with a maturity of 10 years.
5 $250m Ijara Sukuk Launched’, Islamic Finance Review, July 2004; a BMA publication.
6 Islamic Banker, March 2004.
7 Source: BMA.
• The launch of a new Islamic Investment Bank in the country in May

2004. The bank has been sponsored by investors from Saudi Arabia
and Kuwait with an initial paid up capital of US$120 million and
with activities ranging from structured finance and asset
management to investment services for global clients.
• The Bahrain Stock Exchange and the International Islamic
Financial Market have signed a memorandum of understanding to
work together in promoting listings and secondary market trading
of Islamic financial products.
• The Bahrain Financial Harbour, a mega real estate project aimed at
cementing Bahrain as the financial capital of the Middle East and
bringing further investment to the sector, has been initiated by Gulf
Finance House. The US$1.3 billion project will help promote the
Islamic financial industry as a whole, with strategic investment
zones and liberal regulations to attract private sector investment.
• The Islamic Financial Services Board has planned to introduce new
standards of corporate governance and Sharia compliance for the
industry.
• BMA is set to launch a retakaful operator in Bahrain to serve the
needs of the takaful industry both regionally and globally. The
retakaful operator is being promoted by the BMA to help capitalize
the retakaful industry, and encourage growth of the takaful sector.
• The BMA is in the process of releasing separate rules to regulate the
takaful and retakaful industry. The regulations will cover issues of
controls, segregation of funds, solvency, valuation, etc.
• The IIFM has six new members due to its marketing efforts. The new
members are Bank Muamalat Indonesia, Citi Islamic Investment
Bank, Jordan Islamic Bank, Malaysian Rating Corporation, Bank
Rakyat Malaysia and the Securities and Commodities Authority of
the UAE.
Strong growth has been witnessed in the Islamic financial industry.
The industry has received a boost from a proven business model that
has growing appeal among the Muslim populations around the globe.
Proof of that is the significant amount of GCC investors’ funds
returning to the region from abroad with a high propensity to choose
Islamic investments. With the return of capital to the region, the
Islamic financial marketplace has benefited from larger balance
sheets, and thus more freedom to pursue alternative investment
options. The innovation taking place is capturing more clients, and
further promoting growth. Bahrain has been at the forefront of the
industry, and is committed to enhancing its position as the Islamic
financial hub of the Middle East and possibly of the world.
Table 3.3.3 Notable Islamic financial transactions
Transaction Details
Hidd Power Project8 US$55million Islamic funding tranche in

total US$300 million facility.
Aluminium Bahrain9 US$250 million Islamic facility as part of
US$1.55 billion expansion funding facility.
First Islamic Investment Bank10 Completed first UK direct equity deal with
the acquisition of a 33 per cent stake in
Beaufort Wind, owner of a portfolio of
energy farms in the UK.
Shamil Bank of Bahrain11 In cooperation with BSEC Investment Bank
of Lebanon, launched the first auto-backed
Sukuk.
Acknowledgements
Sources of information used to compile this chapter include:
• Bahrain Monetary Agency publications;
• Middle East Economic Digest website;
• Gulf Daily News;
• Islamic Finance, Justice Taqi Usmani;
• Islamic Banker;
• Ajmal Bhatty’s research;
• Ernst & Young internal resources.
8 ‘Hidd Deal Ready for Signing’, 5 April 2002; MEED.com.

9 ‘Steady Progress on Alba Debt’, 17 January 2003; MEED.com.

3.4
Retail Banking in
Bahrain: An Overview
Elham Al-Koohiji, Project Manager, Research
& Development, Business Development
Division, Bank of Bahrain & Kuwait
Bahrain today is home to a large number of financial institutions,

whether retail banks, investment houses, brokerage firms, or insurers.
Bahrain’s financial sector is considered to be one of the most advanced
in the region, offering a wide range of sophisticated products and
services and employing a significant portion of the local workforce.
Bahrain’s commercial banking, in particular, is a mature and well-
regulated sector that has, over many years, contributed to the economic
growth and well-being of society. Commercial banks are defined here
as financial institutions that operate onshore to provide institutional
and individual clients with an array of financial solutions. In the
following paragraphs, we present an overview of Bahrain’s vibrant
commercial banking sector.
Market size, growth, and composition

The commercial banking sector in Bahrain was estimated at a size of
US$12 billion in total assets at the end of the 2003. This represents
around 12 per cent of the total banking industry in Bahrain,
comprising commercial banks, offshore banking units, and investment
banks. Bahrain’s commercial banking sector has witnessed steady
growth over the past decade or so, in line with the expansion in the
local economy. The annual growth rate in the sector’s asset base over
the past five years (1999 to 2003) has been to the tune of 5 per cent.
In terms of the composition of the commercial banking asset base, the
bulk of the funds are naturally invested in privately-held debt instru-
ments (loans to individual and institutional clients and investments in
non-governmental securities). As for sector-wise concentration of

commercial banks’ loans and advances, lending to persons (individual
customers) represents a significant 45 per cent of the total portfolio.
Lending to the government (mainly through holding government issued
bills and bonds) stands at around 8 per cent. The remainder is invested
in the business sector, with the trading and manufacturing sectors at
the forefront (at 16 per cent and 14 per cent respectively).
On the liabilities side, private non-bank deposits represent the main
source of funds for commercial banks, accounting for more than half of
the sector’s liabilities. Time deposits make up close to half of the total
deposit base.
Market constituents
Bahrain, today, poses as a competitive arena for a large number of
Islamic and conventional commercial banking institutions in what
seems to be a densely populated banking sector. The following table
presents a snapshot of Bahrain’s commercial banking sector.
As shown in Table 3.4.1, Bahrain is home to 24 full commercial
banks (FCBs), four of which operate in accordance with Islamic Sharia
principles. The majority of the commercial banks operating in Bahrain
are branches of regional or multinational financial institutions, such
as Citibank, HSBC, and BNP Paribas. These banks have opted to set up
operations in Bahrain mostly to take advantage of regional business
opportunities, on the backdrop of an open, well-regulated, and
advanced banking environment.
In terms of market dominance, however, the sector is mostly
captured by a handful of large (by local standards) locally incorporated
banks – namely, Bank of Bahrain and Kuwait, National Bank of
Bahrain, and Ahli United Bank. Today, these financial institutions offer
a wide range of corporate and retail banking products, and provide a
high level of customer service through wide networks of conveniently
located branches and automated teller machines (ATMs). Locally, these
banks enjoy well-respected brand names. Locally-incorporated
commercial banks, however, are considered to be small in size and scope
by international, and even regional, standards.
Mergers and acquisitions in Bahrain have been rare occurrences
in the past, while organic growth has been close to natural growth. As
a result no significant changes to the regional ranking of locally-
incorporated banks have come about in recent years. Small size – and
the consequent capital restrictions – limits the ability of these banks
to partake in major regional project finance transactions.
Retail Banking in Bahrain: An Overview 105
Table 3.4.1 Constituents of Bahrain’s commercial banking sector
Bank name Date of Head Comments

establishment office +
branches
1 Al Baraka Islamic 21 Oct 01 1+0 Islamic

Commercial Bank EC principles
2 Ahli United Bank (Bahrain) 1 Oct 01 1 + 14
BSC (c)
3 Arab Bank PLC 5 Dec 60 1+3
4 BNP Paribas 19 Feb 75 1+0
5 Bahrain Islamic Bank BSC 29 Oct 78 1+7 Islamic
principles
6 Bahraini Saudi Bank BSC 19 May 83 1 + 5
7 Bank Melli Iran 8 Jul 70 1 + 1
8 Bank Saderat Iran 8 Jul 74 1 + 0
9 Bank of Bahrain and Kuwait 16 Mar 71 1 + 18
BSC
10 BankMuscat (SAOG) 13 Feb 02 1+0
11 Citibank NA 2 Dec 69 1+1
12 Gulf Finance House (BSC) EC 20 Oct 03 1+0 Islamic
principles
13 HSBC Bank Middle East 16 Dec 44 1+3
Limited
14 Habib Bank Limited 17 Nov 68 1+2
15 Kuwait Finance House Islamic
(Bahrain) BSC (c) 9 Dec 01 1+0 principles
16 National Bank of Abu Dhabi 19 May 01 1+0
17 National Bank of Bahrain BSC 1 Jan 57 1 + 24
18 National Bank of Kuwait SAK 11 Jun 02 1+0
19 Rafidain Bank 1 Jul 69 1+0
20 Saudi National Commercial 20 Jul 02 1+0
Bank
21 Shamil Bank of Bahrain EC 23 Feb 93 1+5 Islamic
principles
22 Standard Chartered Bank 11 Aug 18 1+4
23 The Housing Bank for Trade 11 Jun 02 1+0
and Finance
24 United Bank Limited 22 Mar 69 1+2
Source: Bahrain Monetary Agency
Islamic banking as a growing sub-sector

Today, Bahrain boasts a dual banking system, accommodating both
Islamic and conventional financial institutions, and stands as an inter-
national hub for Islamic finance, rivalled by only Malaysia. With two-
thirds of GCC-based Sharia-compliant players calling it home,
Bahrain’s Islamic financial services industry comprises around 30
different Islamic full commercial banks (FCBs), offshore banking units
(OBUs), investment banks (IBs), representative offices, brokerage and
advisory firms, and takaful companies.
On the retail front, four full commercial banks operate on the
shores of Bahrain in accordance with Islamic Sharia principles (see
Table 3.4.1). Islamic FCBs in Bahrain have realized the value of
quality service and product innovation and have made substantial
strides on those fronts. These Sharia-compliant players stand today
as formidable contenders to their conventional counterparts, having,
in a few years, attracted considerable banking business. Islamic
financial institutions in Bahrain have come a long way to success-
fully meet and, at times, even exceed mainstream banking standards,
thus appealing not only to the Sharia-conscious but to a wider
audience.
Products, services, and delivery channels

Today, the range of products and services offered by commercial banks
in Bahrain is on par with the best in the world. All commercial banks –
whether conventional or Islamic – offer retail and corporate banking
products and services in one form or another. At the retail level, the
offerings include personal finance, mortgages, credit and debit cards,
money transfers, and savings and current accounts. Some commercial
banks even offer ‘plain-vanilla’ investment accounts and basic forms of
bancassurance. On the other hand, corporate clients enjoy access to
funding through tailored lines of credit and bank loans. Commercial
banks also offer their institutional clientele trade finance facilities and
demand and time deposit accounts.
Delivery channels are numerous, ranging from traditional bricks
and mortar outlets to state-of-the-art online banking services. Most
banks maintain a wide physical distribution network, comprising
traditional branches and ATMs. Electronic banking, however, is
gaining momentum as a number of banks strive to migrate routine
non-value adding transactions to e-channels by appealing to the
customers’ search for convenience. The Bank of Bahrain and Kuwait
(BBK) is considered to be a leader in this arena, with an arsenal of
modern and customer-friendly electronic banking solutions. BBK
Retail Banking in Bahrain: An Overview 107
provides its customers with online banking, telebanking, SMS-

banking, and a state-of-the-art electronic contact centre.
Competitive strategy
Bahrain’s commercial banking industry is a battleground of intense
competition fueled by a continuous quest for market share in a small
marketplace. The lack of economic diversity has resulted in somewhat
concentrated loan books and an over-exposure to the retail sector,
which itself is capped by a population count of 700,000 – a third of
which is non-local. As a result, the retail sector is characterized by cut-
throat pricing, big marketing budgets, and an unwinding race for the
customer’s attention. In Bahrain’s retail banking market, customers
are spoilt for choice.
Generally, locally-incorporated banks appeal to the mass market,
with much emphasis placed on extensive marketing campaigns and
competitive pricing. Given the mix of products and services carried, and
the wide distribution networks maintained, these financial institutions
cater to most of the demand for basic banking products and services in
the local market. Segmentation is not very visible amongst these banks.
Branches of multinational banks, on the other hand, provide more
advanced banking solutions and cater mostly to more affluent
customer segments. These banks are highly active at the institutional
level, participating in major public and private sector projects.
The regulator
Recognizing and acknowledging the importance of nurturing Bahrain’s
financial sector, the Bahrain Monetary Agency (BMA) has long served
not only as a regulator, but also as a catalyst for the growth of the
industry. The BMA has been actively involved in developing and encour-
aging the implementation of industry best practices, attracting new
players, and sponsoring the development of innovative new products,
processes, and concepts. The BMA has been pioneering in its efforts to
create an operating environment that is conducive to the growth and
success of both conventional and Islamic financial institutions. Going
forward, the BMA appears adamant in its drive to create a sustainable,
transparent, and trustworthy financial services marketplace.
Going forward
Bahrain’s commercial banking sector is a competitive one, with well-
established players and a mature product-service offering. With
economic liberalization well under way, the situation in the financial

services industry is poised to head in only one direction. As competition
in the local market intensifies and organic growth decelerates, we
expect to see a move towards cross-border expansion as regional
economies converge and open up. The pace of mergers and acquisitions
is also expected to accelerate as local – and regional – banks come to the
realization that in light of an increasingly challenging marketplace,
consolidation is the only way forward.
3.5
Bahrain Financial
Harbour: Reinforcing
Bahrain’s Position as
the Financial Capital of
the Middle East
Bahrain Financial Harbour
Introduction
Although a relatively tiny island country from the perspective of the
territory over which it is sovereign, the Kingdom of Bahrain is widely
regarded as the giant of the Middle Eastern financial services sector.
With over 360 financial institutions either based or represented in the
Kingdom, a world class regulatory environment provided by the
Bahrain Monetary Agency (BMA), which is the Kingdom’s central
bank, access to some US$100 billion held in Islamic Funds and an
amazing US$1.3 trillion in regional private wealth maintained in
various forms in the region, it is not surprising that Bahrain has
become widely regarded as the financial capital of the Middle East.
Many impressive modern buildings have appeared in Bahrain as a
reflection of the strength of the country’s financial sector, with the
capital city, Manama, having benefited from the emergence of a
number of striking new real estate complexes and architectural devel-
opments in recent years. The expansions of the diplomatic area, the
establishment of the Seef District on the edge of central Manama, and
the various new developments around the island are just some of the
new, spectacular additions to Bahrain’s residential and financial
skyline that have appeared in recent years. However, by all accounts it
seems that the best is yet to come.
The Bahrain Financial Harbour (BFH) is a US$1.3 billion master-
planned development on prime seafront property in Manama, integrating
finance, commerce, leisure, lifestyle and the arts, and is scheduled for
completion in early 2009. This landmark project has been designed to
address every single need of the financial services sector and upon
completion will, without doubt, become Bahrain’s most impressive devel-
opment feat to date. Construction on BFH is currently under way, and the
key features of this unique waterfront development project include the
following:
• 30 individual development units, collectively offering over 500,000 m2
of office, residential, retail, dining and leisure space;
• the Financial Centre, the hub of all monetary activities, includes the
Dual Towers, the Financial Mall, and the Harbour House;
• ample lifestyle options with up-market residences, retail and leisure
outlets, including a luxury hotel and the Bahrain Performance Hall;
• exciting alternatives for relaxation with an array of seafront
walkways, shopping boulevards, promenades, a marina, water
pathways, water taxis, coffee shops and dining facilities.
A landmark financial sector development

BFH development covers an area of some 380,000 m2, formed from a
series of connecting islands formed from reclaimed land. The devel-
opment is located on the Manama Corniche, on the northern seashore
of the main island of the Kingdom of Bahrain, and reflects the unique
heritage design and the modernized financial sector of Bahrain.
Once the Financial Centre is completed, the first phase of the devel-
opment, it will become home to the leading institutions in Bahrain’s
financial sector and will consolidate the country’s position as the
financial capital of the Middle East.
The Bahrain Financial Harbour development will also contain an
insurance centre, upmarket residences, retail and leisure outlets, a
luxury hotel, and the Bahrain Performance Hall, which will house the
Royal Opera House.
The Financial Centre

At the heart of the Bahrain Financial Harbour will be the Financial
Centre, which will be developed exclusively to provide a high-tech,
sophisticated environment for international and regional banking. Work
space will be designed in harmony with living and leisure arrangements
within the Bahrain Financial Harbour. Designed as a distinctive new
architectural landmark for the region, the Financial Centre comprises
the Dual Towers, the Financial Mall and the Harbour House:
Company Profile: Bahrain Financial Harbour 111
1. The Dual Towers: At an imposing 53 storeys, the uniquely designed

Dual Towers will become the most visible and striking buildings on
Manama’s skyline. Offering beautiful panoramic views, the towers
will provide office and commercial space for the financial sector.
2. The Financial Mall: Spread over 78,000 m2, the Financial Mall is an
eight-storey building set to recreate the ambience of a convenience
mall for financial products. It will host everything related to
financial services, catering specifically to the capital and retail
financial markets. Put simply, the Financial Mall takes the concept
of a modern shopping mall and applies it to finance and ancillary
activities and will offer an array of finance-related activities and
services under one roof. Designed specifically for capital markets, it
will house the Bahrain Stock Exchange and will harbour a retail
environment for finance and investment services firms such as
stockbrokers, market makers, proprietary investment firms,
futures commission merchants and options brokers, as well as
other exclusive retail outlets.
3. The Harbour House: Directly linked to the Financial Mall via a
suspended bridge, the Harbour House is poised to create the
ultimate working space. The Harbour House is a 10-storey building
that is roughly circular in plan, with an approximate diameter of
28m. The building has primarily been set up for media-based enter-
prises such as television and satellite broadcasting stations,
publishing houses or strategic marketing and media consultancies
that will benefit from the financial-based businesses of Bahrain
Financial Harbour. With the judicious combination of work and
leisure space, the Harbour House is the ideal place for the business
parties to converge.
The Financial Centre will aim to provide optimum infrastructure,

office and leisure facilities, including ample parking, an atrium and a
helipad for the business community. Highlights of some of the other
facilities provided to the tenants of the Financial Centre include the
following:
• unique district cooling systems, reducing electricity and mainte-
nance costs and eliminating roof chillers;
• central building management services:
– per tenant billing based on area as opposed to a blanket cost;
– value-added services including parking allocation, lift call func-
tions, lights and AC automation;
– sophisticated security systems including CCTV and access
control via smart cards;
• electricity will ultimately be provided to the Financial Centre from
two substations to make the power supply 100 per cent redundant;
• water will be supplied by the Water Distribution Directorate to the

Bahrain Financial Harbour bulk connection and reservoir and then
redistributed to the Financial Centre from a water pressure tower;
• chilled water for the Financial Centre’s air conditioning require-
ments will be produced at a remote chilled water plant for internal
circulation.
The Financial Centre will aim to support world-class business growth
and serve the needs of individuals, groups and communities that want
to build business value and enhanced commercial success for their
organization. These will include:
• investment banks;
• commercial banks;
• offshore banking units;
• representative offices;
• insurance and reinsurance companies;
• takaful and retakaful companies;
• legal and advisory services;
• fund managers;
• IT firms;
• professional institutes;
• Sukuks and equity;
• leasing banks;
• international regulatory agencies;
• financial consultants;
• real estate investment trusts.
This new financial community will also require a comprehensive range
of logistics support and ancillary services that will benefit from the
companies establishing themselves at BFH, including providers of
health and educational services, recreational and leisure facilities
companies, media services, and logistical business support services.
The Bahrain International Insurance Centre

The 18-storey stand-alone Bahrain International Insurance Centre
(BIIC) will also be constructed alongside the Financial Centre within
the eastern commercial complex and is due for completion mid-2006.

The BIIC will house Bahrain’s growing regional and international
insurance sector, including insurance companies (both conventional
and Islamic), reinsurance majors and providers of specialist insurance
services, making it the single largest composite development in the
regional insurance industry. The BIIC environment is being specifi-
cally designed to cater to new companies, both from the region and
internationally, that are seeking a regional base for their operations.
By offering shared facilities and state-of-the-art services, the BMA
envisions the BIIC as a catalyst for the formation of an ‘insurance
cluster’ within the Kingdom.
Ongoing construction on the BFH development
Construction of the Financial Centre – Phase One of the development,

which includes the Dual Towers – the Financial Mall and the Harbour
House began in March 2004 and is due for completion by the end of
2006. The engineering and construction contract for the Financial
Centre was awarded to Al Hamad Development & Construction Co in
March 2004. The Financial Centre, with an estimated value of over
US$250 million, will generate about 2,000 new jobs for Bahrain over
the next three years within the construction and engineering fields.
The second reclamation phase was awarded to Bahrain-based
Ahmed Mansour Al Aali Company in June 2004 and will be carried out
in two parts, both of which are scheduled for completion by April 2006.
The total reclaimed land in this phase covers an area of approximately
179,000 m2.
Once completed, BFH will have a highly visible presence on the
Bahrain skyline, located only 20 minutes from the King Fahad
Causeway (which links Bahrain to Saudi Arabia), and 10–15 minutes
from Bahrain International Airport. The design concept for the BFH
was developed by Ahmed Janahi Architects, a leading architectural
firm in the region. The design drew heavily on Bahrain’s trade and
pearling heritage and, as will be seen in the design, the sail is ubiq-
uitous, with each building designed to reflect the various sails used by
dhows that once sailed the seas of the Bahrain coast.
Professional studies
A number of professional studies were carried out prior to commencing
construction work on the project, to ensure harmony with Bahrain’s
ecological composition, environmental standards and urban planning.
The main studies carried out included the following:
• A Hydrodynamic Study was used to assess the impact of the recla-

mation project on the seawater environment and showed that the
proposed new shoreline posed no flushing problems. Furthermore, it
was shown that the sediments from the dredging operations also
proved non-problematic.
• A Traffic Impact Study was also commissioned to calculate addi-
tional traffic and its impact on the existing traffic situation. Based
on the findings of this study, appropriate infrastructure develop-
ments have been proposed to meet the high flow of traffic.
• Urban Structured Planning studies and an Urban Development
Design Framework ensured prime location for the BFH site.
Doing business with Bahrain’s financial sector:

the BFH development
Bahrain Financial Harbour is set to have a significant impact across
the widest spectrum of the regional and global financial communities.
It will be a unique financial community built on solid foundations and
offering untold commercial opportunities for the future. Although still
over two years from completion at the time of writing, it seems that the
development has already secured the business of some major clients.
Bahrain Financial Harbour: the hub for Bahrain’s

financial sector
BFH will allow Bahrain’s financial sector to be assembled together into
one focal point. At the moment the numerous different buildings and
institutions of Bahrain’s financial sector are scattered around the island
and are not in any way centralized to form a financial community. In
order to maintain its position as the financial capital of the Middle East,
it is clear that Bahrain needs to have one centralized, ultra-modern
financial district – which is exactly what BFH will accomplish.
Increasing the contribution of the financial sector to

Bahrain’s GDP
The financial sector currently contributes around 20 per cent of
Bahrain’s GDP. One of the fundamental objectives of the BFH devel-
opment is to hike the percentage of the contribution of the financial
and business sector to Bahrain’s GDP to exceed 20 per cent, since its
provision of a modern, state-of-the-art infrastructure for the func-
tioning of the financial sector will assist in making that sector operate
even more efficiently.
Job creation in the financial, services and construction

sectors
Creation of new job opportunities represents a major objective of the
project. It is expected that the construction and building operations
will create approximately 2,000 to 2,500 jobs in the architectural and
engineering sectors alone.
The banking, financial and insurance sectors will provide about
6,400 jobs. In addition to that, the project’s tendency is to focus on
creating jobs in major sectors, including professional consultation,
trading and brokerage companies.
It is also expected that around 2,000 jobs will be provided by the
project through the support sectors such as retail, services and the
hotel and hospitality industry.
Attraction of foreign direct investment

The Kingdom of Bahrain has been ranked number one in the Arab
world by the United Nations in attracting foreign direct investment
and by the UN Report on Economic Freedom. A project such as BFH
will lure more of these foreign investments especially from neigh-
bouring countries.
It is also expected that the project will attract several establish-
ments from the Middle East and North Africa besides attempting to
attract the international establishments, headquartered in Europe
and Southeast Asia, to Bahrain.
Another advantage is the Free Trade Agreement between the
Kingdom of Bahrain and the United States of America. This will
further nourish the competitive positioning of Bahrain as a destination
for investments due to further cooperation and developments in the
field of financial services, including Islamic Banking and insurance
companies. Such initiatives will capitalize on Bahrain’s position as a
regional financial centre and encourage further liberalization and
development for the telecommunications industry and other services.
3.6
Company Profile:
Gulf Finance House
Introduction
Gulf Finance House (GFH) is the fastest growing Islamic investment
bank in the Middle East and has taken the lead in unlocking the
incredible potential of the Islamic finance industry in the region. GFH
has carved a niche for itself in the regional banking and investment
industry by offering a unique investment strategy. The reason behind
GFH’s success is that it has not confined itself to the Middle East. To
diversify risk it offers clients the opportunity to invest outside the
region, having structured Islamic investments in property and real
estate in the UK and French and Spanish markets.
Organizational background
GFH was established on 16 October 1999, in the Kingdom of
Bahrain, as an Islamic investment bank with an authorized capital
of US$150 million. In 2003, the bank raised its paid-up capital from
US$65 million to US$135 million through private placement to
existing and new investors. In order to expand its investor base and
allow more investors from the GCC to take part in its growth, GFH
listed on the Kuwait and Bahrain stock exchanges in January 2004,
thus changing into a joint stock company. The listings came at the
time when GFH was growing rapidly.
GFH is based in Bahrain and is managed by a seven-member board.
Dr Fuad Abdullah Al-Omar is the Chairman of the bank and Mr Esam
Y Janahi is the Chief Executive Officer. Mr A Rahman Al Jasmi is the
Chief Placement Officer, Mr Ahmed Al-Qattan is Chief Investment
Officer and Mr Peter Panayiotou is Chief Operating Officer. GFH
employees comprise a mix of nationalities and cultures, which brings
out the best results for its shareholders and investors. GFH has joint
venture partners in several areas of its business and it does not rule
out further joint ventures in the future wherever it is necessary and
when it makes strategic sense.
Company Profile: Gulf Finance House 117
Business development: real estate and property

development
The bank’s present and future projects are spread across the Middle
East, with its investments extending into Europe. GFH is one of the
leading and fastest growing Islamic investment banks in the region
and thus enjoys a dominant place in the financial services industry.
GFH’s European real estate investment offerings include Gulf
Atlantic Real Estate (GARE) I and II, providing clients with a healthy
avenue to invest in a strategic mix of income-producing blue chip prop-
erties in the UK market, and Gulf Atlantic FZ-LLC (GFF), which is
focused on the property market in France, particularly Paris and
nearby markets. While the total capital of GARE I is £150 million,
GARE II is £200 million. Additionally, GFH offers the Al Andalus fund,
which invests in Spanish residential property.
In the Bahrain market, GFH launched AQAR Management I,
a US$20 million investment fund focused on high cash-yield invest-
ments within the serviced apartments sector in Bahrain. Other
offerings include the Injazat Technology Fund jointly with the Islamic
Corporation for the Development of the Private Sector (ICD), a
subsidiary of the Islamic Development Bank.
At present, GFH’s most ambitious investment plan is the presti-
gious US$1.3 billion Bahrain Financial Harbour (BFH) project,
designed to be the financial hub of the region. The first phase of BFH,
is planned to be a global financial and business park that will reaffirm
Bahrain’s status as the Middle East’s banking and financial capital.
The Financial Centre will house a Financial Mall, a 50-storey dual
towers building, and the Harbour House. Around 10 per cent of the first
phase has been completed and about 35 per cent of the leasable area in
the Financial Centre has been already booked. The Centre will be
completed by 2006, ahead of schedule. Aside from the BFH project,
GFH promoted the Gulf Development Real Estate Gulf Company to
offer niche real estate services in Kuwait.
Business development: other sectors

Among its diversified investments in other sectors, GFH has a controlling
26 per cent stake in the Halcore Group, the leading manufacturer of ambu-
lances and rescue vehicles in the US, through TransOcean Capital. It also
holds a controlling stake in the Bahrain Aluminium Extrusion Company.
This was the first aluminium extrusion plant in the Gulf and is the leader
in the region’s production of high-quality extrusions and systems.
Separately, GFH established the International Franchise Capital
to acquire a controlling stake in a company engaged in franchise
restaurants and car rental businesses, including Chillis, Johnny

Carinos, Nando’s, Mrs Fields and AVIS Rent a Car in Bahrain.
Its other investments include the Khaleej Finance and Investment
Company, Arab Finance House in Lebanon, Sharjah-based low-cost
airline Menajet, Costa Coffee House, the Royal University for Women
and Al Khaleej Development Company. It is also the promoter of
Solidarity, a life assurance and annuity company, which is the first
regional takaful company to offer products complying with the Islamic
Sharia.
GFH has recently launched First Leasing Bank, a specialized
leasing bank to manage and create Sharia-compliant equipment
leasing funds that will lease equipment to GCC private and public
companies and institutions. GFH has proposed major leisure projects
for the future. These include the US$1.5 billion theme park resort in
Dubailand and US$600 million Al Areen Desert Spa and Resort in
Bahrain. The investment bank is in the process of identifying unique,
income-producing high-yield real estate investments in the GCC and
the Middle East market.
Financial overview
In the last five years, GFH’s portfolio of assets under management have
grown by over 11 times, indicating the steady growth of the bank and its
positive outlook. Although set up only five years ago, GFH’s assets
under management soared to US$1billion in 2003, including the
leveraged component, as against US$101 million in 2002. Its assets
under management in 2001 were US$39 million, up from US$21 million
in 2000.
GFH ended 2003 with a net profit of US$17 million, up more than
22 per cent from US$13.3 million in 2002. Its operating profits rose to
US$38.3 million from US$24.7 million in the previous year. Dividend
payout for 2003 was US$11.25 million, which worked out as 15 per cent of
the paid-up capital. It posted a return on average equity of 17.7 per cent,
while its return on average paid-up capital was 24.2 per cent.
In the first half of 2004, GFH recorded an impressive 240 per cent
increase in net profit at US$28.5 million, as compared with US$8.4 million
for the corresponding period in the previous year. During this six-month
period, investors placed more than US$122 million.
Outlook for the future

GFH aims to be the premier Islamic bank by offering clients innovative
investment opportunities, while mobilizing the great pool of private
and institutional capital of the Islamic community. Today, GFH is at
Company Profile: Gulf Finance House 119
the forefront of the rapidly expanding regional and international

Islamic banking industry. It is committed to the Islamic philosophy of
wealth management, which shapes the structure of its investment
products and gives direction to innovation.
GFH aims to lead the Islamic investment banking industry in the
GCC, Middle East and North African countries, by providing clients
with carefully selected investment opportunities that balance risk and
reward. It will continue to capitalize on the increasing willingness
among Islamic investors to back local and regional projects. It will take
advantage of the wave of reforms initiated by GCC governments to
diversify and liberalize their economies.
Doing business with Bahrain

Bahrain has a visionary government, diversified economy, superb
regulatory environment, a transparent legal system and a high
literacy rate – thus making it well suited for the operation of financial
institutions. It has long been known as the international and regional
wholesale interbank money centre for the Middle East. Bahrain is also
the largest centre for Islamic banking in the Middle East. The country
currently expects additional liquidity and offers an ideal environment
that is conducive to Islamic banking.
3.7
Company Profile:
Stratum
Who is Stratum?
Stratum is a new investment advisory firm operating within Bahrain’s
financial services sector. Licensed and regulated by the Bahrain
Monetary Agency, Stratum is focused on building new businesses
within the Middle East primarily, in sectors such as financial services
and information and communications technology.
The firm’s mission statement articulates clearly its overall objective
‘to proactively work with private equity investors and entrepreneurs to
develop and structure innovative business ventures in the Middle
East’. As described by its managing partners, Stratum is in the
‘business of building new businesses’, which is a deceivingly simple
way to convey a rather complex task.
Founded by two western-educated, new-generation Bahrainis,
Stratum has built a talented team with professional and academic
credentials from some of the world’s most respected institutions.
Reflecting the wide range of skills required to achieve its objectives,
Stratum’s team represents a broad base of experience in strategy
consulting, corporate finance, entrepreneurship, and public policy.
The firm’s activities include the identification, analysis, structuring,
financing, and management of private equity investments into early
stage venture opportunities. As a general rule, Stratum only focuses
upon opportunities where there is a clear level of innovation and a
strong foundation for regional expansion.
What makes Stratum different?

There are a number of characteristics that distinguish Stratum from
many of the other firms operating within the regional investment
industry.
For instance, unlike most mainstream investment advisors oper-
ating within the region, Stratum is primarily committed to channelling
regional capital into regional opportunities, rather than promoting
Company Profile: Stratum 121
investments in North America, Europe, or other regions into which

Arab capital has previously been directed.
Another notable difference is the fact that Stratum primarily
focuses upon opportunities where the main underlying assets are
human resources rather than natural or financial resources. Having
avoided developing real estate investments, which have attracted the
majority of regional capital in recent years, Stratum has remained
focused on its long-term goal of investing in innovative, sustainable
investment opportunities within the service economy.
It is interesting to note how the company’s founders selected an
appropriate name for their firm. Stratum itself is the singular of the
Latin word strata, which means a layer, and in this case means taking
on a layer of the risk, which is essentially what Stratum does in its
business. Stratum typically engages in an opportunity when it is only
at its nascent stages – as an idea, concept, or emerging trend within the
marketplace. Stratum assumes the first layer of risk in the devel-
opment and financing of an innovative opportunity. As a result, the
firm has had to build rigorous analytical processes and investment
criteria in order to ensure that those risks that it accepts will lead to
attractive financial returns.
Why Stratum is important?

Prior to its formation, Stratum’s founders had recognized that a
number of significant trends were reshaping the investment climate
within the Gulf region:
• repatriation of capital back into Bahrain and the rest of the region;
• similar repatriation of talented human capital back into the region;
• deregulation of several key industries;
• liberalization of markets for trade and investment with a greater
emphasis on promoting the private sector to the forefront of the
economy.
Through conducting several months of in-depth due diligence, Stratum
had discovered the existence of an increasing number of regional
professionals and entrepreneurs with good business concepts looking
for trusted partners to help them develop and finance new venture
opportunities. Recognizing this, Stratum was founded in early 2003 in
order to identify, develop, structure and finance regional ventures
within the service sector, with the broader vision of serving as a
catalyst for regional business creation and economic growth.
The Private Equity Practice

It could be said that Stratum is one of the first professional intermedi-
aries operating within the region’s still formative private equity and
venture capital industries. These industries are an integral part of a
robust financial services sector, having led to significant economic and
social gains in regions of the world where they are more developed. In
fact, a healthy venture capital industry has been shown to be a signif-
icant contributor towards economic development, job creation, and
innovation.
Within the region, private equity and venture capital have not yet
been organized into a fully functional and regulated industry. There
are only a handful of companies within the region that are currently
operating within these industries; few have a pure focus upon private
equity and virtually none are focused on early stage ventures.
Although a number of regional funds have been created over the last
several years, few have lived up to expectations, with most industry
professionals commonly citing difficulty in locating a sufficient number
of high-quality investment opportunities to warrant the amount of
capital that had been raised.
Recognizing that venture capital within the region will require a more
proactive, deal-driven approach, Stratum’s founders developed a
business model that specifically reinforces the creation of its propriety
deal flow. As one of Stratum’s partners had put it: ‘Stratum has had to
build an internal “venture laboratory” in order to conduct the research
and development required to secure a steady stream of innovative deals’.
In theory, Stratum’s core business model seems quite simple –
identify good opportunities, put them together with the right investors
and management (and sometimes the right international partners),
and then follow through with a clear business strategy and profes-
sional implementation. In practice, however, the venture development
process is long, demanding and full of surprises. It is a creative and
analytical process, which takes patience, team-work, and a lot of
energy. Nevertheless, through focusing on the creation of high-quality
deal flow, rather than the pure raising of capital, Stratum has built an
impressive portfolio of ventures, which it is methodically bringing to
the market one at a time.
In June of 2004, Stratum officially launched its first venture within
the insurance sector: Ensurion, the first insurance management firm
within the Middle East. Specializing in the formation and adminis-
tration of captive insurance companies, Ensurion delivers some of the
region’s most innovative insurance and risk management solutions to
corporate insurance buyers.
At the time of writing, Stratum was also in the process of preparing
a venture in the telecoms industry, aimed for launch towards the end of
Company Profile: Stratum 123
2004. Other ventures in Stratum’s portfolio include several opportu-

nities in areas such as consumer finance, media and information
services, the most notable of which is an independent credit agency,
which Stratum is continuing to promote within Bahrain and the wider
region.
The Advisory Practice

In addition to its Private Equity Practice, Stratum maintains an
Advisory Practice that provides a number of professional services in
the areas of business strategy, investment analysis, and project
management. On a case-by-case basis, Stratum leverages the skills,
knowledge, and experience it uses to ‘build new businesses’ in order to
serve high-profile clients within the private and public sectors. The set
of tools and techniques used by Stratum’s team are primarily derived
from the world of strategy consulting, which is an area of professional
services that remains underserved within the region but is growing
steadily at the most senior levels of corporate management and
government.
One of the main accomplishments of Stratum’s Advisory Practice
has been the firm’s engagement by the Bahrain Monetary Agency to
serve as strategic project manager for the Bahrain International
Insurance Centre (BIIC). Located within the US$1.5 billion Bahrain
Financial Harbour project along the Manama seafront, the BIIC is an
innovative, world-class facility designed and built specifically for
Bahrain’s insurance industry. Stratum’s role has been to work closely
with a global network of professionals to develop the strategies and
incentives to attract local, regional, and international participants
from across the insurance industry.
The future: bank vs. business as usual

It is still unclear whether Stratum will continue to pursue its current
business model for the foreseeable future, or whether it will ultimately
evolve into a venture capital fund or fully-fledged investment bank.
However, regardless of what form it decides to take, it appears that the
underlying business strategies, skill sets, and entrepreneurial culture
that make up Stratum will continue to represent one of the most
promising and innovative firms within Bahrain and the region’s
financial sector.
Part Four
Prospective Sectors for
Investment
4.1
The Oil and Gas Sector

Mohammed Al Sayyad, Director Economic
Research, Ministry of Oil, Kingdom of
Bahrain
Introduction
Energy resources, notably oil and gas, have played (and are still
playing) a vital and decisive role in the whole economic and social life of
the Kingdom of Bahrain. This is partly due to the scarcity of other
natural resources, limited arable areas, and relatively new economic
structures, and partly because of their potential in offering great
opportunities for various aspects of economic development and for
creating new and increasing sources of national income.
The contemporary economic and social history of the Kingdom has
been linked to and interrelated with oil since its discovery in 1932. The
Kingdom of Bahrain became the first oil-based economy in the Gulf
region when the Bahrain Petroleum Company discovered oil at Jebel
Dhukan in Bahrain in June 1932. In 1936, the first refinery in this area
was built, making the Bahrain Refinery one of the major refining
centres in the Gulf. Today the refinery produces products such as
naphtha, gasoline, kerosene, aviation turbine fuel, diesel oil, heavy
lube distillate, fuel oil and asphalt.
Electrical energy as a source of development

By virtue of oil discovery and the ensuing development of production
and refining, an electricity supply was then made possible. During
1951–52, the government decided to harness electricity as the principal
source of domestic energy for the country. The first power plant was
erected in Juffair, and gas supplies from the ‘Arab Zones’ to the new
power station began in 1955. This was followed by new power plants
being built in Sitra (1975), Muharraq (1976) and Rifa (1978).
128 Prospective Sectors for Investment
Gas from the Arab Zones was eventually replaced by the more
extensive reserves of the ‘Khuff Zones’. In addition to providing gas for
oil fields injection and the power stations, new applications for gas
were identified. The first and most prominent was the supply to the
island’s aluminium smelter, which started production in 1971 with an
annual capacity of 120,000 tonnes.
In addition to the four power stations mentioned above, a fifth new
power and water station was built in Al Hidd (the northern side of
Bahrain) in 1997 and started operating in 2000, with an installed
capacity of 280 MW, which makes the country’s total installed capacity
1,268 MW.
The status of Bahrain’s petroleum sector today

The institutional structure of the sector comprises the following
bodies.
Supreme Council of Oil

This is the top authority, which determines and undertakes the setting
up of the oil policy on the island, and enacts oil and gas legislation,
which enhances the development of investment in a better way to
achieve greater proceeds in oil wealth.
Ministry of Oil
This is another government authority, concerned with the execution of
policy as determined by the Supreme Council of Oil. The Ministry
represents the Kingdom of Bahrain in matters relating to petroleum
affairs in the international media, regional Arab and international
organizations, particularly with Oil Arab Petroleum Exporting
Countries (OAPEC) and their emerging institutions and companies,
which have been utilized the Kingdom.
Bahrain Petroleum Company (BAPCO)

The Bahrain Petroleum Company BSC (c) – BAPCO – was incorporated
on 29 December 1999, merging the Bahrain National Oil Company and
the former the Bahrain Petroleum Company.
BAPCO, wholly owned by the government of Bahrain, is engaged in
the oil industry, including exploration and prospecting for oil, drilling,
production, refining, distribution of petroleum products and natural
gas, sales and exports of crude oil and refined products.
The company owns a 250,000 barrel-a-day refinery, storage facilities
for more than 14 million barrels, a marketing terminal, and a marine
terminal for its petroleum products.
The Oil and Gas Sector 129
BAPCO’s prime customers for crude oil and refined products are
based in the Middle East, India, the Far East, Southeast Asia and
Africa, and 95 per cent of its refined products are exported.
Bahrain National Gas Company (BANAGAS)

The Bahrain National Gas Company (BSC) (BANAGAS) is 75 per cent
owned by the government of the Kingdom of Bahrain, 12.5 per cent by
Caltex Bahrain and 12.5 per cent by the Arab Petroleum Investment
Corporation.
The company was established with the primary objectives of
processing associated gas into marketable products, supplying residue
gas for local industrial use and providing employment and training
opportunities to Bahraini nationals.
Today, the company employs 350 people, of whom 93 per cent are
Bahraini nationals. The plant facilities were officially inaugurated on
17 December 1979, and the first shipment lifted in early 1980.
Propane, butane and naphtha products are exported worldwide. The
residue gas, mainly methane and ethane, is routed to Aluminium
Bahrain, the BAPCO refinery and Rifa power station.
During the early years, plant capacity was increased from the
original design of 110 million cubic feet per day (MMSCFD) to accom-
modate 170 MMSCFD, and in 1988, a US$75 million expansion project
was undertaken to upgrade capacity to 280 MMSCFD.
Gulf Petrochemical Industries Company

The Gulf Petrochemical Industries Company (GPIC) was established
on 5 December 1979 as an equal partnership between the government
of the Kingdom of Bahrain, Petrochemical Industries Company of
Kuwait and Saudi Basic Industries Corporation (SABIC). The
company is considered to be a successful example of fruitful Gulf coop-
eration in industry in general, and in the petrochemical industry in
particular.
The company owns a petrochemical complex in the Kingdom of
Bahrain, comprising an ammonia plant with a daily capacity of 1,200
tonnes, a methanol plant with a daily capacity of 1,200 tonnes and a
urea plant with a daily capacity of 1,700 tonnes.
Bahrain Aviation Fuelling Company

The aviation refuelling service at Bahrain International Airport is
provided by the Bahrain Aviation Fuelling Company (BAFCO), a joint
partnership formed in 1985. The Bahrain Petroleum Company
(BAPCO) is its main shareholder with a 60 per cent stake, while Caltex
has a 27 per cent share and BP 13 per cent. BAFCO is responsible for
all refuelling operations at Bahrain International Airport. However,
BAPCO, Caltex and BP each market and sell fuel to the individual
airlines on their own behalf in separate sales operations.
The grade of aviation fuel supplied by BAFCO is more commonly
known as JET A-1. This is produced to international specifications by
the Bahrain refinery, 17 km from the airport. The fuel is then pumped
from the Sitra tanks through a dedicated pipeline to reception tanks at
BAFCO’s tank farm at Arad.
Government participation in pan-Arab

petroleum institutions
Organization of Arab Petroleum Exporting Countries
(OAPEC)
Since 1970, Bahrain has been a member of this organization, which
was established in 1968 for the purpose of coordinating and developing
the Arabian oil industry. Table 4.1.1 lists the OAPEC-instituted
companies and organizations in which Bahrain participates.
Table 4.1.1 Bahrain’s participation in OAPEC-instituted

organizations
Company name %
Arab Marine Petroleum Company (AMPTC) 3.8

Arab Shipbuilding and Repair Yard Company (ASRY) 18.5
Arab Petroleum Investment Corporation (APICORP) 3
Arab Petroleum Services Company (APSC) 3
Natural Gas Committee

On 25 June 2003, HM King Hamad bin Isa Al-Khalifa, the King of
Bahrain, established the Natural Gas Committee under the
Chairmanship of HH the Crown Prince and Commander-in-Chief of
the Bahrain Defence Force, Shaikh Salman bin Hamad Al-Khalifa.
The overall function of the committee is to look into all natural gas
issues and consider various options available to meet the Kingdom’s
requirement for natural gas. In particular, the committee may:
• conduct studies and research on the Kingdom’s resources of natural
gas and the development of such resources;
• consider strategic options to meet the Kingdom’s requirements for

natural gas;
• propose the Kingdom’s natural gas general policy;
• take any necessary action to implement the general policy on
Bahrain’s natural gas.
The committee may exclusively carry out contacts and negotiations
within and outside the Kingdom regarding natural gas.
Sector potential
The potential of the petroleum sector, as such, is the aggregate of its
units, utilities and capacity. It includes the following:
1. Bahrain Field
The Bahrain Field, the first and biggest of Bahrain’s onshore oil fields,
has a production capacity of approximately 37,600 barrels a day of
crude oil (2003).
2. Abu Sa’fah Field

A production capacity of approximately 151,000 barrels a day (2003) of
crude oil is provided by the joint Saudi–Bahraini Abu Sa’fah oil field,
which was opened officially in February 1966.
3. The refining industry

The Bahrain Refinery – one of the largest in the Middle East and the
oldest in the GCC – refines over 250,000 barrels of crude oil every day.
About one-sixth of this crude originates from the Bahrain Field; the
remainder is pumped from Saudi Arabia through a pipeline extending
27 km over land and a further 27 km under the sea, before reaching the
northwest of Bahrain.
4. The gas industry

The economic potential of this industry is made up of:
• natural gas reserves, which are estimated at 114 billion cubic metres
a year (2000); and
• a production capacity of 1,190 million cubic feet per day, from both
natural and associated gas (2003).
Future horizons and challenges for the energy

sector
During the past five years, the Bahrain petroleum industry has
witnessed two major developments, which will certainly increase its
contribution to GDP and to the national economy.
1. The comprehensive modernization programme of the

refinery
Under the chairmanship of HH the Prime Minister, Shaikh Khalifa bin
Salman Al-Khalifa, the Supreme Council of Oil decided on 9 July 1998
to proceed with the Bahrain Refinery Modernization Project, as
proposed by the Ministry of Oil in conjunction with BAPCO.
This is the largest ever upgrade project for the refinery. The total
cost of the upgrade amounts to about US$952 million. It is being imple-
mented over several years with a target completion date of mid-2005.
The net result of the combined upgrade projects is an expected addi-
tional annual revenue of more than US$118 million.
The aim of these interlinked projects, the implementation of which
began in 2000, is to upgrade the technical capabilities of the refining
modules to enable BAPCO to focus on finished and environmentally-
friendly petroleum products, capable of competing in international
markets.
2. The new oil and gas exploration activities in the

offshore southeastern area
In November 2001, the Government of Bahrain signed two separate
exploration and production sharing agreements with Chevron Texaco
of the United States and with Petronas Karigali of Malaysia. Both
agreements cover exploration of the southeastern area, geographically
and technically assessed as Exploration Zones 4, 5 and 6.
This became possible thanks to the issuance of the Award of the
International Court of Justice regarding the Qatari–Bahraini border
dispute, the outcome of which resulted in Bahrain getting the right of
ownership over the Hawar Islands.
Hence, Chevron Texaco is continuing exploration activities in Block
5, where the company drilled an exploratory well in Tughaileb. Another
similar well is scheduled for the second half of 2004.
At the same time, Petronas Karigali of Malaysia is active in Blocks
4 and 6, where the company drilled two exploratory wells in Fasht
Al-Adhm reef and in North Sowad.
Still challenges ahead

Analysing the post-oil discovery economic history of the Kingdom of
Bahrain, one could say that the main and very important success
among the very tangible achievements registered and accomplished by
the government of Bahrain, is the maintenance of production capacity
levels in the petroleum sector, as well as in the other related sectors,
therefore maintaining a good standard of living for the population and
gradually securing a reasonable annual economic growth rate of GDP
and per capita income. This has resulted in Bahrain coming first in the
Arab world for the fourth time in the UN’s annual Human
Development Report.
The reason why this is considered a major success in Bahrain’s devel-
opment efforts is that it happened in spite of the limitations of oil and gas
reserves and production, as well as the scarcity of other natural resources,
and, in addition, the increment in financial allocation to support the
targeted economic and social goals of sustainable development.
Nevertheless, with a growing of population at an annual rate of
2.7 per cent and increasing economic requirements, particularly
financial and energy resources and, of course, social burdens, the
country will have to find ways and means of developing new sources of
income.
Gas is a focal point

In order to maintain a more diversified economy, energy sources,
specifically gas, must be secured. With the available economic indi-
cators showing that the economy is on the verge of economic growth, it
is expected that there will be an increase in demand on electrical
energy and consequently on its main source, natural gas (since the
electric power sector accounts for 29.2 per cent of total consumption of
natural and associated gas, which amounted to 434,537 million cubic
feet in 2003). Considering the current gas consumption rates as well as
the remaining gas reserves, it is obvious that within a few years,
should the ongoing oil and gas exploration and drilling activities in the
offshore southeastern areas of the island prove less fruitful than
expected, Bahrain will become a net importer of gas.
Naturally, this has already been considered by the government and
some alternatives have already been subjected to debate, study and
consideration. Among them are the partial privatization of electrical
energy and some other utilities, and the import of gas by pipeline from
neighbouring countries, notably Qatar and Iran, with whom prelim-
inary negotiations have been held.
This would, of course, put more pressure on Bahrain’s trade balance

and consequently the balance of payments. Furthermore, it would also
affect the production costs of different economic sectors and utilities,
especially those that are still enjoying preferential treatment by
buying gas at subsidized prices. Naturally, this will reflect negatively
on their competitiveness. Therefore, there must be forward planning on
both the macro and micro levels, seeking the best ways to confront
these challenges.
4.2
Bahrain’s Electricity
Sector
Ministry of Electricity and Water, Planning
and Studies Directorate, Kingdom of
Bahrain
The Kingdom of Bahrain has seen a tremendous growth in the electricity

sector over the past decade with a maximum demand of 1,632 MW in
2004, compared with a maximum demand in 1994 of 899 MW. The
demand for power has risen dramatically over the last five years with an
average growth rate of 7 per cent. It has been the main function of the
Ministry of Electricity and Water in the Kingdom of Bahrain to ensure
that the required power production and electrical transmission and
distribution facilities are in place to cope with this great rise in demand.
This chapter provides a short overview of Bahrain’s electricity
sector, as well as giving a brief overview of anticipated future develop-
ments. The total installed capacity of Bahrain’s electricity sector
currently stands at 1,850 MW. This is generated at four major power
stations in the country. By far, the largest power and water station on
the network is at Hidd, which contributes 962 MW to the installed
capacity. The next largest contributor is Rifa Power Station with
700 MW and the final 188 MW is generated at Sitra, Manama and
Muharraq power stations. Manama Power Station, which is the oldest
power station in the country, is currently being decommissioned and
should be fully retired by end of 2005. This generation is a mix of gas-
fired turbo-generators and steam turbo-generators.
The transmission of the bulk of power from the power stations to the
load centres is achieved by means of the electrical transmission
network, which consists mostly of underground cables, with very small
numbers of overhead lines. The transmission voltage is at 220kV, 66kV
and 33kV. There are 11 220kV substations interconnected by 133 km of
220kV cable feeders and 53 66kV substations interconnected by
502 km of 66kV cable feeders. This includes substations and cables
being added on two ongoing 220kV and 66kV developments. The 33kV
network is not being developed further and has 11 33kV substations
connected by 78 km of 33kV cable feeders. It is a testimony to the rapid
growth of the sector when one considers that the number of trans-
mission substations on the network today is three times the number of
substations that were available in 1980.
The distribution voltage level is at 11kV, and this is then trans-
formed to 440 volts at the distribution substations.
Much of the power demand in Bahrain is associated with air-
conditioning load and, consequently, the peak demands are usually
recorded in the summer months.
The largest peak ever recorded was in August 2004 and stood at
1,632 MW. It is expected that the peak MW demand will exceed
3000 MW by summer 2015, if current growth trend continues. This is
an increase of nearly 6.5 per cent annually over the next 10 years.
In order to cope with this increasing demand for electricity, the
Ministry of Electricity and Water is currently carrying out a 15-year
Master Plan to identify the plans and projects that the Ministry has to
put in place if the demand is to be met in a timely fashion.
It is to be noted that, until recently, it has been the responsibility of
the Ministry of Electricity and Water, as a totally government-owned
utility, to provide both electricity and water services in the country.
This included being responsible for the total electrical and water
infrastructure, from production facilities to the transmission and
distribution networks.
However, a policy decision has been taken that all future power gener-
ation projects can be privately financed, thus embarking Bahrain on the
first step towards the privatization of this part of the electricity sector.
The first independent power producer (IPP) in Bahrain has been
awarded to a consortium of investors, Tractebel/Gulf Investment
Corporation, with Siemens as the engineering, procurement,
construction (EPC) contractor. The project, when completed, will add a
total of 1,000 MW to the installed generation capacity and it is
expected that the first units will have to be commissioned before
summer 2006. The Al Ezzel IPP design has been based on combined
cycle gas turbine technology, with heat recovery steam generators and
steam turbines. This is to ensure the optimum use of natural gas fuel.
The Master Plan has identified the following major projects, which
are either in the planning process or currently being executed, that the
Ministry has to complete in order to cope with the increasing power
demand.
1. Al Ezzel IPP, which will add a total of 1000 MW to the current
installed generation capacity. The Ministry has a Power Purchase
Agreement to buy power from Al Ezzel for the next 20 years.
Bahrain’s Electricity Sector 137
2. A new 220kV Transmission Development Programme and a new

66kV Transmission Development Programme that coincide with the
Al Ezzel Development, in order to be able to connect the electricity
generated from Al Ezzel to the Ministry’s network. Development on
the 220kV is for network reinforcement, adding six new 220kV
substations, extending two existing substations and installing
approximately 85 km of new 220kV cables whilst further devel-
opment on the 66kV is to ensure that the extra power is delivered to
the load centres all over the country. This 66kV development will
add 15 new 66kV transmission substations to the existing network
and will extend capacities at 14 existing substations, and install
approximately 200 km of new 66kV feeder circuits.
3. Rehabilitation and NOx reduction at Rifa Power Station to ensure
its continuing availability for the next 15 years.
As of today, the moves towards the privatization of the electricity sector
have been confined to Al Ezzel and future power generation projects in
the country. Transmission and distribution will remain within the
control of the Ministry of Electricity and Water for the foreseeable
future. However, this does not preclude privatization in terms of
outsourcing different works that the private sector can carry out for
the Ministry.
As part of its moves towards the outsourcing of different jobs in the
electricity sector to the private sector, the Ministry has also gone out to
tender for a Long Term Services Agreement (LTSA) for the full mainte-
nance of the largest power station in the country – Hidd Power & Water
Station. This Long Term Services Agreement is to last for 12 years,
during which the private sector will be fully responsible for all the
maintenance works at the power station.
The Ministry of Electricity and Water, being responsible for
providing the required electrical and water infrastructure for all new
developments within the Kingdom, currently has plans, in the imple-
mentation phase, to provide the required electrical infrastructure for a
number of major projects in the Kingdom, and to link them to the
national grid. Some of these projects are the Bahrain Financial
Harbour, Amwaj touristic development, Durrat al Bahrain touristic
development, as well as for the development of the LSDP at Bahrain
Petroleum Company, BAPCO.
If current growth trends materialize and develop as expected, the
Ministry of Electricity and Water will face major challenges over the
next decade in order to ensure that these demands are met in a timely
fashion.
4.3
Bahrain’s Aluminium
Industry
Taimour Raouf, Senior Public Relations
Officer, Aluminium Bahrain
The birth of industry

The commissioning of Aluminium Bahrain (Alba) in 1971 marked the
birth of industrial diversification in the oil rich region of the Arabian
Gulf. Today, Alba produces more than 526,000 metric tonnes (mt) of
primary aluminium and pumps more than US$200 million into the
national economy every year. It ranks as one of the largest aluminium
smelters in the world and accounts for around eight per cent of
Bahrain’s GDP.
As a result of the consistently high quality of Alba’s products,
Bahrain’s aluminium has made its way across the globe (with exports
to more than 25 countries) and even into outer space (when Alba’s
aluminium was used to build the Mars explorer, Sojourner).
The company’s ongoing success has also spawned a thriving down-
stream industry in Bahrain and provided training and job opportu-
nities for the national workforce.
It is a success story that has earned Bahrain pride of place on the
world industrial stage, and has served as a blueprint for the region’s
industrial diversification programme. The story, however, is far from
concluded and Alba is forging ahead with ambitious plans that could
make Bahrain home to the largest single-site producer of primary
aluminium in the world.
A historical prospective
Bahrain’s aluminium success story started in the mid-1960s when the
government, seeking to diversify its economy away from its heavy
dependence on oil revenues, began to look into alternatives.
Bahrain’s Aluminium Industry 139
Although, in 1932, Bahrain became the first state in the Arabian

Gulf to strike oil in commercial quantities, the government recognized
the dangers of heavy dependence on oil revenues, and forged a
pioneering venture with an aluminium consortium that wished to
secure its own source of metal. The aim was to establish an industry
that would provide valuable export earnings, develop the country’s
resources and create training and employment opportunities for its
people.
Bahrain was strategically positioned between the sources of the raw
materials from which aluminium is made and the growing markets for
primary aluminium in Asia, Europe and the Americas. A plentiful
supply of gas to fuel the power-hungry process of aluminium
production was readily available from the Khuff field and, in 1968,
Alba was incorporated by Emiri Charter.
At the time, the smelter was to have an annual production capacity
of 56,000 mt, but even before the first aluminium had been poured in
1971 by His Highness the late Emir, Shaikh Isa bin Salman Al-Khalifa,
agreement had already been reached to raise this figure to 120,000 mt
a year.
Thus, Alba became the first aluminium smelter in the Middle East
and, as the first non-oil industry in Bahrain to provide training and
career development for a growing population, the aluminium industry
earned a special place both in the country’s history books and in its
people’s hearts.
Dramatic development
No one, at the time, could have foreseen that, only three decades later,
Alba would have more than quadrupled in size. Growing local, regional
and international demand for high-quality aluminium, however, set a
brisk expansion pace and, today, after several ambitious expansions,
Alba now ranks among the six largest single-site producers of
aluminium in the world.
Almost exactly 10 years after aluminium was first poured in
Bahrain, Alba inaugurated Line 3 to boost its production to 170,000
tonnes per annum (tpa). A few years later, Alba further expanded the
new line with the installation of 76 new-technology pots and a fume
extraction system to increase production and protect the environment.
By 1992, Bahrain had became home to the largest single-
site aluminium smelter in the free world, after Alba completed a
US$1.4 billion expansion to boost its annual production capacity to
460,000 mt. The expansion included construction of what was, at the
time, the largest pot line in the world and the installation of a highly-
sophisticated dry scrubbing system, which ensured that 99 per cent of
all fumes were recycled and which made Alba one of the cleanest, most
efficient smelters in the world. The expansion also created 450 job
opportunities for the national workforce.
1997, again, saw Alba looking to the future with the announcement
of a US$400 million project to build the first petroleum coke calcining
plant in the Middle East. The project also included the construction of
a seawater desalination plant and the upgrading of the jetty facility at
the Alba Marine Terminal.
Today, Alba is currently undergoing another major expansion
project, with the construction of an additional reduction line that will
make the smelter the largest in the world outside Eastern Europe.
World-class smelter
Today, Alba is owned by the government of Bahrain (77 per cent),
Saudi-based SABIC Industrial Investments Group (20 per cent) and
German-based Breton Investments (3 per cent). The smelter now
comprises four reduction lines, with a total of 1,048 cells and produces
more than 526,000 mt a year.
The company also owns and operates its own power complex, with a
total generating capacity of 1,504 MW per hour, and its own carbon
anode department that manufactures some 457,000 anodes a year.
The raw materials used in the production of those anodes are made
at the company’s own calcining plant, which can produce as much as
450,000 tonnes of calcined petroleum coke per year. The plant is
currently undergoing expansion that will boost its annual capacity to
600,000 tonnes per year.
Alumina, the main raw material used in the production of
aluminium, and green coke, the raw material used in the production of
calcined coke, are received at the company’s own dedicated marine
terminal, which can accommodate cargo ships with cargoes of up to
60,000 tonnes. The company also operates comprehensive cast house
facilities and a sophisticated metallurgy department.
Alba operates to exacting international standards and, in 1994, was
among the first major industries in the Middle East to qualify for the
Quality Management System ISO 9002 Accreditation. In 2003, Alba
was, again, among the first major industries to qualify for the new ISO
9001:2000 standard.
Continuous expansion
Alba is determined to maintain its brisk expansion pace, and plans to
add more than 300,000 tonnes to its annual production are already
well underway. The plans, which began to take shape in 2003, promise
to further increase the aluminium industry’s already significant

contributions to Bahrain’s social and economical development.
The US$1.7 billion expansion includes the addition of a fifth pot line,
an environmentally friendly power plant, a carbon plant and cast
house developments. When the project is completed, the smelter’s
production capacity will increase to 827,000 tpa. This, in turn, will
increase Alba’s annual contribution to the national economy to more
than US$300 million and create hundreds of permanent jobs for the
national workforce.
The US$1 billion engineering, procurement, construction and
management contract for the reduction line expansion was awarded to
Bechtel. Alstom Powers were appointed as the engineering,
procurement and construction contractors for the power station
portion of the project, and the first cell of the new fifth line is expected
to produce its first metal in the first quarter of 2005.
Originally set to be a 260,000 tpa pot line, the Alba executive
management team have been able to increase the new pot line’s capacity
to 307,000 tpa, whilst remaining within the original approved budget. As
a result, Line 5 will have a total of 336 pots spanning more than 1 km in
length and making it the longest pot line in the world. The technology
will be an improved version of the AP30 technology utilized in pot line 4.
Other key aspects of the expansion include the construction of a
650 MW power station; a carbon plant with a capacity to produce
190,000 anodes per year; cast house facilities to produce ingots and
billets; a new road network; facilities to handle raw materials; and
fume treatment plants to control fluoride emissions.
The social and economical rewards of this major construction,
however, are already being harvested, with more than 40 per cent of
the project’s cost being spent locally to help boost the local economy,
and up to 4,000 project-related jobs being created during the two-year
construction phase.
In addition to the Line 5 expansion, the Alba board of directors
approved plans to increase the smelter’s current annual capacity by
23,000 mt by adding 24 pots to Line 4 and generating additional power
to meet the extra requirement. The new pots are expected to produce
their first metal by December 2005 and will bring Alba’s total
production capacity to more than 850,000 tpa.
Alba’s expansion efforts, however, have not focused exclusively on its
aluminium production figures. Instead, the executive management
team have sought to protect future expansion plans by making the
smelter as cost-effective and as self-reliant as possible. As part of those
efforts, Alba built its own coke calcining plant to eliminate the need to
import the primary raw material used for the production of carbon
anodes. In addition to allowing for significant cost savings, the plant
also supplements Alba’s aluminium revenues.
The US$400 million plant, the first of its kind in the Middle East,
was built on 140,000 square metres of reclaimed land at Alba’s private
marine terminal, and since its commissioning, in May 2001, has met all
of Alba’s calcined coke needs. At full capacity, the coke calcining plant
can produce as much as 450,000 tpa, which leaves up to 250,000 tonnes
of calcined coke available for export every year.
Prior to the commissioning of the coke calcining plant,Alba imported up
to 250,000 tpa of calcined coke from as far afield as the US and Argentina.
Now, Alba only imports green coke, the raw material used to produce
calcined coke, and then completes the calcining and anode production
cycles at its own facilities and under its own quality supervision.
The coke calcining project included the construction of a seawater
desalination plant, which utilizes waste heat from the calcining
process to make 41,000 cubic metres per day of desalinated sea water
available to the Ministry of Electricity and Water.
Strategic plan
The expansions are in line with Alba’s strategic plan, which provides a
blueprint to sustain the company’s contribution to Bahrain’s economy.
The plan identifies five key performance indicators – safety, people,
environment, cost and productivity – to measure Alba’s performance.
The plan commits Alba to making safety a state of mind by which
everyone thinks and acts, and targets a 20 per cent reduction in the
number of lost-time accidents every year. To do so, Alba initiated a
complete reassessment of its safety programmes and introduced an
internationally-recognized safety standard that measures over 70
different safety, health and environmental aspects and compares them
to the best in the world.
The driving force behind Alba’s heart-warming success story is
almost certainly its dedicated, well-trained and highly professional
workforce. A workforce that stands testimony to the success of Alba’s
long-term investment in the people of Bahrain.
When Alba was commissioned, it aimed to provide training and
employment opportunities for the national workforce, and today, as one
of Bahrain’s biggest employers, Alba is as committed as ever to setting
an example for others to follow.
Employee training is a cornerstone of that commitment and, over the
years, Alba has led the way in introducing pioneering training
programmes. Last year Alba introduced, for the first time in Bahrain, a
joint training initiative with the Ministry of Labour and Social Affairs and
contractors working on the Line 5 expansion project. Dubbed ‘Training for
Bahrain’, the initiative facilitates the employment of unskilled and unem-
ployed Bahrainis by creating a pool of qualified workers.
Alba also invests time, effort and money on improving employee

morale, and by 2002 had completed construction of its 350th new
employee home. Every year, the company also provides scholarship
opportunities and valuable hands-on training for the children of its
employees. Alba has also invested over US$8 million in building a
world-class medical facility for employees and their families.
These efforts have paid off in handsome dividends and, today, Alba
boasts an award-wining Bahrainization rate of 89 per cent.
Protecting the environment
Long before Bahrain established environmental standards, Alba was

already implementing pioneering environmental protection
programmes and, having achieved the Environmental Management
System standard ISO 14001 in 2000, Alba continues to maintain its
uncompromising stance on environmental issues.
Alba’s ongoing commitment to protecting the environment has
involved investments of hundreds of millions of dollars and has earned
the company international praise and recognition. In 2000, for
example, Alba became one of only 12 companies in the world to earn the
Millennium Business Award for Environmental Achievement, which
was presented by the United Nations Environment Programme in
conjunction with the International Chamber of Commerce.
In 2003, Alba installed a state-of-the-art flue gas desulphurization
plant at the calcining plant, which virtually eliminated sulphur emis-
sions. The US$18.5 million unit makes the calcining plant one of the
cleanest in the world and allows Alba to operate it at full capacity with
minimal impact on the environment. Last year, Alba also embarked on
a US$65 million project to retrofit its gas turbines with low NOx
burners and replace existing control systems to reduce waste emis-
sions and help control environmental pollution.
To ensure that its expansion plans are aligned with this
commitment, Alba carried out a comprehensive Environmental Impact
Assessment (EIA) to guarantee that the construction and subsequent
operation of Line 5 is undertaken with the utmost care for the envi-
ronment. The new power station will utilize combined cycle technology,
with steam turbines using the waste heat from the gas turbines to
improve efficiency and reduce pollution. The gas turbines will also be
equipped with state-of-the-art technology combustion units to reduce
NOx emissions. The pot room itself will also be equipped with hi-tech
fume treatment plants and a double duct system to enhance fume
collection efficiency and minimize emissions.
Aluminium for the world

Plans to forge ahead with ambitious expansion plans have not
distracted from time-honoured commitments to quality and, with
metal purity levels consistently at 99.88 per cent, Alba is able to offer
its customers a winning formula both in terms of the quantity and the
quality of its products.
Alba places great emphasis on continuous improvement and takes
great pride in its expanding range of products. It is a corporate vision
that has paid off in handsome dividends and, today, Alba is highly
regarded by the global aluminium industry and greatly respected for its
technical expertise. As a result, Alba’s aluminium is exported to some 25
counties with the Far East receiving 20 per cent, Gulf countries and the
Middle East consuming 18 per cent, Southeast Asia accounting for
7 per cent and the remaining 7 per cent going to other countries.
The success of Bahrain’s aluminium industry can also be seen in the
emergence and growth of downstream industries. In 1972, Bahrain
Atomizers became the first company to be formed on the strength of
Alba’s development. This was followed by Balexco (Bahrain Aluminium
Extrusion Company) and Midal Cables. The following decade saw the
establishment of Garmco (the Gulf Aluminium Rolling Mill Company)
and, in the late 1990s, Aluwheel and Bamco (Bahrain Alloys
Manufacturing Company) were formed.
Today, these downstream industries consume around half of Alba’s
aluminium, a figure than has been growing constantly with Alba’s
expansion and the addition of further downstream operations. These
diverse industries demonstrate not only the thriving nature of the
downstream industries in Bahrain but also the almost limitless uses of
aluminium.
Forging ahead
Even with the addition of Line 5, Alba’s brisk expansion pace is not
likely to slow down, and plans for a sixth pot line are already being
studied. The sixth line would bump plant capacity to well over
1,000,000 tpa, potentially making Bahrain home to the largest
aluminium smelter anywhere in the world.
The construction of Line 5 and, potentially, Line 6, mark an
important milestone, not only in the smelter’s history of expansion but
also in Bahrain’s industrial development, and confirm Alba’s
pioneering role in diversifying the region’s economy.
Bahrain’s aluminium industry has certainly come a long way, and
Alba’s achievements have earned Bahrain kudos for its industrial
development.
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Khalid R. Al Zayani
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Chairman
Midal Cables Ltd
4.4
Company Profile:
Midal Cables
Introduction
Bahrain’s aluminium industry has been rapidly developing for over a
generation, since the country’s government founded Alba, or
Aluminium Bahrain, in 1968, as part of the state-led economic diversi-
fication programme. The industry comprises of the upstream sector,
predominantly represented by Alba, which produces up to 750,000
metric tonnes (mt) of raw aluminium per annum and is one of the
largest single-site producers of aluminium in the world; and the down-
stream sector, which is made up of a number of companies producing
finished and semi-finished aluminium products.
Midal Cables is one of the major companies in Bahrain’s interna-
tionally renowned downstream aluminium industry. The company
produces aluminium rod, wire and overhead conductors for power
transmission lines. Other major companies in Bahrain’s downstream
aluminium sector include, GRAMCO Rolling Mill, a producer of
flat aluminium products; Balexco extrusion company, which makes
aluminium profiles; Bahrain Atomisers, which makes a wide range
of aluminium powders and pellets; and Aluwheel, which produces
aluminium passenger car and truck wheels. All of these companies
have emerged as a result of Alba’s aluminium producing capacity
during the last three decades, and procure their aluminium directly
from Alba’s smelter. Given the steady supply of aluminium from Alba,
these enterprises go on to produce their various aluminium products
for the downstream sector. They are all medium-size enterprises, each
employing several hundred employees.
Organizational history
Midal Cables was established in 1978, as a joint venture between
OLEX Cables of Australia, and the Inter-steel (Al-Zayani Investments)
corporation of Bahrain. The company was founded as a private sector
joint venture and incorporated as a limited liability company (WLL).
Equity in the new company was split 49:51 and the project was very
much intended to support the government of Bahrain’s policy of
further economic diversification, as well developing further industrial
projects to support Alba in the downstream sector. In 1985, however,
Saudi Cables of Jeddah bought out OLEX’s shares in Midal (+1 share
from Al Zayani), making the company a 50:50 shareholding between Al
Zayani Investments and Saudi Cables. Midal Cables remains a closed
limited liability company with two shareholders only, and there is no
sign that the company will go public in the foreseeable future. The
company currently employs some 270 individuals.
It should be noted that Midal Cables itself is one of three companies
in the Midal Group. The other two companies in the Midal Group are
Aluwheel, a pioneering plant manufacturing aluminium alloy wheels
for the automobile industry, and Metalform, which produces solid
sectors for power cables as well as aluminium tubes for numerous
industrial applications including automobile radiators, air condi-
tioners, heat exchanges and freezers. Metalform also produces AS wire,
which clads high carbon steel with aluminium and is used for earth
wire or fibre optic cables. Metalform employs some 50 people, with
Aluwheel employing 110 and exporting its entire production to
European countries.
Product lines
Midal’s core business is the manufacture of aluminium and aluminium
alloy rod and wires for electrical and mechanical applications; a compre-
hensive range of aluminium, aluminium alloy and steel-reinforced bare
conductors for overhead power transmission and distribution. The
company grew from being a small workshop at the back of Alba’s facility,
with just 50 employees and only 12,000 mt production capacity, to some
270 employees and 90,000 mt production capacity today. During the
past 20 years of the company’s operations, its output capacity increased
threefold and Midal attained the ISO for international standards. It
was the first company in the Gulf for rods, wires and conductors to
achieve this standard of excellence, reaffirming its position as a market
leader in the development and production of aluminium alloys and a
leading player in the industry for new technologies. All of the company’s
products are currently manufactured to industrial specifications and
according to international standards.
Midal’s main raw material input is aluminium (molten metal), which
it sources from Alba at the market price (Midal’s production line is set up
to receive Alba’s aluminium). The molten metal is obtained in liquid form
and is transferred to Midal from Alba in 10 mt crucibles, poured into
holding furnaces at Midal’s plant and casted continuously for industrial
Company Profile: Midal Cables 149
usage. Molten metal from the adjacent Alba smelter enables Midal to
make rod with particularly little re-melt cast to the end products of rod,
wire and conductor. Of further significance is the quality of the electrical
conductivity in Midal’s cables, which easily reaches international specifi-
cations due to the high purity molten form metal.
Business development
Midal Cables exports its entire production, with 40 per cent of exports
going to the Gulf (GCC) market and 60 per cent internationally
(including Europe, Africa, Australia, New Zealand and some to North
America). The company is a market leader for a number of its products,
particularly in the GCC. At present, more than one-third of the
company’s sales are in the form of higher added value conductors. Its
conductors have been used on transmission line projects performing
efficiently in over 25 countries in the Middle East and internationally.
Furthermore, Midal supplies all the GCC cable manufacturers with
80 per cent of the GCC market for aluminium rod. Midal’s alloy and EC
rod is used by cable manufacturers in many parts of the world and is
sold at reasonable premium due to its quality, ease of drawing and its
high conductivity. The company also exports aluminium wire to North
Africa and Southeast Asia. Midal’s products are shipped in containers
by road to Saudi Arabia and the rest of the GCC, and by sea interna-
tionally. Midal also invests noticeably in marketing its products inter-
nationally, and maintains representative offices in London, Hong Kong
and South Africa.
R&D
Midal Cables is committed to research and development (R&D) and
invests some US$2–3 million each year into upgrading and main-
taining its production line and into new technologies. Midal’s recent
R&D contributions have also been used in order to develop the market
for new products, including the development of ‘enhanced conductivity
aluminium alloy rod’ for the cables industry in Britain, and the ‘extra
high conductivity aluminium alloy conductors of 59 per cent IACS’ for
the Swedish National Electricity Utility, which recently opened new
growth markets in the 400kV transmission network.
Human resource management

Midal Cables is a medium-size company and, with some 270 employees,
a significant employer in the Bahraini economy (taken together the
whole Midal Group employs around 420 people). Out of 270 people
employed at Midal Cables, around 50 are engaged in management and
administration, while 220 individuals constitute the company’s semi-
skilled and unskilled line workers and labourers. The company employs
both Bahrainis and expatriate workers, and operates within the regula-
tions set down by the Ministry of Labour’s Bahrainization programme
(which requires that private sector companies start their operations by
employing a minimum of 20 per cent Bahrainis, with an annual
increase of five per cent until the figure of 50 per cent Bahraini
employees is achieved). Indian and Filipino nationals tend to be the
dominant foreigners comprising Midal’s expatriate workforce. Out of
Midal’s 50 individuals engaged in managerial tasks, some 50 per cent
are Bahrainis. Out of the 220 workers, around 63 per cent are reported
as Bahrainis. The Ministry of Labour channels a steady supply of local
semi-skilled and unskilled labour into the company.
Labour turnover at Midal Cables is relatively low and many of the
people engaged in management positions have remained in their place for
quite some time. Since 2002, a labour union has been in place at Midal
Cables to give workers greater workplace representation, and some
90 per cent of the workforce now belongs to the union. Changes in
Bahrain’s constitution, designed to further Bahrain’s development of
democratic political institutions, allowed for trade unions to be legally
formed, whereas in the past the interests of Midal’s workers were repre-
sented by more ad hoc workplace committees. The minimum wage of
BD150 a month is payable to unskilled Bahraini workers at the company,
with expatriate workers qualifying for higher wages than those tradi-
tionally received in the country’s services and small enterprises sectors.

Midal lists the following factors as some of the major advantages of
doing business in Bahrain:
• no corporate or income taxes;
• inexpensive and dependable supply and source of energy (ie cheap
and abundant oil, gas and electricity, upon which Alba is reliant to
produce its aluminium, which is, in turn, used by Midal and the
other companies in Bahrain’s downstream aluminium sector;
• a good supply of molten aluminium as the company’s main raw
material is readily available from Alba, which is physically located
next to Midal’s plant;
• competitive rates for transport and shipping;
• Bahrain is a safe and secure place in which to do business.
Company Profile: Midal Cables 151
Midal’s CEO does not envisage that taxes will come into effect in
Bahrain in the foreseeable future, as the state still derives the majority
of its revenues from oil and therefore does not need to rely on tradi-
tional, fiscal methods of procurement (ie the government relies on
revenues from natural resources, over which it commands ownership).
However, it should also be noted that Bahrain’s political institutions
are still in the process of developing, and are still viewed with a degree
of uncertainty. Reformers within the Bahraini government are seeking
to overcome traditional methods of doing business and ensure that the
country’s institutions are upgraded and integrated into internationally
compliant political and economic systems. Bahrain is already a
member of the WTO, though it does not always adhere to all of the
protocols set out under its charter, and has recently signed a Free
Trade Agreement with the USA, which will further assist the country’s
government in meeting its strategic objectives.
4.5
Company Profile:
Bahrain Atomisers
International BSC
Introduction
As the reader of this book should by this stage have established, the
Kingdom of Bahrain has a very well developed aluminium industry,
comprising both upstream (production of raw aluminium) and down-
stream (production of a range of finished and semi-finished aluminium
products) sectors. While Aluminium Bahrain (Alba) is the dominant
player in the upstream sector, there are several important enterprises
belonging to downstream industries. We have already discussed in some
detail Midal Cables Company in the previous chapter, whilst Balexco
and GARMCO are also significant medium-size enterprises comprising
the downstream sector. In this chapter we focus on Bahrain Atomisers
International BSC (BAI), which is yet another significant enterprise in
Bahrain’s downstream aluminium industry.
BAI is a manufacturer of a wide range of high-purity and alloy-
atomized aluminium powders and pellets. Aluminium powder is used
constantly in the steel industry, as well as in alloys, high temperature
refractories, ceramic bricks, in the automobile industry, and various other
chemical processes. Aluminium powder is a highly used commodity in
numerous industrial applications internationally. It gives plastic a
metallic look (ie commonly appearing as the top coating of a mobile phone
for example), and is frequently sprayed on in the final coating whilst
painting the surfaces of automobiles and aircraft. Given the global
demand for this commodity, it will not surprise the reader that BAI is an
export-oriented enterprise, strategically located in the Kingdom of
Bahrain, with good access to the Asian, European and American markets.
Organizational history
The origins of BAI go back to the late 1960s, when the government of
Bahrain embarked upon a policy of employing its abundant gas
Company Profile: Bahrain Atomisers International BSC 153
resources to develop a fully-fledged value-added aluminium industry.

With Alba founded in 1968, there was soon scope to develop a compre-
hensive downstream aluminium industry. Established in 1973, BAI was
the first company in Bahrain’s downstream industry and was initially
supported by the government under an infant industries programme.
The company was incorporated as a private sector joint-venture
enterprise, with just two shareholders establishing the company – a
similar arrangement to Midal Cables’ as discussed in the previous
chapter. BAI’s two shareholders were, and have remained, the Bahrain
Development Bank (51 per cent) and Ecka Granulate GmbH & Co KG
of Germany (Ecka Granules) (49 per cent), a leading global manufac-
turer of non-ferrous metal powders and their alloys. The German
company itself is a privately-owned Bavarian firm, with a corporate
history spanning well over a century. Ecka Granules also holds a three
per cent ownership stake in Alba. BAI has a Board of Directors,
comprising seven individuals all coming from the two shareholders.
BAI’s Chairman of the Board is from the Bahraini shareholder, while
the General Manager is an employee of Ecka, seconded to BAI.
Relations between the shareholders have generally been good and the
company has been run to international standards since its foundation.
Its auditor is KPMG.
Product lines
BAI products range from ultra-fine aluminium powders to aluminium
pellets. The company makes these products in three grades:
• alloys;
• high purity; and
• standard purity.
It does not engage in the secondary aluminium market (ie scrap
metals). BAI has an exceptional product capability ranging from
3 micron to 20 mm in particle diameter for all purity and alloy grade
aluminium particulates. Process flexibility is combined with high
quality to ensure that BAI can act as the supplier of products that fulfil
the customers’ needs from both commercial and technical perspectives.
BAI produces around 8,000 tonnes annual capacity, hovering around
this figure year-on-year, and representing around 3–5 per cent of the
world’s total supply for aluminium powders (we should note that there
are only between 10 and 20 plants in the world that produce
aluminium powder). BAI’s plants consists of two atomizing facilities (ie
the plant that takes liquid aluminium and processes it into powder),
one pellet casting facility and two re-processing facilities. BAI’s main
raw material input is liquid aluminium, which is available in abundant

supply, given that BAI’s plants are located less than 1 km from Alba.
Liquid aluminium is transported to BAI from Alba in five-tonne
crucibles and is then atomized for the production of aluminium
powder. It takes roughly five hours for BAI to atomize the liquid
aluminium and turn it into one tonne of aluminium particles.
While BAI sources all of its raw materials from Alba, the company’s
technologies and production units have been traditionally supplied by
Ecka Granules, which also handles the majority of BAI’s sales and
marketing internationally.
Business development
BAI exports the entire 100 per cent of its production capacity to inter-
national markets. The company exports very little to the GCC market
since BAI’s products are in high demand in high-tech and large-scale
industries, very few of which are found in the Gulf. Although BAI’s
products are sold as finished aluminium products, BAI’s clients will
often treat these products as a raw material, add value to them, and
sell them on in the industry as a new product. Being located in a major
regional commercial hub, BAI has been able to provide effective
delivery times to all of its key target markets internationally.
BAI’s market for aluminium powders and pellets is very compet-
itive, with the main competition coming from the US, Europe, and to a
lesser degree Russia and China. The challenge that has consistently
confronted BAI is to maintain its position as a profitable, interna-
tionally significant company supplying international markets. BAI’s
General Manager seeks to keep his company competitive by ensuring
that the price and quality of BAI’s products, as well as the level of
service accorded to its clientele (ie delivery time as well as technical
support) keep pace with the expectations of the market. He sees that
the challenge ahead of his company is one where it is necessary to win
market share from the competition and to grow naturally with the
market, and to expand as the requirements of the company’s main
clients expand (ie annual demand for aluminium powder is growing at
around 1–5 per cent each year).
From a marketing perspective, BAI is fully integrated into the Ecka
Granules international network, given that the latter is very well
known in the industry at the global level. Therefore Ecka’s sales and
marketing offices worldwide tend to market BAI’s products. This works
well for Ecka, given that BAI is manufacturing high quality products
at competitive prices.
BAI is a profitable company with an annual turnover of around
US$15–20 million.
R&D
BAI operates a total quality production system and has achieved ISO
9001:2000 registration under the British Standards Institute, and was
one of the first production companies in Bahrain to achieve this
standard. Along with this achievement, BAI has the added advantage
of 30 years of production experience as well as access to the technical
expertise and facilities of the extensive R&D and quality resources of
the Ecka Granules group.
Human resource development

BAI is one of the smallest companies in the downstream sector,
employing only 59 individuals. Of these there are only three expa-
triates, with the other 56 people being Bahrainis. The fact that the
company employs so many Bahraini nationals makes BAI one of the
best private sector performers in the government’s Bahrainization
programme. BAI has received recognition in the form of industrial
awards from the Ministry of Labour as a profitable, well-managed,
international export-oriented company, which employs 95 per cent
Bahrainis. BAI’s General Manager, Mr Leon Fabrikanov, an Australian
working in Bahrain for over six years, holds a very high opinion of his
Bahraini workforce, claiming that they ‘work like lions and will do work
that Europeans will find very difficult to do’. It should be mentioned
that running an international, export-oriented private company
according to international standards, with 95 per cent Bahrainization is
quite a significant achievement.
Unlike the case of neighbouring Midal Cables, there is no labour
union or worker committee present at BAI. However, labour turnover
tends to be fairly low at BAI, and many workers have kept their place
at the company consistently over time. The regulations for employing
workers in Bahrain are fairly rigid, however, and although it is not
impossible to fire inefficient workers, removing individuals from the
company is not easy. The industrial relations at the company appear
harmonious according to BAI’s General Manager, who adds that
employing Bahrainis has advantages. Well-trained Bahraini
employees have proved to be a major asset to BAI’s business, some-
thing that would clearly be pleasing to the Ministry of Labour and the
Bahraini government in general.

BAI’s General Manager suggests that any foreign company planning to
operate in the Kingdom of Bahrain needs to come to terms with the
country’s domestic value system and local business culture, which may
be quite different to their own. Foreign companies should also come to
terms with the government’s Bahrainization programme. Indeed, the
business experience of BAI clearly demonstrates that a modern
company can operate profitably and efficiently in Bahrain, work to
international standards and be export-oriented whilst employing an
overwhelmingly Bahraini workforce.
While some foreigners have recently been concerned by the
question of security for foreign workers, particularly in the wake of
attacks on foreign (European) workers in neighbouring Saudi Arabia,
BAI’s General Manager suggests that security is one of the issues
that he is least concerned about, as a foreigner working and living in
Bahrain. Despite the fact that Khobar (where attacks on employees
of foreign companies took place in the spring of 2004) is just across
the causeway linking Bahrain to Saudi Arabia, in reality these
attacks were very distant from Bahrain both politically and logisti-
cally. Given that the main populated part of the Kingdom of Bahrain
is located on an island, the country remains both isolated and insu-
lated from such attacks, and there is only one road, the King Fahad
Causeway, linking Bahrain to the mainland. With air and sea being
the only other avenues to enter the country, there is less scope for
terrorists to enter the Kingdom than some of the neighbouring states
of the Middle East. Bahrain’s population is composed mostly of
Shi’ite Muslim communities, which in recent years have been less
prone to be mobilized for terrorist purposes. Furthermore, Bahrain is
seen as the leading state in the GCC in terms of political reforms and
democratization, which, in theory at least, should give greater scope
for expression of social and political grievances through non-violent
channels compared with countries where more authoritarian regimes
tends to predominate.
BAI’s General Manager lists the following factors as noticeable
advantages for his type of enterprise whilst doing business in Bahrain:
• no corporate tax;
• relatively low labour costs;
• import duty exemptions to aluminium producers based in Bahrain
and exporting to OECD countries;
• competitive transport costs (ie the Middle East is a net importer
with lots of empty container space leaving the region and available
to exporters at competitive rates).
One disadvantage for BAI in being based in Bahrain is that the
country is quite distant from many of its customers. Ideally, the
company would be located much closer to its main customers as
delivery of production would be much easier and more efficiently

achieved. BAI therefore relies significantly on Ecka Granules to do
much of its marketing internationally and liaise with the client base on
a constant basis, as well as its own capacity to deliver a competitive
product in terms of price, quality and service.
4.6
Bahrain’s
Telecommunications
Sector
Bahrain’s Telecommunications Regulatory
Authority (TRA)
Telecommunications and economic expansion

An effective and competitive telecommunications sector serves as a
catalyst for economic growth and drives increased levels of commercial
activity and investment.
This is not only true of investment and growth in the telecommuni-
cations sector itself but, importantly, across multiple industry sectors
from consumer industries, manufacturing and transportation through
to financial services.
Cost-effective and efficient telecommunications raise the compet-
itive advantage of all economic sectors, and ultimately any jurisdiction
itself, by providing primary benefits by way of cost reductions, improve-
ments in the scope and availability of services and greater ease and
access to information, all of which contribute greatly to enhanced
levels of productivity and a country’s attractiveness as an investment
or business centre.
With these factors in mind, Bahrain has viewed the further devel-
opment of its telecommunications sector as a national priority and an
important part of its broader efforts to stimulate economic growth and
investment.
In October 2002, the Kingdom passed the Telecommunications Law,
which articulated the strategy and means by which Bahrain’s telecom-
munications sector would be liberalized.
With the availability on 1 July 2004 of national fixed and interna-
tional services licences, all market segments in Bahrain were opened
to competition and investment. In what has come to be hailed, both
Bahrain’s Telecommunications Sector 159
locally and internationally, as a fair, efficient and transparent process,

the liberalization of the market in Bahrain, which has been adminis-
tered by Bahrain’s Telecommunications Regulatory Authority (TRA)
established in October 2002, has already begun to deliver the intended
benefits to consumers, market operators and the economy at large.
The right foundation for investment

Characterized by a commitment to political and economic diversity and
liberalization, Bahrain is one of the region’s most open economies
and a leading investment centre, in particular in relation to banking,
and gateway to the broader GCC and Middle East region.
Marked by a stable political environment, a sound regulatory envi-
ronment and a demonstrated dedication to implementing free market
principles, Bahrain is experiencing considerable growth and thus
provides an attractive environment in which to invest and operate.
Bahrain’s GDP growth for 2002 was registered at US$8,416.86 million,
and telecoms revenue as percentage of GDP was recorded as 3.6 in 2003,
according to figures registered in the Central Informatics Organization of
the Kingdom of Bahrain.
Further, although a small island with a population of under one
million demand for national as well as international telecommunica-
tions services in the Kingdom is strong and continues to grow among
both individual users as well as Bahrain’s business community.
There are more than 400 financial institutions operating on the
island at present, and current development projects such as the
planned US$1,000 million Bahrain Financial Harbour as well as
numerous large-scale real estate projects, are all expected to drive
significant demand for high quality, advanced telecommunications
services well into the future.
Overview of the telecoms market

In establishing its policy for the telecommunications sector, consid-
erable attention was paid by the Bahrain government to identifying
the objectives and expectations of the liberalization process and the
desired results. These included the:
• stimulation of economic activity;
• rapid creation of a free market environment that would prove
attractive to private investment in the telecommunications sector;
• enhancing the attractiveness of Bahrain as a business centre by
becoming a regional communications hub; and
• retention of opportunities for the incumbent operator to grow value

by balancing the mechanisms that compel it to adapt to competition,
with the need to maintain, or even enhance, its value.
With a successful fast-track liberalization completed in July 2004,
Bahrain has already achieved many of these objectives and has
emerged as one of the region’s most competitive and dynamic market-
places, prime for the attraction of new operators and greater levels of
private sector investment.
In April 2003, Bahrain’s mobile telecommunications segment
became the first to open to competition, followed over the course of the
following 15 months by all additional segments as follows:
• 1 August 2003: Availability of Internet Service Providers (ISP)
licence;
• 1 August 2003: Availability of Value Added Services (VAS) licence;
• 1 January 2004: Availability of Paging licence;
• 1 January 2004: Availability of Public Access Mobile Radio (PAMR)
licence;
• 1 January 2004: Availability of VSAT licence;
• 1 January 2004: Availability of International Telecommunications
Facilities licence;
• 1 July 2004: Availability of International Telecommunications
Services licence;
• 1 July 2004: Availability of National Fixed Services licence.
The impact of the liberalization process currently can be seen most
vividly in the mobile segment, which consists of two operators, namely
Batelco and MTC-Vodafone Bahrain. Competition has already begun
to deliver the intended benefits driving economic investment and job
creation, business opportunities and growth for both operators – the
incumbent and the new entrant alike – as well as subscribers who have
witnessed enhanced customer service, the introduction of new services
and service options as well as price reductions.
It is expected that, with the full liberalization of the market after
July 2004, the model has been set for additional operators to enter the
market across the full spectrum of telecommunications services, and
for the completion of opening the telecoms market in Bahrain to have a
similar positive impact as competition increases. It should be noted
that, other than in relation to mobile telephony, all sectors of the
telecoms industry in Bahrain are open to an unlimited number of
licensees, and that there are no local ownership requirements.
Market players
Presently, major market players in Bahrain’s telecommunications
sector, as well as other licensed entities, include the following.
Bahrain Telecommunications Company (Batelco)

Batelco is Bahrain’s incumbent telecommunications operator.
Established in 1981, the Company has been an integral part of the
Kingdom’s telecommunications sector since its inception.
Batelco holds 14 licences spanning the spectrum of telecommunica-
tions services in Bahrain; however, its activities are not limited to the
local market. Batelco is also an active participant in additional
regional markets.
MTC-Vodafone Bahrain
MTC-Vodafone Bahrain is the result of an agreement between the
Mobile Telecommunications Company (MTC), a GCC regional
company in Kuwait, and Vodafone, a global company based in the UK.
MTC-Vodafone Bahrain is the Kingdom’s second GSM service
provider, having launched its service in the Kingdom in December
2003. MTC-Vodafone Bahrain further holds Internet Service Provider
(ISP), Value Added Services (VAS) , VSAT and International Facilities
licences.
Fixed telephony
Fixed telephony service in Bahrain is currently provided by Batelco.
However, with the recent availability of National Fixed Licences since
1 July 2004, the Kingdom’s telecommunications sector hopes to attract
additional fixed line providers as investors and operators alike come to
take advantage of the opportunities presented by the full liberalization
of the sector.
With regard to tariffs, all in-country calls in Bahrain are classed as
local calls and billed at standard local rates. International calling rates
in Bahrain have been historically high when compared with the
European or US norms. However, prices have started coming down
with the introduction of the new regime and certainly with
International Service Licences, available since 1 July 2004, it is
expected that international call tariffs will become increasingly
competitive as competition enters the market and operators vie to
provide customers with greater value and service options.
Teledensity for fixed telephony stands at 27.6 per cent among
Bahrain’s population of 672,100 people. It is expected that continued
economic growth and increasing prosperity in the Kingdom will
continue to drive demand for fixed lines in the country in the years
ahead.
Mobile telephony
The award of the country’s second mobile licence in April 2003 was a
significant milestone for Bahrain, both marking the first critical step
in the introduction of competition into the telecommunications
market, as well as representing a decisive step forward in the
Kingdom’s overall goal of promoting free market principles.
The process, a ‘beauty contest’ through which the second operator
was selected, was a transparent and rigorous one aimed at ensuring
the chosen applicant could deliver high-quality service, meet growing
consumer demands and provide optimal investment and job opportu-
nities for the citizens of Bahrain.
MTC-Vodafone Bahrain, now the country’s second mobile operator,
was selected from among some 10 high-quality regional and interna-
tional operators seeking to enter the Kingdom’s fast-growing mobile
telecommunications market.
As of 2003, the mobile telephony sector registered a 65.9 per cent
penetration rate – a figure that is expected to increase even further
with the advent of a second mobile operator.
Further, the introduction of competition has also had a positive
impact on this segment with regard to the availability of greater choice
both in terms of operators and the scope of products and services on
offer, enhanced customer service and, importantly, considerable reduc-
tions in price.
Both operators provide world class services in the GSM range
covering voice, international calls, GPRS, MMS and gaming to name a
few. The TRA has a policy of technology neutrality in order to
encourage innovation in products and services provided in the
Kingdom of Bahrain.
In terms of the number of mobile licences available, Bahrain’s
Telecommunications Law stipulated that for a period of two years, until
April 2005, there would only be two mobile operators in the Kingdom.
However, if the two mobile operators were to engage in anti-competitive
behaviour, the TRA would have the power to license a third mobile
operator before April 2005. Similar rules apply to a Mobile Virtual
Network Operator (MVNO).
The Internet
The advent of the Internet and its proliferation has revolutionized
the way in which individual users and businesses communicate and access
information. Bahrain’s island geography further enhances the impor-
tance, need and demand for internet services and usage. According to
statistics published by the International Telecommunications Union
(ITU), the total number of internet users in Bahrain for the year 2003 is
estimated at 195,700, which constitutes a penetration rate of 29.1 per cent.
While the Kingdom began the offer of Internet Service Provider

(ISP) licences in August 2003, Batelco, Bahrain’s incumbent operator
remains the sole source of internet services to the public and business
community at large.
Demand for internet services is strong and the lack of competition in
the market thus far has kept prices, in particular those using ADSL
technology, significantly higher than European or US norms.
Nevertheless, Bahrain, through the TRA, is taking the necessary steps
to drive investment in this segment of the telecommunications sector –
which it views as a critical one – and has set the foundation for doing so
through the establishment of the Bahrain Internet Exchange (BIX).
As envisaged in the Telecommunications Law, the establishment of
BIX was announced in November 2003 and licensed in March 2004.
BIX will be the connecting point for all internet traffic within Bahrain,
and will also act as the gateway for international internet connectivity
with Bahrain (see Figure 4.6.1).
Wider Tier 1 IX
Internet London?
Tier 2 IX
BIX ensures the

All ISPs required to connect to BIX only for
development of a
exchange of Bahrain traffic
competitive ISP sector
Licensed Operator
BIX
Int’l facility
ISP 2
ISP 1
User
User
ISP 3
User
Figure 4.6.1 Bahrain Internet Exchange (BIX)

4.7
Bahrain’s
Telecommunications
Sector: The Regulatory
Framework
Bahrain’s Telecommunications Regulatory
Authority (TRA)
Introduction
The establishment of a fair and transparent regulatory framework is a
prerequisite for the attraction of private sector investment – both
domestic and foreign. This is particularly true for developing markets,
as they vie to enhance their competitive advantage and position them-
selves as investor-friendly destinations.
Bahrain has long been recognized as a regional leader in terms of its
legal and regulatory infrastructure, and its telecommunications sector
is no exception. The Kingdom’s telecommunications sector – much like
its renowned financial services industry – is characterized by a world-
class regulatory environment conducive to the attraction of investment
and capable of supporting multiple operators.
In embarking upon the process of liberalizing the telecommunica-
tions sector in the Kingdom, the government devised a telecommunica-
tions plan aimed at establishing and maintaining sustainable
competition through the development of a regulatory infrastructure
based on transparency and accountability, whilst being capable of
providing both current and future market operators and subscribers
with clear rights, obligations and long-term visibility.
Bahrain’s Telecommunications Sector: The Regulatory Framework 165
The regulatory authority

Bahrain’s Telecommunications Regulatory Authority (TRA), estab-
lished in October 2002 by the Telecommunications Law as an inde-
pendent body, is tasked with the effective implementation of the
government’s strategy and plan for the development of the Kingdom’s
telecommunications sector.
This encompasses all necessary measures to attract investment and
competition, as well as ensuring that the regulations set out in the
Telecommunications Law are fairly and effectively enforced for the
benefit of both subscribers, consumers and operators alike.
The TRA is responsible for developing regulations that protect and
promote consumer interests – allowing both new and existing market
operators to thrive is a key goal. In liberalizing the sector and in its
ongoing efforts to regulate the market, the TRA has focused on the
promotion of fair and effective competition and the creation of an open
environment that encourages investment and at the same time allows
private sector companies the necessary flexibility to best meet user
needs.
The TRA is overseen by a Board of Directors appointed by His
Majesty the King on recommendation of the Council of Ministers, as is
the General Director of the TRA who is responsible for the day-to-day
operations of the authority and in whom all powers of the TRA are
vested, according to the Telecommunications Law.
The regulatory environment

Working under the Telecommunications Law, the TRA has gone to
great lengths to ensure that the regulations it adopts and the manner
in which it enforces these regulations are fair and transparent.
The TRA, (the Authority) on an ongoing basis, devises and imple-
ments consultations on critical issues, allowing both the general public
as well as market operators to participate in the development of the
sector and the rules and regulations that govern it. All consultations,
determinations and regulations are published on the TRA website at
www.tra.org.bh. Comments on consultation documents may be
submitted by anyone, including those outside of Bahrain.
Further, the TRA continues to put in place other key processes and
systems to encourage an open dialogue between the Authority, the
industry and members of the public, so that the benefits of liberal-
ization are delivered efficiently and as intended and that the interests
of all subscribers and market operators are effectively protected and
promoted. The most recent of these mechanisms was the launch of the
Kingdom’s first Telecoms Consumer Advisory Group, the first of other
similar groups, which will be tasked with working with the Authority
and industry operators on critical industry issues.
The legal framework

The Telecommunications Law sets out the powers, duties and responsi-
bilities of the TRA as well as operators. The Law also provides mecha-
nisms for dispute resolution between subscribers and operators, and
provides for the use of arbitration in the event of disputes between a
licensee and the Authority. The Telecommunications Law also sets out
clear and strong enforcement powers of the TRA, in particular in the
area of competition.
Furthermore, the TRA has the power to investigate complaints
within the telecommunications sector, both from and regarding
licensees and non-licensees. Depending on the nature of the complaint
and the results of the TRA’s investigation, the TRA can either take any
necessary action itself (including imposing fines, and requiring
behavioural and/or structural remedies) or inform the Public
Prosecutor of the matter, for him/her to take any suitable action.
Licensing
Among the TRA’s major roles is granting licences and monitoring
licensed operators, in particular to ensure compliance with their
licence obligations and the Telecommunications Law. As such, the
Authority has put in place a clearly defined, technology-neutral and
easy-to-navigate licensing process, aimed at encouraging participation
whilst ensuring that applicants meet the necessary legal requisites.
There are currently nine licences provided by the TRA, shown in
Table 4.7.1.
In order to apply for these licences, which are issued for a period of
15 years, potential candidates can simply apply online by filling out the
required application forms and sending them to the TRA. Upon receipt
of applications the TRA will send an acknowledgement within 14 days
of receipt of the application. The TRA will assess the application and
correspond with the applicant on any issues requiring further clarifi-
cation. Assuming all requirements are met, the TRA will issue the
appropriate licence(s) to the applicant.
There are no restrictions on levels of foreign ownership; however, all
licence applicants must be legally registered Bahraini commercial
entities.
Licensing fees for each licensed service are one per cent of a
company’s gross annual revenue attributable to the licensed activity.
Table 4.7.1 TRA licences

Licence Initial fee Renewal fee
Mobile Telecommunications Two operating licences have been granted
LicenceThis licence allows (to Batelco and to MTC-Vodafone). No further
provision of mobile licences of this type are currently available until
telecommunication service by its 2005.
own network.
Paging Service Licence BD5,000 1% of gross annual
This licence allows the commercial turnover attributable to
use of paging services to licensed activity.
subscribers.
VSAT Licence BD5,000 1% of gross annual
This licence grants the use of Very turnover attributable to
Small Aperture Terminal, a digital licensed activity.
satellite data network with small
antenna diameter, for private use
only.
Public Access Mobile Radio Service BD5,000 1% of gross annual
Licence turnover attributable to
This licence allows the use of Public licensed activity.
Access Mobile Radio in dispatch
applications (eg by truck and taxi
fleets).
International Telecommunications BD20,000 1% of gross annual
Facilities Licence turnover attributable to
This licence authorizes the licensed activity.
termination/landing/establishment
of international connections and
the obligation and right to connect
to other Bahrain licensed networks.
International Telecommunications BD10,000 1% of gross annual
Service Licence turnover attributable to
This licence allows the provision of licensed activity.
international voice and data
services with requirement to
deploy a physical traffic
aggregation structure.
National Fixed Services Licence BD35,000 1% of gross annual
This licence allows the provision of turnover attributable to
national fixed voice and data licensed activity.
services by its own network.
Internet Service Provider Licence BD1,000 1% of gross annual
internet services but not including licensed activity.
voice.
Value Added Services Licence BD1,000 1% of gross annual
services over an existing network licensed activity.
(eg card services).
The initial fee, paid once with the application for the licence, also
covers the first calendar year from the date of grant of the licence.
Numbering
Numbering is a vital issue in any telecommunications market as it
moves from monopoly to competitive supply. Before 2003, the national
operator, Batelco, controlled all telephone numbers in Bahrain.
As soon as competition was introduced, control over all national
numbers was placed with the TRA, to administer fairly in the best
interests of consumers. In order to achieve this, the TRA consulted the
industry and the public on the allocation and structure of telephone
numbers in Bahrain and proposed an extension of all numbers to an
eight-digit format.
The key feature of the eight-digit format was its stability. It would
create sufficient numbers so that further changes would not be needed
for many years, if ever. After completing the consultation process, the
TRA issued the National Numbering Plan for the Kingdom of Bahrain
on September 2003, bringing into force the above-mentioned proposal.
By ensuring that there are adequate numbers, the National Number
Plan both cleared the way for fair competition and provided a
consistent way for consumers in Bahrain to access their telecommuni-
cation services.
The importation of telecommunications

equipment
The Authority is the body responsible for approving the telecommuni-
cations equipment used in the Kingdom of Bahrain. The small size of
the Bahrain telecommunications market makes it impractical to
implement a bespoke equipment approval process or to test every piece
of equipment against a standard equipment approval. The TRA has
therefore adopted an approval-by-exception approach, whereby inter-
national standards, mutual recognition agreements and self-regu-
lation by manufacturers will be used as much as possible. Certificates
from the main equipment approval authorities will be recognized by
the TRA and these include:
• ANSI – American National Standards Institute;
• BABT – British Approvals Board for Telecommunications;
• CEPT – European Conference of Post and Telecommunications;
• ETS – European Telecommunications Standards;
• ETSI – European Telecommunication Standards Institute; and

• FCC – Federal Communication Commission.
When seeking to import telecommunications equipment into the
Kingdom of Bahrain, it is the responsibility of operators/users to
present the relevant certificates. Whilst the Authority reserves the
right to spot-check equipment if this is felt necessary, it also has the
right to use a preferred third party to test equipment as it deems
necessary. In such instances, the operator wishing to use the
equipment that requires testing will be liable for the cost of the tests.
The TRA may also seize or prohibit the use of equipment that does
not comply with type approval regulations. It also has the power to levy
fines for breaches of type approval regulations.
4.8
Tourism Development
Department of Tourism, Ministry of
Information, Kingdom of Bahrain
Introduction
The Kingdom of Bahrain is an archipelago of 33 islands, with a total
land area of just over 700 square kilometres and with the sea as its
prominent element. The Kingdom takes its name from the largest
island, Bahrain (587 square kilometres), which is linked to the other
main inhabited islands of Muharraq, Sitra and Nabih Saleh by
causeways. To the southeast of Bahrain lies a group of 16 small islands,
the largest of which is Hawar and resembles the shape of the mother
island. In 1999, Bahrain witnessed a new era of economic and political
reforms, manifested in the introduction of a Referendum on the
National Action Charter, which won almost 99 per cent of Bahraini
votes to transform the State of Bahrain to the Kingdom of Bahrain and
to proclaim HM Shaikh Hamad bin Isa Al-Khalifa, as the King of the
country.
‘Bahrain’ or ‘Two Seas’ refers to the abundance of sweet water found
in a number of natural springs both on land and beneath the sea. The
phenomenon of sweet water springs under the sea, which blend with
the salty water of the sea, has been responsible for the renowned lustre
of Bahrain’s natural pearls.
The second most important aspect is that this country has a history
and civilization that dates back more than 6,000 years. Much of that
history is still seen in abundance all over the island and in its
museums and archaeological sites. Historically, Bahrain is the moth-
erland of the Delmon civilization, dating from the third millennium BC.
Delmon was an important seaport between Mesopotamia and the
Indus Valley as repeatedly mentioned in Sumerian, Babylonian and
Assyrian inscriptions. It has also been described as the ‘land of
eternity’ due to the abundance of sweet water, with over 170,000 burial
mounds at one time covering the central area and part of the western
area of Bahrain Island.
Tourism Development 171
Delmon was later renamed by the Greeks as Tylos, when two of

Alexander the Great’s ships arrived opening new trade routes some
time around 323 BC, which resulted in a strong Greek influence being
exerted over the islands.
Archaeological finds reveal evidence of two distinct civilizations,
Delmon and Tylos, dating from the third and first millennia respec-
tively. Such evidence can be found at different archaeological sites, and
most clearly at the Bahrain National Museum, which consists of
several exhibition halls covering the history of Bahrain through
ancient civilizations and up to the pre-oil period, when the pearling
industry was Bahrain’s major source of wealth.
At the start of the 20th century, Bahrain owned nearly half of the
pearl fishing fleet in the Gulf, and employed over 2,000 people.
The arrival of cheaper Japanese cultured pearls in 1930 coincided with
the discovery of oil, which resulted in the crash of the pearling industry
as people moved to work for the newly-founded Bahrain Petroleum
Company (BAPCO). The first oil well was drilled in 1931 at the foot of
Jebel Dukhan, and oil production started in 1932, with oil exports
starting two years later.
The discovery of oil brought subsequent economic and social change
to Bahrain, turning it into a major oil, financial and trading centre, a
status that can be attributed to the wise leadership directives that are
based on establishing a complete and sound economy by adopting an
economic diversification plan that effectively facilitates the devel-
opment of various non-oil and tertiary industries such as aluminium
smelting, offshore banking, insurance, ship repairing and tourism.
It is true that the government has made its tourism industry, amongst
many other sectors, an essential key policy area, currently contributing
8–10 per cent to the national economy. At present, very keen and sincere
measures are set up by both public and private sectors to help increase
this contributing factor of tourism to 15 per cent in the coming five years.
Obviously, the need for joint efforts and joint plans is paramount and
demanded from the various governmental authorities, the community,
the private sectors and big corporations, in order to bring about this
objective. Still in tune with the development phase, the Kingdom of
Bahrain is going to stage a number of mega ‘top-notch’ projects that will
accelerate and boost tourism in the region. Of course, one worthy of
mentioning is the Formula One Grand Prix, a project that became an
annual event for Bahrain as of April 2004 and which promises to be
distinct from all other venues in the sense that it has an exceptionally
rich Arabian flavour, characterized by its Middle Eastern desert and oasis
theme. Other projects include the Durrat Al Bahrain Resort, a 20 km2
area of reclaimed desert and sea, considered to be one-third larger than
the capital city, Manama. This resort will comprise 13 different islands,
with about 2,000 villas, 2,000 apartments, luxury hotels, restaurants,
promenades, shopping centres, a marina, spa, sport facilities and an

18-hole golf course.
Also, there is the Amwaj Islands project that will include a four-star
hotel that will cost BD12 million; a 2,500 km2 unique structure design
of a skylounge of restaurants that will look as if it is suspended in mid-
air and a 4,000 km2 mosque that will have its own bridge and will cost
up to BD2 million. All in all, the US$1 billion Amwaj Islands project is
going to be an attractive beachfront property that will be linked to
Muharraq Island by a single causeway and characterized by a leisure
community seafront and marina villas, hotel, marina club and
commercial building plots. It is expected that these two mega-projects
will generate a lot of tourism and business activities and also
encourage and entice foreign investments to the country.
Besides the affluent and bustling infrastructure that the Kingdom
of Bahrain enjoys, there is yet another element that has given it an
additional bonus to help it become a thriving and very sought-after
destination, whether for business or leisure. That very remarkable
secret element is its people. On the spot, anyone coming to Bahrain will
discover that the people are the best socially – a gift of God to the
Kingdom of Bahrain.
When it comes to encouraging people to visit the Kingdom, there is
not really a specific type in mind. The government’s main aim is to
provide the best options and facilities, at the highest quality, to all
types of visitor, be they business travellers, families, cultural travellers
or nature lovers. Everyone is welcome in this paradise destination.
Having said that, it should be mentioned that one group does demand
some special regard, and that is families. Within its new strategy, the
government has set up a number of requisites that need to be pursued
in order to facilitate comfortable and convenient entertainment and
accommodation options for all visiting families. On the other hand, the
government has also taken into consideration that a very good infras-
tructure should be facilitated to support and meet the satisfaction of
the business traveller as well.
Visitors often have different expectations. For instance, some wish to
visit and enjoy the shopping malls, others come to visit the heritage,
while others just come to do business. People often judge the countries
they visit on their first experiences, and, in most cases, that is what
makes them decide to come back again. In light of that, the people in
the tourism industry, from public and private sectors, work very hard
to ensure that the hotel industry in Bahrain is synonymous with inter-
national standards and offers the very best of hospitality to its guests.
Through some promising collaboration between the tourism author-
ities and the hoteliers, efforts are made to encourage the business trav-
ellers to bring their family along with them whenever they plan to
visit, by providing them with special incentives or complementary
options so that they come with their families and choose to extend their
stay on the island.
To sum up, the Kingdom of Bahrain is a country that has had a very
long history of hosting events and welcoming visitors to its shores, and
so it does not come as a surprise that this precise diversity has added
yet another distinctive asset, which is its ability to provide and to cater
for all different types of visitor.
Sights and attractions

Bahrain provides an array of attractions and sights that suit the
various visitors’ interests and tastes – from history, heritage and hand-
icrafts, to sports, relaxing on the beach, dining out and nightlife. The
following are regarded as some of the more interesting sights.
Bahrain National Museum: Located on the intersection of Muharraq
Causeway and King Fahad Causeway, this museum offers a compre-
hensive view of Bahrain through the ages, with Halls of Delmon, Tylos
and Islam, Customs and Traditions and Trades and Crafts, as well as
one exhibiting prehistoric animals, and an art gallery.
Oil Museum: Located to the south of Jebel Dukhan, next to Oil Well
no. 1, this museum exhibits drilling equipment, a working model of an
oil rig and photographs.
Currency Museum: Located in the Bahrain Monetary Agency (BMA)
building in the diplomatic quarter, this museum houses many ancient
coins and rare Islamic currency, in addition to all currencies circulated
in Bahrain since the early Islamic dynasties.
Beit Al Quran (House of Al Quran): Located close to the National
Museum, the Beit al Quran houses rare and ancient manuscripts of the
Quran from around the world. Also on display are rare Islamic artifacts
and jewellery.
Bahrain Fort (also known as the Portuguese Fort): Situated at
Karbabad Village, seven kilometres from Manama City, this fort is of
great historical importance because it is located on a site that became
the seat of successive civilizations – the last being the Islamic era.
Saar Settlement: The most recent discovery of the Delmon era, this
settlement consists of 4,000-year-old residential dwellings with
adjoining burial grounds. The site also includes the Saar Temple and is
accessible from Saar main road.
Ain Umm Al Sejoor: A natural water spring forming part of a Delmon-
age temple, discovered in the early 1950s at a site to the north of Duraz
village.
Barbar Temple: Located in Barbar village, this temple consists of three

superimposed levels built over several periods of time – the first of
which was constructed around 2800 BC. The temple resembles those
found in Mesopotamia.
Al-Khamis Mosque: This mosque was originally built around the 9th
century CE and has been renovated and extended through different
Islamic periods. Its final structure resembles that of 12th-century
Islamic architecture.
Arad Fort: Situated on the island of Muharraq, this fort was built
around the 17th century during the Portuguese occupation of Bahrain.
It is a fortified structure, square in shape, with circular towers at the
four corners overlooking the waterways that gave access to Bahrain at
that time.
Shaikh Salman Bin Ahmed Al-Fatih Fort (formerly known as Rifa
Fort): Situated in Rifa and built by Shaikh Salman Bin Ahmed Al-Fatih
in 1812 for use as his seat of government, this fort is believed to have
been built over the ruins of an earlier 17th-century castle.
Shaikh Isa Bin Ali House: Situated in Muharraq, this house resembles
the traditional architecture of the Arabian Gulf region with a wind
tower as its main feature. It was constructed by Shaikh Hasan Bin
Abdulla Bin Ahmed Al-Fatih and later used by Shaikh Isa Bin Ali as
his residence and centre of government from 1869 until 1932.
Siyadi House: Situated close to Shaikh Isa Bin Ali House, in the Siyadi
district of Muharraq, this house was constructed in the 19th century by
a Bahraini pearl merchant, Ahmed bin Jasim Siyadi. It resembles a
typical residence of merchants at that time.
Bait Al-Jasra (or Al-Jasra House): Situated in the Al-Jasra village on
the west coast of Bahrain, this house was built in 1907 by Shaikh
Hamad Bin Abdulla Al-Khalifa and was later taken as a summer resi-
dence by Shaikh Salman Bin Hamad Al-Khalifa, ruler of Bahrain from
1942 until 1961. Also in Al-Jasra village is the Al-Jasra Handicraft
Centre, which comprises a number of rooms displaying different tradi-
tional handicrafts such as cloth weaving, pottery, chests, ‘sadow’ or
Bedouin weaving, and the making of traditional dhow models.
With regard to natural attractions, Al-Areen Wildlife Park and
Sanctuary provides a natural habitat for many different types of plant
and for more than 500 species of animals and birds. Another environ-
mental reserve is located in the Hawar group of islands, which provide
a natural habitat for many migrating birds.
As for recreation, Bahrain offers a wide range of conventional water
sports at Al-Bander Resort, Le Royal Meridien Hotel and Resort, and
Hawar Hotel and Resort. In addition, the Al-Dana Resort, consists of
180 chalets and offers all the facilities and services expected of a true
family resort.
For those who would like to try a unique and rewarding water sport,
pearl diving at one of the world’s largest oyster beds can be arranged
with the diving associations in the country.
Golf enthusiasts can enjoy the game on the 18-hole PGA champi-
onship course at the Rifa Golf Club, in addition to sampling the first-
class facilities at its clubhouse. Go-karting, ice-skating, tennis, squash,
cricket, football and rugby are among the many other activities that
are also available.
The future
The government has always been flexible and welcoming to new ideas
and suggestions in areas for development and advancement. It never
fails to make sure that when adopting any particular project, it does
not usually open if some of the activities are not yet ready.
Transparency at all levels is essential for all plans. The authorities
need to be fully open before committing to any project. Great effort and
a tremendous amount of time has been invested on both government
and private levels to bring about a healthy environment for nurturing
tourism. The Kingdom of Bahrain is proud of all its achievements and
welcomes and treats the visitor with utmost hospitality, no matter who
they are or where they come from. The gates of the Kingdom of Bahrain
are always open to visitors with love and smiles, making them very
much at home on its golden sands and azure beaches.
Key-points
Below are some key points regarding Bahrain:
• geographic location – halfway down the Arabian Gulf and to the east
of Saudi Arabia;
• moderate climate most of the year, average temperatures range
from 17–30°C between September and April;
• richness in history and heritage, as evident from the widespread
archaeological sites, traditional homes and museums;
• well-established infrastructure;
• well-established transport network and world-class telecommuni-
cation services;
• good tourist amenities, including a wide range of accommodation,
catering and recreational facilities, seven five-star hotels, nine four-
star hotels and over 100 restaurants serving an array of cuisines
ranging from Continental, Thai, Chinese and Japanese, to Indian

and Middle Eastern;
• state-of-the-art exhibition and conference facilities, including
purpose-built centres such as the International Exhibition Centre,
the Gulf International Conference Centre and the Bahrain
International Conference Centre, as well as the fully-equipped
conference halls within all five-star hotels;
• the unique friendliness and hospitality of the Bahraini people. It is a
known fact that the Kingdom of Bahrain is one of the oldest and
friendliest in the world. For centuries Bahrain has received many
visitors, with the warm hospitality of its people continuing to make
it a special place to visit;
• last but not least, the safety and security that prevails in all aspects
of life in the Kingdom of Bahrain, making it a peaceful haven. Petty
thefts and crime rates are extremely low. People of all races and both
genders can freely walk or drive around at any time of the day
without fear of being harmed.
However, the key element of the country’s successful tourism industry
has been its ability to recognize and deal with changes across a wide
range of interrelated economic, social and technical factors that shape
the world’s tourism industry, emphasizing the net benefit and market
share of tourism receipts rather than the market share of the number of
visitors. This means promoting Bahrain as a diverse destination that
provides alternative tourism rather than a generic leisure destination,
thus reaching out to speciality markets that interact well with social
and environmental resources and provide substantial economic benefit.
To ensure sustainable tourism development on and around the
islands, a number of measures have been adopted to create a better
climate for this speciality sector and other emerging niche travel
segments such as archaeology, culture, golf, diving and eco-tourism.
Some of the measures worth mentioning are:
• improving and expanding the standard of service infrastructure at
historical and heritage sites;
• re-evaluation and reclassification of hotels, hotel apartments and
tourist resorts;
• restricting the number of permits issued for the operation of one- to
three-star hotels and issuing permits for four- and five-star hotels only
if differentiation in the range of products and services is guaranteed;
• the introduction of a liberal visa policy that offers easy access to
special interest and business visitors from most countries of the world
– for example, Western Europe, Australia, New Zealand, Japan,
Canada and the United States among others, by making single entry
visas or multiple entry visas available on arrival in Bahrain;
• the issuing of entry visas on arrival to all residents of the Gulf Co-
operative Council (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and
United Arab Emirates);
• the allocation of wide areas of land and sea around the island for
reclamation in order to set up new tourist projects such as deluxe
family-oriented resorts and theme parks, taking into consideration a
minimum negative impact on the environment;
• supporting the private sector and foreign investments in such
projects.
Tourism statistics
The tourism industry in the Kingdom is experiencing remarkable and
significant growth. According to our figures, for 2003, total visitor
arrivals to the Kingdom came around 4.84 million compared with 4.83
million in 2002, indicating a steady growth rate of 0.3 per cent.
Furthermore in 2003, the tourist arrival figure, which was 3.76 million,
indicates a growth increase in the ‘tourism and leisure’ market of
3.5 per cent compared with the 3.64 million tourists in 2002, and an
increase of 13.3 per cent in the number of those tourists visiting friends
and relatives, and, finally, a 12.2 per cent increase in the number of
transit arrivals (see Tables 4.8.1 and 4.8.2).
Table 4.8.1 Total visitor arrivals to the Kingdom of Bahrain

(by air, land and sea)
2002 2003
Air 920,309 974,159
Land 3,897,170 3,861,969
Sea 13,461 8,369
Total 4,830,940 4,844,497
Table 4.8.2 Total visitor arrivals to the Kingdom of Bahrain

(by purpose of visit)
2002 2003
Leisure 3,641,727 3,769,003
Business 418,819 542,243
Visiting friends and relatives 79,846 90,428
Transit 270,126 303,163
Journalism 101,934 130,220
Total 4,512,452 4,835,057
It is also worth mentioning that the Kingdom of Bahrain presently has

29 hotel apartments and around 90 classified hotels in total, which
include:
• seven five-star hotels;
• 15 four-star hotels;
• 23 three-star hotels;
• 37 two-star hotels; and
• eight one-star hotels.
4.9
The Residential
Property Market
Susan Neal, Cluttons, Bahrain
Introduction
For people thinking of relocating or even retiring to the Kingdom of
Bahrain, this is undoubtedly an interesting and multicultural place in
which to live.
Since 2003, the Bahrain property market is now partially open for
both rental and buying. However, this applies only in certain areas, ie
Amwaj Islands by the airport, Juffair, certain parts of Saar, and other
resort projects currently ongoing, where it is possible for expatriates
and other GCC nationals to purchase.
Practicalities of renting
When relocating, a valid central population registration (CPR) card is
essential, as landlords will not accept any clients unless this is
produced. You obtain this card once your employer has had your resi-
dence and work permits processed. As this doubtless takes a little time,
and landlords prefer not to hold flats and villas, they are usually very
happy to issue a lease in the company’s name, which can be transferred
later to your name (sometimes for a small fee), but do check with the
landlord first.
Housing allowances vary according to the grade of the employee,
and can be either a basic allowance or sufficient for a fully furnished
all-inclusive package. Once this has been established with your
company, approaches can be made to reputable property agents, such
as Cluttons, who will help you to locate a suitable property. It should be
noted that there are many agents in Bahrain, so it is best to make
contact with a few and then decide which one to use. In so doing, it
should also be noted that the property market is, in essence, a ‘free-for-
all’ and thus different agents may well make visits to the same prop-
erties. This can prove to be extremely frustrating, and a complete waste
of time visiting properties over and over again, so it is important to be
careful, and to note down the name of every building you go to so as not
to duplicate.
Once a budget has been set, and a suitable property found, a quick
decision is needed as availability changes daily. Delays in the decision-
making process and a lack of available funds can mean that a ‘dream
home’ is lost and you find yourself back at square one. To assist an
agent in selecting a property it is essential to provide clear information
as to what is required. For example:
• Would you prefer a villa or an apartment?
• Do you need a garden?
• Would you prefer it to be stand-alone or on a compound?
• Would you prefer the property to be near school/university/shops?
• How many bedrooms and bathrooms would you prefer?
• Would you prefer the property to be unfurnished, semi-furnished or
furnished? (Unfurnished means nothing included; semi-furnished
means carpets/tiles, curtains and air conditioning (A/C) – check
whether window, split or wall A/C as they are quite different.
Furnished means all of the above and basic furniture. Fully
furnished includes all of the above and bedding, cutlery etc.)
• Would you prefer the property to be in or out of town?
• Do you need housemaid’s quarters?
• Do you need a swimming pool?
Bahrain has a large expatriate population, and there tend to be
‘pockets’ of culture all over the island. Newcomers to the region may
feel more comfortable being near people from their own country or
culture, rather than being among people of a different culture. This
must also be relayed to the agent, who should know the different areas
well.
Financial and lease information

Residential leases are normally for a term of one to two years,
renewable. The first year of the lease is usually fixed but during the
second year, dependent on the landlord, it is usually possible to give
one or two months’ notice of termination. To get a feeling of the island
go for a one year lease to start with, as you may find once you settle,
The Residential Property Market 181
that another area is more attractive, or has more facilities to

compliment your lifestyle. Leases themselves can be anything between
one and 15 pages long, but it is essential that they are read carefully;
do not be put off, because these leases should cover every eventuality,
thus protecting not only the landlord but also the tenant.
Payment terms
Most landlords require at least three months’ payment in advance at
the signing of the lease and will then either accept monthly or quar-
terly payments. Some will require a deposit of one month’s rent,
refundable at the end of the lease, subject to inspection, while others
will insist on one year’s post-dated cheques, but again, each of these
guidelines are negotiable. Please note that agents charge one month’s
rent as a commission fee, which is borne by the landlord. Reputable
agents do not charge their clients.
Extras
In addition to the rental payments, if a lease is on an ‘exclusive’ basis,
municipality tax of 10 per cent of the monthly rental will be payable,
which will be included on the electricity and water bill (which are also
payable by the tenant). By way of example, for a medium-size flat with
air conditioning, the monthly electricity cost will be in the region of
BD15–25 in the summer months and BD10–20 during the winter.
Water charges are likely to be between 500 fils and BD5 per month.
The following is an example of costs for an average flat per month.
Exclusive Flat Rental BD250+
Municipality 10% BD25+
Water charges (approx) BD5+
Electricity (approx) BD20+
Total monthly outgoings BD300
Before obtaining an electricity line, an expatriate is required to pay a

deposit of BD100, which is refundable upon vacating the property and
once all the final bills have been paid. Such a deposit is also required
for both landlines and mobile phones.
If the home is to be rented on an ‘inclusive’ basis, the only sum
payable is the monthly rental because all utilities and municipality
taxes are included.
Property information
Structural repairs and general maintenance are usually the responsi-
bility of the landlord, which should be clearly stated in the lease. If the
home is part of a compound with a communal swimming pool, the
landlord usually undertakes all maintenance, but confirmation of this
should be obtained in advance of signing the lease. If, on the other
hand, the home has its own private pool, there is a need to ensure in
advance who will be responsible for its maintenance, because, as an
approximate guide, a small pool will cost an average of BD50–75 per
month to be maintained in pristine condition.
Landlords sometimes provide satellite television; otherwise instal-
lation will be at the tenant’s cost. On average it costs in the region of
BD100 for the initial installation, in addition to which there is a
monthly subscription of some BD15, but check with the different
satellite providers, as there are always special offers available.
Prices
Table 4.9.1 provides a guide to rental prices in different areas.
Table 4.9.1 Indicative property prices (monthly rental in Bahraini

dinars)
Flats/villas in 2 bed 3 bed 4 bed 5 bed

from from from from
Central Manama
Unfurnished 150 250 350 450
Semi-furnished 225 300 450 600
Fully furnished 500 650 800 1,000
Surrounding areas
Remaining areas
Areas of Bahrain:
Central Manama:Manama, Adliya, Gudaibiya, Hoora and Juffair
Surrounding areas: Um Al Hassam, Zinj, Salmaniya, Gufool and Muharraq
Out of town areas: Budaiya, Saar, Hidd, Arad, Isa Town, Rifa and Zallaq
The Residential Property Market 183
All rentals prices are affected by:

• the age and condition of the property;
• whether the property is on a compound with a shared pool;
• whether it has its own pool;
• whether it is near schools and shopping areas;
• market availability;
• whether the landlord is amenable to change and compromise.
4.10
The Commercial
Property Market
Andy Hinson, Cluttons, Bahrain
Office developments in Bahrain have traditionally been found in

central Manama and the diplomatic area, which act as one adjoining
location for a wide range of international and local organizations that
require office space for a variety of purposes. More recently, substantial
retail developments in the Al Seef area have encouraged a number of
office developments nearby for rent and private use.
Bahrain has acted as a regional office location for a number of inter-
national businesses that, until recently, were generally not able to own
their premises. The market has therefore been characterized by
widespread leasing activity, with many of the tenant organizations
being connected to the finance, insurance and investment sectors.
Indications are that the leasehold sector comprises 70 per cent of
occupational demand, with government and local institutions making
up the balance. Local organizations and individuals have therefore
developed a wide range of commercial properties for leasing out,
including a significant number of good quality office properties.
Since the late 1980s, the office rental market in Bahrain has
remained relatively stable with relatively minor increases in rental
rates. In the last few years, a number of large, new commercial devel-
opments have been initiated and it is possible that on completion these
could lead to an over-supply of prime commercial office space in the
short term. Although rental rates have increased over the last year by
approximately 10–20 per cent, tenants have found themselves in a
position to negotiate for longer fitting-out and rent-free periods in
some cases.
Consultation with a reputable real estate company can help the tenant
achieve the best rental terms and property for their requirements.
The Commercial Property Market 185
Commercial lease structures

There are no standard lease formats in use within the commercial
sector and the leases will vary considerably depending upon the
landlord or his managing agents. The majority of leases are short-term,
being between one and five years.
It is not unusual to negotiate lease clauses for secondary and
tertiary office space until a common ground is reached between the
tenant and landlord, although this becomes more difficult with the
prime office buildings. Any disputes are followed up by lawyers and
may be dealt with by the courts, although this can prove to be an
arduous process.
Although rare in practice, longer leases can be negotiated (maybe
10 years) with some landlords, and this would usually result in a lower
rental rate for the tenant. Leases longer than 10 years are generally
unheard of.
Payment terms
Rent is usually paid quarterly in advance upon the signing of the lease.
It is common practice to leave post-dated cheques with the landlord in
order to cover the first year’s payments. During the negotiation stage,
the number of rental payments and time frame for post-dated cheques
can be discussed as part of the overall terms and conditions.
Service charges
Service charges are common for all commercial office space and will
usually vary between 15 and 20 per cent of the rent, or a full-cost
recovery basis in some cases with prime space. The charge will usually
cover the maintenance of the building, the security and cleaning of
common areas, in addition to the maintenance and running costs of the
air conditioning systems and water charges. It will need to be clarified
with the landlord whether the consumption of electricity in your office
is included in the service charge.
Municipality charge
A local government charge is levied for services such as rubbish
removal and the upkeep of roads and parks. The landlord notifies the
municipality upon signing a lease agreement and they will then apply
the charge of 10 per cent of the monthly rent that will be payable by the
tenant, along with any electricity and water costs attributable to the
tenant. This is the same with residential property.
Agency fees
It is common practice for the landlord to meet any agency fees for intro-
duction to his property; these should not be passed on directly to the
tenant.
Insurance
As part of the lease agreement the landlord is usually responsible for
insuring the buildings, while the tenant is responsible for insuring
office contents under a separate policy.
Fitting-out works/tenant improvements

The landlord will traditionally allow a rent-free period for the fitting-
out works undertaken by the incoming tenant. This rent-free period
will have to be negotiated at the start of the contract and is usually
reflected by the standard of the proposed works and the time period of
the lease. It is not unusual to secure a couple of months’ rent-free
period in today’s market conditions, provided that the landlord is
satisfied with the fitting-out proposals.
Tenant improvements are taken into account as a landlord’s benefit,
with anything physically fixed to the building, ie ceilings, carpets and
partitions often remaining as landlord’s property at the end of the
lease term.
There are a number of specialist office refurbishment companies in
Bahrain, in addition to numerous building companies. The landlord or
his agent will be able to recommend contractors to assist you in this
process.
Termination or renewal procedures

Dependent upon the lease expiration clause, the tenant should inform
the landlord in writing prior to the expiration of the lease term. Early
termination by the tenant is usually attained at the discretion of the
landlord and tends to be achieved with the securing of a replacement
tenant. Termination can also sometimes be possible with the use of the
diplomatic clause (ie if the company no longer operates in Bahrain and
is ceasing all operations in the Kingdom).
The Commercial Property Market 187
Renewal clauses are subject to the initial lease negotiations.

Renewal clauses for similar terms and conditions can usually be nego-
tiated subject to an increase in rental rates to the current market rate.
Rent reviews are generally by negotiation and are a reflection of
market conditions at the time.
The law is currently unclear as to whether landlords are obligated to
renew leases for further terms upon expiry. However, in practice both
parties are usually keen to renew agreements for obvious reasons.
Dilapidation procedures
The tenant and landlord will inspect the premises and, subject to the
lease agreement and wear and tear, the tenant may be responsible for
returning the premises to the same condition as at the date of occu-
pation. This work must usually be completed before termination of the
lease can be accepted, although in practice this is rarely enforced.
Transport/parking
Taxis are abundant in Bahrain and theoretically operate on a meter
system, thus keeping travel costs uniform, while buses run on limited
routes and tend to be used by labour workers only. It is, however, the
car that is the primary mode of transport in Bahrain, with owners
benefiting from low purchase prices and running costs.
Car ownership is high – a fact that is reflected by the volume of
traffic and the overly congested parking facilities. Parking spaces are
limited to all but a handful of buildings in Bahrain and negotiations
must be entered into at initial contract stages to secure adequate
parking for staff. The lease will usually state a number of free parking
spaces depending upon the size of the rented office, with further spaces
leased under a separate contract. Buildings rarely have sufficient
parking, even at a price, so incoming tenants and local car parks or
open spaces will have to be used.
Rental trends
Rates are usually quoted per metre square per month and the lease
agreements should state the floor area and annual rent. Table 4.10.1
provides some current examples.
Table 4.10.1 Indicative commercial rental rates as at mid-2004 (in

Bahraini dinars)
Office type BD/m2/year BD/m2/month
Prime commercial 72–108 6–9

Secondary 48–72 4–6
Tertiary 30–48 2.5–4
4.11
The Insurance
Environment
Richard Morrison MA ACII, Country
Manager, Bahrain, Norwich Union
Middle East
Through the government’s prudent and prognostic approach, Bahrain

has transformed itself into a major regional financial centre, with the
insurance industry forming a key and growing element of this devel-
opment. In 2002, the Bahrain Monetary Agency was assigned the
responsibility for regulating the entire financial sector, insurance
activities thus coming under the Agency’s control.
The market
The Bahrain insurance market, when compared with that of many
other Arab countries, is relatively sophisticated with a good range of
insurance providers and ancillary companies, providing varied and
competitively priced products and services. The latest figures as at end
2002, showed that the industry comprises eight national and nine non-
national insurers transacting direct insurance business, and 23 inter-
mediaries and 20 other companies providing a variety of ancillary
needs from loss adjusting to actuarial analysis. In 2004, two more
companies established themselves in Bahrain, both non-national, and
also one captive management broker company and two further inter-
national brokers.
Gross premiums in 2003 totalled BD79 million (split as to Life
BD17,013,000 and General BD61,987,000), a 16.1 per cent increase
over 2002.
While the premium income generated from the insurance market in
Bahrain is one of the smallest of the Arab countries, the proportion of
insurance premium income per capita, compared with its GDP, is the
highest throughout the countries of the Gulf Cooperation Council

(GCC; comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and
United Arab Emirates). However, this proportion still remains approx-
imately five times smaller than that of the United Kingdom, thus
demonstrating relatively low penetration and corresponding high
growth potential within the local market.
Bahrain has also encouraged the growth of an offshore insurance
sector with around 70 companies registered as ‘exempt’. Many of these
are trading in Saudi Arabia and utilize Bahrain as an offshore centre
due to its developed infrastructure, minimal regulation, zero corpo-
ration tax and proximity to the Kingdom. Offshore companies (regis-
tered as ‘exempt’) are not permitted to trade in Bahrain. It is
anticipated that following implementation of Saudi Insurance legis-
lation, the number of these offshore companies will decrease substan-
tially. However, there may be a corresponding growth in regional,
reinsurance and captive companies registered in Bahrain and
servicing the Saudi and Middle East marketplace.
According to Bahrain Monetary Agency statistics at end 2003, the
Bahrain insurance industry employs 818 people with 61 per cent of the
workforce being nationals.
Government legislation for regulation of the insurance industry is
currently being overhauled to provide greater security to policy-
holders. The BMA is committed to enhancing the Kingdom’s status as
the region’s insurance centre. In this regard, the BMA initiated a
number of key measures in 2002.
Firstly, it conducted a detailed assessment of the financial sector as
a whole, with the broad objective of identifying areas of high growth
potential. Insurance was one of seven asset classes identified by the
study. Special emphasis is now being given to accelerate the growth of
this important industry.
A key element of the new insurance strategy being implemented by
the BMA, is to upgrade the regulatory framework in line with interna-
tional supervisory standards. The strategy also focuses on expansion of
the domestic insurance sector by improving the quality of services,
enhancing the calibre and capacity of insurance professionals,
attracting takaful and retakaful companies, as well as developing
Bahrain as the regional centre for captive insurance activities.
In terms of regulation, the BMA has also initiated a major review of
the existing regulatory framework. The BMA intends to use this review
to enhance the regulation of insurance firms licensed in the Kingdom.
In broad terms, the objective is to ensure that Bahrain’s insurance
regulatory framework is consistent with international standards and
that it is also consistent with the frameworks applicable to other
financial sectors, wherever appropriate. A series of consultation papers
(some have already been issued) are planned, covering such areas as
The Insurance Environment 191
captives, capital requirements, solvency, conduct of business and fit &

proper. The implementation of these proposals will be phased in during
2004, depending on their potential impact on firms and the need for
adequate transition periods to allow adjustment.
The industry’s professional body, the Bahrain Insurance Association
(BIA) provides a common platform for all insurance companies and
supplementary service companies operating in Bahrain. The BIA’s
objectives include, inter alia, increasing the public’s awareness of
insurance needs and closer liaison with government bodies. In close
association with the Bahrain Institute of Banking and Finance (BIBF),
the BIA provides high-quality training and self-development for the
industry’s workforce.
Personal insurance
In comparison to many other Arab countries, personal insurance in
Bahrain is relatively well developed, providing a variety of good
quality and competitively priced base products.
Motor insurance is the only class of insurance that is compulsory and
it is a legal requirement for all vehicles (including those visiting from
neighbouring countries) to be insured for third-party liability risks.
Unusually, the legal system in Bahrain permits individuals to
pursue compensation claims directly with the insurance company of an
‘at fault’ driver, rather than holding the driver personally responsible
or the driver seeking indemnity from his insurance company. The
majority of death and injury claims are negotiated directly with
insurance companies whereby quantum is mutually agreed, thus
avoiding costly legal action. However, due to increased expectations of
compensation awards, insurers are reluctantly becoming increasingly
involved in civil court actions. Death awards range from US$34,000 to
US$160,000 with the size of the award dependent on status and the
number and age of family dependants. Awards for moderate/serious
personal injuries can range from US$100,000 to US$500,000+, with a
medical committee deciding upon a percentage of disability and
reporting to the court for a decision on the award. Court awards
continue to rise and levels of awards can be unpredictable, making
product pricing and consistency a difficult objective.
The minimum legal requirement covers third parties for an unlimited
amount in respect of bodily injury and a limit of US$1.33 million in
respect of property damage. Some insurers will provide additional cover
by increasing the property limit and extending the definition of third
parties to cover family and spouse.
The government has imposed a vehicle registration system similar
to that of the UK, whereby all vehicles must have valid insurance cover
prior to first registration during the purchase of the vehicle. In

addition, all vehicles over four years old are required to have an annual
safety inspection, similar to the MOT principle in the UK, and valid
insurance must be provided at this time in order for re-registration to
be completed.
Despite a good road infrastructure, as in many Arab countries the
frequency of accidents is relatively high. In addition, the high cost of
vehicle repairs and spare parts, combined with intense price compe-
tition between insurance companies means that comprehensive motor
insurance is not viewed as a particularly attractive class of business for
insurers.
Third-party motor insurance is viewed as even less attractive to
insurers, as they are restricted from increasing premiums above a set
level. The Bahrain Monetary Agency imposes minimum premiums on a
scale in accordance with the cubic capacity of the vehicle and this is
designed to protect the consumer and encourage all vehicle owners to
insure for the minimum legal requirement. It is anticipated that tariff
rates for young drivers and substandard risks may be increased, whilst
more prudent drivers will be rewarded, bringing Bahrain into line with
more sophisticated insurance markets.
While over 40 per cent of all vehicles on the road are only insured for
third-party liability risks, there remains a good choice of quality
products aimed at those wishing to insure their vehicles for compre-
hensive cover. Indeed, in recent years the industry has introduced
added value benefits, based on the UK philosophy, by providing such
benefits as help lines, breakdown services and free courtesy vehicles
when the insured vehicle has been involved in an accident.
Other traditional personal lines of insurance such as home, travel
and medical are also available from the local marketplace. Such insur-
ances are more commonly purchased by expatriates; however, there
has been a noticeable increase in demand from the local population in
recent years and this is expected to continue as the economy develops,
thereby enhancing living standards.
While many expatriates insure their contents and personal
belongings, the industry anticipates a greater increase in demand
from the local population, especially as many householders suffered
damage and loss following two significant storms in recent years.
There has also been an increased awareness of a steady rise in the
incidence of crime (which is still relatively low when compared with
most western countries).
Individual medical, life and investment business forms a very small
proportion of the insurance industry and is viewed as a developing
market. Choice and products are limited but insurers are currently
developing their products and distribution channels for future
expansion in this area.
The distribution network for personal insurance remains relatively

simple with the vast majority of business being conducted directly
between insurance company and policyholder. Indeed, it is still
common for the individual to undertake the transaction in the
insurance company offices. However, credit card payments are more
common and insurance companies have developed other payment
distribution networks. Fully integrated E-commerce facilities to allow
a ‘one-stop’ transaction are not yet available, although some companies
provide online quotation systems.
Insurance schemes with banks and other lending institutions are
not common. The combined lending appetite of retail banks and the
demographics of Bahrain have led to a credit boom and credit life and
purchase protection are now major bank related insurance purchases.
There is a gradual crossing over of borders between insurance
companies and banks on financial products and the beginnings of
bancassurance. Banks are likely to be a key distribution source in
future years, so a single regulator certainly makes sense. Insurance
brokers generally deal with corporate insurances.
Corporate insurance
Corporate business forms the majority of insurance transacted in
Bahrain. The bulk of this business is government- or quasi-
government related, where the State owns the assets or has a major
financial interest. This would apply specifically to a majority of the
petrochemical and hydrocarbon industry. Government business can
only be placed with insurers registered as national companies.
However, due to the complexity and significant exposure of many of
these risks, a significant proportion are reinsured in other markets
such as those in the United Kingdom.
Many international companies executing contracts with joint
venture partners in Bahrain often use one of the international firms of
insurance brokers to advise and negotiate insurance coverage.
Competition for corporate business is very keen due to the relatively
modest size of the market compared with the number of insurers.
However, service levels can differ widely so it is worthwhile carrying
out some referrals before committing oneself.
Risk management advice is limited and, in the absence of a local fire
protection association, insurance companies often rely upon the fire
brigade to enforce standards. The fire brigades are well equipped and
regarded as being among the most effective in the Middle East.
However, significant fires are not uncommon due to a variety of
reasons, including overcrowded and non-sprinklered buildings and
warehouses, age and lack of maintenance of buildings, and general
poor risk management and loss management techniques.
Bahrain-based reinsurance syndicate, Arab War Risks Insurance

Syndicate (AWRIS), provides reinsurance cover for political and war
risks within the Middle East and Africa. This facility has been
utilized by the Bahrain insurance industry by reinsuring the vast
majority of sabotage and terrorism risks with AWRIS. This action
was taken in 1996 during the times when Bahrain suffered from
intermittent agitation and some property was damaged by incen-
diary devices and the like. The intention of placing this cover with
AWRIS was to bring some consistency into the marketplace and
provide continuity and protection to both insurance companies and
policyholders alike. While such trouble has subsided for some time
now, the facility remains in place, albeit at reduced premiums due to
reduced exposure.
As Bahrain expands its industrial base, spawned from both the
downstream oil activities and the aluminium-related activities
utilizing aluminium generated by one of the world’s leading smelters,
the need for marine cargo insurance has expanded significantly and
forms an integral part of the insurance requirements of many indus-
trial companies. Recent development and expansion of the textile
industry, exploiting Bahrain’s quota share export agreements, has also
led to greater demand for marine cargo insurance. The recently signed
free trade agreement with the USA is seen as providing a boost to
Bahrain’s economy over the next five years.
Port facilities in the main port, Mina Salman, are excellent, with
modern handling techniques, and underwriting marine cargo risks
causes few problems compared with some other Middle East countries.
The new port at Hidd is nearing completion, although it will not be
fully operational until 2005–6. A free zone is planned, which may
encourage economic activity.
Construction related insurances are increasing as several ‘mega
projects’ come on line in Bahrain. The major engineering/contracting
companies have full order books for 3–10 years and the related insur-
ances are assisting the strong growth in this insurance class.
Employee benefits are an important element of any HR manager’s
responsibilities and there is an adequate choice of insurance-related
benefits to be found within the Bahrain insurance industry.
However, the General Organization for Social Insurance (GOSI)
does provide private sector employees with compensation due to
accident and injury in the workplace and an income for Bahraini
nationals when they retire. The retirement pension benefits for
Bahraini employees are quite generous, providing a maximum of
80 per cent of final salary. The contributions for Bahraini employees
are 10 per cent from the employer and 5 per cent from the employee.
Expatriate staff are covered under the GOSI arrangement for acci-
dents and injury in the workplace but are not eligible for the
retirement scheme; however, they do receive an end-of-service benefit

from their employer, based on length of completed service.
While a significant number of employers rely purely on the above
system of benefits for employees, an increasing number are purchasing
other benefits such as group life, personal accident and medical
expenses cover. Group life tends to be placed by insurance companies
on a reinsurance basis due to the specialist underwriting expertise
required for this class. Personal accident schemes are commonly placed
in conjunction with group life cover and usually underwritten locally.
Medical facilities in Bahrain are relatively good. The two major
public hospitals (Salmania and Bahrain Defence Force) are, between
them, quite capable of performing operations such as open-heart
surgery and even treating some cancers. There are five major private
hospitals also providing a good quality of service for the majority of
medical needs. However, many expatriates would probably wish to
seek treatment in their home countries for major medical conditions
and therefore a good medical insurance policy including ‘emergency
evacuation benefit’ should be considered essential.
Although there is yet no statutory obligation for employers to
provide medical insurance in Bahrain, this is being introduced in other
Gulf countries and is being considered by the Bahrain government. In
the meantime, it is standard practice, especially among multinational
companies, to include private medical insurance as part of the
employee benefits package for expatriates at management and senior
technical levels. However, the quality of cover provided varies enor-
mously and prospective employees need to check that the cover meets
their needs.
Conclusion
Under the supervision of the Bahrain Monetary Agency, the insurance
industry continues to develop. However, penetration levels remain low
and service is variable. Bahrain is seeking and gaining credibility as a
regional centre of excellence and it is anticipated that the industry will
focus on a stable number of domestic insurers with increased appetite
for risk but will see significantly increasing numbers of quality inter-
national reinsurers, brokers, captives and takaful/retakaful insurers.
The Big On Group
Shaping the Future of Global Branding
Founded in 2003, the “Big On Group” is a holding company shaping the future of
global branding. The “Big On Group” owns subsidiaries in publishing, financial
services, property, and a range of consumer focused businesses.
The “Big On Group” has grown quickly, particularly Big On Publishing, whose
venture with Global Market Briefings will soon see the eagerly awaited
publication of a series of books aimed at helping international and local
businesses work together in countries across the world.
The first book involving the Big On Group is this one: Doing Business with
Bahrain. Saudi Arabia will be covered in April 2005 and will be followed by
editions on the United Arab Emirates (May 2005) and Libya (July 2005). Others
are planned.
“Big On Publishing”, through its investment in Al Anqaa Communications, is also

developing other business publishing ventures from a new operation based in the
Middle East.
The “Big On Group” has several other specialist divisions focusing on businesses.
The “Big On Group” has provided structuring and has arranged financing for UK
real estate projects whilst “Big On Security” is a security facilitator in Europe and
the Middle East. “Big On Capital” provides assistance with fund raising, business
plan reviews and consultancy on complex deals ensuring that tax efficient and
investor friendly corporate structures are put in place.
Bahrain International Circuit
For almost half a century, the Kingdom of Bahrain has been the home of an enthusiastic
motor racing community. Today it is home to the first world-class racing circuit in the Middle
East. The impressive Bahrain International Circuit is not only the newest Formula One track
in the world; it is also the most advanced.
In addition to a challenging Grand Prix circuit, which meets the requirements for hosting
Formula One cars, the Circuit also provides the Middle East with an international standard
venue for all forms of car and motorcycle racing, testing and a range of on and off-road
motoring activities.
Operational 365 days a year, the Bahrain International Circuit has been designed by German
consultancy Tilke, who are internationally acknowledged leaders in the field of race track
design. Other venues include Sepang in Malaysia and Shanghai in China.
The Bahrain International Circuit has been designed to host a variety of motorsport activities.
Apart from the main Formula One race track, the Circuit includes no fewer than 6 other
tracks specially designed to meet other motosport requirements.
With a total capacity of 40,000 spectators, and two main grandstands for 14,500 spectators,
the Bahrain International Circuit includes state-of-the-art facilities to cater to any motorsport
activity. Pit and team buildings meet the demanding
needs of today’s competitive racing, while on-site
media, broadcast and medical facilities enable the
Circuit to easily host international events.
Further endorsement of the circuit’s credentials

came with the recent presentation at the FIA Prize
Giving Gala of the prestigious “Race Promoters’
Trophy” for the best organised Grand Prix of 2004
to the Bahrain International Circuit
4.12
Company Profile:
The Bahrain
International Circuit
Introduction
The Bahrain International Circuit was the vision of His Highness the
Crown Prince Shaikh Salman bin Hamad Al Khalifa. His objective was
to build a state-of-the-art circuit that would serve the requirements of
motor-sport fans throughout the Middle East, become a focal point for
the development of new business and awareness in the region and
create a platform on which to develop the profile of the Kingdom of
Bahrain and demonstrate to the world that the country is ‘open for
business’.
Formula One comes to Bahrain

The Fédération Internationale de l’Automobile (FIA) Formula One
World Championship represents the pinnacle of motor-sport and is one
of the most watched global sports. The championship is third behind
the Olympic Games and the FIFA World Cup in television viewership
figures but has a huge advantage over these two events due to the fact
that it takes place 18 times a year as opposed to once every four years.
The Kingdom of Bahrain entered into a feasibility study to ascertain
the value of constructing a Grand Prix circuit and once the results of
this were known the decision was taken to push ahead and a long-term
agreement with Formula One’s Bernie Ecclestone was reached.
Work on the circuit began after the ground-breaking ceremony in
October 2002. Fifteen months later, and six months ahead of schedule,
the Bahrain International Circuit was opened by His Majesty King
Shaikh Hamad bin Isa Al Khalifa, and the sounds of a Formula One car
echoed around the impressive new facilities for the first time. The first
FIA Formula One World Championship Grand Prix took place on
4 April 2004 and was seen as an overwhelming success by all the
Formula One teams, drivers and the hundreds of international and
Company Profile: The Bahrain International Circuit 199
regional media representatives present at the race. The event also

hosted royalty from across the region and from Europe. The race
weekend saw the Kingdom of Bahrain become the focal point of the
sporting calendar. The first Grand Prix ever to take place in the Middle
East was a qualified success and demonstrated the friendliness and
hospitality of the region as well as emphasizing the potential for
business, sport and leisure within the Kingdom and throughout the
Gulf.
Corporate and organizational structure

The Bahrain International Circuit is a government-funded operation.
The working capital required to build the US$150 million project came
from the government, as does additional revenue required to secure the
race on the FIA Formula One World Championship calendar and
the funding required to maintain the Gulf ’s only Grand Prix circuit in
the taxing and harsh environment in which it exists.
The circuit is managed by a team of some 40 administration staff
under the guidance of a general manager. This team reports to a
10-strong board of directors, which sits under the Chairmanship of His
Excellency Shaikh Fawaz bin Mohammed Al Khalifa, Chairman of the
General Office of Youth and Sport. Further to the administration staff
there is a full-time maintenance staff of nearly 60 people managed by a
team of engineers and technicians, each of whom was involved in the
initial design and construction of the circuit.
Benefits to economy and country

The FIA Formula One World Championship is a potentially huge
revenue earner for each of the 18 countries that host Grand Prix races
during the course of a season. An Economic Impact Study produced
following the race by London-based independent researchers, Comperio
Research, placed the value to the Kingdom from the first race in the
region of US$100 million. Visitor expenditure during the three days of
the Grand Prix amounted to a sum in excess of US$52 million with a
further US$48 million spent outside the three days of the event. This
additional impact was predominantly spent within the tourism and
travel sectors and underlines the value of the race to the Kingdom and
the region as a whole. The revenues generated from Bahrain’s inau-
gural Grand Prix compares well for a first race, with other recorded
figures from countries such as Malaysia, where Kuala Lumpur’s
Sepang Grand Prix generated in the region of US$150 million in the
first year and some US$250 million in the second year.
The figure for Bahrain will rise in future years as the race becomes
more established on the calendar and spectators from across the world
and the region as a whole become more confident in the venue and its
infrastructure. It is worth noting that the first race was pulled forward
six months by the sport’s governing body, the FIA. This change of date
resulted in media coverage producing stories that the track and its
facilities would not be ready in time for the inaugural race. Such state-
ments, while untrue, reflected the reluctance of international spec-
tators to travel. While the Grand Prix represents a massive potential
revenue stream to the Kingdom, the potential is multiplied by the
addition of business, sporting and corporate entertainment initiatives
in the future.
Additional business
A new business park on the circuit’s land at Sakhir is more than just an
artist’s impression. Private investment is currently being sought for
the venture that should be completed by 2006–7. The venture will
house a multitude of companies and organizations that either benefit
directly from the motor-sport business or from the association that
their business has with the leading circuit of its type in the Middle
East region. Race teams, component suppliers, suppliers to the
motoring industry, manufacturers and merchandising manufacturers
and suppliers are expected to see the BIC Business Park, with its ‘free
zone’ status, as beneficial to the establishments of first or established
businesses in the region. Already a number of leading names in the
automobile industry are considering a base at the gates to the circuit,
while others are already planning the design of their facilities. The site
has the potential for two hotels to service the park as well as the racing
circuit, while a leading European catering company has signed an
agreement to use the Sakhir site as its base for a new thrust into the
Middle East market.
Furthermore, the establishment of new racing and off-road schools
will add depth to the circuit’s portfolio of international and regional
racing activities and events. The schools are fundamental to the devel-
opment of new initiatives designed to encourage the youth of the region
to learn to drive and emulate their sporting heroes.
Even of perhaps greater commercial significance are the corporate
entertainment opportunities and revenue streams that the facilities
will generate. Corporate entertainment and hospitality are big
business and the list of multinationals and regional companies,
together with leading travel companies, that are already knocking the
door down to operate motivational and incentive programmes at the
circuit is impressive.
Company Profile: The Bahrain International Circuit 201
Motor manufacturers from around the world also see the benefit of
the Sakhir track as a venue for product launches, client promotions
and media launches. The circuit’s hot weather testing facility also
attracts attention, as do the opportunities for filming promotional and
documentary films and TV commercials. The circuit, and in particular
the Sakhir Tower, has now become an icon for the Kingdom of Bahrain,
and there is also much potential to develop numerous social and
cultural initiatives from these commercial activities. Each of these
elements of the BIC drives trade, business, tourism and general
awareness for the Kingdom, whilst also endorsing the importance of
the Crown Prince’s and government’s confidence in underwriting this
bold vision.
The challenge of hosting a Formula One event

Hosting a Formula One event in the region was by no means a simple
task. Perhaps the most challenging aspect of staging the event related
to the task of marketing the Grand Prix to an audience that is predom-
inantly interested in football. Furthermore, prior to the opening of the
circuit the only real exposure to motor-sport in the region was provided
by occasional rally-car events, and the awareness of the sport in the
Middle East was generally low compared with Europe. The other diffi-
culty that Bahrain faced was promoting the event on a Sunday, a
working day in the GCC.
Taking all of the difficulties into consideration, BIC recognized that
potential customers will come predominantly from Bahrain, Saudi
Arabia (just 40 km away from Bahrain’s border) and the UAE, where
awareness of Formula One amongst the western expatriate community
is generally high. The circuit’s marketing campaign was very focused
and concentrated its exposure in these markets. However, BIC also
used regional satellite TV station advertising and pan-Arab print
publications to reach the masses and communicate its marketing
message. This was coupled with an outdoor and online campaign, as
well as a heavy public relations campaign. The main task was to
always remind people when and where the event was taking place and
how to buy tickets. The overall response was very encouraging and on
the day of the race the grandstands were full with Formula One enthu-
siasts, all of whom identified a passionate desire to return in 2005.
Employment of Bahraini nationals

One of the main initiatives of the Bahrain International Circuit from
its inception in April 2003 has been to provide employment for
Bahraini nationals. Although motor-sport and circuit experience, in

general, is a relatively scarce commodity in the Kingdom, the Bahrain
International Circuit has made strides in providing relevant training
and exposure for its employees in other circuits and events around the
world. Not only has the circuit sent staff on familiarization and
training visits, but training has also been given on site by various expe-
rienced personnel. The circuit, in conjunction with the Bahrain Motor
Federation, has also been instrumental in the development and
training of Bahraini marshals for not only the first Gulf Air Bahrain
Grand Prix but also for other events held at the facility.
The Bahrain International Circuit has a Bahrainization plan in
place, which envisages that, within three to five years, the overall
percentage of Bahraini nationals employed at the circuit will exceed
85 per cent. The temporary staff are trained in various aspects of the
circuit, from event management to ticket sales, with a view to
permanent employment thereafter.
The main focus of the Administration and Human Resources
Department is to ensure that Bahraini nationals will have gained
enough experience and training to ensure that the Bahrain
International Circuit goes from strength to strength in the coming
years without losing its unique culture and position in the Middle
East, as well as globally.
Part Five
Bahrain Business Guide
5.1
The Legal Regime and

Regulatory
Environment for
International Business
Introduction
Bahrain has evolved into a dynamic and ambitious economy due to the
government’s aggressive economic diversification programme. As
Bahrain has been endowed with smaller oil resources than its neigh-
bours, it actively pursued the development of a policy that promotes
openness and diversification. Bahrain’s economy flourished as it became
one of the region’s most advanced economies, with liberal exchange rate,
trade and investment regimes. At present, Bahrain maintains a unique
blend of local, regional and international business, thus providing a vast
pool of diverse financial services, products and activities.
The National Charter of Bahrain (2001) has recently affirmed
Bahrain’s policy for free international trade, movement of investment,
capital and labour, while taking into account national interests of indi-
vidual countries. By adopting an International Constitution in 2002,
Bahrain had effectively abolished all of its previous authoritarian
methods and had undertaken constitulization. In this respect, Bahrain
has undertaken great strides towards the fulfilment of its liberal-
ization policy.
Bahrain has a long-established and clearly-defined framework of
commercial law. Well known international legal firms work in associ-
ation with local partners, providing expert legal services both for
domestic and international clients. Services and fees are structured
according to internationally accepted practices.
206 Bahrain Business Guide
For such intense diversity to exist and continue to grow, an open and
transparent legal regime is indispensable in procuring a precise yet
welcoming regulatory environment for international business.
Numerous organizations and agencies, such as the GCC and the BMA,
have been set up to implement fundamental legislation. Additionally,
various international agencies have become involved in order to help
Bahrain assure the international business world that a familiar envi-
ronment in which they can thrive has been established.
Procedures for doing business

Different legal vehicles are available for the international investor,
which include:
• limited liability company (WLL);
• single person company;
• closed joint stock company;
• public joint stock company;
• branch office;
• representative office;
• holding company.
The choice is governed by the nature and size of the business and the
requirements of the investors.
Setting up
Bahrain has been continually liberalizing its laws and expertise with
regard to international business and foreigners doing business. One of
the most popular actions taken by the government concerns an order
issued in 1995 by the Minister of Commerce permitting the estab-
lishment of an ‘onshore’ company, which can be 100 per cent non-
Bahraini owned.
Furthermore, the recent Law (2/2001) has made it possible for
non-Bahrainis, in addition to certain types of company that are wholly
non-Bahraini owned, to own buildings and land. This applies to
investors other than GCC citizens who already had the right, and is
subject to conditions to be resolved by the Council of Ministers.
Once the necessary authorizations, licences and permits are
granted, a company needs to be registered in the Commercial Register
in the Ministry of Commerce. This action ultimately results in the legal
The Legal Regime and Regulatory Environment 207
incorporation of the company, which is required before it is able to

begin operating in Bahrain.
Companies qualifying for 100 per cent foreign

ownership
International companies are permitted to have 100 per cent foreign
ownership in the following sectors: technology; tourism; healthcare;
education and training. Additionally, international companies may
also acquire 100 per cent foreign ownership in the following sectors:
manufacturing-related and business-consultancy related industries.
The Economic Development Board

The EDB was created by Emiri Decree in 2000, with the main objective
of spearheading the economic diversification initiative by channelling
both domestic and foreign direct investment into the country.
The EDB provides foreign investors with all the necessary infor-
mation concerning the investment environment, commercial laws,
commercial registration process and availability of land. The EDB can
also review any investment opportunity, presenting suitable ones to
the Board of Directors, hence streamlining decision making and
reducing bureaucracy.
The EDB also provides the investor with solutions if any difficulties
should present themselves.
The Gulf Cooperation Council

The GCC is a regional organization, created in May 1981, with Bahrain
as one of its six members. It is a practical answer to the challenges of
security and economic development of the area. It has also been intrin-
sically linked to the development of international business in Bahrain,
while simultaneously entrenching a friendly regulatory environment
for international investment.
Foreign investment
The GCC reiterates its goals by stating that each of the member states
is to establish an investment committee to fulfil various functions in
order to facilitate investment by international businesses. The func-
tions of the investment committees involve:
• facilitating project licensing and registering procedures;

• identifying and promoting investment fields and opportunities
available;
• proposing the necessary incentives that are likely to encourage
foreign investment;
• developing a mechanism for monitoring the performance of foreign
investment;
• concentrating efforts on selecting qualified international investors;
• coordinating with foreign investment committees in the GCC
state(s) to fulfil the objectives envisaged; and, finally
• handling disputes arising from investors.
Bahrain offers the highest standards of financial regulation, efficient
procedures and political stability to foreign investors. In 2001, Bahrain
entered into a Bilateral Investment Treaty with the US. This treaty
further liberalized land and other laws that allow 100 per cent foreign
ownership of various types of companies, in addition to imposing no
personal or corporate taxation, or restrictions on capital repatriation;
hence, essentially providing international businesses with incentives
that were previously available to Bahraini companies only. The
government has also permitted the establishment of representative
offices or branches of foreign companies, without local sponsors. Joint
ventures allow for up to 49 per cent foreign ownership, and individual
expatriates living in Bahrain for more than one year can buy up to one
per cent of any publicly-listed Bahraini corporation.
Manufacturing investment
Manufacturing investments receive the following incentives: electricity
rebates; 100 per cent rebate of customs duties for the first five years for
all industries; export credit facilities; and tariff protection (subject to
the approval of the National Committee and Tariff Protection).
Construction
For construction projects, firms must be registered with the Ministry of
Works, Power and Water, and in the case of smaller contracts, indi-
vidual ministries and departments direct the pre-qualification process.
Infrastructure
Large-scale infrastructure projects and major purchasing decisions are
directed by the Ministry of Works, Power and Water, which extends
invitations to select pre-qualified firms.
In June 2001, a new commercial code was passed to further improve

conditions for foreign investment.
Arbitration
The GCC Commercial Arbitration Centre was established in 1993, with
its headquarters based in Bahrain. Bahrain has become an international
and GCC arbitration centre within the guidelines of the New York
Convention of 1958, and has hosted the Euro–Arab Arbitration
Conference. The arbitration services apply both to individuals and orga-
nizations from the GCC in dealings with their international counter-
parts. A separate GCC arbitration centre deals with inter-regional cases.
Bahrain has been able to develop these arbitration facilities as a
consequence of its well-established legal framework, its extensive
international communications, and its close links with GCC, Arab and
western countries. Furthermore, Bahrain’s development as the region’s
financial centre and the presence of the professional disciplines of
accounting, legal, consulting, banking, medical, insurance and other
supporting services, have all helped in the development of the arbi-
tration facilities in Bahrain.
European Union
In 1989, the GCC had concluded a Cooperation Agreement, under
which the EU and GCC foreign ministers meet once a year at a Joint
Council or a Ministerial Council. The objective of the agreement is to
facilitate trade relations and to provide stability in this strategic part
of the world.
The agreement also provides a commitment from both sides to enter
negotiations on a free trade agreement.

The BMA plays a decisive role in the maintenance, supervision and
ensured development of Bahrain’s business sector. It is a legal entity
that was established in 1973, and was bestowed with the powers of a
central bank. The BMA’s regulatory responsibilities involve the super-
vision and regulation of banks and financial institutions operating in
Bahrain, and regulating the issue and circulation of Bahrain’s
currency. Its regulatory framework is wholly consistent with interna-
tional standards.
The BMA has recently introduced International Accounting
Standards for locally incorporated banks and has also increased the
transparency of the financial position of locally incorporated and

publicly-quoted banks by requiring them to publish their financial
statements on a quarterly basis.
The financial sector

Bahrain is well established as the principal banking and finance sector
in the Gulf. The regulations of banking and financial services by the
BMA are extremely comprehensive and very well-respected, thus
providing international banks with the security required.
Bahrain’s financial sector remains one of the main engines of growth
for Bahrain’s economy and one of the most vibrant in the region. To
ensure effective supervision and mitigate risks common across the
components of the financial sector, the BMA has consolidated the
supervision and regulation of the financial sector (including banks,
insurance, and capital markets) under one umbrella.
The BMA also ensures that there is an adequate number of suitably
trained financial supervisory staff to handle the broadening range and
increasing sophistication of financial products and services that will
prove to be a constant challenge and priority.
Offshore banking units (OBUs)

Bahrain is perceived to be the premier centre of offshore banking in the
Middle East. This is due to the extensive BMA regulations, the legal
framework provided by Bahraini legal practices that play host to many
UK common law principles and some US legal practices, and induce-
ments of limited or no tax charged on financial activities.
OBUs were created by the BMA in 1975. OBUs are branches of
international commercial banks exempted from foreign exchange
controls, cash reserve requirements, taxes on interest paid to depos-
itors and banking income taxes that are required of other banks in
Bahrain. In return for such privileges, the OBUs are required to pay
the government annual licence fees. In addition, OBUs are prohibited
from accepting deposits from citizens and residents of Bahrain and
must refrain from transacting in Bahraini dinars.
Islamic finance centre

Bahrain is poised to become the international Islamic banking centre,
due to its extensive experience in running an offshore banking centre
and a well-established Islamic banking presence. In 2001, the BMA
had ventured into the issuance of Sukuk, which attracted both regional
and international investors.
Money laundering
All banks in Bahrain are required by the BMA to adhere to interna-

tional principles designed to prevent the transmission of money
arising from criminal activity. Numerous procedures have been estab-
lished by the BMA to ensure that money-laundering activities are
prevented, in addition to its continuing cooperation with the FATF.
In 2001, stringent anti-money laundering legislation was intro-
duced, which was followed by the establishment of the Financial
Monitoring Bureau and several specialist sub-committees whose
function is to continuously review, refine and improve money laun-
dering prevention schemes.
In 2003, Anti-Money Laundering Procedures were drawn up by the
CMS Directorate. The procedures state that companies accredited with
receiving money relating to public subscription in securities must take
all necessary measures to ensure the legality of the sources of the
money used in the payment of such securities, in compliance with the
provisions laid down in the Prevention and Prohibition of Money
Laundering and its Implementing Regulations.
The strict guidelines require full details of a client, as well as the
approval of the concerned shares registrar, prior to opening a security
account in the Clearing Settlement and Central Depository System.
Any amendments or changes that may occur in such particulars are to
be provided by the client. Moreover, brokerage companies and offices,
shares custodians and shares registrars are to be responsible for the
verification of all information provided by the client about himself and
the instructions issued by him with respect to transactions carried out
on the Exchange, and shall enter such information into the records and
books approved by the Exchange.
Additionally, every employee in the Exchange who is aware or
believes, or has reason to believe, that a client is involved in a money-
laundering offence or related crimes, shall immediately report the inci-
dence to his/her superior, provided that the reporting of such incidence
shall be in writing and kept in a register held by the Exchange.
International organizations
Bahrain has attempted to establish itself as an international player

and develop the ability to provide an international forum by becoming
a member of numerous international organizations. By doing so,

Bahrain is generating international recognition that will ultimately
aid it in fulfilling its objective to expand its present well-founded
economic and business sectors.
This is to be achieved comprehensively through the coordination of
Bahrain’s relations with neighbouring states and both regional and
international organizations.
World Trade Organization (WTO)

Bahrain became a member of the WTO in 1997. Consequently, legis-
lation will eventually be introduced in order to comply with its rules.
Bahrain has adopted an open-market concept as part of its economic
development strategy. This will ultimately foster an environment that
will allow international business to flourish. The government recently
announced that it is planning to overhaul further commercial laws in
order to guarantee foreigners full freedom to set up companies in
Bahrain.
With the goal to find a competitive advantage, both regionally and
internationally, Bahrain had cut import duties within the context of
the GCC Customs Union and the Greater Arab Free Trade Area
(GAFTA).
Bahrain’s membership of the WTO provides foreigners with comfort
and security, as Bahrain’s legitimacy and the predictability of its
administrative and legal systems become established.
The International Monetary Fund (IMF)

The IMF is an organization with the prime purpose of ensuring the
stability of the international monetary and financial system and the
system of international payments and exchange rates among national
currencies that enables trade to take place to take place between
countries.
It also has a decisive role in combating international money laun-
dering through the FATF by providing technical assistance in the
financial sector, as it is the natural forum for sharing information, and
by exercising surveillance over member’s exchange systems.
Free trade zones

There exist two free trade zones in Bahrain, providing a free transit
zone in order to facilitate the duty-free import of equipment and
machinery. This also allows for raw materials intended for processing
in Bahrain and machinery imported and stored by Bahraini-owned
firms to be exempt from duty. The government of Bahrain continues to
offer incentives to international firms to establish light and heavy
manufacturing operations on the island, making use of its strong
transport and communications infrastructure. This is in accordance
with Bahrain’s overarching plan to encourage foreign businesses to use
Bahrain as a regional operational base.
5.2
Business Structures and

Company Incorporation
Hugh Stokes, AlMahmood & Zu’bi,
Attorneys and Legal Consultants, Bahrain
On 1 January 2002 a new Commercial Companies Law (Decree Law

No.21/2001) came into effect and made some substantial changes to the
previous law. Two of the most important changes were to abolish the
former classifications of ‘Exempt Companies’ and to introduce a ‘Single
Person Company’, whereby a sole shareholder can obtain corporate
personality and limited liability.
The current situation is set out below.
Companies
A company is defined as a contract with which two or more persons (but
see below) undertake to participate in the economic venture intended
to make a profit with each contributing a share in the form of money or
service in order to divide the profits realized or losses incurred as a
result of such venture.
Any commercial company in Bahrain must take one of the following
forms:
• partnership under a collective name (ie a simple partnership);
• simple commandite partnership (a limited partnership);
• asssociation in participation (an unincorporated joint venture);
• joint stock company;
• commandite company by shares;
• company with limited liability;
• sole proprietorship;
• holding company.
Business Structures and Company Incorporation 215
Of these categories, only a few will be of interest to overseas investors.
Partnerships and joint ventures

Partnerships under a collective name are in practice restricted to
Bahraini citizens; associations in participation (joint ventures) are
normally formed for special purposes, mainly carrying out major
contracts. Commandite companies by shares are virtually unknown in
practice, and the limited liability company is more popular.
Joint stock companies

These may take two forms: public and closed.
1. Public joint stock companies are formed mainly for local partici-
pation in banking, utilities, insurance and the like, and the overseas
investor is unlikely to wish to commence business on this footing.
All shareholders in a public joint stock company must be Bahraini
nationals (subject to permission for GCC nationals to hold a
percentage, and for all other nationalities to hold a percentage if the
shares are listed on the Bahrain Stock Exchange). As stated, this is
a development that an overseas investor will be unlikely to seek at
the beginning of an enterprise.
2. Closed joint stock companies (abbreviated as ‘BSC (c)’) are one of
the two most suitable vehicles for overseas investors. They may
have two shareholders (but three directors), a minimum capital of
BD250,000 (but this may be reduced to BD1,000 for companies
whose sole object is to issue a fund or funds, or BD20,000 for
companies whose objects will be conducted offshore). The Ministry
of Commerce has the discretion to decide whether in its opinion the
capital is adequate for the company’s stated purposes. With the
consent of the Ministry, the capital may be in another currency –
the most popular is US dollars.
This type of company is the most appropriate for investors
wishing to conduct business in banking, insurance or investing for
others, as a limited liability company may not have these objects.
Limited liability company (WLL)

Companies with limited liability (WLL) are the most common form of
company in Bahrain. As with closed joint stock companies, WLL
companies may be 100 per cent foreign-owned if they are either
industrial companies or service companies using Bahrain as the
centre for regional distribution of their manufactured goods or
services, or by the permission of the Ministry of Commerce, they are
formed for other purposes. Otherwise, the extent of foreign ownership
is limited to 49 per cent.
The minimum share capital for a WLL company is BD20,000. There

must be a minimum of two shareholders; there need not be (but may
be) a board of directors, and the company may be managed by
managers, who may be shareholders or others.
Simple commandite company

A commandite company consists of two categories of partners: those
with unlimited liability and those whose liability is limited to the extent
of their capital contributions. The Memorandum of Association need not
include the names of the sleeping partners but must contain an
adequate description of their shares in the capital and the value thereof.
The Articles of Association should state the joint partners and the
sleeping partners, the former of whom should be Bahraini. The share of
Bahraini partners should not be less than 51 per cent of the capital.
This type of company (known elsewhere as a limited partnership) is
suitable for special structures, such as companies that may wish to offer
limited partnership interests to new investors in the partnership.
Single person company (SPC)

This type of company has most of the characteristics of a WLL company
except for having only one shareholder. On the death of the sole
proprietor (if an individual) or its dissolution (if a company) the
survivors must either convert it into a WLL or liquidate it.
The minimum capital for an SPC is BD50,000.
Holding company
A holding company is a new type of company introduced by the new
law, and its chief object is usually to own shares in related companies
and to participate in their management. It can take the form of a joint
stock company, a WLL or an SPC. Its capital and its regulations must
comply with those applicable to the form of company it takes.
Branch or representative office

If an investor does not wish to commit capital and the establishment of
a company in Bahrain is not required (say for tax reasons), the foreign
company may establish a branch or representative office.
Either may be established, but a branch must have a sponsor unless
it is to be the regional centre for Gulf activities. This is evidenced by a
resolution of the company to the effect that the Bahrain branch or
representative office will be the company’s regional centre. The
Commercial Companies Law (21/2001) states that any branch or
representative office of a foreign company must have a local sponsor
(whose role is described below), but by Ministerial Order No 4/1995 a
considerable number of exceptions has been established. The list is too

detailed to include in this chapter, but there are 22 categories. Of
these, those most applied for have been in the fields of telecommunica-
tions, high technology, educational and training services, and miscella-
neous consultancy services.
A local sponsor’s role is to assist the foreign company in obtaining
registration, negotiating with government departments, obtaining
work permits and visas, and advising on business opportunities.
A sponsor may be paid a fixed annual fee or a percentage of turnover or
of profits if the branch is actually conducting business.
Branch office
A branch office may conduct business without a sponsor if it falls
within any of the exempted categories, or with a sponsor if it does not.
Prominent among the types of business that require a sponsor are
contracting, shipping and customs clearing and some types of
computer activities.
Representative office
A representative office may be established without a sponsor if it is in
one of the exempted categories and established for the purpose of
acting as a ‘regional’ office. It may not conduct business as such but is
principally involved in information gathering, publicity for the parent
company and liaison with its parent company’s local agent.
Specialized companies
There are special regulations for companies intending to carry on
banking, investment, insurance, money or stock broking or any other
financial activity. These companies (or branches or representative
offices) need a licence from the Bahrain Monetary Agency.
Variable capital companies

Pursuant to Ministerial Order No 17 of 1986 as amended by Ministerial
Order No 13 of 1994, variable capital companies may be formed as joint
stock companies, of which there are two classes of capital:
• Management shares: there must be at least two shareholders, and
only the holders of these shares have voting and management
powers.
• Participation shares: these shares participate in the increase of
value of the assets of the company and its annual profits, but carry
no management or voting rights.
The issued share capital must be no less than BD500,000 (approxi-

mately US$1,329,750) and the authorized share capital must not be
more than 10 times the issued share capital.
Originally introduced so that participating shareholders could
participate in Islamic investments whereby their shares could be
redeemed on completion of the underlying investment, the scope has
been widened to include non-Islamic projects.
The formation procedures are the same as for other exempt joint
stock companies; the annual registration fee is BD6,000 (approxi-
mately US$15,950).
Establishment
Branches and representative offices
The Ministry of Commerce requires the following documents to be
submitted, preferably notarized and legalized, in Arabic or English:
• corporate documents (Memorandum and Articles of Association, or
equivalent);
• latest audited annual accounts;
• Board resolution (or equivalent) to open the branch;
• power of attorney in favour of the manager of the branch;
• guarantee from the head office to be responsible for any proven
debts of the branch.
In addition to the above, the branch must have its own premises
(leased) in a commercial building, which is subject to inspection by the
municipality as a condition of registration. Moreover, the sponsorship
agreement must also be filed, unless the activities are exempt.
Commercial registration fees are payable on registration as a
condition of registration, and annually thereafter. The fees depend on
the type of activity. Typically, the annual registration fee for a regional
representative office is BD1,200 (approximately US$3,190.
No accounts have to be filed. No business may be conducted, bank
accounts established or telephone, fax or telex connected until the
branch is registered. The time taken to register a branch is between
one and four weeks.
Companies
Foreign shareholders must submit the following to the Ministry of
Commerce, preferably notarized and legalized (exceptions can be
made), in Arabic or in English:
• Memorandum and Articles;

• latest audited accounts;
• Board resolution (or equivalent) to establish company;
• power of attorney to a named person to sign the notarized
Memorandum of Association.
A foreign shareholder who is an individual must submit:
• copy of passport;
• bank reference;
• CV.
Application is made online and an application number is allocated.
Incorporation documents are then submitted in draft to the Ministry of
Commerce for approval together with the foreign company’s docu-
ments listed above, and details of the second shareholder (if an indi-
vidual, then his/her passport copy, CV and bank reference only are
required).
The incorporation documents of the Bahrain company are:
• joint stock company: Memorandum and Articles of Association and
Founders’ Declaration;
• limited liability company: Memorandum of Association only.
Capital must be paid up in cash into a local bank as a condition of regis-
tration, but shares may be subscribed for in kind, subject to the valu-
ation procedures stated in the Commercial Companies Law.
Together with the registration fee, a certificate from a local bank
that the capital has been paid up in full must be submitted (unless
shares are being contributed in kind).
Upon receipt of approval from the Ministry of Commerce, the incor-
poration documents must be signed in front of the Notary Public of
Bahrain (in the Ministry of Justice) and then filed with the Ministry of
Commerce in order for the commercial registration to be effected.
When this is completed, the Ministry of Commerce issues a commercial
registration number, which needs to be quoted on all company docu-
ments and signs.
Companies must make a statutory reserve of 10 per cent of net
profits in every year until the reserve reaches 50 per cent of the capital
(or a higher percentage if the company’s Memorandum and Articles so
provide).
Formation of a company takes between one and eight weeks.
Management of companies
Joint stock company
A joint stock company (closed) must have a board of not less than three
directors who may be elected for not more than three years. Directors
do not need qualification shares.
Limited liability company

This may, but need not, have a board of directors appointed by the
shareholders; a management contract may be given to a manager or
managers, their powers may be entrenched, and only withdrawn by a
vote of a majority of shareholders.
Single person company

The sole shareholder may appoint a manager (or even a board) or
retain management powers for him/herself (or itself if a corporation)
alone.
Professional practices
Accountants and auditors are regulated by the Ministry of Commerce
and Industry pursuant to Decree Law No. 26/1996. Internationally
recognized firms may be registered in the Auditors’ Register.
Engineers and engineering consultants are regulated by the
Ministry of Works and Agriculture pursuant to Decree Law No.
17/1982 (as amended). There are strict professional standards and
experience levels that are required to establish and maintain a licence.
Lawyers and advocates are regulated by the Ministry of Justice
pursuant to the Bahrain Advocates Law of 1980. Only Bahraini or Gulf
Cooperation Council (GCC comprises Bahrain, Kuwait, Oman, Qatar,
Saudi Arabia and United Arab Emirates) citizens may practise
advocacy, and only Bahraini-owned firms may advise on Bahraini law.
Foreign law firms may obtain ‘offshore’ licences and are restricted to
advising on their own laws.
Unincorporated joint ventures

These are not companies as such and the foreign partner will need to
be sponsored by the Bahraini partner; normally a branch of the foreign
partner is established in accordance with the procedures listed above.
Such arrangements are almost invariably linked to particular projects
usually in the civil engineering and construction fields, but this is not a
condition of the formation of a joint venture. As a joint venture is not a

separate legal entity, there are no capital requirements.
Taxation
There are at present no personal or corporate taxes in Bahrain and no
withholding, stamp or capital gains taxes, nor is there any exchange
control. There are no current plans to introduce tax or exchange
controls.
Customs duties (the rates varying according to class) and municipal
rates (being 10 per cent of rent) are payable. Exemption from customs
duties may be available for imports from other GCC countries.
Language
The official language is Arabic, but English is widely spoken and is
accepted for applications to government departments in many
instances (eg applications to the Ministry of Commerce and the
Bahrain Monetary Agency (BMA) are almost always made in English).
Ownership of land
Until recently, ownership of land in Bahrain was not permitted for
foreigners except by special permission from HH the Prime Minister.
However, a recent Law (2/2001) has made it possible for non-Bahrainis
(other than GCC citizens who already had the right) to own buildings
and land, and also for certain types of company that are wholly non-
Bahraini-owned, subject to conditions to be resolved upon by the
Council of Ministers.
World Trade Organization

Bahrain has been a member of the World Trade Organization since
1997 and, progressively, legislation will be introduced – in, for example,
the fields of commercial agencies – to comply with its rules.
5.3
Accounting, Auditing
and Taxation in Bahrain
Doug Tait, KPMG
Accounting principles, record keeping and

reporting requirements
The Kingdom of Bahrain does not have its own national accounting
standards. However, the Bahrain Commercial Companies Law 2001
(earlier Law of 1975 substantially amended) requires all companies to
prepare their financial statements in accordance with the International
Financial Reporting Standards (IFRSs). Also, companies listed on the
Bahrain Stock Exchange and all banks and financial institutions
licensed by the Bahrain Monetary Agency (BMA), the central bank for
Bahrain, are required to prepare their financial statements in accor-
dance with IFRSs.
Generally, the standard of financial reporting in Bahrain is high and
largely consistent, as users of financial statements largely require
compliance with international standards. This trend is being
encouraged by more rigorous requirements amongst users such as
bankers and shareholders as discussed in the previous paragraph.
Accounting principles and guidelines

The Bahrain Commercial Companies Law (BCCL) 2001 requires each
registered entity to produce its balance sheet, profit and loss account
and managers’ (directors’) report for every financial year, within three
months from the end of the financial year, in compliance with the
IFRSs. It also requires the entities to appoint auditors to audit the
financial statements, which are required to be performed according to
the Bahrain Audit Law, Decree 26/1996. This law prescribes various
guidelines to the auditors in performing their duties. All auditors
comply with the International Standards on Auditing (IASs) while
performing their audits.
Accounting, Auditing and Taxation in Bahrain 223
The Law of Commerce (Decree 7/1987) provides the basis for main-
tenance of commercial books and retention of records.
International accounting standards

The most relevant and widely acceptable standards as regards the
financial information in Bahrain are the IFRSs. There is a clear
understanding in the business community that IAS compliance
provides consistent presentation and wider acceptability of the
financial information.
IFRSs is the new nomenclature for the earlier known IASs. However,
individually, the existing IASs will be continued to be referred to as
IASs and new individual standards issued by the International
Accounting Standards Board will be referred to as IFRSs.
Setting of and issuance of IFRSs is the sole responsibility of the
International Accounting Standards Board (IASB), which conducts the
business of the International Accounting Standards Committee (IASC)
that was established in 1973. Effective 1 January 2004, there are a
total of 34 applicable standards (after excluding seven standards,
namely, IAS 3,4,5,6,9,13 and 25, that have now been superseded by
other standards) on various subjects of accounting, as follows:
IAS 1 Presentation of Financial Statements

IAS 2 Inventories
IAS 7 Cash Flow Statements
IAS 8 Net Profit or Loss for the Period, Fundamental Errors and
Changes in Accounting Policies
IAS 10 Events After the Balance Sheet Date
IAS 11 Construction Contracts
IAS 12 Income Taxes
IAS 14 Segment Reporting
IAS 15 Information Reflecting the Effects of Changing Prices
(withdrawn with effect from 1 January 2005)
IAS 16 Property, Plant and Equipment
IAS 17 Leases
IAS 18 Revenue
IAS 19 Employee Benefits
IAS 20 Accounting for Government Grants and Disclosure of
Government Assistance
IAS 21 The Effects of Changes in Foreign Exchange Rates
IAS 22 Business Combinations
IAS 23 Borrowing Costs
IAS 24 Related Party Disclosures
IAS 26 Accounting and Reporting by Retirement Benefit Plans
IAS 27 Consolidated Financial Statements and Accounting for
Investments in Subsidiaries
IAS 28 Accounting for Investments in Associates

IAS 29 Financial Reporting in Hyperinflationary Economies
IAS 30 Disclosures in the Financial Statements of Banks and
Similar Financial Institutions
IAS 31 Financial Reporting of Interests in Joint Ventures
IAS 32 Financial Instruments: Disclosure and Presentation
IAS 33 Earnings Per Share
IAS 34 Interim Financial Reporting
IAS 35 Discontinuing Operations
IAS 36 Impairment of Assets
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
IAS 38 Intangible Assets
IAS 39 Financial Instruments: Recognition and Measurement
IAS 40 Investment Property
IAS 41 Agriculture
Apart from the above IASs, there are 31 Interpretations of International

Accounting Standards issued by the International Financial Reporting
Interpretations Committee (IFRIC, a new name to the earlier known
Standing Interpretation Committee, or SIC), as follows:
SIC 1 Consistency – Different Cost Formulas for Inventories (IAS 2)

SIC 2 Consistence – Capitalization of Borrowing Costs (IAS 23)
SIC 3 Elimination of Unrealized Profits and Losses on Transactions
with Associates (IAS 28)
SIC 5 Classification of Financial Instruments – Contingent
Settlement Provisions (IAS 32)
SIC 6 Costs of Modifying Existing Software
SIC 7 Introduction of the Euro (IAS 21)
SIC 8 First-Time Application of IASs as the Primary Basis of
Accounting (IAS 1)
SIC 9 Business Combinations – Classification either as Acquisitions
or Unitings of Interests (IAS 22)
SIC 10 Government Assistance – No Specific Relation to Operating
Activities (IAS 20)
SIC 11 Foreign Exchange – Capitalization of Losses Resulting from
Severe Currency Devaluations (IAS 21)
SIC 12 Consolidation – Special Purpose Entities (IAS 27)
SIC 13 Jointly Controlled Entities – Non-Monetary Contributions by
Venturers (IAS 31)
SIC 14 Property, Plant and Equipment – Compensation for the
Impairment or Loss of Items (IAS 16)
SIC 15 Operating Leases – Incentives (IAS 17)
SIC 16 Share Capital – Reacquired Own Equity Instruments
(Treasury Shares) (IAS 32)
SIC 17 Equity – Costs of an Equity Transaction (IAS 32)

SIC 18 Consistency – Alternative Methods (IAS 1)
SIC 19 Reporting Currency – Measurement and Presentation of
Financial Statements Under IAS 21 and IAS 29
SIC 20 Equity Accounting Method – Recognition of Losses (IAS 27)
SIC 21 Income Taxes – Recovery of Revalued Non-Depreciable Assets
(IAS 12)
SIC 22 Business Combinations – Subsequent Adjustment of Fair
Values and Goodwill Initially Reported (IAS 22)
SIC 23 Property, Plant and Equipment – Major Inspection or
Overhaul Costs (IAS 16)
SIC 24 Earnings Per Share – Financial Instruments and Other
Contracts that May Be Settled in Shares (IAS 33)
SIC 25 Income Taxes – Changes in Tax Status of an Enterprise or its
Shareholders (IAS 12)
SIC 27 Evaluating the substance of transactions in the legal form of
a lease (IAS 17)
SIC 28 Business Combinations – ‘Date of Exchange’ and Fair Value of
Equity Instruments
SIC 29 Disclosure – Service Concession Arrangements
SIC 30 Reporting Currency – Translation from Measurement
Currency to Presentation Currency
SIC 31 Revenue – Barter Transactions involving Advertising
Services
SIC 32 Intangible Assets – Website Costs
SIC 33 Consolidation and Equity Method – Potential Voting Rights
and Allocation of Ownership Interests
Record keeping
Article 25 of the Law of Commerce requires businesses to keep their
commercial books and the documents supporting the entries made
therein for a period of 10 years commencing from the date of the closing
of books. It also requires that all correspondence should be kept for a
period of five years commencing from the date of despatch or receipt
thereof.
Banks and companies specified by a resolution of the Minister of
Commerce may keep, for the aforementioned period, microfilms of the
records and documents instead of keeping the original records and
documents, provided that the original copies of the documents are kept
at least for a period of two years. Such microfilm copies are deemed to
be admissible evidence in the courts of law of Bahrain.
Further details on the information to be included in the above books
and the accounting entries required are available in the Law of
Commerce.
Copy of all the relevant business laws, as translated and compiled

by KPMG, Bahrain, may be ordered from KPMG’s legal department.
In addition to the above, the Money Laundering Law of the Kingdom
of Bahrain (2001) and the BMA Money Laundering Regulation (2001)
require all institutions covered by the law and regulation to retain
customer identification documents for a period of five years from the
date of closure of the customer accounts.
Reporting requirements
Reporting to the Ministry of Commerce
The following legal entities have reporting requirements under the
BCCL:
• branches of foreign companies;
• limited liability companies (WLL);
• joint stock companies.
Reporting requirements entail that all branches of foreign companies,
limited liability companies and joint stock companies have to submit
annual audited financial statements to the Directorate of Commerce
and Companies Affairs under the Ministry of Commerce.
The law requires that the annual financial statements should
include a balance sheet, statement of profit and loss (income statement
as it is named in the IAS) and a report of managers (directors). The
managers’ (directors’) report should cover the company’s activities, the
financial position and the proposed distribution of profits.
Reporting to other specific regulatory authorities

In addition, and depending on the business activity of the entity, the
financial statements have to be submitted to other regulatory institu-
tions. These largely consist of the BMA and the Bahrain Stock
Exchange.
Reporting to the BMA

As stated earlier, banks and financial institutions have to submit their
annual financial statements to the BMA, in compliance with IFRSs,
within three months of the year end. The BMA also requires other
periodic returns from the licensees, such as the monthly statistical
returns and the quarterly Prudential Information Returns.
In addition, all locally incorporated banks (other than the branches
of foreign banks) and Islamic banks, are required to submit to the BMA
and publish in a local newspaper, their quarterly financial information,
as reviewed by their external auditors in compliance with IAS 34. All
the commercial branches of foreign banks are required to submit to the
BMA and publish in a local newspaper, their half-yearly financial

statements (specifically, the balance sheet and the profit and loss
account), as reviewed by their external auditors. The BMA has fixed a
time limit of eight weeks for the submission and publication of these
interim financial statements.
There are further regulatory reporting requirements laid down from
time to time in line with industry and supervisory best practice. The
BMA ensures that the banking industry in Bahrain closely follows the
regulatory environment and reporting requirements set by Basle and
other leading international regulatory authorities.
Annual appointment and reappointment of the external auditors is
subject to the BMA’s approval.
Under the Money Laundering Regulation of the BMA, licensees are
required to appoint auditors to annually review the licensees’
compliance with the Regulation. The BMA has agreed a reporting
format with the audit firms.
Reporting to the Bahrain Stock Exchange

With effect from 11 August 2002, all companies listed on the Bahrain
Stock Exchange (BSE) are covered by the legislative Decree No. 21 of
2002, which amends the legislative Decree 4/1987 with respect to
establishment and organization of the BSE. The new Decree of 2002
gives powers to the BMA to regulate the BSE.
Also, pursuant to the above referred Decree, the BMA has issued
revised Disclosure Standards, which supersede the earlier Standards
issued by the BSE. The revised Standards were issued on 3 December
2003 (vide circular ODG/407/03) and came into effect on 1 January
2004. These Standards apply to listings, public offerings and sales of
securities in the Kingdom of Bahrain. The Standards are intended to
be used for prospectuses, offerings and initial listing documents.
Companies engaged in specialized industries (ie banking, investment,
insurance etc) may be required to provide additional information as
directed by the BMA.
As stated in Chapter III, Policy Statements on Timely Disclosure,
the BMA considers that the conduct of a fair and orderly market
requires every listed issuer to make available to the public information
necessary for investing, and to take reasonable steps to ensure that all
who invest in its securities enjoy equal access to such information. In
applying this fundamental principle, the BMA has adopted the
following six specific policies concerning disclosure:
1. immediate public disclosure of information;
2. thorough public dissemination;
3. clarification or confirmation of rumours and reports;
4. insider trading;
5. response to unusual market action;

6. unwarranted promotional disclosure.
After obtaining listing on the stock exchange, to remain in the Official
List of Companies on the Exchange, the listed companies are required
to comply with various requirements, including the following reporting
requirements:
• immediate announcements to be made to the Exchange for release
(Article 32);
• periodic reports (Article 34);
• annual financial statements (Article 35).
The immediate announcements are as applicable under any listing
agreements with stock exchanges in the world. The purpose is to safe-
guard the interests of the public and to disseminate adequate and
timely information to the public to enable them to make informed deci-
sions and to avoid any false information being leaked wrongly to the
public.
Each listed company must submit its preliminary annual financial
statements within two months from the end of the financial year,
whereas the printed annual report (consolidated) is required to be
submitted to the stock exchange and to the company’s shareholders
within six months from the end of the financial year. The BSE requires
that the annual audited accounts, which are included in the annual
report, should be prepared in accordance with the IFRSs and to be
audited under the IASs.
Also, on a quarterly basis, licensees are required to submit to the
Exchange, interim financial statements, reviewed by the external
auditors, within two months from the end of each quarter. The
Exchange also requires the listed companies to publish their quarterly
financial statements before the end of the subsequent quarter.
Guidelines for the issuing, offering and listing of

debt securities
The BMA has issued guidelines for the issuing, offering and listing of
debt securities, which came in to effect from 10 March 2004. All
financial institutions and listed companies quoted on the BSE and all
prospective local, regional and international issuers of debt securities
shall comply with the rules and requirements stipulated in these
guidelines.
These guidelines set out the basic conditions and requirements that
have to be made as a prerequisite to the issuance, offering and listing of
debt securities in the Kingdom of Bahrain. They apply to every method
of issuance, offering and listing, and to both new applicants and

existing issuers, as well as to conventional and Islamic issues, except in
specific circumstances described in the guidelines. Since these guide-
lines could be varied in exceptional cases, prospective issuers are
advised to contact the BMA to seek specific clarifications on any
matters of interest.
Taxation
There is only a limited direct tax implication in the Kingdom of
Bahrain. There is no personal income tax or corporate taxation on
profits earned or booked in Bahrain, on any type of business other than
on oil exploring and refining companies, which are required to pay a
tax of 46 per cent on their income per the Bahrain Income Tax Law,
Decree 22/1979.
Tax is collected in the form of property tax at the rate of 10 per cent
of the rent payable on all unfurnished apartments and at the rate of
7.5 per cent of the rent payable on all furnished apartments for both
residential and commercial purposes. The tenants/lessees are required
to pay the property tax. Property tax is levied through the electricity
and water billing system on a monthly basis.
Under the Islamic Sharia law, Muslims in Islamic countries are
required to pay a tax called ‘Zakah’ (or ‘Zakat’) at the rate of 2.5 per
cent (for a lunar calendar year) or 2.5775 per cent (for a solar calendar
year) on their net assets or net investments. Islamic banks and institu-
tions may be obliged to pay their own Zakah, or Zakat on behalf of their
shareholders.
Indirect taxation exists in the form of import duties, customs duties
and excise duties. There is also a government levy of five per cent on all
amounts spent by customers in a hotel.
All entities are required to pay an annual fee for their registration
with the Ministry of Commerce, the amount of which varies with the
type of legal form of the entity. Also, the banks licensed by the BMA are
required to pay an annual registration fee. All companies listed on the
BSE are required to pay an annual listing fee to the Exchange.
It is a declared policy of the government of Bahrain that no
corporate taxation of a general nature is envisaged, and this, combined
with the absence of personal taxation on salaries, plays a significant
part in attracting business to Bahrain. It follows from the absence of
taxation on corporate profits of the businesses operating in Bahrain,
that Bahrain has no bilateral treaties for the avoidance of double
taxation.
5.4
Employment Law and

Work Permits for
Foreigners
Hugh Stokes, AlMahmood & Zu’bi,
Attorneys and Legal Consultants, Bahrain
Labour law regulations

General
The relationship between an employer and employee in Bahrain is
governed by the Labour Law for the Private Sector, Decree Law
23/1976 as amended by Decree Law 14/1993 (‘the Law’).
An employer must give preference to Bahraini nationals, thereafter
other Arab nationals, and finally non-Arab foreigners (Article 13). Such
priority depends on the prospective employee being suitably qualified.
If there are Bahrainis in the labour market qualified to take a
particular post, then a work permit for a foreigner will not be issued in
respect of that post. From time to time, the Ministry of Labour and
Social Affairs announces posts that are restricted to Bahrainis.
Employee statutory rights

An employee is entitled to the following statutory rights under the
Law:
• Working hours: eight hours per day, 48 hours per week; the basic and
extra hours of work shall not exceed 60 hours per week, unless
special permission is obtained from the Ministry of Labour and
Social Affairs; during the holy month of Ramadan, for Muslim
employees six hours per day, 36 hours per week (Article 78);
• Friday is a weekly day of rest and there are 12 other public holidays
in the year (Articles 80 and 81);
Employment Law and Work Permits for Foreigners 231
• Overtime payments: daytime = salary plus 25 per cent; night work

and public holidays = salary plus 50 per cent (Article 79);
• Annual leave: minimum 21 days for the first five years, 28 days
thereafter (Article 84);
• Sick leave: 15 days with full pay, 15 days with half pay and 15 days
without pay; accumulation up to 182 days (Article 82);
• Compassionate leave (Article 87). An employee is entitled to leave
with full pay in the following circumstances:
– three days in case of marriage;
– three days in case of the death of a spouse or any relative up to the
fourth degree of relationship;
– three days in case of death of any relative of a spouse up to the
first degree and one day up to the fourth degree;
– one day in case of the birth of children.
• Leaving Indemnity (Article 111): except for those employees who are
covered by the General Organization for Social Insurance (GOSI),
(ie Bahrainis in establishments with 10 or more employees), all
employees are entitled to leaving indemnity on termination (except
termination for cause or resignation within three years – see below).
Under Article 111, on termination the employee is entitled to receive
leaving indemnity based on 15 days’ wages for each year of the first
three years of service and one month’s wages for each year of service
thereafter. Any period of less than a year entitles the worker to a pro
rata payment. Leaving indemnity is paid on the final payment of
salary and is calculated by reference to the final payment of salary
or wage (as defined in the Law) at the time of termination of the
employment. On resignation by the employee, the calculations are
as follows:
– up to three years’ employment: no leaving indemnity is payable;
– between three and five years’ employment: five days salary per
year of service for the first three years and ten days for the fourth
and fifth year and pro rata for any uncompleted year of service;
– above five years’ employment: 15 days per year for the first three
years and one month for each year of service thereafter, plus pro
rata for any uncompleted year of service.
Type of employment contract

There are usually two types of employment contract, namely definite
and indefinite term contracts.
Content of employment contract

Every employee must have an employment contract (Article 38), which
must contain the following principal particulars:
• the name of the employer and the address of the establishment;

• the name of the worker, his/her qualifications, nationality, occu-
pation, residential address and personal particulars of identity;
• the date of appointment;
• the nature, type and place of employment agreed to in the contract;
• the period of the contract, if for a definite period;
• the salary or wage agreed, method and time of payment, and all
elements of benefits received in cash or in kind in respect of the
salary or wage agreed upon;
• any additional special conditions agreed to by the two parties.
Under Article 41, an employment agreement may provide for a
maximum three-month probationary period. During the probationary
period, employment may be terminated by either party on giving one
day’s notice to the other in writing. In the absence of a written contract,
the worker alone may establish his rights by all means of proof.
Validity of the employment contract

With regard to the validity of any contractual restriction in view of
statutory rights, Article 153 provides:
‘Save where it is more favourable to the worker, any condition of an

individual contract of employment which does not conform with the
provisions of this Law, even if entered into before the commencement
of the application of this Law, shall be null and void.
Any agreement to forfeit or to relinquish any rights or obligations
whatsoever under a contract of employment during its duration, or
within one month of the termination thereof, shall be deemed to be
null and void if such agreement is in contravention of the provisions
of this Law.’
Employee tax
There is no tax as such relating to employees, but if an employer has 10
or more employees, the employer must subscribe to GOSI. There are
currently two classifications of benefit: Old Age, Disability and Death
(covering Bahrainis only) and Employment Accident (for all
employees). The present rate of contributions is shown in Table 5.4.1.
Employment Law and Work Permits for Foreigners 233
Table 5.4.1 Contribution rates
Employer’s Employee’s
contribution (%) contribution (%)
Bahrainis
Old Age, Disability and Death 7 5
Employment accident 3 –
Non-Bahrainis
Employment accident 3 –
Medical treatment
At present, medical treatment for employees is available at
government hospitals for a nominal fee. However, employers can take
up medical insurance through various local insurance companies
(compulsory medical insurance for all expatriate employees is
presently being debated. It is already compulsory for employees over
60 years of age).
Primary health care

In accordance with Ministerial Order No. 1/1977, employers with more
than 50 workers are required to register themselves with the Ministry
of Health for provision of primary health care for their workers. Such
employers are required to make the following payments to the
Ministry of Heath:
• BD30 annually for each non-Bahraini worker;
• BD18 annually for each Bahraini worker.
Training levy
In accordance with Ministerial Order No. 13/1979, employers with
more than 200 employees, who are not able to provide training to
Bahraini nationals, are required to pay to the Ministry of Labour and
Social Affairs a training levy of two per cent of the total annual wages
of Bahraini employees and four per cent of the total annual wages of
expatriate employees.
‘International’ contracts
Where an employer provides an ‘international’ contract, Bahrain
Labour Law will nevertheless apply in respect of the period of
employment in Bahrain.
Article 12 notification requirements

Article 12 states: ‘Every employer is required to submit to the Ministry
of Labour and Social Affairs, at least once a year, a notification of any
anticipated reduction in manpower in his establishment.’
Bahrainization
As part of the government’s policy to provide employment for citizens,
Bahrainization regulation is in place. A resolution of the Minister of
Labour and Social Affairs (Ministerial Resolution No. 7/1996 provides
the following:
• A company that has 10 or more employees where Bahrainis
constitute less than 50 per cent, must increase the number of
Bahraini employees by not less than five per cent per annum.
• Companies with less than 10 employees must employ at least one
Bahraini in addition to the employer (if he is a Bahraini).
• For new projects and investments, the minimum proportion of
Bahrainis at the start of the project and for the first year must be
20 per cent, and thereafter must be increased by five per cent per
annum.
• The issue of work permits [to expatriates] must not reduce the
percentage of Bahraini employees.
• Employers must also attain the required percentage of Bahraini
employees during the year with respect to the issue of new work
permits, or the renewal of current permits.
• The five per cent increase applies for a period of five years.
• In case of any infringement, the Ministry of Labour may reject appli-
cations for work permits.
Law reform
A new Labour Law has been proposed but it is not yet in final draft
form and it is not known to what extent it may change the foregoing; no
timetable for its implementation is currently available.
5.5
Commercial Agency
Agreements
Hugh Stokes, AlMahmood & Zu’bi, Attorneys
and Legal Consultants, Bahrain
Introduction
The Law of Commercial Agency in Bahrain (‘the Law’) is set out in
Decree No. 10 of 1992, as amended by Decree Law No. 8 of 1998 and
Decree Law No. 49 of 2002. Under Article 1 of the Law, a commercial
agency is defined thus:
‘A commercial agency shall mean, for the purpose of enforcing the

provisions of this Law, representing the principal in distributing
commodities and products or offering thereof for sale or trading
purposes, in consideration of a profit or commission, or providing
facilities, of whatever nature. This shall include agencies for land,
marine and air transport, tourist and travel agencies, services,
insurance, publications, printing, press, publicity and advertising
agencies, and other business activities for which an order is issued by
the Minister of Commerce.’
Franchises and agencies distinguished

In Bahraini law and practice, the most important distinction between a
franchise and an agency is that a commercial agent imports goods for
resale, a franchisee exploits a system or a name. Some relationships
widely described as franchises are really commercial agencies, others
that are clearly franchises have in the past been registered as
commercial agencies; however, it is unlikely that the Ministry of
Commerce would admit a genuine franchise for registration as a
commercial agency at the present time. If a relationship is, in fact, a
commercial agency but is described in an agreement as a franchise, it

will be classified as a commercial agency for the purposes of the law.
Registration
All commercial agency agreements, as well as any amendments to the
agreements, must be registered in the Commercial Agencies’ Register
at the Ministry of Commerce. Article 13b of the Law states that ‘any
unregistered agency shall not be recognized, nor shall any action be
heard in respect thereof ’, which means that if the agreement is not
registered, neither party to the agreement would have any legal
recourse under Bahraini law for a breach of the agency agreement in
whatever form.
An application for registration (or renewal) is made by completing
the relevant application form provided by the Ministry of Commerce
and submitting it to the Ministry together with a copy of the agency
agreement and the prescribed fee.
All applications should be considered within 30 days of the date of
submission of the same. Once the application to register has been
granted, a certificate shall be provided to the agent, confirming the
registration or renewal. It should be noted that renewal of registration
must take place within two months of the lapse of two years since the
original registration or most recent renewal, after which time
the Ministry of Commerce and Industry will be empowered to strike off
the registration of the agency. The registration and renewal of every
agency is published in the Official Gazette.
An agent (if an individual) must be registered as a merchant and, if
a company, must be 51 per cent Bahraini-owned. In practice, agencies
are only permitted to be held by companies if they are 100 per cent
Bahraini-owned, with very few exceptions.
Content of the agency agreement

Pursuant to Article 3 of the Law, an agency agreement contains the
following details:
• the names of the agent and the principal, and the nationality of each
of them;
• the properties, goods and services included in the agency, as well as
the rights and obligations of both the agent and the principal and
the amount of profit or commission to which the agent is entitled in
consideration of his agency;
• the agent’s area of operation;
Commercial Agency Agreements 237
• the agency’s term, if it is for a definite period;

• the area of business of both the agent and the principal;
• the brand names or trade marks of the goods;
• the agent’s obligation to provide adequate spare parts and necessary
maintenance to repair vehicles, machinery, engines, equipment, or
electrical or electronic appliances covered by the commercial agency;
• the arbitration clause, if any;
• any other terms and conditions agreed upon between the agent and
the principal provided that they do not conflict with the provisions of
this Law.
Exclusivity
Until the implementation of the 1988 Law, all agencies were exclusive
as a matter of law, but since then, exclusivity is a matter of contract,
and therefore the agency agreement should specify whether it is
exclusive or non-exclusive. The 1988 Law is not retroactive and any
exclusive agency entered into earlier will remain exclusive, unless
amended by agreement of the parties.
Duration and termination

An agency agreement can be either fixed-term or indefinite. Where an
agreement has a fixed term, the agency shall only be terminated on the
expiry of the fixed term. Both parties can of course agree to the renewal
of the contract on the termination of the same. A fixed-term agency
agreement can only be terminated early and/or registered in the name
of another agent where both parties consent to this course of action.
If a principal withdraws from a fixed-term agency before the expiry
of its term, the agent may claim compensation for breach of contract. If
the principal does not renew the agency on expiry of its term, the agent
may claim compensation if his/her business activities have resulted in
an obvious success in promoting the principal’s products or increasing
the number of customers but the principal’s refusal to renew the
contract has prevented the agent from benefiting therefrom. The
agent’s right to claim cannot be waived.
When the contract is for an indefinite term, either party may apply
to the Ministry of Commerce for a decision as to whether to strike off
the agency, even if the other party does not agree. The agent has the
right (which cannot be waived) to seek compensation on the same lines
as compensation for non-renewal of a fixed-term contract.
Within one month of the termination of any agency or the expiry of

any agency agreement, an agent or his legal representative must file
an application with the Ministry of Commerce for striking off the
agency’s registration.
Compensation
It will have been noted that an agent’s right to claim compensation
cannot be waived. This does not mean that compensation is automati-
cally payable. The agent must prove his loss; but it would be possible to
place a cap on the amount of compensation (if any) that might become
payable, either by reference to a fixed figure or to a formula based on
past performance.
Appointment by intermediary
An agency may be registered between an agent and an intermediary
(eg a regional or global agent, or an export house) provided that the
intermediary has the authority (which must be demonstrated to the
Ministry of Commerce) to appoint a local agent in Bahrain.
Transfer of agency
If an agent (being an individual) dies, or if the company holding the
agency is sold or merged, the agency will survive and the heirs, or
buyer, or the merged company (as the case may be) has the option (but
not the obligation) to continue with the agency, in which case the rights
and obligations will remain the same. If the agency is for a fixed term,
this will continue until expiry of the term.
If an agency is transferred, the new agent must purchase the stock
held by the former agent (provided it is in good condition) at the market,
or cost, price, whichever is less, plus five per cent of the cost price.
Both the new agent and the principal shall, on transfer of an agency,
become jointly liable for all undertakings given by the previous agent
to any third parties, arising from the contract. The liability will only
extend to the price of the goods or services agreed to be provided by the
previous agent.
Disputes
If the agency contract contains an arbitration clause, disputes shall be
resolved by arbitration and an arbitral award may be enforced through
Commercial Agency Agreements 239
the Bahraini courts. If the arbitral award is made overseas, it may still
be so enforced as Bahrain is a signatory to the New York Convention.
In the absence of an arbitration clause, disputes will be resolved by
the Bahraini courts. The referral of any dispute to arbitration or the
filing of legal proceedings shall not prevent the goods in question from
entering the country or the services being performed. However, the
Minister of Commerce has the power to ban the entry of goods or the
continuation of services, if this is warranted by public interest. This
only occurs extremely rarely.
New legislation
Bahrain introduced a Civil Code (Decree No. 19 of 2001), which took
effect from September 2001. This does not impact on commercial
agencies at all.
Bahrain is a signatory to the World Trade Organization, and full
implementation of the World Trade Organization’s principles may well
have a significant effect on the law relating to commercial agencies.
5.6
Legal Regulation of the

Ownership of Land and
Real Estate
Introduction
Property ownership in Bahrain is subject to the Land Registration
Law. The traditional prohibition on non-ownership of land by non-GCC
foreigners was relaxed in 2001, with the promulgation of Legislative
Decree No. 2 of 2001. The decree provides that, without prejudice to the
rights of GCC citizens to own built properties and land, non-Bahrainis,
both individuals and companies, may own built properties and land in
the Kingdom of Bahrain in any manner prescribed by earlier legis-
lation and subject to the conditions to be prescribed by a resolution of
the Council of Ministers.
These conditions are set out in Prime Ministerial Edict No. 43 of
2003, issued pursuant to the Legislative Decree. The edict designates
certain areas or zones in which non-Bahraini individuals and
companies are permitted to own built property or land. These areas are
divided into the following four categories:
1. areas of residential and commercial buildings of 10 storeys or more
in Manama being:
– Ahmed Al-Fateh District (formerly, and more commonly, known
as Juffair);
– Hoora District;
– Bughazal Area; and
– Northern Manama District including the diplomatic area;
2. Seef District (buildings of either three, five or ten storeys);
Legal Regulation of the Ownership of Land and Real Estate 241
3. tourist areas being:

– Durrat Khaleej Al Bahrain Area;
– Danat Hawar Area; and
– Amwaj Islands Area;
4. Bahrain Financial Harbour Project, Bandar Al Seef and Pearl Island
Areas.
In addition to this relaxation of the rules of property ownership, it has
recently been announced that foreigners investing in these, and future,
designated zones will be issues with special residence permits that
attach to the property.
The right of non-Bahrainis to own land in these areas is, however,
conditional on the fulfilment of two conditions. First, the owner must
comply with the terms, conditions and procedures set out in the Land
Registration Law (Legislative Decree No. 15 of 1979). Secondly, where
the owner is a corporate entity, ownership of built property and land
must either be one of the company’s objects or it must adopt a board
resolution approving the ownership of built property and land in the
Kingdom of Bahrain.
In addition to granting non-Bahrainis permission to own property in
the above areas, Article 3 of the Prime Ministerial Edict states the
wholly foreign owned companies licensed to conduct industrial activ-
ities in the Kingdom may own property in designated industrial areas.
The position with respect to the ownership of land by citizens of Gulf
Cooperation Council (GCC) states is simpler. Legislative Decree No. 40
of 1999 revokes all prior legislation concerning the ownership of
property by GCC nationals in Bahrain and provides that nationals
of GCC states may own built properties and land in the Kingdom of
Bahrain by any prescribed method of legal ownership. This includes
inheritance and conveyance between individuals. The decree further
states that, in this respect, nationals of GCC states are to be afforded
the same rights as Bahraini nationals. Whilst the legislation does not
explicitly define the expression ‘GCC national’, it has previously been
interpreted to apply to GCC citizens as well as to GCC-owned
corporate entities.
5.7
The Legal Environment

and Settlement of
Disputes
Hugh Stokes, AlMahmood & Zu’bi, Attorneys
and Legal Consultants, Bahrain
Background and form of legislation

Bahrain is a hereditary Kingdom, governed by a Constitution promul-
gated in 2002. The King (HM Shaikh Hamad bin Isa Al-Khalifa) exer-
cises the power through his Ministers who are appointed by Royal
Decree on recommendation from the prime minister. The legislative
authority is now the National Assembly consisting of two chambers,
the Consultative Council and the Chamber of Deputies. The
Consultative Council is appointed by the King, and the Chamber of
Deputies is elected by direct secret general ballot. To date there has
been one such election; the term of membership of the Consultative
Council is four years and the term of the Chamber of Deputies is
likewise four years; there is provision for by-elections.
Bills are presented by the prime minister to the Chamber of
Deputies who may pass, amend, or reject the Bill, but in any event the
Bill must then be sent to the Consultative Council for review. Either
House may accept or reject amendments proposed by the other House.
If approved by a majority of the National Assembly, the Bill is referred
to the prime minister for submission to the King. Subject to prescribed
procedures, the King will then promulgate the Bill as Law, when it
becomes a Legislative Decree.
It is then published in the Official Gazette, which will state the date
on which the Law comes into force, in many instances the date of
publication.
The Legal Environment and Settlement of Disputes 243
Secondary legislation
Subject to the above, ministers are responsible for the creation of
binding secondary legislation, by way of ministerial resolution. The
relevant ministry derives its authority to legislate from Royal Decree
and, once published in the Official Gazette, such secondary legislation
is binding as law. Although it is possible to challenge the exercise of
government administrative powers as having been ultra vires, it is not
possible to challenge the government exercise of a discretion if it is
validly authorized to exercise that discretion, unless it has not exer-
cised that discretion in good faith in the purported exercise of its lawful
authority. The prime minister is also empowered to issue edicts, which
are binding in nature, in relation to particular matters within his sole
discretion.
Administration of justice
The court system was established initially by an Emiri Decree in 1971
and has since been amended in order to introduce new courts, most
importantly the Court of Cassation, the highest court, which
pronounces on matters of law and whose decisions (unlike those of
lower courts) are binding. The decisions of other courts are persuasive,
but not binding.
The Sharia court system (dealing with matters of personal law for
Muslims, such as inheritance, personal status and divorce) has no
jurisdiction in respect of commercial matters.
The civil courts in Bahrain are composed of:
• the Court of Cassation;
• the High Court of Appeal;
• the High Civil Court (HCC);
• the Minor Matters Courts and the Court of Execution;
• the Court of Urgent Matters.
The HCC deals with all civil matters in Bahrain, including commercial
matters and disputes. Final judgements of the HCC can be appealed to
the High Court of Appeal. Parties may file objections against a final
judgement issued by the Court of Appeal in the Court of Cassation.
It is common for the court, in cases involving complex or voluminous
documentation or calculations, to refer the case to an expert, whose
fees are usually payable by the plaintiff. An expert opinion is a
statement of the facts and may not draw conclusions or impute
liability.
The courts are administered by the Ministry of Justice, which has

the power to fix court and notarial fees.
By Decree Law No. 27/2002, a Constitutional Court was established,
to decide on the constitutionality of laws and regulations.
Alternative sources of law

Although the published legislation is the primary source of law, in the
event of there being no specific legal provision on which to rely, the
judge may look to custom (both general and special), to Sharia law (in
cases where this is suitable) and to general principles of equity and
natural justice. The judge will only have resort to such sources if the
subject matter of the case (eg a contract) is incomplete or ambiguous,
and the judge requires a principle to assist him to resolve the ambiguity.
Cases are conducted in Arabic and all advocates must be Bahraini
citizens or citizens of a GCC country. Interpreters are available, as offi-
cials of the Ministry of Justice, to assist in cases where a litigant or
witness is not fluent in Arabic.
Pleadings are in writing and are submitted to a judge who will
require the other party to file a pleading in reply. Oral advocacy is not
resorted to very often, and is usually confined to urgent applications
for emergency orders, such as arrest of a vessel.
International aspects
Bahrain, as a member of both the GCC and the Arab League, recog-
nizes and enforces judgements and orders made in countries belonging
to those organizations, but not elsewhere, and at present there are no
treaties or conventions whereby recognition and enforcement of
Bahraini courts and those of foreign courts (other than those countries
referred to above) is imposed. However, Bahrain is a signatory to the
New York Convention on Recognition and Enforcement of Foreign
Arbitral Awards.
Dispute resolution
Arbitration as a method of dispute resolution is quite popular because:
• under Bahrain law, unless both parties agree otherwise, an arbi-
tration must be concluded within 90 days;
• it is possible to conduct the proceedings in English.
This is important, in particular in contracting and shipping cases
where the documentation tends to be in English.
The Legal Environment and Settlement of Disputes 245
We should also note that three arbitration centres have been estab-
lished in Bahrain:
• the Bahrain International Arbitration Centre, established by Decree
Law No. 9/1993, which is for international arbitrations only, and
applies UNCITRAL rules, unless otherwise agreed;
• the GCC Commercial Arbitration Centre, established by agreement
amongst the GCC states, having its seat in Bahrain;
• the arbitration services of the Bahrain Chamber of Commerce and
Industry.
On conclusion of the arbitration, the arbitrator, or arbitral tribunal
must file the award in the High Civil Court within three days of the
award; the judge then places an exequatur on the award, which is then
eligible for execution in the same way as a judgement of the Bahraini
court.
There are as yet no specialist commercial courts, although the idea
has been discussed.
5.8
Forms of Intellectual
Property and their
Registration
Mazin M Ajawi, Intellectual Property
Manager, Abu-Ghazaleh Intellectual
Property, TMP Agents, Bahrain
Summary of the trade mark registration system

Trade mark Law No. 10 of 1991, amended by Ministerial Order No. 12
of 1993, governs the protection of trade marks in Bahrain. New legis-
lation is expected to be issued in late 2004 or early 2005.
Bahrain has been a member of the Paris Convention for the
Protection of Industrial Property since 29 October 1996. However,
claiming priority is not possible at the present moment and will not be
possible until amendment of the law. The international classification of
goods and services for the purpose of the registration of marks is
followed.
A separate application must be filed for each class of goods or
services. Once a trade mark application is filed, it is examined as to its
availability for registration. Trade mark applications accepted by the
registrar are published in the Official Gazette. There is a 60-day period
open for filing an opposition by any interested party. An opposition to
the registration of a trade mark should be prosecuted before the
registrar by an authorized agent, or the proprietors themselves, within
the prescribed period as from the date of publication. In the absence of
an opposition, a published trade mark is registered and a certificate of
registration issued.
It is noteworthy that trade mark rights are acquired by registration.
However, a trade mark application can be opposed successfully upon
producing sufficient proof of the prior use of the mark in Bahrain and
elsewhere in the world.
Forms of Intellectual Property and their Registration 247
A trade mark registration is valid for 10 years as from the date of

filing the application and is renewable for further periods of 10 years
thereafter. The Trade Mark Law provides for a three-month grace
period for late renewal of a trade mark. If a trade mark is not renewed,
the law does not allow third parties to register the same trade mark
until after the lapse of three years from the date of cancellation. The
assignment of a trade mark can be recorded once the trade mark is
registered, but an authorized user can be recorded at the time of
making the application for registration. Such a recording is published
in the Official Gazette. The assignment of a trade mark can be accepted
only with the goodwill of the business involved. All other changes can
be recorded after the registration of a trade mark.
The actual use of any trade mark in Bahrain is not compulsory for
filing applications for registration, nor for maintaining trade mark
registrations in force. However, a trade mark is vulnerable to cancel-
lation by any interested party who can establish that the trade mark
was not actually used during the five years preceding the application
for cancellation, or that there was no bona fide intention of using the
trade mark on the goods in respect of which the trade mark was regis-
tered. Unauthorized use of a trade mark registered under the law, or
an imitation of such trade mark applied on goods of the same class,
whether for sale, storing for the purpose of sale, or exhibiting for sale of
goods bearing a counterfeit mark, or by using a mark duly registered
under the law by another person to serve the purpose of unauthorized
promotion of goods of the same class, are offences punishable under
Bahraini law.
Requirements
The following are requirements for trade mark/service mark applications:
• a signed power of attorney stamped with the company seal autho-
rizing an agent to act on behalf of the owner;
• one of the following documents:
(a) certified copy of a corresponding home registration or application;
(b) certified copy of any corresponding foreign registration or
application;
(c) certificate of incorporation of the applicant company;
(d) certificate issued by the registrar of companies;
(e) extract of the entry of the applicant company in the
commercial register;
(f) certificate issued by the Chamber of Commerce.
The documents referred to in (c), (d), (e) and (f) above must indicate the
specification of goods/services or the line of activity of the applicant
company, and must be legalized by any Arab consulate.
• the full name, address, nationality and profession of the applicant;

• the list of the goods to be covered by the application, not more than
six lines;
• eight prints of the mark.
Summary of the patent registration system

The Patents and Designs Regulations of 1955 were superceded by the
new Patents and Utility Models Law No. (1) of 2004 which was issued
on January 28, 2004. However, the Implementing Regulations for the
Law have not been issued and are expected to be issued in late 2004.
Accordingly, the Patent Office is not accepting any new patent applica-
tions until such regulations are issued and enacted.
Patents
The Law specifies that a patent shall be granted in accordance with the
provisions of this law for every invention that is new, involves an
inventive step, and is capable of industrial application. Such invention
may relate to a new industrial product, whether imported or produced
locally; an industrial method; or a novel application of a known indus-
trial method.
A patent shall also, in accordance with the provisions of this Law, be
granted independently to the owner of any modification, improvement,
or addition to a prior patented invention.
The Law also specifies that, if a patent application has been
submitted in a country that is a member of the World Trade
Organization or in a country that applies reciprocal treatment with the
Kingdom of Bahrain, the applicant or his successor in title may, in
accordance with the conditions, terms and procedures of this Law,
apply for the registration of the same invention within one year of the
filing abroad. In such case, the first filing date shall be deemed a basis
for the priority right.
The protection period for a patent shall be 20 years from the date of
the application for registration in the Kingdom of Bahrain.
Fees shall be due on the filing of patent applications. Incremental
annual fees shall also be due from the beginning of the second year
following the grant of the patent until the expiration of the legal
protection period.
Utility Models
A Utility Model registration may be granted, in accordance with the
provisions of this Law, in respect of any new technical addition to the
shape or structure of methods, tools, machinery or parts thereof,

products, devices, manufacturing processes, and other devices used in
commerce.
Utility Model registrations shall be protected for a non-renewable
period of 10 years from the date of the application for registration in
the Kingdom of Bahrain.
Summary of the design and industrial models

registration system
The Patents and Designs Regulations of 1955, amended by Legislative
Decree No. 22 of 1977, govern the protection of designs in Bahrain.
New legislation is expected to be issued in late 2004 or early 2005.
The validity of a design registration in Bahrain is for five years from
the filing date, renewable for two further terms of five years each (15
years in total). Registration in Bahrain stipulates the existence of a
home registration or any other foreign registration of the design in order
to issue the registration certificate. The specifications will be exactly as
shown in the basic registration and can be in the form of either drawings
or photographs and should show at least three views of the design.
The international specification of designs is not followed and there
is no novelty requirement.
Design applications accepted by the registrar are published in the
Official Gazette. There is a 30-day period open for filing an opposition
by any interested party.
Requirements
The following are requirements for design applications:
• a signed power of attorney stamped with the company seal;
• authorizing an agent to act on behalf of the owner;
• the name, address, nationality and occupation or nature of business
of the applicant;
• a certified copy of the home registration or a registration from any
foreign country;
• three representations of each design.
Summary of the copyright registration system

Copyright Law No. 10 of 1993 governs the protection of copyright in
Bahrain and, as of 29 October 1996, Bahrain became a member of the
Berne Convention.
In order to gain protection, the publishers of works that may be

subject to copyright will have to deposit three copies of the work with
the Copyright Protection Office at the Ministry of Information.
Original works of literature, art and science, regardless of type, impor-
tance or purpose, may be protected. This includes works of art
expressed in writing, sounds, drawings, photography and motion
pictures, such as books, writings, speeches, oral works, plays, dramatic
works, musical compositions, films, phonographic works, applied art,
and 3-D works. All of these may be protected for the lifetime of the
author plus 50 years following his/her death. Computer programmes
and software are protected under the law for 40–50 years.
In order for protection to be effective, the work of art is to be original
and include personal efforts, innovation and new arrangement. The
National Council for Culture reserves the right to allow publication of
the work of art if the copyright holder has not done so, or if his/her heirs
do not publish it within one year of being informed to do so in writing.
In such case, the Ministry of Information can obtain an order from the
High Court of Justice to impound the work and hand it over to
the National Council for Culture, Arts and Literature, while providing
the copyright holder or the heirs with fair compensation.
Infringements are prosecuted before the Civil Court of Bahrain. The
court can stop the circulation of infringing works, seize and destroy
them and the equipment used, estimate the infringers’ proceeds, and
call upon experts’ assessment. In addition, a period of imprisonment or
a fine may be imposed.
Requirements
The requirements for copyright applications are as follows:
• a power of attorney legalized by a Bahraini consulate authorizing an
agent to act on behalf of the owner;
• three copies of the work;
• a legalized copy of a Deed of Assignment if the applicant is not the
author.
A new copyright law is expected in late 2004 or early 2005.
Summary of the domain name registration

system
The Bahrain Telecommunications Company (Batelco) has allowed the
registration of domain names since 1999. According to the regulations,
the holder of a domain name registration should actively rent space for
his/her website.
Batelco has no legal obligation to screen domain name registrations

and operates on a ‘first come, first registered’ basis. Any legal disputes
arising will be forwarded to the courts. Nevertheless, a request for
evidence of proof of ownership of the name (eg a trade mark regis-
tration or a company name) will be requested. Proof that an agent for
that name exists in Bahrain also has to be recorded.
Once a court order has been issued to cancel the domain name,
Batelco will abide by the order to cancel or amend a name. Domain
names are non-transferable once registered unless the owner is bought
out or merges with another entity. If an entity is dissolved, the domain
names owned by that entity can be reallocated.
Summary of the trade secrets law

Legislative Decree No. 7 of 2003 in respect of trade secrets was issued
on 18 June 2003.
The new law prohibits the disclosure, misappropriation or illegal
acquisition of another entity’s trade secrets. A trade secret is any infor-
mation held by an entity that is not generally known, derives
commercial value from being secret, and is subject to appropriate
measures by its owner to maintain its secrecy.
It is important to note that the independent conception of trade
secret information by lawful means is not a violation of the trade
secrets law.
New IP laws
The following new intellectual property laws are also expected to be
issued in late 2004 or early 2005:
• geographical indications;
• integrated circuits;
• new varieties of plants.
Part Six
Appendices
Appendix I
Transport
Infrastructure
Economic Development Board1
Introduction
Bahrain enjoys excellent air, road and maritime connections to the
region and the rest of the world. It boasts a world-class international
airport, well-designed modern highways and a well-established seaport,
with construction well underway on a new port.
Bahrain International Airport

The Bahrain International Airport (BIA), a modern, highly efficient
facility, serves as the regional hub for a significant number of interna-
tional airlines, including cargo carriers and charter flight operators.
One of those carriers is Gulf Air, which, along with other airlines,
operates over 300 flights a week to more than 50 destinations in the
Middle East and North Africa. International airlines also operate
flights to all major European and Asian cities.
In an ongoing effort to encourage new carriers to serve Bahrain,
Civil Aviation Affairs has developed a range of incentives that includes
discounts on landing and parking fees, free parking for the first two
hours and reductions on hotel accommodation for crews. Bahrain also
offers the best fuel prices in the region.
With the 1994 inauguration of its new US$100 million passenger
terminal, BIA increased its passenger handling capacity to 10 million
passengers annually, in order to accommodate the steady increase in
traffic. In 2003, BIA handled 4.2 million travelers, a four per cent
increase over 2002 (see Table AI.1).
1The section of this article pertaining to privatization of ports in Bahrain was provided
by Mr Ibrahim Salman, Director of Customs, Ports and Free Zones Affairs.
256 Appendices
Table AI.1 Passenger traffic statistics
Total number of passengers in 2003 4,147,105

Increase in total passenger traffic over 2002 4 per cent
Source: Civil Aviation Affairs, Bahrain.
In addition to its excellent passenger handling capabilities, BIA also

possesses highly efficient air cargo facilities, with an annual capacity
of over 200,000 tonnes (see Table AI.2). Its 18,000 square metre Air
Cargo Centre, managed by Bahrain Airport Services, provides a full
range of cargo handling services, including effective trans-shipment
arrangements, inter-airport trucking, customs clearance and special
storage arrangements. Break bulk facilities are also available for
consolidators and bonded warehousing for specialist companies.
Bahrain Airport Services is also proceeding with plans to expand its
cargo handling facilities. The new extension to the cargo facility will
cover an area of 2,000 square metres, and is expected to be completed
by the end of 2003.
Table AI.2 Air cargo statistics
Total air cargo tonnage in 2003 238,000

Increase over 2003 32 per cent
Source: Civil Aviation Affairs, Bahrain
To take advantage of this ideal central location, DHL has chosen to

locate its sorting hub at Bahrain International Airport. The interna-
tional courier uses this facility for sorting and forwarding shipments to
onward destinations.
Further support for the development of BIA came in the form of the
signing of a US$115 million deal to establish an airport mall and multi-
storey car park to serve the airport. The complex will contain 30,000
square metres of retail and leisure space and 4,000 car parking slots.
The project is expected to be ready by June 2004.
Ports and privatization of the port industry

Mina Salman is strategically located midway down the Arabian Gulf,
providing key access to the region for the global shipping industry. The
port provides a range of facilities for vessels of up to 65,000 tonnes,
some of which include:
Transport Infrastructure 257
• an outer approach channel with a minimum depth of 9.5 metres

bunkering;
• fuel, oil, gas or blends available at dockside or by barge (48-hour
notice required);
• berthing facilities;
• anchorage;
• fresh water;
• repair, surveyor and ship chandler services.
Mina Salman
Mina Salman port is the only sea gateway for the Kingdom of Bahrain,
handling about three million tonnes of cargo annually. Due to the
restrictions of water depth and the need to replace infrastructure and
equipment, the government decided to build Khalifa bin Salman Port.
The new port will be ready at the end of 2006.
Privatization
The role of ports in an international business context has changed
from a mere entry and exit point for cargo to an important link in the
transport chain. Due to this dramatic change, port business
developed into an important industry, which attracted massive
investment from all over the world. In order for ports to maximize
their effectiveness and economic return, they must endeavour to be
part of the regional or global transport chain. This cannot be achieved
through improving ports’ infrastructure only, but through proper
organization and management also, which in most cases can only be
realized through privatization.
The process of privatizing Bahrain’s public ports began with the issue
of the cabinet decision on 30 June 2002 and has progressed as follows.
The formation of the privatization committee

The privatization committee was formed through a Ministerial Order
issued in July 2002 and consists of officials from Financial Affairs at
the Ministry of Customs, Ports and Free Zone Affairs, and subse-
quently officials of the Economic Development Board (EDB) were
added to the committee.
Initiating a viability study

The Committee sought offers from the following four international
professional institutions to submit their bids to carry out the viability
study:
258 Appendices
• The World Bank;

• UBS Bank;
• PricewaterhouseCoopers;
• Seaport Terminal (Malaysia).
After careful evaluation of the offers, Seaport Terminal was appointed
to carry out the study.
Appointing a privatization consultant

The privatization committee appointed KPMG as a privatization
consultant. The appointment was carried out through a tendering
approved by the Tender Board. KPMG Bahrain is supported by Mericks
Associates of London as shipping advisers and Trowers & Hamlins as
the legal advisor. KPMG responsibilities cover the following:
• to review the privatization study prepared by Seaport Terminal and
recommend the necessary changes;
• to prepare a privatization plan, which includes the legal framework
necessary for implementing the privatization;
• to assist the privatization committee in carrying out the privatization.
Issues of RIB
Requests for Inductive Bids (RIBs) were issued on 9 August 2004 to 21
companies – selected by KPMG and advertised through local and inter-
national publications and through direct contact with embassies in
Manama, Kuwait and Riyadh. By the closing date of 5 October 2004,
nine respondents sent their in bids, which were subjected to a thorough
evaluation by three to five selected companies to take part in the
Request for Proposal (RFP) stage, which will ultimately lead to the
selection of the part operator by early 2005. The evaluation was carried
out by professionals from the Ministry of Finance and National
Economy (MOFNE), the EDB, Customs, Ports and Free Zone Affairs,
KPMG and Posford Haskining.
Trowers & Hamlins and legal advisors of the Royal Court, Crown
Prince Court and MOFNE studied the existing legal structure to verify
whether it was sufficient to support the Privatization Law No. 41 of
2002. All legal advisors are of the opinion that privatization can be
implemented under the Privatization Law, but they differed on the
need to issue a new law. This law will repeal the 1966 port ordinance
and establish a new organizational structure to support the privati-
zation of government ports.
Transport Infrastructure 259
South Hidd port and industrial area

Currently under construction, the 650-hectare South Hidd Port and
Industrial Area is located at the northeastern extremity of Bahrain.
The completed port will have two 300-metre container berths, a 300-
metre RO/RO/LO/LO multipurpose berth, three 300-metre general
cargo berths and extensive storage facilities. The port will also boast
two 40-tonne and two 50-tonne post panamax gantry cranes, and 14
straddle carriers, in addition to fork lifts, tugmaster units, low-bed
trailers and a computerized container and cargo tracking system.
The associated industrial area, with its ideal proximity to the airport
and specially designed road access to the King Fahad Causeway, caters
for smaller, cleaner industries. On completion, it will have refrigerated
storage facilities, distribution warehouses, bulk grain facilities, a timber
yard, a quay escalator crane, and a vessel bunkering facility, in addition
to a business centre and medical facilities.
The King Fahad Causeway

Officially inaugurated in November 1986, the 27 km causeway links
Bahrain to the Saudi Arabian mainland, bringing the major population
centres of the Eastern Province of Saudi Arabia within a one-hour
drive, with driving time to Riyadh and the Kuwaiti border averaging
four hours. Proving a boon to Bahrain’s tourism industry, the bridge
has served as a major contributor to Bahrain’s status as a family
retreat for regional markets.
Customs procedures
The general procedures for clearing customs in Bahrain are the
following:
• No customs duty is payable on goods imported in transit or for
trans-shipment.
• No customs duty is payable on exports.
• Raw materials and equipment for use in manufacturing enjoy duty
relief under the Protection and Support Law.
• Duty exemption is available under the GCC Trade Exchange,
Bilateral Trade Agreements and the Greater Arab Free Trade Area
(GAFTA) agreement, for qualified goods.
• Exemption is also available for goods stored in bonded warehouses.
All other imports are subject to customs duty of five per cent, except
tobacco and tobacco related products (100 per cent) and alcohol
(125 per cent).
260 Appendices
Customs duties – concessions

All personal effects and gifts carried by passengers will not exceed
BD300, provided that:
• luggage and gifts are for personal use and not for commercial
purposes;
• goods are not traded;
• the number of cigarettes does not exceed 400.
Important duty exemptions for business travellers include:
• cut samples;
• advertising material with a total value not exceeding BD200
(US$540), provided it is marked as such;
• dutiable goods for exhibition may be released for entry under the
temporary import arrangements, after payment of a deposit
refundable on re-export of same;
• drawback of customs duty may be granted on imported goods re-
exported, subject to certain conditions.
Bonded areas
Goods imported may be stored in bonded areas with suspension of
payment of customs duty. Bonded areas include private bonded ware-
houses, subject to specific approval by the Directorate General of
Customs in each case. Bonded storage is available within the Mina
Salman port perimeter, where off-loaded goods can remain for up to six
months, after which time the goods may be subject to disposal by sale
or other method.
The Port Authority has storage space, which can be used for duty-
unpaid goods for an indefinite period at a charge of BD1 per tonne per
month. Bonded goods can be withdrawn for import after payment of
customs duty or for re-export without payment of customs duty.
Appendix II
Contributor Contact
Details
Abu-Ghazaleh Intellectual Property

Unitag House, Government Avenue
PO Box 990
Manama
Kingdom of Bahrain
Tel: +973 17 215 464
Fax: +973 17 216 322
Contact: Mazin M Ajawi
Intellectual Property Manager
E-Mail: agip.bahrain@tagi.com
Contact: Qusay T Abu-Ghazaleh
Email: qag@tagi.com
Website: www.agip.com
Alba (Aluminium Bahrain)

PO Box 570
Manama
Kingdom of Bahrain
Tel: +973 17 833 204
Fax: +973 17 830 510
Contact: Taimour Raouf
Head of Public Relations
Tel: +973 17 833 257
Mobile: +973 3961 6434
Email: taimour.raouf@alba.com.bh
262 Appendices
Al Mahmood and Zu’bi

Attorneys and Legal Consultants
Bab Al Bahrain Building
150 Government Road
Manama 315
Kingdom of Bahrain
PO Box 502
Tel: +973 17 225 151
Fax: +973 17 224 744
Email: almazubi@batelco.com.bh
Contact: Esmond Hugh Stokes, Solicitor
Arab Bank Plc

PO Box 813
Manama
Kingdom of Bahrain
Tel: +973 17 549 000
Tel: +973 17 549 022 (direct)
Fax: +973 17 541 116
Contact: Denzil Pereira, Senior Economist
Email: Denzil.Pereira@arabbank.com.bh
Bahrain Atomisors International

Building 200, Road: 96
East Riffa 949
PO Box 5328
Manama
Kingdom of Bahrain
Contact: Leon Fabrikanov, General Manager
Email: bai1@batelco.com.bh
Bahrain Financial Harbor (BFH) and Gulf Finance House

PO Box 2210
Manama
Kingdom of Bahrain
Contact: Ahmed Y Taleb
Corporate Communications Department
Email: ahmed.taleb@bfharbour.com
Tel: +973 17 587 100 (office)
Mobile: + 973 3666 9479
Fax: + 973 17 582 511
Website: www.bfharbour.com
Contributor Contact Details 263

PO Box 27
Manama
Kingdom of Bahrain
Tel: +973 17 547 444/45
Fax: +973 17 537 554
Contact: Shaikh Salman Bin Isa Al-Khalifa, Director,
Islamic Financial Institutions Directorate
Email: salman@bma.gov.bh
or
Ms Farah Mattar
Assistant Senior Specialist
Promotion & Media Unit
Tel: +973 17 547 616
Fax: +973 17 535 904
Email: farah@bma.gov.bh
Website: www.bma.gov.bh
Bank of Bahrain and Kuwait

PO Box 597
Manama
Kingdom of Bahrain
Tel: +973 17 207 371
Fax: +973 17 214 345
Contact: Elham Al-Koohiji
Project Manager, Research & Development
Business Development Division
Tel: +973 17 207 364
Fax: +973 17 214 345
Email: elham@bbkonline.com
Cluttons (Prime Properties)

9th Floor Bahrain Commercial Complex
PO Box 5856
Manama
Kingdom of Bahrain
Tel: +973 17 535 003
Fax: +973 17 530 519
Email: cluttons@batelco.com.bh
Contacts: Susan Neal, Property Manager
Andrew Hinson, Chartered Surveyor
264 Appendices

PO Box 11299
Manama
Kingdom of Bahrain
Tel: +973 17 583 311
Fax: +973 17 583 322
Contact: Sulaf Zakharia
Manager, Research Services Unit
Email: sulaf.zakharia@bahrainedb.com
Website: www.bahrainedb.com
Ernst and Young Bahrain

PO Box 140
13th floor
City Gardens
Manama
Kingdom of Bahrain
Tel: +973 17 52 16 82 (direct)
Fax: +973 17 53 54 05
Website: www.ey.com/eyme
Contact: Sameer Abdi
Manager, Islamic Financial Services Group
Email: sameer.abdi@bh.ey.com
Gulf International Bank (GIB)

Al-Dowali Building
3 Palace Avenue
PO Box 1017
Manama
Kingdom of Bahrain
Tel: +973 17 522 696
Fax: +973 17 522 633
Contact: Rima Bhatia, Senior Economist
Email: rima.bhatia@gibbah.com
InCite Marketing Research WLL

PO Box 11690
Manama
Kingdom of Bahrain
Tel: +973 17 243 263
Fax: +973 17 243 639
Email: incite@batelco.com.bh
Website: www.incitemar.com
Contacts: Aldrin Luiz, Research Manager for Bahrain
Email: aldrin.luiz@incitemar.com
Jan Stuffers, Managing Consultant (UAE office)
Email: jan.stuffers@incitemar.com
KPMG Bahrain
Chamber of Commerce and Industry Building
PO Box 710
Manama
Kingdom of Bahrain
Tel: +973 17 224 807
Fax: +973 17 227 443
Contact: Doug Tait, Partner
Email: dougtait@kpmg.com
Midal Cables Ltd

PO Box 5939
Manama
Kingdom of Bahrain
Tel: +973 17 832 832
Fax: +973 17 832 800
Website: www.midalcable.com
Contact: Salman Al-Shaikh
Chief Executive Office
Email: ceo@midalcable.com
Ministry of Commerce
PO Box 5479
Diplomatic Area
Manama
Kingdom of Bahrain
Tel: + 973 17 574 817
Fax: +973 17 532 090
Website: www.commerce.gov.bh
Contact: Abdul Razaq J Zaina Al Abedeen
Director, Foreign Trade Relations Directorate
Email: HANADI@commerce.gov.bh
Ministry of Electricity and Water

PO Box 2
Manama
Kingdom of Bahrain
Tel: +973 17 546 320
Fax: +973 17 541 189
Contact: Mariam Ahmed Jumaan
Director, Planning and Studies Department
Email: mariam.jumaan@mew.gov.bh
266 Appendices
Ministry of Finance and National Economy

PO Box 333
Manama
Kingdom of Bahrain
Contact: Salma Waheedi
Senior Economist
Directorate of Economic Planning/Free Trade Coordination Team
Tel: +973 17 575 284
Fax +973 17 532 713
Mobile: +973 3940 4418
Email: mfeesmw@mofne.gov.bh
Ministry of Information, Department of Tourism

PO Box 26613
Manama
Kingdom of Bahrain
Tel: +973 17 201 212/5
Email: tourism3@batelco.com.bh
Contact: Badr Nasr, Marketing Dept
Email: wugoo@hotmail.com
Norwich Union Insurance (Gulf) BSC (c)

Ground Floor, Building 177
Road 2803
Al Seef District 428
PO Box 45
Manama
Kingdom of Bahrain
Tel: +973 17 588 248
Fax: +973 17 583 050
Website: www.nu-me.com
Contact: Richard E Morrison MA ACII, Country Manager
Email: richard-morrison@nubah.com.bh
Stratum
23rd Floor, NBB Tower
PO Box 3013
Manama
Kingdom of Bahrain
Tel: +973 17 221 515
Fax: +973 17 224 166
Contact: Ahmed Al Umran
Email: alumran@stratumwll.com
Mobile: +973 3933 2121
Contact: Marwan Tabbara
Email: tabbara@stratumwll.com
Mobile: +973 3966 7574
Telecommunications Regulatory Authority (TRA)

PO Box 10353
Manama
Kingdom of Bahrain
Tel: +973 17 540 120
Fax: +973 17 532 123
Website: www.tra.org.bh
Contact: Daneh Al Rayes
Director of Communications and Consumer Affairs
Email: drayes@tra.org.bh
Trowers & Hamlins

9th Floor, The Tower
Sheraton Commercial Complex
PO Box 3012
Manama
Kingdom of Bahrain
Tel: +973 17 530 082
Fax: +973 17 535 616
Website: www.trowers-hamlins.com
Contacts: Pia Irwin
Office Manager
Mobile: +973 3989 1051
Email: pirwin@trowers-hamlins.com
Dominic O’Neil
Email: doneil@trowers-hamlins.com
Roly Denman
Email: rdenman@trowers-hamlins.com
Index
References in italic indicate figures or tables.
AAIFIOI see Accounting and Auditing development and expansion

standards for Islamic Financial 139–42
Institutions future plans 142–44
Abu Sa’fah Field 131 see also Alba; Bahrain Atomisers
accommodation see residential International; Midal Cables
property Aluwheel 148
accountants 220 Amwaj Islands project 172
accounting 222–28 annual general meetings (AGMs)
principles and guidelines 222–25 61–62
record-keeping and reporting annual reports 61
225–28 Anti-Money Laundering Procedures
Accounting and Auditing standards 211
for Islamic Financial Institutions Arab War Risks Insurance Syndicate
(AAIFIOI) 46, 99, 100 (AWRIS) 194
Advisory Practice, Stratum 123 Arad Fort 174
advocates 220 arbitration 209, 238–39, 244–45
agency agreements 235–39 Article 12 notifications 234
content 236–37 asset quality standards 91–92
franchises compared 235–36 audit 222
registration 236 auditors 220
terms 237–39 AWRIS (Arab War Risks Insurance
agency fees, commercial property Syndicate) 194
186
AGMs see annual general meetings BAFCO see Bahrain Aviation Fuelling
Ain Umm Al Sejoor 173 Company
air transport 255–56, 256 Bahrain Atomisers International
Al-Areen Wildlife Park 174 (BAI) 152–57
Alba (Aluminium Bahrain) 43–44, human resource management 155
138 products and development 153–55
current expansion 139–42 Bahrain Aviation Fuelling Company
environmental protection 143 (BAFCO) 129–30
future plans 142–43, 144 Bahrain Commercial Companies Law
Al-Ezzal independent power plant (BCCL) see commercial law
(IPP) 57, 136 Bahrain Field 131
Al-Jasra House 174 Bahrain Financial Harbour (BFH)
Al-Khalifa family 5, 6, 7, 41 11, 24, 56, 101, 109–15
Al-Khamis Mosque 174 attracting FDI 115
Aluminium Bahrain see Alba Financial Centre 110–12
aluminium industry 138–44 impact 114
270 Index
International Insurance Centre reporting to 227–28

112–13 Bahrain Telecommunications
job creation 115 Company (Batelco) 160, 161,
professional studies 113–14 250–51
role of Gulf Finance House 117 Bahrain-US Council on Trade and
Bahrain Fort 173 Investment 31
‘Bahrain in figures’ publication 70 Bahrainization 234
Bahrain Income Tax Law 229 employment at BIC 201–02
Bahrain Institute of Banking and BAI see Bahrain Atomisers
Finance (BIBF) 83, 99, 191 International
Bahrain Insurance Association (BIA) Bait Al-Jasra 174
191 BANAGAS see Bahrain National Gas
Bahrain International Airport (BIA) Company
255–56, 256 Bank of Bahrain and Kuwait (BBK)
Bahrain International Circuit (BIC) 106–07
(Formula One) 24, 171, 198–202 banking system 56, 77
benefits 199–201 commercial 79–80, 103–08, 105
challenge 201 conventional and Islamic compared
employment of nationals 201–02 95–97, 96
Bahrain International Insurance Islamic 46–47, 80–81, 93–102, 94,
Centre (BIIC) 112–13 96, 98, 99, 102
Bahrain Internet Exchange (BIX) BAPCO see Bahrain Petroleum
163, 163 Company
Bahrain joint stock companies (BSCs) Barbar Temple 174
see joint stock companies Batelco see Bahrain
Bahrain Monetary Agency (BMA) Telecommunications Company
14, 46, 77–83, 209–10 BBK see Bank of Bahrain and Kuwait
accounting standards 209–10 BCCL (Bahrain Commercial
anti-money laundering procedures Companies Law) see commercial
211 law
composition and administration Beit Al Quran 173
84–86 BFH see Bahrain Financial Harbour
debt securities regulations 228–29 BIA see Bahrain Insurance
insurance 189, 190–91 Association; Bahrain
Islamic banking 97, 98–100, 99, International Airport
101, 107 BIBF see Bahrain Institute of
licensing process 86–92 Banking and Finance
reporting to 226–27 BIC see Bahrain International Circuit
Bahrain Monetary Agency (BMA) Law BIIC see Bahrain International
84, 85 Insurance Centre
Bahrain National Gas Company bilateral agreements 27–28, 57
(BANAGAS) 129 see also Bilateral Investment
Bahrain National Museum 173 Treaty, US-Bahrain
Bahrain Petroleum Company Bilateral Investment Treaty (BIT),
(BAPCO) 128–29 US-Bahrain 30, 31, 49, 208
Bahrain Refinery 131, 132 BIX see Bahrain Internet Exchange
Bahrain Stock Exchange (BSE) BMA see Bahrain Monetary Agency
48–49, 82 board meetings 60–61
Islamic banking 101 bonded areas 260
Index 271
branches 216–17, 218 establishment 218–19

BSC and BSC (c) (Bahrain joint stock management 220–21
companies) see joint stock specialized 217–18
companies compassionate leave 231
BSE see Bahrain Stock Exchange compensation, agency agreements
business structures 206, 214–21 238
companies 86, 88, 214–17 Constitutional Court 9
establishment 218–19 constitutional monarchy system 7–8
management 220 construction-related insurances 194
professional practices 220 construction sectors
specialized companies 217–18 BFH job creation 115
unincorporated joint ventures international investment in 208
220–21 Consultative Council 8
businesses, regulations for contents insurance 192
international 205–13 contracts of employment 231–32
‘international’ 233
capital markets 82 contributor contact details 261–67
capital requirements, bank licences copyright registration 249–50
89–91 corporate entities 86
central population registration (CPR) joint stock companies 86
cards 179 corporate governance 58–63
Central Statistics Organization (CSO) annual general meetings 61–
69–70 board meetings 60–61
Chamber of Deputies 8 directors 58–60
Chevron Texaco 132 insider dealing 62
Civil Law Courts 8–9 shareholders 62–63
closed joint stock companies (BSC (c)) corporate taxation, absence of 229
see joint stock companies Council of Ministers 8
commandite companies 216 Court of Cassation 9, 243
Commercial Agencies’ Register 236 Court of Execution 243
commercial agency agreements see Court of Urgent Matters 243
agency agreements CPR see central population
commercial banking 79–80, 103–08 registration cards
competitive strategy 107 cross-border services, US-Bahrain
Islamic sub-sector 106 FTA 34
licences 86, 90 CSO see Central Statistics
market constituents 104, 105 Organization
market size, growth and Currency Museum 173
competition 103–04 customs duties 221, 229, 260
products, services and delivery customs procedures 259
channels 106–07 US-Bahrain FTA 34
regulator 107 Customs Union, GCC 23
commercial laws 22, 49, 214, 222
commercial property market 184–88 debt securities regulations 228–29
charges and payments 185–86 Delmon civilization 170–71
rental 187–88, 188 deposit insurance 91
lease structures 185 Deposit Protection Scheme and Board
termination or renewal 186–87 91
companies 214–17 design registration 249
272 Index
dilapidation procedures, commercial US-Bahrain FTA 37

property 187 equipment, import of
directors, corporate governance telecommunication 168–69
requirements 58–60 Ernst & Young (E&Y) 100
non-executive directors 59–60 European Society for Opinion and
remuneration 60 Market Research (ESOMAR) 74
Disclosure Standards 227 European Union Cooperation
dispute resolution 209, 244–45 Agreement 209
agency agreements 238–39 executive authority 8
domain name registration 250–51 exports see foreign trade
dress code 67 extraordinary general meetings
Dual Towers, BFH Financial Centre (EGMs) 63
111 external trade and payments 14,
duration of commercial agency 17–18, 18
agreements 237–38
Durrat Al Bahrain Resort 171–72 FCBs see full commercial banks
FDI see foreign direct investment
E&Y see Ernst & Young FIA Formula One championship
Ecka Granules 154, 157 198, 199
Economic Development Board (EDB) financial centre, Bahrain as 77–83
42, 49, 207 capital markets 82
economic freedom 22–23 commercial banking 79–80
economic overview 11–20, 15 human resources 83
diversity of base 43, 44 insurance 81–82
external trade and payments 14 Islamic banking 80–81
policies 13–14 Financial Centre, BFH 110–12
recent developments 16–20, 16, financial information, residential
18, 19 property market 180–81
structure 12–13, 13 Financial Mall, BFH Financial Centre
vision for the future 42–43 111
EDB see Economic Development financial regulatory system 84–92
Board BMS composition and
education facilities 66 administration 84–86
EGMs see extraordinary general licensing process 86–92
meetings financial sector 46–47, 56, 210
electricity sector 127–28, 135–37 GDP contribution 13, 210
electronic banking 106–07 US-Bahrain FTA 35
electronic commerce, US-Bahrain FTA see also Bahrain Financial Harbour;
35 banking system; financial
employee benefits see General centre, Bahrain as; financial
Organization for Social Insurance regulatory system; Gulf
employment law 230–35 Finance House; Stratum
Bahrainization 234 fiscal policy 18–20, 19
regulations 230–34 fitting-out works, commercial property
engineers and engineering 186
consultants 220 fixed telephony segment 161
entry visas 176–77 foreign direct investment (FDI)
environmental protection 54–55, 56, 57
aluminium industry 143 contribution of BFH 115
Index 273
foreign exchange broker licences government procurement, US-Bahrain

87–88, 90–91 FTA 36
foreign exchange reserves and assets government services, GDP
18 contribution 13
foreign ownership of companies 50, government structure 7–9
207 GPIC see Gulf Petrochemical
foreign trade 14, 17–18, 18, 21–29, Industries Company
25, 26 Grand Prix circuit see Bahrain
imports and exports 24–26, 25, 26, International Circuit
27, 28, 28 group life insurance 195
telecommunication equipment Gulf Cooperation Council (GCC) 9,
168–69 207–08
trade relations 27–29 Commercial Arbitration Centre
see also free trade agreements; US- 209, 245
Bahrain free trade agreement Gulf Finance House (GFH) 116–19
foreign trade statistics publication business development 117–18
69 outlook for the future 118–19
Formula One racing see Bahrain Gulf Petrochemical Industries
Company (GPIC) 44–45, 129
International Circuit
franchises, agencies compared 235–36 Harbour House, BFH Financial
free trade agreements (FTAs) 23 Centre 111
see also US-Bahrain free trade HCC see High Civil Court
agreement Hidd industrial area see South Hidd
free trade zones 212–13 port and industrial area
full commercial banks (FCBs) 79, Hidd Power and Water Station 137
86, 104 High Civil Court (HCC) 243
licences 90 High Court of Appeal 9, 243
High Sharia Court of Appeal 9
gas industry 131, 133–34 history 3–5, 6–7
GCC see Gulf Cooperation Council holding companies 216
GCIBFI see General Council for holidays 230, 231
Islamic Banks and Financial home insurance 192
Institutions hotel accommodation 172, 178
GDP (Gross Domestic Product) government levy 229
12–13, 13, 16–17, 16, 25, 26 hours of work 230
increasing financial sector House of Al Quran 173
contribution 114 household income and expenditure
General Council for Islamic Banks survey 70
and Financial Institutions housing allowances 179
(GCIBFI) 99 human resources 83
General Organization for Social Alba 142–43
Insurance (GOSI) 194–95, 232, Bahrain Atomisers International
233 155
geography 3 Midal Cables 149–50
GFH see Gulf Finance House
global net capital flows 51–52 IASB see International Accounting
golf facilities 175 Standards Board
GOSI see General Organization for IASC see International Accounting
Social Insurance Standards Committee
274 Index
IASs see International Accounting International Accounting Standards

Standards Board (IASB) 223
IFRIC see International Accounting International Accounting Standards
Reporting Interpretations Committee (IASC) 223
Committee International Accounting Reporting
IFRS see International Financial Interpretations Committee
Reporting Standards (IFRIC) 224–25
IFSG see Islamic Financial Services International Financial Reporting
Group Standards (IFRS) 100, 222,
IIFM see International Islamic 223–24
Financial Market International Insurance Centre 11
IIRA see International Islamic Rating International Investment Position
Agency (IIP) 51, 51
IIP see International Investment International Islamic Financial
Position Market (IIFM) 46, 47, 99, 101
IMF see International Monetary Fund International Islamic Rating Agency
imports see foreign trade (IIRA) 47, 99
income tax, oil and refining companies International Monetary Fund (IMF)
229 212
incorporation requirements 218–19 international organizations,
independent power plants (IPPs) 57, membership of 211–12
136 international relations 9–10, 21–22
industrial models registration 249 enforcement of foreign judgements
infrastructure projects, international 244
investment 208 Internet 162–63, 163
insider dealing 62 investment 13–14, 41–47, 48–57,
institutional shareholders 63 207–08
insurance 81–82, 189–95 foreign direct investment 54–55,
commercial property 186 56, 57
corporate 193–95 future 42–43, 55–57
deposit 91 patterns 51, 51
market 189–91 strategies for attracting 43–47, 44,
personal 191–93 50
see also Bahrain International trends and composition 51–54, 53,
Insurance Centre; takaful 54
sector investment advisers/consultants/
intellectual property rights 246–51 brokers
copyright 249–50 licences 88, 91
design and industrial models 249 Stratum 120–23
domain name 250–51 investment banks
new laws 251 capital requirements 90
patents 248–49 examples 101, 116–19
trade marks 246–48 licences 86–87
trade secrets 251 IPPs see independent power plants
US-Bahrain FTA 36 Islamic banking 80–81, 93–102, 94,
intermediaries, in agency agreements 106, 210–11
238 Bahrain as centre 97–98, 98
International Accounting Standards conventional banking compared
(IASs) 222, 223–24 95–97, 96
Index 275
Gulf Finance House 116 life insurance 192, 195

key initiatives 98–100, 99 lifestyle 64–68
recent activity 100–01, 102 limited liability companies (WLL)
regulations 46–47 215–16, 220
Islamic Financial Services Board 101 limited partnerships see commandite
Islamic Financial Services Group companies
(IFSG) 100 liquidity standards 91–92
Islamic Sukuk Bonds 52–53 LMC see Liquidity Management
Centre
job creation, Bahrain Financial Long Term Services Agreement
Harbour 115 (LTSA), Hidd Power Station 137
joint stock companies 86, 88, 215, loss provisioning rules 91–92
219, 220 Lower Court 9
joint ventures 215 LTSA see Long Term Services
unincorporated 220–21 Agreement
judiciary authority 8–9, 243–44
maintenance arrangements
King Fahad Causeway 259 commercial property 185
knowledge-based industries, residential property 182
development of 42 management shares 217
M&As see mergers and acquisitions
labour law see employment law manufacturing sector 12–13
labour rights, US-Bahrain FTA investment strategy 43–45, 208
36–37 marine cargo insurance 194
land ownership 50, 221, 240–41 market access commitment,
language 221 US-Bahrain FTA 33
lawyers and advocates 220 market research 69–74
leases importance 73–74
commercial property 185 practicalities 72–73
residential property 180–81 published data 69–70
leave (absence from work) 231 research agencies 70–72
leaving indemnity 231 medical facilities 195, 233
legal entities see business structures medical insurance 192, 195, 233
legal environment 242–45 mergers and acquisitions (M&As) 57
administration 8–9, 243–44 banking 104
business environment 205–13 Metalform 148
alternative sources of law 244 Midal Cables 147–51
dispute resolution 244–45 human resource management
international aspects 244 149–50
legislative and procedural products and development 148–49
transparency, US-Bahrain FTA Mina Salman port 256–57
37 Ministry of Commerce, reporting to
legislative authority 8 226
licensing process Ministry of Electricity and Water
financial institutions 86–92 136, 137
telecommunications 160, 166–68, Ministry of Oil 128
167 Minor Matters Courts 243
Liquidity Management Centre (LMC) mobile telephony segment 160, 162
46–47, 98, 99 monetary policy 14, 20
276 Index
money and foreign exchange broker payment terms

licences 87–88, 90–91 commercial property market 185
money changer licences 87, 90 residential property market 181
money laundering 211, 226 pearl diving 175
Moody’s rating 78 permits 67
motor insurance 191–92 personal insurance 191–93
MTC-Vodafone Bahrain 57, 160, personal accident insurance 195
161, 162 petrochemical industry
municipal system 7 see also Gulf Petrochemical
municipality tax 181, 185–86, 221, Industries Company
229 Petronas Karigali 132
museums 173 PIRI see Prudential Information and
Regulatory Framework for
National Assembly 8 Islamic financial
National Charter 41, 49, 205 institutions
National Number Plan 168 political system 6–10
Natural Gas Committee 130–31 population 3
non-executive directors, corporate population census 69
governance requirements 59–60 ports 256–59
numbers, telephones 168 Portuguese Fort 173
price trends, consumer 17
OAPEC see Organization of Arab primary health care 233
Petroleum Exporting Countries Prime Minister 8
OBUs see offshore banking units Private Equity Practice, Stratum
off-the-shelf market research data 122–23
70 privatization 43, 49, 57
office property market see commercial electricity sector 136, 137
property market port industry 256–59
offshore banking units (OBUs) professional studies, BFH 113–14
79–80, 90, 210 property
licences 87 ownership 240–41
oil sector 127–34 Gulf Finance House projects 117
economic structure 12 see also commercial property
government participation 130–31, market; residential property
130 market
potential and future challenges property tax see municipality tax
131–33 Prudential Information and
status 128–30 Regulatory Framework for
Oil Museum 173 Islamic financial institutions
Organization of Arab Petroleum (PIRI) 80
Exporting Countries (OAPEC) public finance 18–20, 19
130, 130 public joint stock companies see joint
ownership of land 240–41 stock companies
parking arrangements, commercial R&D see research and development

property 187 ratings, international 78
participation shares 217 real estate 240–41
partnerships 215 Gulf Finance House projects 117
patent registration 248–49 record keeping 225–26
Index 277
recreation 65–66 right to vote 62–63

regulatory environment, international specialized companies 217–18
business 205–13 Shari-compliant financing structures
reinsurance 194 95–96, 96
remuneration, directors’ 60 Sharia Law Courts 8, 9
renewal procedures, commercial shopping malls 65–66
property leases 186–87 Shura Council 7
renting property SIC see Standing Interpretation
commercial 187, 188 Committee
residential 179–80, 182–83, 182 sick leave 231
reporting requirements 226–28 simple commandite companies 216
representative offices 216–17, 218 single person companies (SPCs) 216,
licences 87 220
research agencies 70–72 Siyadi House 174
research and development (R&D) social interaction 65
Bahrain Atomisers International South Hidd port and industrial area
155 45, 57, 259
Midal Cables 149 SPCs see single person companies
residential property 67, 179–83 specialized companies 217–18
extras 181 sports facilities 174–75
financial and lease information SPS see Sanitary and Phytosanitary
180–81 Measures, US-Bahrain FTA
payment terms 181 Standard & Poor’s (S&P) 78
renting 179–80, 182–83, 182 Standing Interpretation Committee
retail banking see commercial (SIC) 224–25
banking statistical abstracts 69
Rifa Fort 174 Statistics Directorate 69–70
‘rules of origin’ commitment, stock exchange see Bahrain Stock
US-Bahrain FTA 33 Exchange
Stratum 120–23
Saar Settlement 173 Advisory Practice 123
Sakhir business park 200 importance 121
S&P see Standard & Poor’s Private Equity Practice 122–23
Sanitary and Phytosanitary Measures Sukuk programme, BMA 98–100,
(SPS), US-Bahrain FTA 34 99
secondary legislation 243 Supreme Council of Oil 128
securities regulations 228–29 Supreme Court of Appeal 9
security, personal 68 Supreme Judicial Council 8
Senior Court 9 Supreme Privatization Council 49
Senior Sharia Court 9 surveys, market research 69–70
service charges, commercial property
185 takaful (insurance) sector of Islamic
services sector, BFH job creation 115 banking 94, 94
Shaikh Isa Bin Ali House 174 taxation 67, 221, 229
Shaikh Salman Bin Ahmed Al-Fatih GOSI contributions 194–95, 232,
Fort 174 233
shareholders see also customs duties;
corporate governance 62–63 municipality tax
institutional 63 TBT see Technical Barriers to Trade
278 Index
technical assistance, US-Bahrain FTA trade balance 14, 17–18, 18

37–38 trade in services, US-Bahrain FTA
Technical Barriers to Trade (TBT), 34
US-Bahrain FTA 34 trade mark registration 246–48
Telecommunications Law 43, 158, trade relations 27–28
162, 165, 166 trade secrets law 251
telecommunications sector 158–63, training levies 233
164–69 transfers, agency agreements 238
economic expansion 158–59 transmission development
import of equipment 168–69 programmes, electricity sector
numbering 168 137
overview 159–63, 163 transport systems 187
privatization 43 infrastructure 255–60
regulatory framework 165–68, 167 Tylos civilization 171
US-Bahrain Free Trade Agreement
35 unincorporated joint ventures
Telecommunications Regulatory 220–21
Authority (TRA) 43, 159, 165–69 US-Bahrain free trade agreement
licensing 166–68, 167 (FTA) 22, 29, 30–38, 50
Telecoms Consumer Advisory Group enforcement 38
165–66 negotiation process 32–33
tenant improvements, commercial overview 33–37
property 186 technical assistance 37–38
Tenders Law 50 utilities costs, residential property
termination procedures 181
commercial agency agreements utility model registration 248–49
237–38
commercial property leases variable capital companies 217–18
186–87 venture capital provision, Stratum
employment contracts 231 122
textiles and apparel market access, visas 176–77
US-Bahrain FTA 33–34 visitor arrivals statistics 177, 177
third-party motor insurance 191, Vodafone 57, 160, 161, 162
192 voting rights, shareholders’ 62–63
TIFA see Trade and Investment
Framework Agreement water sports facilities 174–75
tourism development 170–78 wildlife reserves 174
key points 175–77 WLL (limited liability companies)
sights and attractions 173–75 215–16, 220
statistics 177–78, 178 work permits 234
TRA see Telecommunications working environment 64–65
Regulatory Authority World Trade Organization (WTO)
trade see foreign trade 57, 212, 221, 239
Trade and Investment Framework
Agreement (TIFA) 31 Zakah (Zakat) tax 229
Index of advertisers and
sponsors
Ahli United Bank ix–xi
Arab Bank xii–xiii
Bahrain Financial Harbour i
Bahrain International Circuit viii, 197
Bahrain Monetary Agency xiv–xv
Big On Group 196
Economic Development Board xvi
Midal Cables ii, 146

Doing Business With Bahrain (Global Market Briefings) (2005) by Marat Terterov, Anthony Shoult

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Doing Business With Bahrain (Global Market Briefings) (2005) by Marat Terterov, Anthony Shoult

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GLOBAL MARKET BRIEFINGS

Doing Business with

A Guide to Investment Opportunities

Published in association with:

GMB Publishing Ltd.

This edition first published 2005 by GMB Publishing Ltd.

© GMB Publishing Ltd. and contributors

Hardcopy ISBN 1-905050-02-X E-book ISBN 1905050526

British Library Cataloguing in Publication Data

Part One: Country Background

1.1 Geography and History 3

Part Two: The Investment Climate

2.1 Current Strategies in Attracting Investment and Fostering 41

2.4 Living and Working in Bahrain 64

Part Three: Bahrain: The Regional Financial Hub

3.1 Bahrain: The Financial Capital of the Middle East 77

Part Four: Prospective Sectors for Investment

4.8 Tourism Development 170

Part Five: Bahrain Business Guide

5.1 The Legal Regime and Regulatory Environment for 205

Part Six: Appendices

Appendix I: Transport Infrastructure 255

Arab Bank Bahrain

of over US$ 3 billion and a network of 400 branches, subsidiaries and

Ahmed bin Mohammed Al Khalifa

Long recognized as a regional pioneer in the fields of education,

HE Abdulla Bin Hassan Saif

The Kingdom of Bahrain stands out in the Arab world as a pioneer of

of Bahrain, in partnership with a dynamic private sector, is actively

I am delighted to introduce this edition of Doing Business with

H.E. Robin Lamb

British Ambassador to the Kingdom of Bahrain

AlMahmood & Zu’bi was established in 1971 by Mr Hatim S Zu’bi,

Aluminium Bahrain (Alba) is a 526,000 tonnes per annum

Abu-Ghazaleh Intellectual Property (AGIP) was established, as

and encouragement to the governments of the region have frequently

The Bahrain Monetary Agency (the central bank of the Kingdom) is

The Bank of Bahrain & Kuwait (BBK) is a Bahrain Stock

Today, it has grown to become one of the largest commercial banks in

Cluttons is a private partnership, which can trace its origins to 1765

The Economic Development Board (EDB) was established in April

Kingdom of Bahrain’s economic development strategy and the facili-

international business community. EDB also works closely with

government agencies within the framework of the national objectives

The Telecommunications Regulatory Authority (TRA) was

Trowers & Hamlins is a City of London-based legal practice, which

InCite Marketing Research is a full service market research agency

Farah Khalid is a Supervising Consultant and a core team member of

KPMG is one of the world’s largest professional services firms, oper-

The Ministry of Electricity and Water (MEW) is a totally

The Ministry of Finance and National Economy (MOFNE) of the

The Telecommunications Regulatory Authority (TRA) was

Trowers & Hamlins is a City of London-based legal practice, which

Geography and History

Located on the Mesopotamia–Indus Valley trade route, the island

The Political System

The development of the democratic process

Bahrain’s new system of government

criminal matters, as well as family matters relating to non-Muslims.

Bahrain in the international arena

On an international front, the Kingdom of Bahrain has maintained

new privately-owned and constructed 400 MW capacity power plant

Oil & Gas Agriculture & Industry