Given all the negative economic reporting from Bahrain and the GCC region over the past year, many could believe that Bahrain’s economy was in steep decline. In fact, the latest economic statistics prove that Bahrain has been performing very well.
When we look at non-oil growth of the economy, it is at a respectable 3.9 percent for 2015 (according to the Bahrain Economic Development Board’s Economic Quarterly). When the oil sector is factored in as well, economic growth for the year still registers at 2.9 percent.
This was possible because Bahrain’s oil sector’s share of GDP fell to just 19.7 percent in 2015; in comparison with some countries in the region where oil’s share of GDP approaches 90 percent!
So, while we can say that Bahrain’s economic diversification efforts have been highly successful, we have to acknowledge that the Government Budget’s dependence on oil revenues remains very high (somewhere in the region of 70 percent). This has entailed an urgent programme of eradicating wasteful expenditure and reducing the subsidy burden (see below).
Therefore, the dramatic fall in oil prices is primarily a crisis for the public sector, while the private sector has continued to thrive.
Several segments of Bahrain’s economy are doing exceptionally well. For example, the hotels and restaurants sector measured 7.3 percent growth; construction was at 6.4 percent and the “social and personal services” sector (primarily private schools and health care) underwent 6.9 percent growth.
When we look at the composition of the economy; financial services and manufacturing both individually account for around 16 percent; with government services at 13 percent; and both construction and transport/communications responsible for around 7 percent. Social and personal services (6 percent); and real estate and business activities (6 percent) also play an important role.
Regarding these 2015 statistics, EDB CEO Khalid al-Rumaihi commented: “The non-oil sector accounts for more than 80 percent of the economy and the private sector contribution to growth continues to expand, showing the success of our long-term diversification efforts. The positive outlook is underpinned by Bahrain’s supportive business environment for investors, including a favorable tax regime, competitive operating costs and an experienced and educated work force.”
The total value of tendered projects reached $ 3.8 billion by March 2016, in particular for projects associated with the GCC Development Fund. The total value of Bahrain’s non-oil goods exports in 2015 was approximately $17.5 billion; representing around 19 percent growth since 2010.
Below, we look at some of the other key findings of the EDB Quarterly report:
Why Bahrain is best
KPMG’s 2015 Cost of Doing Business report on the financial services sector highlighted the competitive advantage of Bahrain’s financial sector vis-à-vis other GCC states. The report discovered that costs for financial services in Qatar and Dubai are respectively 46 percent and 37 percent higher than in Bahrain. Rents, labour costs and living expenses are much lower in Bahrain.
Bahrain remains in first position in the GCC and the Middle East in the 2016 Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal. Bahrain is ranked 18th globally and has been consistently recognized as the freest economy in the Middle East for many years: “Bahrain’s core strengths lie in its fiscal freedom, financial freedom and trade freedom”.
Agility’s 2016 Emerging Markets Logistics Index – out of the 45 countries it assessed – ranked Bahrain the seventh most connected emerging market, given its “excellent domestic and international transport infrastructure”.
In the Environmental Performance Index, Bahrain held the first position in the GCC for environmental health and ecosystem vitality.
Record numbers of tourists
The number of arrivals to Bahrain increased by eight percent during 2015, amounting to around 14.5 million visitors. In December, arrival numbers via the causeway increased by seven percent and via the airport by 15 percent. A further peak was reported in January 2016 in connection with a number of events, such as the Bahrain International Air Show.
Most of GCC governments removed subsidies on fuel products during the course of 2015. In January 2016 Bahrain increased domestic petrol prices by 60 percent and 40 percent for the two grades of petrol.
According to Moody’s, the GCC will save approximately 0.5 percent of GDP – around $7bn – in 2016 from increased fuel prices. GCC states are preparing for the introduction of a value added tax (VAT), with a basic rate of around 5 percent.
As from March, new electricity and water tariffs were set for the industrial and commercial sectors, as well as for expatriate residents. However, Bahraini citizens will continue to benefit from subsidized prices. This is part of a four-year program to increase tariffs across the various sectors. The Government has also increased excise duty on tobacco from 100 to 200 percent and modified subsidies for liquid fuels and utilities.
Consumer prices increased by just 1.9 percent in 2015. According to the EDB report “the inflationary impact of subsidy reforms in Bahrain – as well as the broader region – can be expected to be relatively measured and above all temporary”.
Employment growth in financial services
Employment in the financial sector increased by 2.8 percent during 2015. Growth was particularly rapid in the non-bank financial sector. Financial companies and microfinance institutions experienced 8.3 percent growth and money changers rose by 10.8 percent.
The proportion of Bahraini women employed in the sector rose to 38.2 percent from 37.4 percent last year. The Bahraini workforce accounts for 70 percent of the sector’s total workforce.
Employment rose steadily during 2015, representing a 5.5 percent increase over 12 months. Private sector employment, accounting for 75 percent of total employment, saw a year-on-year increase of nearly 7 percent. However, it should be noted that Bahrainis only represent 19 percent of total private sector employment.
The official unemployment rate (number of people on unemployment benefit) stood at 3.4 percent in the last quarter; 36 percent of total claimants are in the 25-29 age category. The report notes that “unemployment remains low by historical standards”.