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Bahrain

[Source: NUSACC's U.S.-Arab Trade Outlook 2013]

Bahrain “has been and always will be open for business,” noted H.E. Houda Nonoo, Bahrain’s Ambassador to the United States, at a NUSACC Arab Ambassadors Forum. Indeed, the Kingdom’s official portal (www.bahrain.com) revolves around “Business Friendly Bahrain” and the steps that Bahrain has taken to attract trade and investment.

The Kingdom’s farsighted “Economic Vision 2030” plan is facilitating a shift from an oil-based economy to a knowledge-based, globally competitive economy with an entrepreneurial private sector – all of which is attractive to foreign investors.

For example, Skype, the online global phone service, recently established its regional headquarters in Bahrain, describing the Kingdom as “the most energetic environment to encourage innovation.” Kraft Foods has referred to Bahrain as the easiest place to set up a business in the MENA region. With its transparent e-Government and e-Business practices and with a location that provides easy access to other markets in the region, Bahrain experienced an increase in bilateral trade with the United States in recent years.

Bilateral U.S.-Bahrain trade is fortified by a Free Trade Agreement (FTA) that went into effect in 2006. Bahrain was the first nation in the Gulf Cooperation Council to sign an FTA with the United States, and it has been reaping the benefits ever since. As benchmark U.S.-world trade grew on average only 1.52 percent annually during the global economic downswing, bilateral trade between the U.S. and Bahrain – stimulated by the new FTA – averaged 4.6 percent annual growth over the past four years as U.S. exporters expanded sales and distribution relationships. With this in mind, Bahrain recently signed a Memorandum of Understanding (MOU) with the Massachusetts Office of International Trade to stimulate business from the New England region.

Renewed demand for Bahrain’s two main exports – oil and aluminum – is financing investments in tourism, business services, manufacturing and logistics. Aluminium Bahrain (ALBA), one of the world’s largest smelters, posted half-year profits of $200 million thanks to improved efficiency and entries into new markets.

Oil accounts for approximately 80 percent of Bahrain’s total export earnings, yet Bahrain is the smallest oil producer in the Gulf, generating 38,000 bpd. The Government of Bahrain is planning to award a contract for an LNG terminal in 2011 to diversify Bahrain’s energy revenues. By 2017, Bahrain Petroleum Company (BAPCO) plans to invest $15 billion to boost production to 100,000 bpd in partnership with California-based Occidental Petroleum and the UAE’s Mubadala Development Company. This venture is intended to increase natural gas production to 2.7 million cubic feet per day – twice the current capacity.

Bahrain is home to the Fifth Fleet of the U.S. Naval Forces Central Command. The Fleet recently announced that it is doubling the area of its onshore facilities in Bahrain. The expansion will cost $580 million and is expected to be completed within five years.

Bahrain has been an important banking center in the region for many years and, thanks to strong regulators, the Kingdom weathered the global economic downturn better than most, and the direct exposure of its banks to regional debt has been lowered. Although real estate and construction loan returns were robust through 2010, any increase in nonperforming loans would only feed through the wholesale banking sector – and not the retail sector – according to Moody’s Banking System Outlook.

Unlike their counterparts in other Arabian Gulf nations, regulators in Bahrain did not have to provide any “material assistance” to the retail banking sector, according to the Moody’s Outlook. Bahrain’s banking system is stabilized by the Central Bank of Bahrain’s regulatory policy, which isolates the wholesale sector (which includes investment banks and higher risk investment firms) from the domestic retail payments system.

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