Bahrain

Politics:

• Analysis

  Bahrain politics: Quick View - Bahraini medics are acquitted

  Event

  A court has overturned the conviction of 21 medics who were charged with misdemeanours-mostly for attending illegal gatherings-in 2011.

  Analysis

  The medics' incarceration came about after protestors set up camp outside Salmaniya Medical Centre, the main public hospital, during the 2011 protests. When a wide-ranging crackdown on the protest movement began in March 2011, the hospital was taken over by security forces, and there were reports that some wards were used for torture. Some 40 medical professionals were imprisoned.

  The 21 had already been released from prison last June, and human rights groups say many had already served the three-month sentence their convictions would have entailed. However, in a separate case related to the 2011 protests and the controversies around Salmaniya Hospital, two doctors and a nurse, including a high-profile surgeon, Ali Al Ekri, remain in prison.

  While the announcement of the acquittal was welcomed by the US and UK, the news came as part of a pattern of slow and piecemeal implementation of recommendations of the Bahrain Independent Commission of Inquiry (BICI), a royally appointed commission of international lawyers that published a report into Bahrain's unrest in November 2011. The commission had recommended dropping criminal charges against protestors when charges these related purely to non-violent political expression, as well as retrying cases where civilians had been convicted in military courts and dropping evidence extracted through torture (the BICI found torture had been systematic in Bahrain in 2011).

  The news of their successful appeal came after the cancellation of an international conference on medical ethics that Médicins Sans Frontières (MSF) had hoped to hold in the kingdom. This is not to suggest that the two events are directly related. Rather, the contrast between the two pieces of news illustrates the complexity and uncertainty of the current situation. Moreover, according to reports, the president of the Bahrain branch of the Royal College of Surgeons in Ireland (RCSI), Tom Collins, has resigned over the cancellation of the conference. The RCSI has come under heavy criticism in Ireland for maintaining its presence in Bahrain, despite the treatment of the medics, three of whom were RCSI graduates.

  Overall, the acquittal of the medics reinforces the recent indications of a more conciliatory approach on the part of the government, exemplified by the appointment of the dovish crown prince, Sheikh Salman bin Hamad al Khalifa, as first deputy prime minster. Although unlikely to be sufficient to presage a breakthrough in relations between the government and the opposition, it at least provides a more helpful backdrop to the ongoing efforts to restart talks between the two sides.

  March 28, 2013

• Background

  Bahrain: Political and institutional effectiveness

  Policymaking will remain highly centralised and concentrated in the hands of the king, the prime minister and government ministries, with parliament having little ability to instigate legislation. Parliament's role is more one of oversight, notably in signing off the annual government budget, although the time it has to perform this function is limited as the body typically only sits one day a week. Overall, the formation and execution of policy will be constrained by inefficiencies within the government and the bureaucracy, as well as by rivalries within the elite. The practice of appointing family members to key government positions inevitably raises questions about these ministers' suitability. Over half of the cabinet is made up of Al Khalifa members, and the king appears to have little inclination to dilute their presence.

  Rivalries within the ruling family will slow the pace of reform

  Intra-family rivalries will continue to affect policymaking, particularly those between the long-serving prime minister, Sheikh Khalifa, and the crown prince, Sheikh Salman. During much of the past decade, one of the king's top priorities had been to strengthen the economy through a series of economic reforms. These were overseen by the crown prince, who wielded significant influence over economic policymaking as the chairman of the EDB, the body that oversees the country's long-term economic development strategy, Vision 2030. However, Sheikh Salman's influence was dealt a blow following his failure to resolve the social unrest in the first quarter of 2011, having been tasked by the king to lead the dialogue with the opposition. Furthermore, several of the crown prince's allies have given up their positions: the head of the EDB left to serve as a economic adviser to the crown prince, and the chief executive of Mumtalakat, Bahrain's sovereign wealth fund, resigned Instead, King Hamad turned to his uncle, Sheikh Khalifa, whose hardline approach successfully quelled the protest movement, and it would appear that, having seen his power, and that of his conservative supporters, eroded over the previous decade, the prime minister is ascendant once again. This is likely to slow drastically the pace of political and economic reform in the country. Another of King Hamad's sons, Sheikh Nasser bin Hamad al-Khalifa, has also gained prominence and threatens to dilute further the authority of the crown prince. Sheikh Nasser, who is the commander of the Rapid Intervention Force, is widely seen as being closer to the more conservative elements of the Al Khalifa.

  Central Bank is seen as being effective compared with its regional peers

  The judiciary lacks independence, with judges appointed directly by the king, many of whom are drawn from the ranks of the ruling family. The courts do not tend to discriminate against foreign firms, although the rights of expatriate workers, especially the low-paid, are not well protected in cases of dispute with a Bahraini employer. The civil service has a mixed record. The government's budget for capital projects is often not fully spent, probably because of limits on the bureaucracy's capacity to implement projects. The Central Bank of Bahrain is generally seen as an efficient regulator of the local financial services industry, especially compared with those in other Gulf Co-operation Council (GCC) states. Efforts are under way to rein in corruption and mismanagement at large state-controlled enterprises, including Aluminium Bahrain (Alba), the Bahrain Petroleum Company (Bapco) and Gulf Air, the loss-making national carrier.

  August 22, 2012

• Structure

  Bahrain: Political structure

  Official name

  Kingdom of Bahrain (known as the State of Bahrain until February 14th 2002)

  Form of state

  Constitutional monarchy

  Legal system

  Based on the 2002 amended constitution. The previous constitution was drawn up in 1973

  Legislature

  Bahrain's bicameral legislature, the National Assembly, consists of the Chamber of Deputies, which has 40 elected members, and the Shura Council, which also has 40 members but is appointed by the king

  National elections

  Municipal and legislative, October 2010. By-elections were held on September 24th 2011, in which independent candidates replaced 18 al-Wefaq members of parliament (MPs). The next legislative election for a full-term parliament is expected in 2014

  Head of state

  Hamad bin Isa al-Khalifa succeeded to the throne in March 1999 after the death of Sheikh Isa, Bahrain's ruler since 1961; he changed his constitutional status to king from emir in February 2002; Salman bin Hamad al-Khalifa, King Hamad's son, is the crown prince

  Executive

  Cabinet, headed by the prime minister, appointed by the king. Most recent reshuffle: 2011

  Main political parties

  Political parties are not permitted, but political societies have been legal since late 2001. The largest legal opposition group is the al-Wefaq National Islamic Society, an Islamist-leaning, Shia-based movement whose 18 MPs resigned after the government used violence to quell protests in early 2011

  The government

  Prime minister: Khalifa bin Salman al-Khalifa

  Deputy prime ministers: Mohammed bin Mubarak al-Khalifa

  Jawed bin Salem al-Arayyed

  Ali bin Khalifa al-Khalifa

  Khalid bin Abdullah al-Khalifa

  Key ministers

  Communications: Ali bin Khalifa bin Salman al-Khalifa

  Culture & tourism: Mai bint Mohammed al-Khalifa

  Education: Majid bin Ali al-Nuaimi

  Finance and energy: Ahmed bin Mohammed al-Khalifa

  Foreign affairs: Khalid bin Ahmed al-Khalifa

  Health: Nazar al-Baharnah

  Industry & commerce: Hassan bin Abdullah Fakhro

  Interior: Rashid bin Abdullah bin Ahmed al Khalifa

  Justice & Islamic affairs: Khalid bin Ali al-Khalifa

  Labour: Jameel Humaidan

  Minister of state for cabinet affairs: Kamal Ahmed

  Prime minister's court: Khalid bin Abdullah al-Khalifa

  Public works: Esam bin Abdullah

  Shura Council & parliamentary affairs: Abdulaziz al-Fadhel

  Social affairs: Fatima Mohammed al-Beloushi

  Head of the Royal Court

  Khalid bin Ahmed al-Khalifa

  Central Bank governor

  Rashid al-Mara

  March 11, 2013

• Outlook

  Bahrain: Key developments

  Outlook for 2013-17

  • The Economist Intelligence Unit expects that simmering political discontent will persist in Bahrain but that the royal family and security services will remain in control.
  • Despite the king's call to restart talks with the opposition, we expect the gulf between the government and the Shia-led opposition to prove too wide to close, with the risk that dissidents will revert to violence to further their aims.
  • The government will maintain high levels of spending on social programmes in an effort to avoid provoking further unrest. We expect the government to run fiscal deficits in 2013-17, averaging 5.4% of GDP.
  • Bahrain will continue to participate in the development of a Gulf monetary union, but a single currency remains at least several years off. The Central Bank of Bahrain will keep the dinar pegged to the US dollar in the meantime.
  • Having risen to an estimated 3.9% in 2012, economic growth is expected to slow to 3.7% in 2013-15, before picking up to an average of 4.7% in 2016-17 as new aluminium capacity comes on stream.
  • Foodstuff prices are set to stabilise in 2013, resulting in a small dip in consumer price growth. However, we expect inflation to creep up over most of the remainder of the forecast period.
  • High oil prices in 2013-17 will contribute to current-account surpluses, although they are set to narrow as the invisibles deficit widens. The services account will perform poorly owing to concerns about domestic politics.

  Review

  • The government has announced the start of a new "national dialogue" between itself and various opposition groups-but excluding the banned movements that have called for a republic.
  • Two people-a demonstrator and a policeman-were killed in clashes between the security forces and protesters on the second anniversary of Bahrain's uprising on February 14th.
  • A stand-off between the upper and lower houses of parliament over the two-year budget for 2013-14 appears close to resolution, after the two sides agreed to a host of new spending measures.
  • The Abu Dhabi Fund for Development (ADFD) has signed a Memorandum of Understanding with Bahrain's Ministry of Finance to disburse US$2.5bn in development funds to the kingdom.
  • The budget airline, Bahrain Air, has suspended operations and filed for liquidation, citing losses caused by the unstable political situation.

  March 11, 2013

Economy:

• Background

  Bahrain: Country fact sheet

  Fact sheet

  Annual data	2012a	Historical averages (%)	2008-12
  Population (m)	1.3	Population growth	5.3
  GDP (US$ bn; market exchange rate)	27.9	Real GDP growth	3.8
  GDP (US$ bn; purchasing power parity)	32.7	Real domestic demand growth	5.0
  GDP per head (US$; market exchange rate)	20,766	Inflation	2.1
  GDP per head (US$; purchasing power parity)	24,333	Current-account balance (% of GDP)	7.6
  Exchange rate (av) BD:US$	0.38b	FDI inflows (% of GDP)	3.2
  a The Economist Intelligence Unit estimates. b Actual.

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  Background: Bahrain became independent from the UK in 1971. The increasingly despotic rule of the country's first ruler, Isa bin Salman al-Khalifa, led to a violent backlash by predominantly Shia elements during the 1990s, resulting in the imprisonment and exile of many leading opposition activists. Following Sheikh Isa's death in 1999, his son and successor, Hamad bin Isa al-Khalifa, has attempted to implement a programme of gradual political reform, but this has made only halting progress. Widespread protests in early 2011 brought about a security crackdown, which has alienated many Bahrainis.

  Political structure: Bahrain ceased to be an emirate and became a constitutional monarchy in February 2002, as part of King Hamad's effort to distance himself from the autocratic rule of his father. However, control over policymaking remains in the hands of the king and the ruling Al Khalifa family, although constraints on press freedom and political activity have been loosened to some extent since King Hamad's accession. The bicameral National Assembly (parliament) came into being in 2002, but the opposition objected to the limits on the power of the elected house (which is largely offset by a strong upper house appointed by the king). Parliament can propose (but not draft) legislation and has the right to amend and reject the budget.

  Policy issues: The government is seeking to lower unemployment by promoting private-sector growth, setting quotas on the employment of expatriates and increasing the local skills base. However, persuading businesses to replace cheaper expatriate workers with more expensive local labour will prove difficult, and, with the country's hydrocarbons reserves limited and dwindling, the government will be unable to guarantee local citizens employment in the public sector.

  Taxation: Bahrain has an extremely low-tax environment. There is no corporation tax, and there has traditionally been no income tax, although from June 2007 employees have paid 1% of their salaries into a national unemployment insurance scheme, a figure that employers match. There is also a 10% municipal tax on rents and a 3% levy on all hotel bills.

  Foreign trade: The current account has benefited in recent years from a strengthening of oil prices, which has led to a surge in export earnings. However, Bahrain's reliance on oil earnings leaves it exposed to oil price movements, which means that the trade balance can be volatile. The current account posted a surplus of US$3.2bn in 2011, and narrowed only slightly in 2012, as oil prices were high, but services credits have been affected by the political unrest.

  Major exports 2011	% of total	Major imports 2011	% of total
  Petroleum	75.3	Crude oil	61.7
  Aluminium & aluminium products	7.0
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Saudi Arabia	3.3	Saudi Arabia	27.5
  UAE	2.2	US	10.2
  Japan	2.0	India	7.9
  India	1.9	China	7.4

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  March 11, 2013

• Structure

  Bahrain: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 11, 2013

• Outlook

  Bahrain: Country outlook

  Bahrain: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The Economist Intelligence Unit expects Bahrain to experience persistent unrest caused by social and political grievances over the forecast period. The king, Hamad bin Isa al-Khalifa, will try to position Bahrain as a moderate and reforming monarchy, but his efforts will be stymied both by hardliners within the ruling Al Khalifa family and by rejectionist political groups opposed to the monarchy. Of the Gulf Co-operation Council (GCC) states, Bahrain was most affected by political unrest in 2011, with mass protests calling for political and social reform. The security services used lethal force to disperse the protesters, and we expect future protests to be met with a similarly harsh crackdown (especially in light of the authorities' decision in October to ban all public protests).

  ELECTION WATCH: The last general election was held in October 2010. Al-Wefaq emerged as the largest group in the lower house of parliament, the Chamber of Deputies. All of al-Wefaq's MPs have since withdrawn from parliament in protest over the violence against demonstrators in 2011. By-elections in September 2011 to replace the al-Wefaq MPs led to the election of 18 independents. The next parliamentary election is scheduled for 2014. An al-Wefaq boycott looks probable at this stage.

  INTERNATIONAL RELATIONS: The deterioration in relations between the West and Iran represents an acute security risk for Bahrain. Iran could target the country, either through a direct attack on its infrastructure or the US naval base, or through subversion or sabotage against state institutions. Since the onset of the Arab Spring, senior Bahraini officials have accused the Islamic Republic of encouraging Bahraini Shias to act as a fifth column against the Al Khalifa regime, and we expect bilateral ties to remain strained, and occasionally to be outright hostile. This antagonism was evident in a row that erupted in October 2012 after Iranian diplomats visited Bahrain's leading Shia cleric, Sheikh Issa Qassim, and offered to mediate in the kingdom's internal problems--an offer angrily rejected by the Bahraini government as being tantamount to "interference".

  POLICY TRENDS: Economic policy will focus on restoring confidence in Bahrain's economy following the unrest in 2011. Bahrain will struggle against the more attractive political and regulatory environments and market opportunities in Dubai, Qatar and even Saudi Arabia. Throughout the forecast period, Bahrain will try to diversify the economy, stimulate private-sector growth and foreign investment, and address unemployment among nationals. Bahrain is planning to build a liquefied natural gas (LNG) import terminal (although this has been delayed), which will provide the country with enough gas to expand its aluminium production. However, it will retain a focus on maximising the potential of its hydrocarbons sector, including by expanding the country's sole refinery and stepping up exploration. Populist spending will remain a cornerstone of government policy, and subsidies on living costs will remain in place. However, although investment in housing will be maintained, the burden of its populist spending approach will ensure that state infrastructure investment remains depressed.

  ECONOMIC GROWTH: Economic growth rose to an estimated 3.9% in 2012, although this in large part reflected a helpful base effect, with growth slowing notably in the third quarter. We expect growth to dip to 3.6% in 2013. Although the tourism sector bounced back in 2012 (boosted by the return of the Formula One motor race), political and social unrest has damaged Bahrain's services-oriented economy. Modestly expanding oil production and a recovering services sector will keep economic growth at around 3.7% in 2013-15-around half the rate Bahrain witnessed in the five years prior to the onset of the global recession-before picking up to an average of 4.7% in 2016-17 as the new potline comes on stream at Alba, the state-owned aluminium company.

  INFLATION: Inflation averaged 2.8% in 2012, as higher foodstuff prices were largely offset by continued depressed rents. Foodstuff prices are set to stabilise in 2013, resulting in a small dip in consumer price growth. However, inflation is expected to creep higher over the remainder of the forecast period as global industrial raw materials prices rise, although the maintenance of public subsidies will keep any increases in check. The official consumer price index is widely believed not to reflect actual spending patterns and to understate inflation.

  EXCHANGE RATES: Bahrain intends to enter into a currency union with Kuwait, Qatar and Saudi Arabia, and a first meeting of a joint monetary council was held in 2010. The introduction of a single currency will be delayed, as the member states pursue convergence on policies and observe the fallout from the euro zone crisis. In the unlikely event that the single currency does proceed in the forecast period, the currency will probably be pegged to the dollar, but this arrangement could be reviewed at a later stage. Meanwhile, the Central Bank of Bahrain will maintain the Bahraini dinar's peg to the dollar at the rate of BD0.376:US$1, which has been in place for over three decades.

  EXTERNAL SECTOR : The current account will record surpluses throughout the forecast period, but the services sector will struggle to compete with other hubs in the region. Perceptions of domestic political instability and the continuing weakness of the major international banks will hinder tourism and financial services earnings, both key non-merchandise sectors for Bahrain. Bahrain's trade balance relies on adding value to imported raw materials and on exporting refined hydrocarbons products and aluminium. Bahrain imports crude from Saudi Arabia (oil imports account for roughly half of the import bill), but further exploration is under way. Overall, the trade balance will reflect movements in oil prices. The current-account surplus is forecast to decline from an estimated 10.5% of GDP in 2012 to just 1.5% of GDP in 2017, with widening income deficits offsetting an improvement in the trade balance as profit repatriation and debt interest payments outweigh dividends from foreign assets.

  March 05, 2013

• Forecast

  Bahrain: Country forecast summary

  Country forecast overview: Highlights

  • Bahrain's political scene will face persistent social unrest for at least the first half of the forecast period after protests in early 2011 inspired by events elsewhere in the Arab world shook the regime. Demonstrations against the regime will continue, despite the recent ban on protests and an effort by the government to restart talks with the opposition, and there is a growing risk of persistent, low-level violence. However, the Economist Intelligence Unit expects the position of the ruling Al Khalifa family to remain secure, and it will receive support from Gulf Arab allies, notably Saudi Arabia. Sectarian tension between Bahrain's Shia majority and the ruling Sunnis will persist.
  • Policymaking will continue to be concentrated in the hands of the government, which is dominated by the ruling family. We expect that the legislature will have little credibility following the resignation of opposition members of parliament, and we expect a large-scale boycott of the election in 2014. Political effectiveness will be constrained by rivalries within the ruling family and by the large size of the bureaucracy. Bahrain will continue to host the largest US naval base in the Gulf. The main external political risk for Bahrain would be a conflict between the US and Iran over the latter's nuclear programme.
  • Government efforts to boost the local skills base and narrow the cost gap between expatriates and locals will have some impact, but only very slowly. Issues of demographics and immigration will remain politically sensitive, owing to a fierce controversy over citizenship rules, which opposition groups allege are politicised.
  • Bahrain will maintain an open attitude towards foreign investment, allowing 100% foreign ownership of firms in the country. Its position as a regional financial centre will weaken in the forecast period, relative to Dubai and Qatar. It will seek to attract private investment in infrastructure such as ports in an attempt to remain competitive with its Gulf Co-operation Council peers.
  • We forecast that real GDP will grow by an average of 4.1% a year in 2013-17, although population growth will slow, reflecting the country's diminished appeal to expatriates. Having suffered as a result of the ramifications of Bahrain's recent social unrest, the services sector will slowly recover.
  • High oil prices, which are projected to average US$108/barrel in 2013-17, will help to support the current account, but the surplus is likely to narrow steadily as the forecast period progresses. Bahrain's services sector will also recover (but remain weak), contributing to the surplus. The government will record fiscal deficits throughout the forecast period, as current expenditure, particularly on wages and subsidies, remains high.

  Country forecast overview: Key indicators

  Key indicators	2012	2013	2014	2015	2016	2017
  Real GDP growth (%)	3.9	3.6	3.7	3.7	5.2	4.3
  Consumer price inflation (av; %)	2.8	2.5	2.6	3.0	3.3	3.5
  Budget balance (% of GDP)	-1.1	-5.4	-6.2	-5.6	-5.2	-4.4
  Current-account balance (% of GDP)	10.5	5.9	3.8	2.4	2.2	1.5
  Exchange rate BD:US$ (av)	0.376	0.376	0.376	0.376	0.376	0.376
  Exchange rate BD:€ (av)	0.483	0.500	0.494	0.478	0.474	0.474

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  March 11, 2013

View detailed map

Country Briefing

Land area

712 sq km

Population

1,234,571 (end-2010), of whom 666,172 are Bahraini nationals, according to the Central Bank of Bahrain

Main towns

Population (April 2001, official census):

 Manama (capital): 153,395

 Muharraq: 91,939

Climate

Hot, very humid summer (April to September); temperate December to March

Weather in Manama (altitude 5 metres)

Hottest month, August, 29-38°C; coldest month, January, 14-20°C (average daily minimum and maximum); 70 mm average annual rainfall; driest months, June-October; wettest months, November, December, February

Language

Official language is Arabic; English also widely used

Measures

Metric system; also local measures including: 1 dhara=48.26 cm, 1 rafa=254 kg

Currency

Bahraini dinar (BD) = 1,000 fils. The dinar is pegged to the US dollar at a rate of BD0.376:US$1

Time

3 hours ahead of GMT

Fiscal year

January 1st-December 31st

Public holidays

The dates of Islamic holidays are based on the lunar calendar and are therefore approximate. New Year's Day (January 1st); Prophet Mohammed's birthday (February 4th 2012); Labour Day (May 1st); Eid al-Fitr (August 19th 2012); Eid al-Adha (October 26th 2012); National Day (December 16th); Islamic New Year (Muharram, November 15th 2012); Ashura (November 24th 2012)

January 09, 2013