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Diplomacy in Action

2011 Investment Climate Statement - Bahrain


2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011
Report
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Openness to Foreign Investment

The Government of Bahrain has a generally liberal approach to foreign investment and actively seeks to attract foreign investors and businesses. The growth of foreign direct investment (FDI) is one of the government's top priorities. A Free Trade Agreement between the U.S. and the Kingdom of Bahrain went into effect in 2006.

The World Bank’s “Doing Business 2011” report ranks Bahrain at No. 28 out of 183 countries in the world for “ease of doing business” for foreign investors. The 2011 Heritage Foundation Index of Economic Freedom ranked Bahrain 10 out of 183 countries, with a score of 77.7, or “mostly free.” Bahrain ranked 48 on Transparency International’s Corruption Perceptions Index in 2010, with a score of 4.9.

The government has focused its efforts on the entry of new private firms, particularly in the information and communications technology, education and training services, tourism, financial services, business services, healthcare services and downstream industries. Bahrain's Crown Prince is also an outspoken proponent of privatization in Bahrain, and took over the chairmanship of the Economic Development Board (EDB), with a stated goal to provide a "one-stop-shop" for potential investors.

In an economy largely dominated by parastatals (outside of the financial services sector), the Government of Bahrain seeks to foster a greater private sector role in economic growth. Following the creation of a Supreme Privatization Council in the spring of 2001, the King of Bahrain, Sheikh Hamad bin Isa Al-Khalifa, issued a decree on October 2002 laying out guidelines for privatizing tourism, telecommunications, transport, electricity and water, ports and airport services, oil and gas, stock exchange, and postal service sectors. In June 2006, the government formed the Bahrain Mumtalakat Holding Company to manage all of the government's investments. Mumtalakat has an official objective to reduce their shares in any company to less than 50%. At the end of 2010, Mumtalakat held a 100% share in the following companies:

-Al-Awali Real Estate Company
-Bahrain Airport Company
-Bahrain Food Holding Co.
-Bahrain International Circuit
-Bahrain Real Estate Company (Edamah)
-Gulf Air
-Gulf Air Group Holding Company
-Howar Island Development Company
-Tourism Projects Company
- Bahrain

Mumtalakat reduced its share of Aluminum Bahrain (ALBA) to 59%, following an IPO in November of 2010; all of its other holdings are below a 50% share.

The telecommunications sector was the first key sector to be liberalized in Bahrain following the government's announced interest in opening traditionally government-controlled industries. The Telecommunications Regulatory Authority (TRA), established in late 2002, awarded a mobile telecommunications services license to MTC-Vodafone, thus ending the monopoly of Bahrain's telecom services provider, Batelco. The license was awarded under the Telecommunications Law, which took effect January 2003. Telecommunications liberalization extended to paging services, very small aperture terminal (VSAT), public access mobile radio services, international telecommunications facilities, international telecommunications services, national fixed services, internet service provider (ISP) and value-added services license following the full liberalization of the sector on July 1, 2004. By November 2010, the TRA announced the provision of five International Telecommunications Facility licenses (IFLs), nine International Telecommunications Services Licenses (ISLs), seven VSAT licenses, twenty-three value-added Services (VAS) "Class" licenses and eleven Internet Service Provider (ISP) licenses. Also under the new Telecommunication Law, mobile provider Zain International relocated their headquarters from Kuwait to Bahrain. In January 2009, the TRA awarded a third mobile telecom license to Saudi Telecom Company (STC) that began operating in March 2010. The TRA claims more than 1.5 million mobile lines are operating in the Kingdom of Bahrain with a market penetration of 107 percent.

The public transportation service was also privatized in 2003. CARS, a Bahraini-UAE joint venture, started operating in May 2003 with 41 new, air-conditioned, 52-seat buses. The CARS Company completed its plan to acquire 20 new buses by the end of 2003, the total fleet in 2009 increased to 84 air-conditioned buses. The government renewed the contract with CARS until April 2012. Its total investment in the public transportation privatization project is approximately USD 21 million.

The Kingdom's first independent power plant project (IPP) was also successfully tendered and awarded to Bahraini-based Al Ezzel Independent Power Producer (IPP), which is equally owned by a Belgian-Gulf consortium of Tractebel EGI and Gulf Investment Corporation. In 2006, the government sold their biggest electrical plant Al Hidd Power Station for USD 728 Million to the consortium. In 2008, the Tender Board awarded a USD 2.2 billion contract to build a new electrical power plant in Bahrain—the Al Dur Water and Power Station—to Kuwait-based Gulf Investment Corporation(GIC) and France's GDF Suez. In September 2009 the Higher Commission of Electricity awarded a $240 million contract to General Electric purchase new gas turbines as part of a plan to expand the existing Al Dur Power Plant.

In 2008, the government founded the General Organization of Ports to oversee all port activities, including both marine and air. In 2006, Denmark’s Muller was awarded a contract to manage Mina Salman and the new Mina Khalifa ports. The new port officially started operating in November 2009.

In 2006 the Bahrain Monetary Agency transformed into the Central Bank of Bahrain (CBB). Seeking to maintain Bahrain's status as the Gulf region's preeminent financial center, the CBB changed its licensing practices in 2006 to give banks greater opportunities to invest domestically and regionally. The CBB has been active in developing regulations for the Islamic Banking sector, and has been instrumental in making Bahrain a recognized center of Islamic Banking.

In January 2011, the Bahrain Stock Exchange was transformed to a closed shareholding company. The newly-branded Bahrain Bourse is wholly owned by the GOB and regulated by the Central Bank of Bahrain. Bahrain Bourse now plans to increase its number of listed companies, boost share turnover and attract new domestic and foreign investors.The Bahrain Bourse allows GCC firms and GCC citizens to own up to 100 percent of listed Bahraini companies. Non-GCC firms/citizens may own up to 49 percent of listed Bahraini companies, and 100 percent of foreign companies.

In March 2004, as part of an effort to stimulate the insurance industry and reinforce Bahrain's position as a major insurance center in the Middle East, the Bahrain Monetary Authority --now the Central bank of Bahrain (CBB) --loosened ownership restrictions. Insurance firms, which were previously required to have at least 51 percent Bahraini-ownership, are now permitted to operate with 100 percent foreign-ownership. The CBB is holding consultations on further reform in areas such as captive insurance, solvency, business conduct, risk management and financial crime, enforcement, BMA reporting and public disclosure, intermediaries, and Islamic insurance. Taxation and import laws apply equally to Bahraini and foreign-owned companies, and foreign investors must comply with the same requirements and legislation as local firms.

Bahrain requires that pharmaceutical products be imported directly from a manufacturer with a research department and that the products be licensed in at least two other GCC countries, one of which must be Saudi Arabia. Drugs and medicines may be imported only by a drug store or pharmacy licensed by the Ministry of Commerce after approval by the Ministry of Health.

Bahrain prohibits the importation of weapons (except under special license), pornography, wild animals, radio-controlled model airplanes, foodstuffs containing cyclamates, and children's toys containing methyl chloride (and other articles declared harmful by the Ministry of Health).

Bahrain has phased out most subsidies for export industries, but permits duty-free importation of raw materials for export products and of equipment and machinery for newly-established export industries. All industries in Bahrain, including foreign-owned firms, benefit from government subsidized utilities.

Bahrain offers several advantages to U.S. and other foreign investors, including a Bilateral Investment Treaty with the United States--in force as of May 2001--and a bilateral Free Trade Agreement (FTA) in force as of August 2006.

The government actively seeks Bahraini and foreign private investments in large infrastructure projects. Previously, most of these activities were funded by development agencies from other Gulf countries (particularly Kuwait, UAE, and Saudi Arabia). Foreign-owned companies are eligible for partial financing from the state-owned Bahraini Development Bank (BDB) if they meet certain criteria such as providing training and employment to a significant number of Bahrainis.

The use of official travel bans -- prohibiting a person in Bahrain from leaving until a business or legal dispute is resolved -- is a cause for concern. In 2010, the Embassy received several reports of travel bans imposed on Americans and other foreign citizens over business disputes. Under current law, any party can request a travel ban on another by filing a request in court and paying a nominal fee. The process can take months or years to resolve.

Periodically, foreign firms experience difficulty obtaining required work permits and residence visas for expatriate employees due to the Bahraini government's efforts to promote greater numbers of Bahraini citizens in the workforce. However, this does not appear to be a matter of high-level policy, and often can be resolved on a case-by-case basis. Where problems occur, U.S. businesses are encouraged to apply to the highest levels of the concerned ministries, and to consult the U.S. Embassy.

Conversion and Transfer Policies

Bahrain has no restrictions on the repatriation of profits or capital and no exchange controls. Bahrain's currency, the Bahraini Dinar (BD), is fully and freely convertible at the fixed rate of USD 1.00 = BD 0.377 (1 BD = USD 2.659). There is no black market or parallel exchange rate.

Foreign exchange is readily available and a devaluation of the Bahraini Dinar over the next year is unlikely.

There are no restrictions on converting or transferring funds, whether or not associated with an investment.

Expropriation and Compensation

There have been no expropriations in recent years, and no cases in contention. The U.S.-Bahrain Bilateral Investment Treaty (BIT) protects U.S. investments by banning all expropriations (including "creeping" and "measures tantamount to") except those for a public purpose. In which case, it must be carried out in a non-discriminatory manner, with due process, and prompt, adequate, effective compensation.

Dispute Settlement

Bahrain has a long-established framework of commercial law. English is widely used, and well-known international (including U.S.) law firms, working in association with local partners, provide expert legal services both nationally and regionally. Fees are charged according to internationally accepted practices. Although only a Bahraini lawyer can argue in a Bahraini court of law, lawyers of other nationalities can and do work on cases. In April 2007, the government allowed the establishment of International Law Firms that provide services such as commercial and financial consultancy in legal matters. In November 2009, the Ministry of Justice launched the Bahrain Chamber for Disputes specialized in financial, commercial, and economic issues.

The U.S.-Bahraini BIT provides for three dispute settlement options:

- Submitting the dispute to a local court;

- Invoking dispute-resolution procedures previously agreed upon by the national or company and the host country government;

- Submitting dispute for binding arbitration to ICSID (International Center for Settlement of Investment Disputes) or any arbitral institution agreed upon by both parties.

The GCC Commercial Arbitration Center, established in 1995, serves as a regional specialized body providing arbitration services. It assists in resolving disputes between GCC countries or between other parties and GCC countries. The Center implements rules and regulations in line with accepted international practice. Thus far, few cases have been brought to arbitration. The Center conducts seminars, symposia, and workshops to help educate and update its members of any new arbitration related matters. The Center's contact details are:

GCC Commercial Arbitration Center
P.O. Box 2338
Manama, Kingdom of Bahrain
Tel: + (973) 17-214-800
Fax: + (973) 17-214-500
Email: arbit395@batelco.com.bh

The independent Bahrain Chamber for Dispute Resolution (BCDR) in May 2010. The BCDR was established in partnership with the America Arbitration Association (AAA), and aims to provide services to a global audience. Their contact details are:

Bahrain Chamber for Dispute Resolution
Suite 401, Park Plaza
Bldg 247, Road 1704
P.O. Box 20006
Manama, Kingdom of Bahrain
Tel: + (973) 17-511-311
Website: www.bcdr-aaa.org

Arbitration procedures are largely a contractual matter. Disputes are historically referred to an arbitration body as specified in the contract, or to the local courts. Increasingly, Bahraini companies, in dealings with both local and foreign firms, include arbitration procedures in their contracts. Most commercial disputes are resolved privately without recourse to the courts or formal arbitration. Bahraini law is generally specified in all contracts for the settlement of disputes that reach the stage of formal resolution, but is optional in those designating the BCDR. Occasional lawsuits against individuals or companies for nonpayment of debts have been adequately handled by Bahrain's court system.

The guidelines laid down by the International Chamber of Commerce (ICC) in Paris are generally respected, and disputes have been occasionally referred to arbitration at the ICC in Paris. Bahrain is a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitration Awards.

Performance Requirements and Incentives

There are no special performance requirements imposed on foreign investors. This is reinforced by the U.S. - Bahraini BIT, which forbids mandated performance requirements as a condition for the establishment, acquisition, expansion, management, conduct or operation of a covered investment. Foreign and Bahraini-owned companies must meet the same requirements and comply with the same environmental, safety, health, and other labor requirements. Officials at the Ministries of Labor, and Commerce and Industry supervise companies operating in Bahrain, on a non-discriminatory basis.

Industries must be set up in identified industrial areas. An Environmental Impact Statement (EIS) must be filed by all manufacturing facilities. After one complete year of operation, a manufacturing facility is eligible for relief from tariffs imposed by other GCC states on imported goods.

Right to Private Ownership and Establishment

In principle, private entities may freely establish, acquire, and dispose of interests in business enterprises, subject to the limitations noted in this chapter.

The U.S.-Bahrain FTA entered into force in August 2006. The agreement significantly expanded the scope of economic, commercial, and trade relations between the two countries. The FTA does not have a separate investment chapter.

The U.S.-Bahrain Bilateral Investment Treaty (BIT) provides benefits and protection to U.S. investors in Bahrain, such as most-favored-nation treatment and national treatment, the right to make financial transfers freely and without delay, international law standards for expropriation and compensation cases, and access to international arbitration. The BIT guarantees national treatment for U.S. investments across all sectors, with exceptions for ownership of television, radio or other media, fisheries, and privatization of oil dredging or exploration. Bahrain also provides most-favored nation or national treatment status to U.S. investments in air transportation, the buying or ownership of land, and the buying or ownership of shares traded on the Bahrain Bourse (previously known as the Bahrain Stock Exchange).

Because of the national treatment offered American firms in the BIT, American firms interested in selling products exclusively in Bahrain are no longer required to appoint a commercial agent, though they may opt to do so anyway. A commercial agent is any Bahraini party appointed by a foreign party to represent the foreign party's product or service in Bahrain.

Bahrain permits 100 percent foreign-ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without local sponsors. Wholly foreign-owned companies may be set up for regional distribution services and may operate within the domestic market as long as they do not exclusively pursue domestic commercial sales. Private investment (foreign or Bahraini) in petroleum extraction is permitted only under a production-sharing agreement with BAPCO, the state-owned petroleum company.

Since January 2001, foreign firms and GCC nationals may own land in Bahrain. Non-GCC nationals may own high-rise commercial and residential properties, as well as property in tourism, banking, financial and health projects, and training centers, in specific geographic areas.

Protection of Property Rights

The Bahraini legal system adequately protects and facilitates acquisition and disposition of property rights. The concept of a mortgage exists, and there is a recognized and reliable system of recording such security interests. However, there is currently no mortgage law that guarantees lenders the right to repossess property in case of mortgage non-repayment. In June 2008, the CBB began drafting a new mortgage law that remained in the consultation process at the end of the year.

Under the U.S.-Bahrain FTA, Bahrain committed to enforce world-class Intellectual Property Rights (IPR) protection. Bahrain signed the Berne Convention for the Protection of Literary and Artistic Works and the Paris Convention for the Protection of Industrial Property in 1996. Revised legislation to implement Bahrain's obligations under the TRIPS Agreement was ratified in May 2006. Bahrain joined the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. In May 2006, Bahrain passed laws related to intellectual property to bring Bahrain's local laws into compliance with its current Paris Convention commitment and to position it to join the Nice Agreement, Vienna Agreement, Patent Cooperation Treaty, Trademark Law Treaty, Madrid Agreement, Budapest Treaty, and the Rome Convention.

The government has made dramatic progress in reducing copyright piracy, and there are no reports of significant violations of U.S. patents and trademarks in Bahrain. The government's copyright enforcement campaign began late 1997 and was based on inspections, closures, and improved public awareness. The campaign targeted the video, audio, and software industries with impressive results. Commercially-pirated video and audio markets have been virtually eliminated. However, audio, video and software piracy by end-users remain a problem.

There are no technology transfer requirements that force firms to share or divulge technology through compulsory licensing to a domestic partner, nor are firms forced to commit to undertake research and development activities in Bahrain.

Transparency of Regulatory System

In October 2002, Bahrain implemented a new government procurement law that establishes the basic framework for a transparent, rules-based government procurement system. It provides that certain procurements may be conducted as international public tenders open to foreign suppliers. To implement this law, a tender board chaired by a Minister of State was established in January 2003 to oversee all government tenders and purchases. In the past, government-tendering procedures for large projects were not highly transparent. U.S. companies sometimes reported operating at a disadvantage compared with other international firms. Contracts were not always decided solely based on price and technical merit, and selected, pre-qualified firms were occasionally invited to bid on major government tenders.

Since January 2003, however, the Tenders Board has processed all tender decisions valued at USD 26,525 (BD 10,000) or higher. Individual ministries and departments may still process projects valued at less than USD 26,525 (BD 10,000). U.S. firms report that the process is greatly improved over the previous system, though some challenges remain. A local representative with strong connections may still be important in the bidding process.

In the case of manufacturing enterprises, bureaucratic procedures and red tape created stumbling blocks mainly due to the lack of coordination between government ministries, which must sign off at one stage or another of the licensing procedure.

In an attempt to streamline licensing and approval procedures, the Ministry of Industry and Commerce opened the Bahrain Investors Center (BIC) in October 2004 for both local and foreign companies seeking to register in Bahrain. Moreover the government decreased the fees of registrations in most of the commercial activities to promote growth in this sector.

This high-tech, customer-friendly and easy to find facility, located in one of Bahrain's largest malls is part of a larger effort by the GOB to attract firms to use Bahrain as their "Gateway to the Gulf" by setting up regional operations here. The BIC is designed as a "one-stop shop" providing all commercial licensing and registration services. It houses representatives from more than a dozen relevant ministries and private sector representatives from the telecommunication, legal, banking, and consulting industries under one roof.

Officials from the Ministry of Commerce note that the BIC can process and issue 80% of commercial registration applications within 24 hours, and 10% of commercial registrations within five working days. The remaining 10%, mostly those having to do with health, environment, and power and or other essential services, are processed separately according to sector specific regulations and licenses are issued on a case-by-case basis.

Legislation Process:

Draft legislation may be proposed by the Cabinet and by both the lower house (Council of Representatives) and upper house (Shura or Consultative Council) of the National Assembly. Once a draft law has been produced and submitted to the lower and upper houses of the National Assembly for approval, it is then passed to the Cabinet for the King's signature. After the King signs the law, the law is published in the Public Gazette and is promulgated.

Entrenched local business interests with government influence can cause problems for potential competitors. Interpretation and application of the law sometimes varies by ministry, and may be dependent on the stature and connections of an investor's local partner. Departures such as these from the consistent, transparent application of regulations and the law remain rare, and investors are usually well pleased with government cooperation and support.

Efficient Capital Markets and Portfolio Investment

Consistent with the government of Bahrain's liberal approach to foreign investment, government policies facilitate the free flow of financial resources. Foreigners and Bahrainis alike have ready access to credit on market terms. Generally, credit terms are variable, but often are limited to 10 years for loans under USD 50 million. For major infrastructure investments, banks will often offer to assume a part of the risk, and Bahrain's wholesale and retail banks have shown extensive cooperation in syndicating loans for larger risks.

There is an effective regulatory system that encourages portfolio investment, and the Central Bank has fully implemented Basel II standards. Bahrain has over 400 financial institutions with total assets exceeding USD 204 billion at the end of 2010.

Political Violence

Bahrain is generally stable, though recent years have seen periodic outbursts of street violence, including clashes between rioters and police, arising from issues such as housing, employment, and sectarian discrimination. Such violence is normally confined to specific neighborhoods and villages, and has not involved damage or injury to foreigners.

In late summer 2010, the government undertook a campaign of arrests of prominent anti-government activists accused of inciting violent street protests, which fueled political tensions. Though the trial of 25 leading “rejectionist” activists continues (as of January 2011), the security situation has stabilized. National, parliamentary elections in October 2010 were conducted peacefully.

Corruption

According to U.S. firms, high-level corruption is sometimes an obstacle to foreign direct investment and contracting, particularly in the contract-bidding process and in operating notably successful investments. In the case of some high-value contracts, government-tendering procedures have not always been transparent and contracts have not always been decided on the basis of price and technical merit. Petty corruption is relatively rare in Bahrain. The bureaucracy is sometimes inefficient but it is generally honest. Giving or accepting a bribe is illegal, although the relevant laws are rarely enforced. Officials have been dismissed for blatant corruption, but it is never so stated officially; no one has been tried in court for corruption. The King and Crown Prince have come out publicly in favor of reducing corruption and some Ministries have initiated clean-up efforts to reduce the problem. The expatriate business community is cautiously optimistic that there is growing transparency in the government procurement process. A new law to thoroughly revamp government procurement procedures went into effect in January 2003. Bahrain is not a signatory to the OECD Convention on Combating Bribery.

In September of 2007 the Crown Prince publicly launched an official campaign against corruption. As a result, several executives in state-owned companies were removed from their positions. In April 2008, Bahraini government officials were accused of accepting bribes from the American firm Alcoa. The case is still under investigation in the U.S. A similar case was filed by ALBA against a Japanese company, of Executive Directors accepting bribes to sell the Japanese company below the international price.

Bilateral Investment Agreements

Bahrain and the U.S. signed a bilateral investment treaty (BIT) in September 1999, the first BIT between the United States and a GCC state. The agreement entered into force in May 2001. The U.S.-Bahrain FTA does not include a separate investment chapter.

As of November 2009, Bahrain had bilateral investment protection agreements in place with Algeria, China, Egypt, Jordan, Malaysia, Morocco, Syria, Philippines and the UK. Bahrain has economic and commercial cooperation agreements with Australia, Bangladesh, China, Egypt, France, Greece, India, (Iraq), Jordan, Morocco, the Netherlands, Russia, Ukraine, Belgium, Ireland, Greece Singapore, South Korea, Syria, Tunisia, Turkey and the UK.

Bahrain has air transportation tax agreements with China, Russia, Ukraine, France, Belgium, Luxembourg, Italy, Thailand Greece, Singapore, Turkey, UK, U.S. and Yemen, and two transportation agreements with Syria. Bahrain has concluded double taxation agreements with Egypt, Germany, United Kingdom, Russia, Spain, Italy France, India, Jordan, Russia, Slovakia, Czech Republic, Turkey, Malaysia, Belgium, Luxembourg, Algeria, Morocco, the Philippines, Thailand and Tunisia.

OPIC and Other Investment Insurance Programs

On April 25, 1987, Bahrain and the U.S. Government signed an agreement regarding activity in Bahrain by the Overseas Private Investment Corporation (OPIC). The agreement opened the way for extension of such OPIC facilities as investment insurance, reinsurance, and investment guarantees to U.S. private investors interested in doing business in Bahrain.

Labor

The Bahrain labor force is estimated at 448,000, nearly two-thirds of whom are expatriates. The GOB publicly states that unemployment, which official statistics put at 4.6 percent of Bahrainis in Bahrain's workforce, is the country's foremost domestic political problem. The United Nations Development Program (UNDP) estimates real unemployment among Bahrainis to be 15 to 20 percent and as high as 30 percent in some Shi'ite villages.

One of the government's primary initiatives for combating unemployment is "Bahrainization," or the replacement of expatriate workers by national ones. In 2002 the Government of Bahrain reserved certain professions, including heavy vehicle drivers, for Bahraini nationals.

In January 2006, the King initiated that National Unemployment Project with a budget of USD 32 Million to combat unemployment by providing training and a guaranteed job from the Ministry of Labor's Job Bank. The Labor Minister also introduced an unemployment allowance, to be paid from a general labor fund. The fund is financed by deducting one percent from the wages of all workers. The unemployment allowance program began in August of 2007, and is the first such program in the GCC.

The Crown Prince launched a national debate in 2004 aimed at creating a new labor vision for the Kingdom. This new reform effort seeks to promote employment and training of Bahraini workers. The initiative is likely to result in some legal changes in the labor field. The government seeks to establish Bahrain as a regional center for human resource development. Bahrain has over 50 training institutes that offer training in a variety of areas such as hospitality, information technology, business studies, English language studies, and banking. Major training institutes include the Bahrain Institute for Banking and Finance (BIBF), Bahrain Training Institute (BTI), KPMG, and the British Council. Both educational and vocational training curricula have been criticized recently for not adequately preparing Bahrainis for the workforce. The government is making concerted efforts to turn this situation around.

In August of 2006 the King ratified the new Labor Reforms Law, establishing two entities: the Labor Market regulatory Authority (LMRA), and the Labor Fund. The law imposed a monthly fee of BD10 (USD 26.60) on each expatriate employed by a company. The revenues collected under this program are earmarked to provide job training for Bahrainis. Job training programs and "Bahrainization" programs in general are run through a new official organization named Tamkeen In July 2009, the Chairman of the LMRA modified the sponsorship system, allowing greater mobility of foreign workers between employers.

Another major step that the government of Bahrain has undertaken is the formation of trade unions. Government officials developed a labor union law to allow trade unions and to establish a system that would ensure and protect workers' rights. The labor union law went into effect in fall 2002.

In September 2010, the U.S. Department of Labor (DOL) and the Bahrain Ministry of Labor (MOL) convened the first meeting of the U.S.-Bahrain Sub-Committee on Labor Affairs, as established in the U.S.-Bahrain FTA, and reaffirmed their obligations under the FTA related to internationally recognized labor rights, including their obligations as members of the International Labor Organization (ILO) and commitments stated in the ILO Declaration on Fundamental Principles and Rights at Work (1998). In March 2010, the government signed a three-year memorandum of understanding with the ILO to execute the Decent Work Program.

Foreign Trade Zones/Free Ports

Khalifa bin Salman Port, Bahrain's major sea port, provides a free transit zone to facilitate the duty-free import of equipment and machinery. The North Sitra Industrial Estate is an industrial free zone and another one is planned for Hidd. Foreign-owned firms have the same investment opportunities in these zones as Bahraini companies.

A 1999 law requires that investors in industrial, or industry-related, zones launch a project within one year from the date of receiving the land, and development will have to conform to the specifications, terms and drawings submitted with the application. Changes are not permitted without approval from the Ministry of Industry and Commerce.

In January 2011, the Ministry of Commerce & Industry announced that Sheikh Salman Industrial Area in Hidd was fully occupied, and revealed plans for a new, larger industrial zone to be built in Northern Bahrain.

Foreign Direct Investment Statistics

Foreign investments in Bahrain range from partial foreign ownership of large parastatals in the oil and telecommunications sectors to small restaurant franchises. Although the government does not maintain detailed statistics on foreign direct investment flows, the 2009 U.N. World Investment Report indicates a 2008 FDI stock of USD 14.2 billion, or 74% of GDP, for inward investment, and USD 8.4 billion, or 44.4% of GDP, for outward investment. These stocks include a 2008 outward flow of USD 4.1 million, and an inward flow of USD 1.2 billion. These flows represent 96.1% and 41.2% of gross capital formation respectively.

By value, the largest foreign holdings and projects in Bahrain include:

--Tatweer Petroleum, a joint venture formed in 2010 between BAPCO and Occidental Petroleum to revitalize Bahrain's only active oil field through enhanced-recovery technologies.

-Aluminum Bahrain (ALBA) and the Gulf Petrochemical Industries Complex (GPIC), each of which are owned as joint investments by several Gulf States.

-Bahrain National Gas Company (BANAGAS) is owned by Bahrain, a Saudi investment firm, and Caltex Bahrain.

-Durrat Al Bahrain, a major real estate project valued at USD 3.4 billion, being developed by Bahrain Kuwait Finance House.

-Amwaj Islands, a tourism project is jointly owned by Bahraini, Kuwaiti and Saudi corporate and individual investors.

-A USD 600 million tourism project of Al Areen Desert Spa and Resort is owned by the Government of Bahrain, various private investors and Gulf Finance House.

-The development of the USD 1.3 billion Bahrain Financial Harbor project, owned by Gulf Finance House, personal and corporate G.C.C. investors.

-A USD 398 million (BD 150) mall and USD 26.4 new Bahrain City Center cinema complex was opened in 2008 by Dubai, U.A.E.-based Al Futtaim Investments.

-Construction on a Saudi investment of a USD 199 million (BD 75 million) tourism resort called Marina West.

According to U.S. Embassy records, approximately 180 U.S. companies were operating, in one form or another, in Bahrain as of January 2009. Many of the U.S. firms are in the services sector and thus do not have a large capital investment in Bahrain despite a significant local presence. Among the larger U.S. investments are the following:

-Citibank's new regional headquarters building, opened in 2001, valued at nearly USD 30 million.

-Shaw-Nass, a manufacturing plant owned by Shaw Industries, a U.S. pipeline manufacturer, in partnership with a Bahraini firm, A.A. Nass.

-National Hotels Company, owners of the Diplomat Radisson SAS Hotel and Executive Apartments has injected USD 18 million for the expansion project.

-U.S. operational headquartered Foster Wheel Energy Limited, a subsidiary of Foster Wheeler Limited, were awarded a front-end engineering design (FEED) contract to revamp Bahrain National Gas Company's (BANAGAS) liquefied petroleum gas (LPG) facilities.

-Joint venture between Bahrain-based Ithmaar Bank, U.S.-based Overland Capital Group, Bahrain-based Gulf Finance House BSC, and Kuwait-based Gulf Investment House with an authorized capital of USD 50 million and paid-up capital of USD 10 million establish First Leasing Bank.

-Joslin Diabetes Center Affiliate - Bahrain (a partnership between the Joslin Diabetes Center and local businessmen) have invested a value of USD 9 million in the local economy.

-Kraft Foods opened a USD 40 million production plant in 2008.

American firms are also heavily involved in large-scale consulting and construction projects in Bahrain, including:

-Cisco Systems have signed an agreement with Bahrain's Central Informatics Organization (CIO) establishing a regional Cisco networking academy.

-Binnie, Black and Veatch International Limited are the consultants of Phase 3 of the Hidd (Power) and Desalination Complex. The project was estimated to cost USD 400 million.

-Kuljian Corporation, are consultants for Ras Abu Jarjur desalination plant expansion that is estimated to cost USD 26.5 million.



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