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Bahrain

Executive Summary

The investment climate in the Kingdom of Bahrain is positive and relatively stable. Bahrain maintains a business-friendly attitude and liberal approach to attracting foreign investment and business.

In an economy dominated by state-owned enterprises (SOE), Bahrain aims to foster a greater role for the private sector to promote economic growth. Government of Bahrain (GOB) efforts focus on encouraging foreign direct investment (FDI) in the manufacturing, logistics, information and communications technology (ICT), financial services, tourism, health, and education sectors.

Bahrain’s total FDI stock reached BD 11.537 billion ($30.683 billion) in 2020. Annual FDI inflows dropped from BD 603 million ($1.6 billion) in 2018 to BD 355 million ($942 million) in 2019 and BD 333 million ($885 million) in 2020. The financial services, manufacturing, logistics, education, healthcare, real estate, tourism, and ICT sectors have attracted the majority of Bahrain’s FDI.

Bahrain’s economy saw a major recovery in 2021, following the slowdown of the COVID-19 pandemic, and the rise in global oil prices. In addition, the continuity of some key provisions from the BD 4.3 billion ($11.4 billion) financial relief package, that was launched in 2020 to help support businesses and individuals, helped boost Bahrain’s revenues and economic growth.

In November 2021, the government announced a new economic recovery plan focused on five pillars: (1) creating quality jobs for citizens; (2) streamlining commercial procedures to attract $2.5 billion in yearly FDI by 2025; (3) launching $30 billion in major strategic projects; (4) developing strategic priority sectors; and (5) achieving fiscal sustainability and economic stability, including by extending Bahrain’s Fiscal Balance Program to 2024. Since then, the government has released detailed development strategies for the industrial, tourism, financial services, oil and gas, telecommunications and logistics sectors and identified 22 signature infrastructure projects, including the creation of five new island cities, that will stimulate post-pandemic growth and drive the economic recovery plan. The government has not identified funding sources to finance these projects or its sector modernization strategies.

Bahrain’s Vision 2030 outlines measures to protect the natural environment, reduce carbon emissions, minimize pollution, and promote sustainable energy. Bahrain’s Sustainable Energy Authority (SEA), within the Ministry of Electricity and Water Affairs, designs energy efficiency policies and promotes renewable energy technologies that support Bahrain’s long-term climate action and environmental protection ambitions. Endorsed by Bahrain’s Cabinet and monitored by SEA, the National Energy Efficiency Action Plan (NEEAP) and the National Renewable Energy Action Plan (NREAP) set national energy efficiency and national renewable energy 2025 targets of 6 and 5 percent, respectively, with the NREAP target increasing to 10 percent by 2035.

To strengthen Bahrain’s position as a regional startup hub and to enhance its investment ecosystem, the GOB launched Bahrain FinTech Bay in 2018; issued new pro-business laws; and established several funds to encourage start-up investments including the $100 million Al Waha Fund of Funds and the Hope Fund to support startup growth. Since 2017, the Central Bank of Bahrain (CBB) has operated a financial technology regulatory sandbox to enable startups in Bahrain, including cryptocurrency and blockchain technologies, and regulate conventional and Sharia-compliant businesses.

The U.S.-Bahrain Bilateral Investment Treaty (BIT) entered into force in 2001 and protects U.S. investors in Bahrain by providing 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.

Bahrain permits 100 percent foreign ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without Bahraini sponsors or local partners. In 2017, the GOB expanded the number of sectors in which foreigners are permitted to maintain 100 percent ownership in companies to include tourism services, sporting events production, mining and quarrying, real estate, water distribution, water transport operations, and crop cultivation and propagation.  In May 2019, the GOB loosened foreign ownership restrictions in the oil and gas sector, allowing 100 percent foreign ownership in oil and gas extraction projects under certain conditions.

The U.S.-Bahrain Free Trade Agreement (FTA) entered into force in 2006. Under the FTA, Bahrain committed to world-class Intellectual Property Rights (IPR) protection.

Despite the GOB’s transparent, rules-based government procurement system, U.S. companies sometimes report operating at a disadvantage compared with other firms. Many ministries require firms to maintain a local commercial registration or pre-qualify prior to bidding on a local tender, often rendering firms with little or no prior experience in Bahrain ineligible to bid on major tenders.

In February 2022, Bahrain’s Ministry of Industry, Commerce, and Tourism broke ground on the United States Trade Zone (USTZ) to incentivize U.S. companies to build out full turnkey industrial manufacturing, logistics, and distribution facilities in Bahrain to access the wider GCC market.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 78 of 175 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 78 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $571 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $19,900 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

8. Responsible Business Conduct

The Ministry of Labour and Social Development in 2011 authorized the creation of the Bahrain Corporate Social Responsibility Society (BCSRS) as a social and cultural entity. Though there are no measures in Bahrain to compel businesses to follow codes of responsible business conduct, the BCSRS has sought to raise awareness of corporate social responsibility in the business community, and in 2021 hosted the GCC International Conference on Social Responsibility and Sustainable Development. The Society is a founding member of the Arab Association for Social Responsibility, which includes representatives of most Arab countries.

In 2003, Bahrain established a National Steering Committee on Corporate Governance to improve corporate governance practices. The MoICT promulgated the new Corporate Governance Code pursuant to Decree No. 19 of 2018. The new code expanded the base of companies obligated to implement responsible governance, as per the country’s Corporate Governance Code issued in 2010, to include all locally incorporated closed joint stock companies. The law stipulates minimum standards required for corporate governance and applies to all companies incorporated in Bahrain, other than companies that provide regulated financial services licensed by the CBB.

The GOB drafted a Corporate Governance Code to establish a set of best practices for corporate governance and provide protection for investors and other company stakeholders through compliance with those principles. The GOB enforces the code through a combined monitoring system comprising the MoICT, CBB, Bahrain Stock Exchange (BSE), Bahrain Courts, and other professional firms, including auditors, lawyers, and investment advisers. The code does not create new penalties for non-complying companies, but states that the MoICT (working closely with the CBB and the BSE) may exercise penalty powers granted to it under the Commercial Companies Law 2001.

The GOB has put in place advanced regulations and laws protecting labor rights, including vulnerable categories such as migrant workers from South and Southeast Asia. Despite legislative guarantees of certain rights, workers may be exposed to unfair labor practices such as unpaid overtime, denied vacation, or nonpayment of wages. Labor courts have not been fully effective in settling labor disputes between employers and employees. However, there have been reports of cases that were settled in favor of employees in Bahraini labor courts. Bahrain is a class five country on the International Trade Union Confederation (ITUC) Global Rights Index for freedom of association and workers’ rights, with the index ranging from one to five in ascending order from best to worst.

Beginning in 2022, all companies must integrate into the Wage Protection System (WPS) to pay employees’ salaries via prepaid card or financial transfers through a bank or financial institution approved by the Central Bank of Bahrain. Domestic workers and Flexi-Permit holders are exempt from the mandate. The LMRA has the authority to review employer-employee transactions in the system.

Law Number 35 of 2012, the Consumer Protection Law, ensures quality control, combats unfair business practices, and imposes sanctions for breaches of the law’s provisions. MoICT is highly effective in implementing the law.

Bahrain’s amended Corporate Governance Law enhances transparency and ethical business conduct standards. Among the changes, the GOB urged companies to submit audited ratified accounts to the MoICT.

The GOB does not maintain a National Contact Point (NCP) for the Organization for Economic Cooperation and Development (OECD) guidelines, nor does it participate in the Extractive Industries Transparency Initiative (EITI).

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Climate Issues

Bahrain’s Vision 2030 outlines measures to protect the natural environment, reduce carbon emissions, minimize pollution, and promote sustainable energy. Bahrain’s Sustainable Energy Authority (SEA), within the Ministry of Electricity and Water Affairs, designs energy efficiency policies and promotes renewable energy technologies that support Bahrain’s long-term climate action and environmental protection ambitions. Endorsed by Bahrain’s Cabinet and monitored by SEA, the National Energy Efficiency Action Plan (NEEAP) and the National Renewable Energy Action Plan (NREAP) set national energy efficiency and national renewable energy 2025 targets of 6 and 5 percent, respectively, with the NREAP target increasing to 10 percent by 2035.

9. Corruption

Senior GOB officials have advocated publicly to reduce corruption. Legislation countering corruption is outlined in Bahrain’s Economic Vision 2030 and National Anti-Corruption Strategy. Bahrain joined the United Nations Convention Against Corruption (UNCAC) in 2003. Bahrain ratified its penal code on combatting bribery in the public and private sectors in 2008, mandating criminal penalties for official corruption. In December 2013, the Ministry of Interior launched the National Strategy to Combat Corruption. Under Bahraini law, government employees are subject to prosecution and punishments of up to 10 years imprisonment if they use their positions to engage in embezzlement or bribery, either directly or indirectly. The law does not require GOB officials to make financial disclosures. In 2010, Bahrain ratified the UNCAC and the Arab Convention Against Corruption, and in 2016, joined the International Anti-Corruption Academy. In December 2021, the Ministry of Interior General Directorate of Anti-Corruption and Economic and Electronic Security initiated 96 embezzlement, bribery and abuse of authority cases and three economic infractions that were referred from the Cabinet. In January 2022, the Public Prosecution Office referred seven corruption cases, 12 tax evasion and 10 money laundering cases to the courts, in addition to two tax evasion cases and five money laundering cases that have been pending since 2021. Giving or accepting a bribe is illegal. The GOB, however, has not fully implemented the law, and some officials reportedly continue to engage in corrupt practices with impunity.

The National Audit Office, established in 2002, is mandated to publish annual reports that highlight fiscal irregularities within GOB ministries and other public sector entities. The reports enable legislators to exercise oversight and call for investigations of fiscal discrepancies in GOB accounts. In 2013, the Crown Prince established an Investigation Committee to oversee cases noted in the National Audit Office annual report, which lists violations by GOB state bodies. On March 1, 2022, Deputy Prime Minister Shaikh Mohammed bin Mubarak Al Khalifa stressed the importance of consolidating responsibility and accountability to protect public funds and directed all agencies to cooperate with the National Audit Office.

The Minister for Follow-Up Affairs was designated in 2015 to execute recommendations made in that year’s National Audit Office annual report. The Crown Prince, who concurrently has served as Prime Minister since November 2020, urged all GOB entities and the COR to work closely to implement the report’s recommendations.

The Ministry of Interior’s Anti-Corruption and Economic and Electronic Security Directorate signed an MOU with the United Nations Development Programme to enhance the anti-corruption directorate’s capabilities.

Bahrain has conflict-of-interest laws in place, however, their application in awarding contacts is not fully enforced.

Local non-governmental organizations generally do not focus on corruption-related issues, though civil society activists have spoken out against corrupt practices in the public sector.

Few cases have been registered by U.S. companies reporting corruption as an obstacle to their investments in Bahrain.

Bahrain signed and ratified the United Nations Anticorruption Convention in 2005 and 2010, respectively. Bahrain, however, is not a signatory to the OECD Convention on Combating Bribery. In 2018, Bahrain joined the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

Resources to Report Corruption

Contact at government agency or agencies responsible for combating corruption:

General Directorate of Anti- Corruption & Economic & Electronic Security
Ministry of Interior
P. O. Box 26698, Manama, Bahrain
Hotline: 992

Contact at “watchdog” organization:

Dr. Hussain al-Rubaie
President
Bahrain Transparency Society
P.O. Box 26059
Adliya, Bahrain
Phone: +973 39642452

 

10. Political and Security Environment

Bahrain is an open, liberal Gulf state that enjoys close diplomatic ties with the United States. Bahrain has experienced intermittent cycles of violence, with the most recent period of unrest taking place in 2011-2014. In 2017 and 2018, the GOB dissolved the country’s two largest opposition political societies and closed the country’s only opposition-leaning independent newspaper in 2017. On May 13, 2018, the Parliament passed a law banning members of political societies dissolved by the GOB from running in elections that took place later that year. Since 2017, protests centered on sociopolitical or economic demands have occurred in isolated neighborhoods but have largely been controlled by GOB authorities. Elections of the popularly elected lower house of the National Assembly, also known as the Council of Representatives, are scheduled for November 2022.

Neither demonstrators nor violent extremists have generally targeted Americans or other Western expatriates. American citizens visiting Bahrain and companies interested in investing in Bahrain should visit the Embassy’s website to receive the most up-to-date information about the security situation and register with the Embassy’s consular section.

11. Labor Policies and Practices

In 2006, the King ratified the Labor Reforms Law, which established the LMRA and the capacity-building labor fund known as Tamkeen. The law imposed a monthly fee of BD 10 ($26.67) on each expatriate employed by any company registered in Bahrain. The revenues collected under this program are earmarked to provide job training for Bahraini nationals. Companies pay BD 5 ($13.35) for the first five foreign workers and BD 10 ($26.67) for every additional employee. The COR regularly discusses amending the fee structure.

Bahrain’s Labor Law No. 36 of 2012 guarantees employees’ rights by requiring clear contractual terms for employing domestic staff, and prohibiting discrimination practices of wages based on gender, ethnicity, religion, or language. Bahrain’s Labor Law has introduced enhancements for annual leave, maternity leave, sick leave entitlement, and resolution of labor disputes.

Expatriate workers should be registered by their employer with LMRA to receive a valid residence permit and work permit. Employers are prohibited from employing foreigners without a valid work permit. To work in Bahrain, foreign employees should be medically fit, have entered the country lawfully, possess a valid passport, and retain residence and work permits.

As of the first quarter of 2021, the LMRA estimated Bahrain’s labor force in the private sector to be 522,164 foreign workers (including housekeepers). Eighty percent of Bahrain’s total workforce is comprised of foreigners, the majority being unskilled construction workers. According to Bahrain’s Information and eGovernment Authority, foreigners comprised about 53 percent of Bahrain’s population in 2020.

The GOB’s primary initiative for combating unemployment among Bahraini nationals is “Bahrainization,” a policy that mandates employers hire Bahraini nationals instead of foreign workers.

Companies occasionally experience difficulty obtaining mandatory work permits and residence visas for expatriate employees due to “Bahrainization” policies. Bahrain’s Ministry of Labor and Social Development reported that 2,775 private companies have implemented the “Bahrainization” system as of June 2020. According to the Minister of Labour and Social Development, over 26,000 jobseekers and 12,000 recent graduates were hired in 2021. The GOB stipulated through Decree No. 1 of 2019 that priority will be given to Bahraini physicians, technicians, and nurses with the required qualifications and experience. Since July 2020, the LMRA requires private sector companies to advertise job vacancies in local newspapers for two weeks and provide Bahraini nationals with priority access to applying, before considering expatriates. “Bahrainization” requirements may be temporarily waived for FDI in Bahrain’s special economic zones, including BIIP and BLZ.

According to the LMRA, as of March 2021 there are nearly 50,000 out-of-status workers in Bahrain – that is, workers without a visa or valid work permit. This number is down from nearly 65,000 out-of-status workers in early 2020. In April 2020, the GOB implemented a temporary amnesty to allow thousands of out-of-status workers to regularize their immigration status. In August 2020, the Cabinet approved new regulations for the flexible work permit, also known as the “flexi” permit, which allows foreign workers to live freely and work in a non-specialized occupation without a sponsor for a renewable period of one to two years. The new regulations empower LMRA to increase inspection visits on “flexi” permit employers to ensure they are not working in professional activities that require a specialized work permit.

The Labor Law of 2012 allows an employer to terminate an employee in the event of the total or partial closure of an establishment. The employer must render a notice and reason for termination to the Ministry of Labour and Social Development at least 30 days prior to serving notice of termination to the affected employee. The amount of compensation due an employee for termination is set by law and is based in part on length of service.

In September 2021, migrant workers contracted by Bahrain Petroleum Company (BAPCO) gathered to protest poor living and working conditions. An agreement was reached among the employer, contractor, and workers.

In 2007, the Minister of Labour and Social Development 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 and is the first such program in the GCC.

In 2002, the King approved the Workers Trade Union Law of 2002 that recognizes the right of workers to collectively organize, to form trade unions, and to strike, with some restrictions. The law prohibits workers from striking in certain sectors deemed vital by the Prime Minster, including security, aviation, ports, hospitals, and utilities. The law does not provide for the right to collective bargaining. With the exception of domestic workers, foreign employees are allowed to join trade unions. The law prohibits employers from dismissing an employee for trade union activities. In 2011, the King issued a decree that changed Bahrain’s labor law as it pertained to trade unions and federations. Union leadership criticized the new law for provisions that appear to inhibit freedom of association. The 2012 law prohibits multi-sectoral labor federations and prohibits individuals convicted of felonies from holding union leadership posts. While the amendment allowed for the formation of multiple trade union federations, it gave the Ministry of Labour and Social Development the right to select the federation to represent the country’s workers in international fora and in national-level bargaining.

In 2010, the U.S. Department of Labor and Bahrain Ministry of Labour and Social Development convened the first meeting of the U.S.-Bahrain Sub-Committee on Labor Affairs, as established under the U.S.-Bahrain FTA. At the meeting, they 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).

Bahrain has maintained “Tier 1” status in the U.S. Department of State’s Trafficking in Persons Report since 2018. There were no instances of child labor and no violence against labor rights defenders during the most recent reporting period. Forced labor including nonpayment of wages, debt bondage, involuntary sex work, and other instances of human trafficking are documented in the report.

During the civil unrest of 2011, Bahraini employees were dismissed from private and public-sector jobs. In June 2011, the AFL-CIO filed a petition with the Department of Labor accusing Bahrain of violating the labor rights terms of the U.S.-Bahrain FTA. The November 2011 Bahrain Independent Commission of Inquiry report concluded that most of these dismissals were motivated by retaliation against employees suspected of being involved in civil demonstrations. By the end of 2012, the majority of the dismissed workers in the public and private sectors were reinstated, with the GOB working to resolve the remaining cases. In March 2014, the Minister of Labour and Social Development, Bahrain Chamber of Commerce and Industry, and the General Federation of Bahrain Trade Unions signed a tripartite agreement to resolve the remaining worker reinstatement cases. Subsequently, the ILO dropped a related complaint it initiated in 2011. Bilateral consultations are ongoing between the U.S. and Bahrain – invoked under the Labor Chapter of the FTA in response to the 2011 AFL-CIO complaint.

14. Contact for More Information

Manama Commercial Office
U.S. Embassy Manama
P.O. Box 26431
Bldg. 979, Rd. 3119
Block 331, Zinj
Kingdom of Bahrain
Telephone No. +973 1724-2700
E-mail address: manamacommercial@state.gov 

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