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INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
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UNCLAS SECTION 01 OF 12 MANAMA 000568 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, NEA/ARPI 
STATE PLEASE PASS TO USTR FOR JBUNTIN 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ETRD ELAB KTDB OPIC PGOV USTR
BA 
SUBJECT: BAHRAIN: INVESTMENT CLIMATE STATEMENT 2006 
 
REF: 05 STATE 202943 
 
----------------------- ---------- 
A.1 Openness To Foreign Investment 
----------------------- ---------- 
 
Bahrain is widely considered to be one of the most open 
countries in the region and generally follows an open-market 
philosophy.  The country has been able to make significant 
progress in its ongoing process of economic liberalization, 
diversification of national income, and openness to 
investment policies in recent years.  Bahrain has already 
amended existing legislation and promoted new laws aimed at 
facilitating and encouraging foreign investment, and senior 
government officials believe it is imperative to continue 
working toward economic diversification and increase the 
volume of investment in the services, tourism, industry, and 
the financial sector. Officials make frequent public 
statements citing the importance of foreign direct 
investment, bolstering the private sector's role in the 
economy, lessening the burden on government, and eventually 
decreasing government subsidies. 
 
The 2006 Heritage Foundation's "Index of Economic Freedom" 
ranked Bahrain 25th, marking a decline from the previous 
year's ranking of 20th.  The ranking reduction was 
attributable to the decline of its monetary policy score, as 
a result of a 0.04 percent jump in its annual inflation rate, 
and a decline of its IPR score, "upon more detailed analysis 
and based upon the fact that the judiciary is not fully 
independent from the King."  The Index rated Bahrain as 
"mostly free."  Even so, the Heritage Foundation recognizes 
Bahrain as "the freest (economy) in the region." 
 
The United Nations Conference on Trade and Development's 
(UNCTAD) World Investment Report 2005 ranked Bahrain as the 
highest and best among all Arab countries for its FDI 
performance, noting an FDI influx of $865 million in 2004, a 
41.1 percent increase from 2003, and third among all Arab 
countries for its potential FDI performance. 
 
The UN Economic and Social Commission for Western Asia 
(ESCWA), recognized Bahrain's 7 percent rate of real economic 
growth in 2005, partially attributable to a strong surge in 
oil prices, as the highest in the Arab world. 
 
The Government of Bahrain is determined to actively increase 
the entry of new private firms in an economy that has long 
been dominated by parastatals (outside of the financial 
services sector). Following the creation of a Supreme 
Privatization Council in the spring of 2001, the King of 
Bahrain, Shaikh Hamad bin Isa Al-Khalifa, issued a decree in 
October 2002 laying out guidelines privatizing 
telecommunications, transportation, electricity, water, ports 
and airport services, tourism, oil, gas and postal service. 
 
Bahrain's Crown Prince, Shaikh Salman bin Hamad Al-Khalifa, 
is also an outspoken proponent of privatization in Bahrain. 
The Crown Prince was entrusted with the King's labor, 
economic, and training/education reform initiatives in 2004 
and assumed the Chairmanship of the Economic Development 
Board (EDB). Following ministerial changes in January 2005, 
the King issued Royal Decree No. 31 for 2005, amending 
article 9 of 2000, delegating the national economic and 
investment portfolio to the EDB, which had formerly served as 
an economic think tank. Under the Chairmanship of the Crown 
Prince, the EDB was entrusted with the implementation and 
execution of a three-tiered reform initiative, focusing on 
labor, economic, and education reform.  The EDB's main 
strategic functions are to promote investment in key economic 
sectors, support and encourage foreign investment, attract 
foreign companies to establish a presence in Bahrain, support 
and develop local entrepreneurial skills, simplify and 
eliminate investment obstacles, and secure Bahrain's economic 
leadership and competitiveness as a regional business and 
commercial hub. 
Following the King's decree to privatize 
government-controlled sectors, the first key sector to be 
liberalized was telecommunications, which ended the monopoly 
of the 33.3 percent state-owned telecom service provider, 
Bahrain Telecommunications Company (Batelco). Under 
Legislative Decree 48, the Telecommunication Law of 2002 
established the Telecommunication Regulatory Authority (TRA). 
 In accordance with article 15 of the Telecommunication Law, 
the National Telecommunication Plan was issued in 2003.  The 
 
MANAMA 00000568  002 OF 012 
 
 
plan serves as a guideline for the liberalization process and 
addresses licensing opportunities, Universal Service 
Obligations, the Bahrain Internet Exchange (BIX), Batelco,s 
licensing activities, and the government's role in Batelco. 
Under the National Telecommunication Plan, and in accordance 
with the government's progressive elimination of Batelco,s 
monopoly, an unlimited number of licenses could be issued in 
ten areas of telecommunication service. However, the Plan 
also provided for limitations on the number of licenses 
issued for Bahrain Internet Exchange and mobile 
telecommunications services. It stated, "In the mobile area, 
one license will be issued to Batelco, and one further 
license will be issued to a market entrant under the 
provision that, in normal circumstances, further licenses 
shall not be issued for a minimum of two years from date of 
award." (MTC-Vodafone was granted the mobile provider license 
in 2003.) According to TRA figures, as of January 2006 the 
following telecommunications licenses were granted: 
 
-- two Individual Mobile Telecommunication Licenses 
 
-- ten International Telecommunication Facility Licenses (IFL) 
 
-- twenty six  International Telecommunication Services 
Licenses (ISL) 
 
-- five Individual National Fixed Service Licenses 
 
-- eight VSAT Licenses 
 
-- one Individual Paging Service Licenses 
 
-- thirty Value Added Services (VAS) "Class" Licenses 
 
-- one Individual Public Access Mobile Radio Service License 
 
-- one Bahrain Internet Exchange License 
 
-- sixteen Internet Service Provider Licenses (ISP) 
 
-- two Frequency Licenses 
 
-- three Temporary WiFi Frequency Licenses 
 
Following the privatization of public transportation service 
in 2003, CARS, a Bahraini-UAE joint venture, began operating 
later that year with 41 new, air-conditioned, 52-seat buses. 
This represented a $10 million investment in the local 
economy. 
 
The Kingdom's first independent power plant project (IPP) was 
also successfully tendered and awarded to the equally-shared 
Belgian-Gulf consortium Tractebel EGI and Gulf Investment 
Corporation (GIC) to design, build, own, operate, and 
maintain the 1,000MW-a-day, $498.4 million Al Ezzel 
Independent Power Producer (IPP).  Under the contract, the 
government is to pay the amount in 20 years.  The first 
phase, with a production capacity of 400MW, is set to be 
completed in April 2006. The second phase, with a capacity of 
600MW, is projected to be complete by 2007. The project is 
expected to create 120 jobs, 100 of them for Bahrainis.  The 
proposed network is part of a $26.5 million upgrade and setup 
of new transmission grids, linking Al Ezzel station with the 
government's main power network.  The government also has 
plans to expand its distribution network and award contracts 
for three new sub-stations, in anticipation of the extra 
electricity generated by the plant. 
 
In January 2006, the $1.25 billion Hidd Power and Water 
Station project was sold to an international business 
conglomerate of British power supplier International Power, 
Japanese Sumitomo Corporation, and Belgian electricity 
company Suez Energy International (Suez Tractebel).  The 
privatization of Hidd Power and Water Station reinforces the 
government's privatization strategy, which is aimed at 
enhancing the private sector's role in Bahrain's development 
process and fostering a positive business-based climate by 
attracting more local and foreign investments. 
 
A 25-year port management bid for the concession to operate 
the Mina Salman port and the new Khalifa Bin Salman Port was 
awarded to a consortium of Dutch-based APM Terminals and 
Bahrain-based Yusuf Bin Ahmed Kanoo Holdings WLL in May 2005. 
 
 
 
MANAMA 00000568  003 OF 012 
 
 
Under the privatization law, the government's commitment to 
gradually divest of its interests and stakes in certain 
companies is intended to increase the private sector's 
competitiveness.  The Public Shareholding Directorate at the 
Ministry of Finance contracted the consulting arm of UK-based 
HSBC to carry out the consultancy and survey on the sale of 
the government's shares in Batelco.  Some National Assembly 
lower house members (Council of Representatives) had 
criticized the government's divestiture of the remaining 
state holdings in Batelco.  On January 8, 2006, the Cabinet 
approved the formation of a $5.31 billion holding company to 
control the government's commercial and investment interests 
in 22 local and 9 foreign companies. The firm will have a 
paid up capital of approximately $3.44 billion, and an 
authorized capital of approximately $5.03 billion. 
 
In support of Bahrain's status as a respected financial 
center, the Bahrain Monetary Agency (BMA) meets the highest 
international standards of financial regulation. The BMA, 
Bahrain's  central bank,, is the sole regulatory authority 
for the Bahrain Stock Exchange (BSE). The Governor of the BMA 
chairs the BSE Board of Directors, but the BSE operates as an 
independent corporate entity. Dow Jones Indexes and the 
Bahrain Stock Exchange launched the Dow Jones Bahrain Index 
on July 5, 2005. Gulf Cooperation Council (GCC) firms and 
citizens are permitted to own up to 100 percent of companies 
listed on the BSE.  Non-GCC firms/citizens may own up to 49 
percent of listed companies.  Under the terms of the 
U.S.-Bahrain Bilateral Investment Treaty (BIT) and the 
U.S.-Bahrain Free Trade Agreement (FTA), U.S. investors are 
eligible for most-favored-nation treatment and national 
treatment (or GCC) treatment beginning January 1, 2005, (with 
an exception for any in-kind limitations applied to Bahraini, 
GCC, or third national investors).  If discrepancies occur, 
U.S. firms/individuals are encouraged to contact the U.S. 
Embassy. 
 
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 (BMA) lifted the requirement that foreign 
insurance brokers and loss adjusters partner with a local 
company.  These foreign firms, which were previously required 
to have at least 51 percent Bahraini-ownership, are now 
permitted to operate with 100 percent foreign-ownership.  The 
BMA 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. 
Legislation to transform the BMA into an internationally 
recognized Central Bank is currently under study by the 
government. 
 
Taxation and import laws apply equally to Bahraini and 
foreign-owned companies, and foreign investors must comply 
with the same requirements and legislation, as do local firms. 
 
In anticipation of the GCC Customs Union, Bahrain reduced 
customs tariffs to five percent in January 2002 for imported 
goods, with exceptions for alcohol (125 percent) and tobacco 
(100 percent), and entirely exempted customs duties for a 
list of 417 food and medical items.  In December 2005, the 
GCC agreed to extend until 2007 a transition period to unify 
regional customs tariffs at 5 percent, compared to the 
current 4 to 15 percent. 
 
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 Industry and Commerce (MOIC) 
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 is also taking 
steps to ban the import of 127 chemicals.  In response to the 
threat of Avian Influenza, Bahrain has banned the importation 
of live birds.  Bahrain currently imports poultry meat only 
from those countries certified free of Avian Influenza by the 
World Health Organization. 
 
Bahrain has phased out subsidies for export industries, but 
 
MANAMA 00000568  004 OF 012 
 
 
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. 
 
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.  Furthermore, legislation reforming 
Bahrain's labor market has been proposed and is currently 
pending approval from Bahrain's legislative branch, the 
National Assembly. 
 
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) signed in September 2004,  and ratified 
by both legislatures in 2005.  FTA entry-into-force is 
pending Bahraini implementing legislation in the area of 
intellectual property rights (IPR). 
 
The government actively seeks Bahraini and foreign private 
investments in large infrastructure projects.  Previously, 
most such activity (other than hotels) was 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.  BDB's capitalization was increased from $26.5 to 
$132.6 in 2005, part of government's effort to increase 
funding for new businesses and investments, and offering 
 fast-track, loans to Bahraini entrepreneurs.  The BDB has 
also launched an Islamic Financing facility, reflecting the 
growing demand for Islamic financial instruments and products. 
 
------------------ ----------------- 
A.2 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 = $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 highly unlikely.  There are no 
restrictions on converting or transferring funds, whether or 
not associated with an investment. MPs have submitted a 
proposal imposing a one percent increase of money transferred 
out of Bahrain, claiming that an annual average of $39.8 
million is transferred out of Bahrain. 
 
----------------- ---------------- 
A.3 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. 
 
---------------------- 
A.4 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. 
 
From May 2001, the U.S.-Bahraini BIT provides for three 
 
MANAMA 00000568  005 OF 012 
 
 
dispute settlement options:  1) submitting the dispute to a 
local court; 2) invoking dispute-resolution procedures 
previously agreed upon by the national or company and the 
host country government; and 3) 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 
companies or between other parties and GCC companies.  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 as follows: 
 
GCC Commercial Arbitration Center 
P.O. Box 2338 
Manama, Kingdom of Bahrain 
Tel:  (973) 17-214-800 
Fax:  (973) 17-214-500 
Website: www.gccarbitration.com 
Email: arbit395@batelco.com.bh 
 
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.  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. 
 
---------------------------- -------------- 
A.5 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 Industry and Commerce to supervise, 
on a non-discriminatory basis, companies operating in 
Bahrain. 
 
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. 
 
------------------------------ ----------------- 
A.6 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 was ratified in 2005. The agreement 
seeks to expand and promote the scope of economic, 
commercial, investment, and trade relations between the two 
countries.  Bahrain can benefit from increased investment in 
the country, while U.S. investors in Bahrain will enjoy open 
access to Bahrain. 
 
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 
 
MANAMA 00000568  006 OF 012 
 
 
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 Stock Exchange (BSE). 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. 
 
Because of the national treatment offered American firms in 
the Bilateral Investment Treaty (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 now 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. 
 
----------------- --------------- 
A.7 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. 
 
The U.S.-Bahrain FTA commits Bahrain to enforce world-class 
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. 
 Bahrain has joined the Patent Cooperation Treaty, Madrid 
Agreement, WIPO Copyright Treaty, WIPO Performances and 
Phonograms Treaty, the Rome Convention, the International 
Convention for the Protection of New Varieties of Plants and 
the Patent Law Treaty. 
 
The Budapest Treaty, Trademark Law, and Convention Relating 
to the Distribution of Programme-Carrying Signals Transmitted 
by Satellite are currently before Parliament. 
 
The following pending legislation will bring Bahrain's local 
IPR legislation in compliance with WIPO and is awaiting 
legislative approval: 
 
-- trade secrets; 
-- copyright and related rights; 
-- designs of integrated circuits; 
-- geographic indicators; 
-- individual drawings and designs; 
-- patents and utility models; 
-- plant varieties; 
-- trademarks. 
 
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 businesses with impressive results.  Bahrain has 
been aggressive in combating video and audio piracy. 
However, software piracy, which has shifted from retail to 
end-user violations, remains problematic. 
 
MANAMA 00000568  007 OF 012 
 
 
 
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. 
 
------------------- ----------------- 
A.8 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. 
 As of January 2003, however, the Tenders Board processes all 
tender decisions valued at $26,525 (BD 10,000) or higher. 
Individual ministries and departments may still process 
projects valued at less than $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. 
 
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 government 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 all relevant ministries (over a dozen) 
and private sector representatives from the 
telecommunication, legal, banking, and consulting industries 
under one roof. 
 
Officials from the Ministry note that the BIC can process and 
issue 80 percent of commercial registration applications 
within 24 hours and 10 percent of commercial registrations 
within five working days.  The remaining 10 percent, mostly 
those having to do with health, environment, power and or 
other essential services, are processed separately according 
to sector specific regulations and licenses are issued on a 
case-by-case basis. 
 
Draft legislation is proposed by the Cabinet and by both the 
lower house (Council of Representatives) and upper houses 
(Shura Council) of the National Assembly.  Once the 
government produces a draft law and submits it 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 it enters into force. 
 
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, if one exists. 
 
----------------------------- ------------------------ 
A.9 Efficient Capital Markets and Portfolio Investment 
----------------------------- ------------------------ 
 
Consistent with the government of Bahrain's liberal approach 
 
MANAMA 00000568  008 OF 012 
 
 
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 $50 million.  For major 
infrastructure investments, banks will often offer to assume 
a part of the risk, and Bahrain's onshore and offshore banks 
have shown extensive cooperation in syndicating loans for 
larger risks.  Generally, Bahrain's banks are described as 
hungry for solid investment opportunities. 
 
The banking system is sound, and undergoes examination and 
supervision by the Bahrain Monetary Agency (BMA), which has a 
solid international reputation.  Due to precautionary 
measures taken by the New York headquarters of Citibank 
during the last quarter of 2002, Citibank pulled about $30 
billion from their Bahrain based offshore operations due to 
"Operation Iraqi Freedom" (OIF).  This resulted in an 
apparent 33.4 per cent decline in Bahrain's offshore banking 
units' (OBU's) March 2003 assets over March the previous year 
($58.82 billion in 2003 compared with $88.4 in 2002).  In May 
2003, Citibank returned to Bahrain the $30 billion it had 
pulled out due to OIF. 
 
----------------------- 
A.10 Political Violence 
----------------------- 
 
Bahrain experienced intermittent civil unrest in the mid 
1990,s.  These disturbances were directed primarily against 
the government, but in a few cases expatriate property, 
including homes, vehicles, and places of business were 
damaged or destroyed, and several South Asian workers were 
killed.  Although the situation improved steadily after 1997, 
the 2002 upsurge in violence between Israelis and 
Palestinians sparked anti-Israeli and anti-American 
demonstrations in Bahrain.  The protests peaked in April 2002 
when a mob attacked the U.S. Embassy and set fire to U.S. 
Government vehicles. Since that incident, large-scale protest 
activity has subsided.  Youths rioted in downtown Manama on 
December 31, 2002 and inflicted significant damage to public 
and private property.  The 2003 Iraq war sparked a few 
political protests near the American and British Embassies in 
which some private and government property was damaged. 
 
In October 2003, the Bahraini Court charged 10 youths over 
violent protests by a concert against a Lebanese singer whose 
performance was deemed immoral by Islamists. Protesters threw 
petrol bombs during pitched battles with police, damaging 
private vehicles. 
 
In March 2004, rioters protesting liquor sale attacked a 
restaurant in Bahrain burning and damaging private owned 
vehicles. Reportedly, the rioters also set two cars ablaze 
and smashed windows of several vehicles.  The foreign 
co-owner of the restaurant estimated a $15,262 (BD 5,000) 
worth of physical damage on the property. 
 
The Bahrain Chamber of Commerce and Industry (BCCI) have 
recently announced their intentions of forming a 
business-lobby that advocates for and on behalf of the 
private sector to defy extremism in the Council of 
Representatives, the lower house of Parliament. 
 
A number of sometimes violent demonstrations and protests 
occurred in the last quarter of 2005 and in early 2006. 
Demonstrators are demanding government action on several 
social issues and the release of protesters arrested in 
earlier clashes. 
 
------------------ 
A.11 a. 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 
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.  However, petty 
corruption is relatively rare in Bahrain.  The bureaucracy is 
sometimes inefficient but it is honest.  Giving or accepting 
a bribe is illegal, although the relevant laws are rarely 
enforced.  Officials have been dismissed for blatant 
 
MANAMA 00000568  009 OF 012 
 
 
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. 
 
---------------------------------- 
b. 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. 
 
As of July 2003, 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, Singapore, 
South Korea, Syria, Tunisia, Turkey and the UK.  Bahrain has 
air transportation tax agreements with China, France, Greece, 
Singapore, Turkey, UK, U.S. and Yemen, and two transportation 
agreements with Syria.  Bahrain has concluded double taxation 
agreements with Egypt, France, India, Jordan, Malaysia, 
Morocco, the Philippines, Thailand and Tunisia. 
 
------------------------------ ---------------- 
c. 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. 
 
-------- 
d. Labor 
-------- 
The Bahrain labor force is estimated at 320,000, nearly 
two-thirds of whom are expatriates.  The government has 
publicly recognized unemployment as a major social and 
political issue.  Although the government has not maintained 
official unemployment statistics, the United Nations 
Development Program (UNDP) estimates unemployment among 
Bahrainis to be 15 to 20 percent and as high as 30 percent in 
some Shiite 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. 
Crown Prince Salman launched a national debate in 2004 that 
was aimed at creating a new economic, labor, education and 
training vision for the Kingdom. 
Draft labor reform legislation is currently under review at 
the National Assembly's Lower House. The legislation calls 
for the establishment of a Labor Market Regulatory Authority 
(LMRA) and a Labor Fund. The proposed reform effort would 
establish a phased fee to be paid to the government by 
employers of foreign workers. 
In 2005, the government allocated approximately $80 million 
for phase one of the King's National Employment Program (NEP) 
that serves as a training fund for unemployed Bahrainis. The 
government reported that almost 900 private firms took part 
in this project by offering either training or recruitment 
opportunities.  At the close of the NEP registration period, 
12,172 Bahrainis registered to participate in the program. 
The government is seeking 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 
 
MANAMA 00000568  010 OF 012 
 
 
adequately preparing Bahrainis for the workforce.  The 
government is making concerted efforts to turn this situation 
around. 
Another major step that the government is undertaking is 
development of the labor union movement.  Unions first became 
legal in 2002 and the government is in the process of 
bringing its labor codes into compliance with ILO core labor 
standards. 
 
---------------- ---------------- 
e. Foreign Trade Free Zones/Ports 
---------------- ---------------- 
 
Mina Salman, Bahrain's major 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 Industry. 
 
----------------- --------------------- 
f. Foreign Direct Investment Statistics 
----------------- --------------------- 
 
Foreign investments in Bahrain range from partial foreign 
ownership of large parastatals in the oil and 
telecommunications sectors to restaurant franchises.  As the 
economy is virtually tax-free, the government does not 
maintain detailed statistics of foreign direct investment 
flows.  The largest, by value, of foreign holdings in Bahrain 
include: 
 
-- Aluminum Bahrain (ALBA) and the Gulf Petrochemical 
Industries Complex (GPIC), each of which are owned as joint 
investments by several Gulf states. 
 
-- The Arab Shipbuilding and Repair Yard (ASRY), which is 
jointly owned by Bahrain, Kuwait, Saudi Arabia, the United 
Arab Emirates, Qatar, Iraq (participation frozen) and Libya 
(participation frozen). 
 
-- U.A.E. based Majid Al Futtaim Investments are investing 
$1.09 billion in the new Bahrain City Center Mall and 
cineplex. 
 
-- Bahrain National Gas Company (BANAGAS) is owned by 
Bahrain, a Saudi investment firm and Caltex Bahrain. 
 
-- Amwaj Islands tourism project is jointly owned by 
Bahraini, Kuwaiti and Saudi corporate and individual 
investors. 
 
-- The $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 $1.3 billion Bahrain Financial 
Harbor project, owned by Gulf Finance House, personal and 
corporate GCC investors. 
 
According to U.S. Embassy records, approximately 180 U.S. 
companies were operating in one form or another in Bahrain as 
of January 2006.  U.S. investments in Bahrain are divided by 
sectors, and are listed below: 
 
Information Technology 
 
-- In July 2005, Microsoft,  Bahrain Training Institute 
(BTI), Esterad Investment Company, Bahrain Internet Society 
(BIS), and the Bahrain Institute of Technology and Bahrain 
Development Bank, signed a $1.3 billion deal with the Bahrain 
Financial Harbor development to co-market IT, upgrade skills, 
and support services of the Bahrain Financial Harbor 
Development. This project was endorsed by the Ministry of 
Labor. 
 
-- In November 2004, Microsoft Bahrain launched its new 
'B-OnLine' initiative. The B-OnLine initiative is designed to 
 
MANAMA 00000568  011 OF 012 
 
 
address the obstacles faced by Bahraini SMEs in acquiring and 
using the latest technologies for the benefit of their 
day-to-day operations. Microsoft will work with the Ministry 
of Commerce, Batelco, and Bank of Bahrain and Kuwait to form 
an initiative consortium that will provide the necessary 
advice and value-added services to facilitate the acquisition 
of B-OnLine. 
 
-- In March 2004, Microsoft and BDO Jawad Habib were awarded 
Bahrain's e-investor project contract.  The system offers 
investors and potential investors an online one-stop-shop 
government database of information and services. 
 
-- Cisco Systems has entered into a significant technology 
partnership with Bahrain's Amwaj Telecom, signed in September 
of 2005, to provide next generation network infrastructure 
for Amwaj Islands, Smart City, the technological backbone of 
Amwaj Islands. 
 
Construction/Engineering 
 
-- Skidmore, Owings & Merrill LLP was selected by the Kingdom 
of Bahrain to develop a set of comprehensive national 
planning strategies and is preparing a strategy to address 
and integrate Bahrain's physical, economic, social and 
environmental development, focusing mostly on land-use and 
development. 
 
-- Great Lakes Dredge & Dock is performing dredging 
operations in conjunction with the $464 million new Shaikh 
Khalifa Port in Hidd Industrial area. A $105 million dredging 
contract has also been awarded to US-Bahraini joint venture 
Great Lakes - Nass (Great Lakes Dredge & Dock and Nass Group). 
 
-- Parsons provided the design and supervising engineers for 
a $26 million-flyover project in Bahrain's Seef area. 
 
-- Binnie, Black and Veatch International Limited are the 
consultants for Phase 3 of the Hidd (Power) and Desalination 
Complex.  The project was estimated to cost $400 million. 
 
-- Turner International and Atkins are set to start 
construction on the $1.5 billion Bahrain Business Bay. The 
Four Seasons hotel will be the centerpiece of the 
development, and is expected to be the tallest building in 
Bahrain. Skidmore, Owings & Merrill has completed the master 
plan for the first phase of the project, which is being 
developed by Bahrain Bay Development, a joint venture between 
Arcapita Bank and a Bahrain-based investment group. 
 
-- General Electric Energy, Stone and Webster and Chicago 
Bridge and Iron Company were among five companies that 
participated in the feasibility study of Kuwait Finance 
House's $1.3 petrochemical plant project. The planned 
facility will be capable of providing total power capacity of 
1,000MW per hour and 30 million gallons of water per day 
while simultaneously producing seven key petrochemical 
products. These include: 345,000 tons of ethylene dichloride 
(EDC), 564,000 tons of caustic soda, 231,000 tons of propane, 
150,000 tons of butane, and 44,000 tons of gasoline in 
addition to some quantities of hydrogen and sulfur. 
Approximately 255 million standard cubic feet per day of 
natural gas will be required to operate the complex at full 
capacity.  The complex is expected to be completed by the 
first quarter of 2008. 
 
-- Bechtel was responsible for the Engineering Procurement 
Construction and Management (EPCM) of aluminum smelter ALBA's 
$1.7 billion fifth pipeline expansion project. 
 
-- Parsons Global was appointed as consultants to the Bahrain 
District Cooling Company (Tabreed Bahrain).   The technology 
is aimed at reducing electricity consumption in Bahrain by 70 
percent. 
 
Financial Services 
 
-- The Bahrain Monetary Agency (BMA) has granted a license to 
global insurance brokerage and consulting giant, Aon 
Corporation, to establish Aon Re Middle East, an insurance 
brokerage firm in Bahrain. 
 
--  A joint venture between Bahrain-based Ithmaar Bank, 
US-based Overland Capital Group, Bahrain-based Gulf Finance 
House BSC, and Kuwait-based Gulf Investment House established 
 
MANAMA 00000568  012 OF 012 
 
 
The First Leasing Bank, with authorized capital of $50 
million and paid-up capital of $10 million. 
 
Health 
 
-- Joslin Diabetes Center Affiliate - Bahrain (a partnership 
between the Joslin Diabetes Center and local businessmen). 
Joslin Diabetes Center Bahrain has injected a total of $9 
million, and is expected to increase its investments with its 
new expansion plans. 
 
-- Accenture was awarded a contract to structure the Ministry 
of Health's Information and Communication Technology Strategy 
(ICT), revamping the Ministry of Health's management and 
organizational structure, which will include interrelated 
systems, functional, business, and administrative 
requirements, as well as technical infrastructure 
requirements.  The Ministry of Health's E-Health project 
initiative has yet to be finalized by the Ministry of Cabinet 
Affairs. 
 
------------- 
Web Resources 
------------- 
 
http://www.buyusa.gov/bahrain/en/ 
 
http://www.bahrainedb.com/ 
 
http://www.bahraintenders.gov.bh 
 
http://www.bahrainchamber.org.bh/english/main .htm 
 
http://www.commerce.gov.bh/ 
 
http://www.bma.gov.bh/cmsrule/bmaindex.jsp 
 
http://www.ustr.gov 
 
MONROE