VZCZCXYZ0063
PP RUEHWEB

DE RUEHMK #0291/01 0881414
ZNR UUUUU ZZH
P 291414Z MAR 07
FM AMEMBASSY MANAMA
TO RUEHC/SECSTATE WASHDC PRIORITY 6636
INFO RUCPDOC/USDOC WASHDC PRIORITY

UNCLAS MANAMA 000291 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA, NEA/ARP 
COMMERCE FOR 4520/ITA/ANE/-THOFFMAN 
STATE PLEASE PASS TO USTR FOR JBUNTIN 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ETRD ELAB KTDB OPIC PGOV USTR
ECTRD, BA 
SUBJECT: BAHRAIN: INVESTMENT CLIMATE STATEMENT 2007 
 
REF: 06 STATE 178303 
 
---------------------------------- 
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. Senior 
government officials believe it is imperative to continue 
working toward economic diversification and to 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. 
 
Upon the August 2006 implementation of the US-Bahrain Free 
Trade Agreement (FTA), 100 percent of bilateral trade in 
consumer and industrial products became duty-free. Bahrain 
will phase out tariffs on the remaining handful of 
agricultural product lines within ten years. Textiles and 
apparel trade is duty-free, promoting new opportunities for 
U.S. and Bahraini apparel manufacturing. The FTA requires 
qualifying textiles and apparel to contain either U.S. or 
Bahraini yarn and fabric and allows for a temporary 
transitional allowance for textiles and apparel that do not 
meet these requirements so that U.S. and Bahrain producers 
can find ways to work together. The FTA requires transparency 
and efficiency in customs administration, including 
publication of laws and regulations on the Internet and 
procedural certainty and fairness. In addition, the FTA 
requires customs procedures designed to facilitate the rapid 
clearance through customs of express delivery shipments. 
 
The 2007 Heritage Foundation's "Index of Economic Freedom" 
ranked Bahrain 39th, marking a decline from the previous 
year's ranking of 25th. 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, 
a decline of its IPR score, and "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 second freest (economy) in the Middle East 
and North Africa after Israel." 
 
The United Nations Conference on Trade and Development's 
(UNCTAD) World Investment 2006 Report ranked Bahrain second 
after the UAE among all Arab countries in its Inward FDI 
Performance Index. The UNCTAD index ranks countries by the 
FDI they receive relative to their economic size. Bahrain 
improved its ranking by 10 positions to occupy 22nd place 
worldwide. 
 
The Government of Bahrain is determined to 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 and economic 
reform 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 
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 BIX 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 2007 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 Bahrain-UAE joint venture operates 41 
modern, air-conditioned, 52-seat buses, representing 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, $498.4 million Al Ezzel Independent 
Power Plant.      The first phase, with a 
production capacity of 400MW, was completed in May 2006. The 
second phase, with a capacity of 600MW, is set to be 
completed in May 2007. Upon completion, the project will have 
created 140 jobs, 120 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. 
 The consortium began operating the Mina Salman port in 
December 2006. The Khalifa Bin Salman Port is expected to 
open by the fourth quarter of 2008. 
 
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. In January 2006, the 
Cabinet approved the formation of a $5.31 billion holding 
company, Mumtalakat, to control the government's commercial 
and investment interests in 20 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. 
 
Law 64 of 2006 ordered an upgrade of the Bahrain Monetary 
Agency to the new Central Bank of Bahrain (CBB). Law 64 
consolidated several laws that had previously governed the 
various segments of the financial services industry. Under 
the law, the CBB enjoys reinforced operational independence 
and enhanced enforcement powers. Article 9 of the law, for 
example, outlines investigational and administrative 
proceedings at the CBB's disposal to ensure compliance of 
rules and regulations by licensees. CBB is the sole 
regulatory authority for the Bahrain Stock Exchange (BSE). 
The Governor of the CBB 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, U.S. 
investors are eligible for most-favored-nation treatment and 
national treatment (or GCC) treatment (with an exception of 
any in-kind limitations applied to Bahraini, GCC, or 
third-country 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 CBB 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 CBB is holding consultations 
on further reform in areas such as captive insurance, 
solvency, business conduct, risk management and financial 
crime, enforcement, CBB 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 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. 
 
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 restricted the 
importation of live birds and has established an Avian Flu 
Committee to oversee the importation of poultry. 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 
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 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. The government has created a Labor Market Regulatory 
Authority to modernize Bahrain's labor market, implementing 
policies designed to reduce Bahrain's reliance on cheap 
expatriate labor. 
 
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. The BDB's capitalization was increased from $26.5 
to $132.6 in 2005, as part of the government's efforts 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 = $2.65). 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. In mid-January 2007, 
the Central Bank publicly reaffirmed its commitment to 
maintain the USD-BD peg. There are no restrictions on 
converting or transferring funds, whether or not associated 
with an investment. 
 
---------------------------------- 
A.3 Expropriation and Compensation 
---------------------------------- 
 
There have been no expropriations in recent years, and no 
cases in contention. The BIT protects U.S. investments by 
banning all expropriations except in accordance with 
customary international law. 
 
---------------------- 
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, often in association with local 
partners, provide expert legal services both nationally and 
regionally.  Fees are charged according to internationally 
accepted practices. 
 
The BIT outlines three 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 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 
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.qccarbitration.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 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, on a non-discriminatory 
basis, companies operating in Bahrain. Industries must be set 
up in officially identified industrial areas. An 
Environmental Impact Statement (EIS) must be filed by all 
manufacturing facilities. 
 
--------------------------------------------- --- 
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 BIT provides benefits and protections to U.S. investors 
in Bahrain, such as most-favored-nation treatment and 
national treatment, the right to make financial transfers 
freely, 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. 
 
As a result of the national treatment offered to U.S. 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. 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. In December of 2006, 
Bahrain legalized 100 percent foreign ownership of investment 
properties. 
 
--------------------------------- 
A.7 Protection of Property Rights 
--------------------------------- 
 
The Bahraini legal system adequately protects and facilitates 
acquisition and disposition of property rights. 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 
protection of intellectual property rights (IPR). 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. 
 
Pursuant to the FTA, Bahrain ratified the Budapest Treaty, 
the Trademark Law, and the Convention Relating to the 
Distribution of Programme-Carrying Signals Transmitted by 
Satellite in mid-2006. At the same time, the government also 
passed the following WIPO-compliant laws regarding: 
 
-- 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 and certain forms of signal theft remain 
problematic. 
 
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. 
 
IPR protection for U.S. companies: 
 
The Department of Commerce and other U.S. federal agencies 
stand ready to assist U.S. businesses with registering and 
enforcing their intellectual property rights, in the U.S. and 
in international markets. 
 
Obtaining and Protecting IPR Abroad: 
 
U.S. companies can contact the U.S. Department of Commerce 
Office of Intellectual Property Rights (OIPR) for assistance 
in obtaining and protecting your intellectual property rights 
abroad. OIPR and Commerce's country experts stand ready to 
work with U.S. firms to help them protect their intellectual 
property abroad. In many cases, OIPR can provide companies 
with information to aid in navigating a foreign government's 
legal system, including lists of local investigative firms 
and attorneys, and share experiences and expertise in that 
country. However, the government cannot provide American 
companies with legal advice or advocate on a company's behalf 
when a matter is before a court or administrative agency. 
U.S. companies can reach an OIPR trade specialist by 
telephone at (202) 482-1191. 
The U.S. Government offers several resources to help U.S 
companies protect their intellectual property. For more 
information on U.S. Government resources to help U.S. 
companies protect their intellectual property, please visit 
the official website: http://www.stopfakes.gov/contactus.asp. 
Companies may also contact the U.S. Embassy. 
 
------------------------------------- 
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 cabinet 
official, 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 is responsible 
for processing 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 add value in the bidding process. 
 
In the case of manufacturing enterprises, bureaucratic 
procedures and red tape had historically 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 another 10 percent of commercial 
registrations within five working days. The remaining 10 
percent, mostly those having to do with health, environment, 
power and other essential services, are processed separately 
according to sector specific regulations and licenses that 
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 
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 CBB, which has a 
solid international reputation. 
 
----------------------- 
A.10 Political Violence 
----------------------- 
 
While conditions in Bahrain are largely calm, there has been 
some political violence over the past several years. Bahrain 
is a majority Shia country with a Sunni ruling class. Some 
elements within the Shia community have turned to street 
actions -demonstrations, protests, petitions, and occasional 
clashes with security forces - to promote their political 
agendas. From late 2005 until early 2006, there were a series 
of confrontations between youth and police in or near Shia 
population centers that often resulted in violence. The 
clashes eventually subsided and the King has since ordered 
detainees picked up during confrontations released. 
 
------------------ 
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. The creation of a tender 
board in 2003 has largely addressed these complaints. 
However, petty corruption is relatively rare in Bahrain. The 
bureaucracy is sometimes inefficient. 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. 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 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 
---------------------------------- 
 
The U.S.-Bahrain Free Trade Agreement was implemented on 
August 1, 2006 - the first FTA between the United States and 
a GCC state. As of January 2006, Bahrain had bilateral 
investment protection agreements in place with Algeria, 
Turkey, China, Egypt, Jordan, Malaysia, Morocco, Syria, 
Philippines and the UK. Bahrain has economic and commercial 
cooperation agreements with Australia, Bangladesh, Pakistan, 
Italy, 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, Switzerland, Turkey, UK, U.S. and Yemen, and two 
transportation agreements with Syria. Bahrain has concluded 
double taxation agreements with Egypt, France, India, Turkey, 
Jordan, Malaysia, Morocco, Pakistan, the Philippines, 
Thailand and Tunisia. 
 
--------------------------------------------- -- 
c. OPIC and Other Investment Insurance Programs 
--------------------------------------------- -- 
 
In 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 Bahraini labor force is estimated at 320,000, roughly 57 
percent of whom are expatriates. The CIA World Factbook cites 
2005 unemployment (the most recent year available) at 15 
percent. The Bahraini government does not maintain official 
unemployment statistics. However, government officials report 
that unemployment has dropped from 15 percent to 3.8 percent 
since January 2006 as a result of the National Employment 
Project (NEP). The NEP, a training and aptitude-testing 
initiative, seeks to match unemployed workers with suitable 
job openings. Another of the government's primary initiatives 
for combating unemployment is "Bahrainization," or the 
replacement of expatriate workers by Bahrainis. Certain 
professions, including heavy vehicle drivers, have been 
reserved for Bahraini nationals since 2002. 
Laws creating the Labor Market Regulatory Authority (LMRA) 
and the Labor Fund were passed and implemented in 2006. The 
LMRA is chaired by the Labor Minister and will take over the 
management of all aspects of the expatriate work force from 
the Ministry of Labor. The Labor Fund is chaired by the 
Minister of State for Foreign Affairs and will be a 
depository of funds collected from labor fees that will then 
be used to provide further training for Bahraini workers. 
Labor market reforms established a phased fee to be paid to 
the government by employers of foreign workers with a view 
toward equalizing the business costs of hiring expatriate 
versus national personnel. The LMRA is expected to be fully 
operational by mid-2007. 
The Ministry of Labor has also begun working with local 
companies, 250 of which have participated thus far, to raise 
the skill level and increase the productivity of their 
workers through training, while supplementing their salaries 
to reach a total of 200 BD monthly. After six months of this 
supplement from the Ministry, companies have pledged to 
maintain the salary level at 200 BD. The Ministry has also 
begun registration for a national unemployment insurance 
program that will include both Bahraini citizens who are 
between jobs and new graduates and school dropouts who are 
seeking first employment. 
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. 
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. In 2006, the government ratified different 
legislation to promote labor rights in Bahrain in line with 
the Free Trade Agreement requirements. One of the main laws 
is the protection of trade union activists against dismissal. 
A Prime Ministerial decree was issued in November 2006 that 
banned strikes in 12 sectors. 
 
--------------------------------- 
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. Work on Bahrain's new Khalifa bin Salman Seaport 
in Hidd, which will serve the Kingdom's emerging 
manufacturing facilities and light industries, is scheduled 
to be completed by September 2008. Khalifa Bin Salman Port 
will have substantial room for growth over the current 
capacity at Mina Salman. Furthermore, with a draft alongside 
of 15 meters, the port will be able to handle vessels up to 
Post-Panamax size. 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 December 2006, the Bahraini Government and Al Khaleej 
Development Company (Tameer) announced the development of the 
1.7 million square meter Bahrain Industrial Wharf, located in 
the Hidd industrial area. The public-private project provides 
direct access to major sea, air and road networks. The wharf 
is divided into four major sectors, each fully equipped with 
state-of-the-art infrastructure to meet the demands of 
businesses. The sectors are: the Industrial Park of around 
800,000 sqm., which will accommodate both medium and small 
industries; the Logistics Park of around 190,000 sqm., zoned 
for warehousing, storage, cold storage and redistribution of 
goods; the strategic Business Park of 320,000 sqm., well 
suited for low-rise office blocks, training centers, 
conference halls and other commercial facilities, and the 
Residential Park, which has an approximate area of 70,000 
sqm. and will accommodate a park management center and living 
quarters for employees including workers and middle 
management along with a hotel. 
Customs duty exemption is also included on the following: 
capital goods, goods for re-export, raw materials for 
manufacturing, semi-finished commodities imported for further 
processing, and imports required for development projects. 
 
--------------------------------------- 
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 on foreign direct investment 
flows. US investments to Bahrain in 2005 reached $194 
million, marking and increase from $180 million in 2004. FDI 
data is supplied below. 
 
U.S. Direct Investment in Bahrain (in millions of U.S. 
dollars) 
 
1999: 37 
2000: 39 
2001: 46 
2002: 70 
2003: 144 
2004: 180 
2005: 194 
 
------------------------- 
US Investments in Bahrain 
------------------------- 
 
-- According to U.S. Embassy records, approximately 180 U.S. 
companies were operating in Bahrain as of August 2006. U.S. 
investments in Bahrain are divided by sectors, and are listed 
below: 
 
INFORMATION TECHNOLOGY (ICT): 
 
-- 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. 
 
-- Microsoft Bahrain launched its "B-OnLine" initiative in 
November 2004. The B-OnLine initiative is designed to address 
the obstacles faced by Bahraini SMEs in acquiring and using 
the latest technologies for the benefit of their day-to-day 
operations. Microsoft works with the Ministry of Industry and 
Commerce, Batelco, and Bank of Bahrain and Kuwait to form an 
initiative consortium that provides the necessary advice and 
value-added services to support 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. 
 
-- Parsons provided the designer 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. Skidmore, Owings and 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, which opened 
in 2005. 
 
FINANCIAL SERVICES 
 
-- The CBB 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 
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 invested 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 requirements, business requirements, 
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. 
 
INDUSTRIAL MANUFACTURING 
 
-- Kraft Foods is investing roughly $200 million in a new 
cheese and powdered beverage production plant at the Bahrain 
International Investment Park in Hidd. The official 
announcement was made in July 2006. 
 
-- Tactics Middle East is setting up a $60m car parts factory 
near the Bahrain International Circuit. 
 
 
Foreign/non-US investments: 
 
INDUSTRIAL: 
 
-- Aluminum Bahrain (ALBA) and the Gulf Petrochemical 
Industries Complex (GPIC), each of which is owned as a joint 
investment 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). 
 
-- A Saudi company has been granted a license to form a $92.8 
million operation to manufacture laptops. Riyadh-based Arab 
Values is currently undergoing negotiations with Japanese 
manufacturers to select a suitable branding partner, who will 
also provide technical expertise and other support. 
 
-- Tabreed Bahrain, a subsidiary of the UAE company, has 
signed its largest-ever contract in the Kingdom to provide 
cooling services to Bahrain Financial Harbor (BFH). The 
project, which will be fed by the company's North Shore 
District Cooling Network, will provide about 30,000 tons of 
refrigeration to the entire $1.3 billion Bahrain Financial 
Harbor development. Tabreed Bahrain was set up in 2004 and is 
a joint venture between UAE-headquartered National Cooling 
Company PJSC (Tabreed), Esterad Investment Company and AA Bin 
Hindi Group. 
 
-- Germany's high performance sports car maker, RUF 
Automobile, will set up a joint venture factory in Bahrain, 
the first car manufacturing plant in the Gulf region. A 
cornerstone-laying ceremony took place on location at the 
Bahrain International Circuit Business Park in Sakhir on 
March 8, 2006. 
 
INFORMATION COMMUNICATION TECHNOLOGY (ICT): 
 
-- Britain's Cable and Wireless' 20 percent holding in 
Batelco was sold in late 2006 to the government-owned 
Mumtalakat and Bahrain's Pension Fund. 
 
-- MTC-Vodafone was awarded the Kingdom's first mobile 
operator license in 2003, with a total investment of $160 
million. MTC-Vodafone Bahrain is 40% owned by Bahraini 
investors and 60% by MTC Kuwait. 
 
 
INFRASTRUCTURE: 
 
-- 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, Gulf 
Finance House, and various other investors. 
 
-- The development of the $1.3 billion Bahrain Financial 
Harbor project is owned by Gulf Finance House as well as 
individual and corporate GCC investors. 
 
-- UAE-based regional property developer Majid Al Futtaim 
Investments has invested $398 million in a 140,000 square 
meter "City Center" Mall in Bahrain. Al Futtaim Investments 
has signed another $23.4 million agreement with Bahrain 
Cinema Company to equip and lease 20 cinema screens for their 
Mega Cinema Complex in the Bahrain City Center Mall. 
 
-- Kuwait-based Rasmal Holding Company in June 2006 launched 
the $300 million Sarab Al Areen development project in 
Bahrain. The project will include a mall, residential units, 
a commercial zone and a hotel. The announcement was made in 
June 2006 and is set to be completed at the end of 2008. 
 
-- Kuwait-based Gulf Holding Company in July 2006 launched 
the $450 million residential and commercial Villamar at the 
Harbor, located at the Bahrain Financial Harbor. Villamar 
will consist of the Twisting Towers, the Floating Villas and 
the Terraced Podium. Scheduled for completion in June 2009, 
the development will comprise a total of 494 one-to-four 
bedroom apartments, 54 villas and 6 penthouses. 
 
-- Ossis Property announced in August 2006 that it will build 
a business park on Bahrain's $1 billion Amwaj Islands 
development. The 76,000 square foot park will feature offices 
and amenities in a landscaped setting. The project is divided 
into two phases, with the north section set for completion in 
late 2007. 
 
FINANCIAL AND BANKING SERVICES: 
 
-- Abu Dhabi Investment House (ADIH) was licensed by the CBB 
to start the first Islamic investment bank for women in 
Bahrain with an authorized capital of $1 billion and a paid 
up capital of $500 million, in June 2006. Shareholders 
include Qatar Islamic Bank, and Kuwait Investment Company, 
and other individuals. 
 
-- Bahrain-based Ithmaar Bank announced in June 2006 a $2 
billion Islamic private equity fund that will be invested in 
infrastructure projects worth over $20 billion. Ithmaar will 
invest about $750 million in at least three different 
projects in the Kingdom in addition to four projects in 
 
China. The fund is under formation and is likely to be based 
in Bahrain, and will be managed by Dubai-based Abraaj Capital 
and co-sponsored by Bahrain-based Ithmaar Bank and Deutsche 
Bank. The key targeted sectors for the fund will be oil and 
gas, petrochemicals, telecom, power, water, roads, healthcare 
and education. The combined investment opportunity components 
reportedly exceed $1 trillion. 
 
-- Abu Dhabi Investment House is investing $86 million in The 
Lagoon, which will consist of eight low-rise buildings, 
housing restaurants, cafes and other retail outlets, and a 
1-km walkway that encircles the lagoon in Amwaj Islands. 
 
-- United International Bank was granted a license by the CBB 
to operate as an Islamic investment bank, with an extended 
capital of $2.5 billion and paid up capital of $291 million. 
Shareholders will include high-level GCC investors. 
 
-- First Gulf Bank was granted a license by the CBB to 
operate as an Islamic investment bank, with an extended 
capital of $1 billion, and paid up capital of $100 million. 
Investors include Venture Capital and 23 GCC investors. 
 
-- Al Salaam Bank was licensed by the Government of Bahrain 
as an Islamic banking service with a paid capital of $300 
million, in December 2005. Al Salam Bank's main investors in 
Bahrain are Emaar Properties, Amlak Finance, Dubai Investment 
Group, Dubai Holding, Lebanese Canadian Bank, Al Salaam Bank 
in Sudan and Aman Insurance and Re-insurance Company, in 
addition to a large number of establishments, companies and 
individuals from Bahrain, UAE and Saudi Arabia. 
 
TOURISM: 
 
-- UAE-based Abraaj Capital and Bahrain's Ithmaar Bank have 
announced the formation of The Serai Group on July 5, 2006. 
The Serai Group is a joint venture company that develops and 
manages an international chain of shariah-compliant hotels. 
The Bahrain-based company will be capitalized at $500 
million, partially funded by Abraaj and Ithmaar. 
 
OIL, GAS, WATER, AND ELECTRICITY: 
 
-- The Ministry of Water and Electricity sold Hidd Power and 
Water Station in January 2006 to a consortium of three 
international companies, Japan's Sumitomo Corp, UK-based 
International Power and Belgian utility Suez-Tractebel, a 
subsidiary of the French energy conglomerate Suez, at a cost 
of $1.3 billion. The power and water station will sell power 
and water back to the government for 20 years. The project is 
expected to provide 20 percent of Bahrain's power and 65 
percent of its water needs. 
 
-- The Bahrain National Gas Company "Banagas" was formed by 
Amiri Decree in March 1979 and is 75 percent owned by the 
Government of Bahrain with the remaining 25 percent equally 
owned by the Arab Petroleum Investment Corporation and Caltex 
Bahrain. 
 
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Visit Embassy Manama's Classified Website: 
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