Bahrain Economy 2012

Bahrain Economic Quarterly
Second Quarter 2012
Table of Contents The Economic Outlook ................................................................................................................. 3

The Global Outlook............................................................................................................................... 3 The Regional Outlook ........................................................................................................................... 6 Bahrains Economy ............................................................................................................................... 7
Special Articles ............................................................................................................................ 12

Microfinance: An Untapped Opportunity ........................................................................................... 13 Bahrain Global Rankings Performance ............................................................................................... 22
Chart Set ...................................................................................................................................... 43 Sources ......................................................................................................................................... 53 Abbreviations .............................................................................................................................. 54
The Economic Outlook
The global economic outlook remains unusually fragile with the situation in the Euro-zone being the main source of uncertainty. However, also the US is facing mounting fiscal challenges while growth is clearly slowing in the Asian economies. The already established dichotomy between the relatively stagnant advanced economies and much more resilient emerging markets looks certain to persist, although we are witnessing a renewed turn to stimulus measures in both cases. The GCC region is set for growth with buoyant oil prices boosting fiscal balances, and governments planned infrastructure projects expected to underpin growth in many sectors. Bahrain is expected to see a clear improvement in its growth this year with the EDB forecasting growth of 2.4% for the year, up from 1.9% in 2011.1
export demand. Their growth prospects hence remain far stronger than those of the advanced economies. Growth forecasts for 2012 by the IMF, OECD, IIF and Bloomberg show China leading major economies and the IMF is expecting growth of 7.8% for the year, still strong compared to mature economies but down from previous years. China has had rapid growth over the past decade. The US is expected to see 2-3% growth while the Euro area will likely remain mired in recession.
GDP Growth Forecasts 2012
9% 8% 7% 6% 5% 4% 3% 2% 1% 0% -1%
The Global Outlook The European crisis represents the largest risk of discontinuity globally, as the structural weaknesses persist and the Euro area dips into recession once again. Unresolved issues related to the debt crisis remain a cause for uncertainty and negative market sentiment in Europe, although the US economy has begun to show tentative signs of recovery. Emerging economies, by contrast, while still facing concerns, are profiting from stronger local demand and even relatively resilient
1
United States IMF
Euro Area IIF
Japan
China
OECD
Bloomberg Consensus
Mature Economies Mature economies are still reeling from the effects of the global economic crisis, which was triggered by the financial crisis of 2008 The US has begun to show weak signs of recovery, with minimal positive growth in all quarters over the past year, with the exception of the fourth quarter of 2011 when it grew 4% over the previous quarter. Japan experienced much more volatile quarterly growth, peaking at 8% in the third quarter of 2011 and then dropping to 0.1% in the next quarter. Growth picked up in 2012 to 5% in the first quarter, and dropped again to 2% in 3
This is based on the new GDP breakdown which uses 2010 as the base year. The previous base year, 2001, would give real growth of 2.2% in 2011 and a projected 3.7% in 2012.
the second quarter of this year. Euro area growth mirrored the Japanese pattern at lower rates, dipping into the red at the end of 2011 (-1.3%) and contracting again in the second quarter of 2012 (-1%) after a faint positive reversal in the first quarter.
Mature Economies Quarterly GDP (YoY) percentage growth
1.6 1.4 1.2 1.0 0.8 0.6
ECB Policy Rate Percentage 2010-2012
10% 8% 6% 4% 2% 0% -2% Q3 2011
0.4
0.2 0.0
Source: ECB
Q4 2011
Q1 2012 Euro Area
Q2 2012 Japan
Although Germany saw an improvement with a rise from 43 in July to 49.2 in September, this does little to dispel fears of a continued crisis as readings below 50 signal a contraction. Other concerns in the Euro-zone stem from the widening dichotomy between the economically stable countries like Germany as opposed to the fiscally challenged peripheral economies such as Spain and Greece. As the political resistance to austerity mounts, it is still unclear whether there will be a Greek exit from the union, while formal bail-outs of the much larger economies Spain and Italy are seen as increasingly likely. The crisis in the Euro-zone has in turn had some global spillover effects through lower trade volumes, reduced European investment, and weaker performance by foreign companies with European operations. This has been one of the negatives affecting the US economy as well, although growth has otherwise benefited from some improvements in retail sales and manufacturing, as well as an incipient turnaround in the housing sector. 4
United States
Source: US Federal Reserve, Eurostat, Bank of Japan, OECD, IMF
The Euro-zone continues to be in a mild recession, albeit with considerable internal variation, and the future remains unclear. This has led to a far more interventionist stance by the European Central Bank (ECB), designed in part to counter the effects of the ongoing fiscal consolidation. The ECB lowered the key rate to 0.75% in July, a historical low, and it has issued longer-term loans to banks while signaling its willingness to boost government bond purchases. Despite this, the leading indicators remain negative with, for instance, the Markit Eurozone PMI Composite Output Index showing little change from 46.4 in June to 46.1 as of August.
Nonetheless, the economy still remains reliant on exceptional stimulus measures with little sign of a sustained improvement. Among other things, planned fiscal tightening by approximately 4% of GDP is expected by some observers to pull the economy back into recession by next year. This was one of the factors prompting the US Federal Reserve to renew formal quantitative easing in September. The openended QE3 is likely to involve purchases of US$85 billion of longer-term securities per month through the end of 2012 alone. In addition, the Fed plans to keep long term interest rates near zero levels until 2015.
demand for their minerals and other raw materials, weaker export demand is spelling lower growth. The IMF projects growth of 3.2% this year, down from 4.5% last year. Part of the reason for the slower growth is weak global demand, particularly in the US and Europe.
Emerging Economies Quarterly GDP Percentage growth
8%
6%
4%
2%
Emerging Economies Emerging economies continue to outperform their advanced counterparts with, for instance, the Asia Pacific (this also includes some high income countries such as Japan Korea and Australia) region achieving a strong 7% growth during the first quarter of this year. Much of this is due to greater macroeconomic stability and more conservative management than in advanced countries. In spite of their resilience, emerging markets are affected by the global slowdown. The emerging economies of Central and Eastern Europe proved particularly vulnerable to the global crisis having benefitted from the boom and large capital inflows prior to 2008. While these drove rapid growth, they also created vulnerabilities through large current account imbalances. While growth remains positive, it has been slowing because of the regions exposure and proximity to the suffering Euro-zone. Although the Latin American economies have benefitted from the structural growth in 5
0% Q3 2011 Q4 2011 Q1 2012 Q2 2012
-2%
Latin America Emerging Europe Asia/Pacific
Source: US Federal Reserve, Eurostat, Bank of Japan, OECD, IMF
The Asia-Pacific region still constitutes the backbone of global growth with China alone contributing more to the global GDP growth than the advanced economies taken together. The most recent Chinese data points to a fairly marked slowdown, however, and the government has formally reduced its growth target from 8.0% to 7.5%. In response, the authorities have taken measures to accelerate planned investment projects and to undertake renewed monetary easing. Many are concerned by Chinas high dependence on exports against the backdrop of a weakening global economy. In the second quarter of the year, Chinas GDP growth dropped to a 3-year low of 7.6%, mainly due to weaker exports. Exports, however, continue to make up a large
portion of Chinas GDP as efforts to rebalance growth have brought limited results.
Crude Oil Petroleum Prices USD per barrel

140 130 120 110
The Regional Outlook The GCC is not immune to the effects of the global slowdown, and the main areas which we expect to be affected are trade, tourism, and reduced capital flows. Nonetheless, the outlook for the GCC countries remains favorable, although last years rapid rebound in growth is likely to give way to relative stabilization. The GCC countries are expected to see real GDP growth of around 5% for 2012, down from 6.4% last year. A key factor supporting the strong regional growth prospects is the persistence of historically high oil prices which in turn can support government spending. Crude oil prices reached $113.36 per barrel at the end of August 2012, up from June this year, but still not as high as the levels seen in 2011. The increase comes from increased regional political tension as well as reduced risk aversion, partly in connection with the increases in unconventional monetary stimulus measures around the world. The higher oil prices are generally being used by governments to provide support to the nonoil sectors. The region is further benefiting from increased oil production, partly in response to production disruptions elsewhere as well as the Iranian sanctions. Saudi Arabia has been the key swing producer in this regard with estimated spare capacity of 2.5 million barrels per day. Its output has in recent months averaged around 10 million barrels per day.
100 90 80 70 60 Oct-10 Oct-11 Jul-10 Jul-11 Apr-10 Apr-11 Apr-12 Jan-10 Jan-11 Jan-12 Jul-12
Source: bp Brent oil price history
The key regional challenges remain dealing with current and upcoming unemployment, reducing the economies dependence on oil, increasing integration in the GCC and selecting key industries to support which will stimulate growth of the private sectors. The UAE in particular is feeling the effects of the global downturn with GDP growth expected to drop to 4% down from 5.2% last year according to the IMF due to fiscal consolidation and the weak global economy. Kuwait, Saudi Arabia and Qatar are expected to lead growth with rates of around 6%. In the case of Qatar, this marks a sharp drop from the double digit rates seen during the recent natural gas investment boom. Nonetheless the growth prospects for Qatar remain favorable, with the government expecting to spend around 10% of its GDP (around $39 billion) on infrastructure and total project disbursements. Budget surpluses are expected to remain ample. The fiscal surplus is expected to be 7.8% of GDP for 2012 and current account at 22% of GDP this year. However, the global slowdown will undoubtedly affect Qatar as funding for projects and infrastructure depends to a degree on foreign investment, partnerships, 6
and partly syndications.
externally
funded
loan
% change YOY 30 25 20 15 10 5
In Saudi Arabia, the strong 7.1% growth last year received a major boost from increased government spending supported by high oil prices and increased production levels. However, also the private sector is beginning to gather momentum. Nonhydrocarbon GDP grew by 5.1% in 2011, led mainly by construction and manufacturing. Economic growth has received a boost from the governments emphasis on housing, most notably through a project designed to build half a million new affordable homes by means of a $110 billion fiscal package. Access to housing is also likely to receive a boost from the recent approval of the long-awaited mortgage law and banks have already sharply increased their real estate lending. Efforts are also underway to reform the labor markets, for instance through a new jobseekers allowance and a broader program designed to boost the employment of Saudi nationals in the private sector. Among other things, the government has boosted the funding for small and medium-sized enterprises. We expect Saudi growth to normalize this year due to slower growth in government spending and oil prices and production even as the private sector recovery continues to gather momentum. Saudi growth in Q1 was 5.9%, a rate that decelerated further to 5.5% in Q2.
GCC Real GDP YOY Percentage Growth 2006-2013*
0
-5 -10 Bahrain Oman Saudi Arabia Kuwait Qatar United Arab Emirates
*2012 and 2013 growth figures are IMF estimates Source: IMF, World Bank and CIO
Bahrains Economy The EDB expects Bahrains GDP to grow by at least 2.4% in 2012,2 driven above all by increased manufacturing and government spending. The first two quarters of the year have generally been characterized by favorable trends. Real GDP grew by 4.2% in the second quarter relative to the same quarter last year after businesses began to recover from the events of 2011. Relative to the first quarter of the year, GDP fell by around 1%, which makes it the first negative quarter on quarter growth since last year. However, the drop was almost entirely due to falling volumes from the Abu Safa field while the non-oil sector continued to rebound, indeed by a remarkable 8.1% YoY.
This assumes that the temporary disruption in the Abu Saafa field only fully normalizes by the end of the year. An earlier rebound or any compensation would boost the contribution of the hydrocarbons sector.
This points to good progress of the increasingly broad-based recovery.

BD million
2,600 2,550 2,500 2,450 2,400 2011 2011 2011 2011 2012 2012 Q1 Q2 Q3 Q4 Q1 Q2
Bahrain GDP growth Quarterly change

4% 2% 0% -2% -4%
project aimed at raising production in the Awali field by Tatweer petroleum. The target is to double oil production within the first 5 years of operations by using enhanced oil production techniques. There has been a particularly strong rebound in parts of the service sector that recorded the sharpest falls last year. For instance, the hotels and restaurants category grew by 6.5% in the first quarter and 5.5% in the second quarter. This sector took one of the hardest hits in 2011, when it fell by 17% compared to the previous year. Construction grew by 10% in the first quarter (quarter on quarter) and shrunk slightly by 0.7% in the second quarter compared to the first, reflecting government spending on infrastructure and housing. This still indicates a 7% recovery compared to the same period last year. Manufacturing followed a similar trend, growing 13% in the first quarter over the fourth quarter of last year, and then slower at 1% in 2012. Growth is likely to pick up further in 2013 due to a growth in infrastructure spending, as more than 20,000 housing units are set to be built by the government in the coming five years. In addition, Bahrain is expecting to receive its first tranche of the $10 billion GCC fund this year, most of which will be spent on government projects to improve infrastructure and social conditions in Bahrain.
2,350
2,300 Source: CIO
-6%
-8%
growth
GDP
Most sectors have by now experienced a clear rebound since last year, including mainstays such as construction, manufacturing and hotels and restaurants. Virtually all the the second quarter weakness has come from temporary production disruptions in the mining (oil and gas) sector, which contracted by 7% relative to the first quarter, and 10% relative to the second quarter of 2011. The Central Informatics Organization has rebased real GDP, and the base year is now 2010 instead of 2001. This means that mining (mainly oil and gas extraction) now makes a much bigger contribution to GDP (21.5% in 2011) reflecting the higher oil prices in 2010, and thus the fall in it had a proportionately greater impact on the overall GDP. Despite the recent reversals, we expect oil production to increase in the second half of the year. It should be noted that oil production is expected to increase over the coming decade, in particular due to the 8
40.0%
Bahrain Sectoral Growth Quarterly
20.0%
0.0% 1st 2nd 3rd 4th 1st 2nd 3rd 4th 1st 2nd Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr -20.0% 2010 2011 2012 Mining Manufacturing Construction Wholesale & Retail Trade Hotels & Restaurants Transport & Communications Financial Services
-40.0%
several months showed negative growth. In January, February and March credit to the public sector shrank between 8 and 9 percent each month, which makes a decrease in value of between BD 17 million and BD 21 million each month. This indicates renewed confidence by banks in the private sector as well as growing demand for credit, signaling increased liquidity in the private sector, and is indicative of a more broadbased recovery led by the private sector.
Year on Year Growth in Credit to the Private sector and Government 2011-2012
Source: CIO
Finance, which currently makes up 17% of GDP, has been affected repeatedly by global and local events. First the global financial crisis in 2008 led to a liquidity squeeze all over the world, and a somewhat delayed effect was felt in Bahrain during 2009. Soon thereafter, several investment banks were affected by the drop in the real estate market prices in the region. Another hit came following the unrest in 2011 when the sector, particularly wholesale banking, faced uncertainty and capital flight. Most recently, one of Bahrains largest investment banks, Arcapita, filed for Chapter 11 bankruptcy in the US. Overall, the finance sector experienced a 2.7% YoY contraction in the first half of this year compared to the first half of 2011. Despite signs of weakness in the wholesale banking sector, the retail banks continue to show robust growth in assets. Retail banks lending - a good indicator of confidence in the market- has grown. The year on year growth in credit to the private sector has increased substantially this year relative to 2011, reaching an increase of BD 1 billion in July, a 19% increase. Loans to government did not exhibit the same consitency or magnitude of growth, and 9
1200 1000 800 600 400 200 0 -200 Jan Mar May Jul Sep Nov Jan Mar May Jul -400 2011 2012 YoY growth in credit to the Government YoY growth in credit to the Private Sector Source: Central Bank of Bahrain
Unemployment lagged behind the weaker performance of output in 2011, and increased to its highest level during the current data series of 4.7% as of June 2012. Dealing with this social challenge remains one of the pressing issues facing policy makers in Bahrain today.
Unemployment Rate Percentage

5 4.5
6% 5% 4% 3% 2% 1% 0% 9/2009
Inflation rate Consumer Price Index 2009-2012
4
3.5 3 2.5 2 1.5 1
3/2010
6/2010
9/2010
3/2011
6/2011
9/2011
3/2012
12/2009
12/2010
-1%
-2%
Source: Ministry of Labour -3%
Source: Central Informatics Organization
Inflationary pressures in Bahrain have remained relatively weak in recent months, partly because of the negative contribution of housing costs in an environment where rents are still trending down. However, inflation jumped to 4.2% in June of 2012 in a marked turnaround from a deflationary period in 2011 when it fell to -2% in April. Some of the contributors to inflation have been higher prices in categories such as recreation and culture, alcoholic beverages and tobacco as well as restaurants and food and non-alcoholic beverages which increased to a lesser extent. However, most of the increase was due to a base effect resulting from the period of exceptionally low price growth in 20113.
Growth of Consumer Price Index Categories July 2011-July 2012

Communication Housing, water, Education Healthcare services Clothing and footwear Restaurants Food and non-alcoholic Miscellaneous goods Transport Furnishing, household Alcoholic beverages Recreation and culture
-10.0% 0.0% 10.0% 20.0% 30.0% Source: Central Informatics Organization
The weights of the consumer price index reveal that the largest contributions to the basket used to measure the CPI was the category of food and non-alcoholic beverages, followed by miscellaneous goods and services, recreation and culture and education- these are all categories which recorded growth over the period which explains the sharp growth in CPI over the past year. Communication dropped by 5.6% and makes up 5.4% of the basket, slowing the growth in CPI.
10
12/2011
6/2012
CPI Weights Percentage

1.3% 1.0% 2.0%
Food and nonalcoholic beverages Miscellaneous goods and services

Recreation and culture
5.1% 5.4% 5.6% 7.0%
16%
Education Communication Restaurants Electricity gas & other fuels Transport services
7.1%
11
Special Articles
This edition of Bahrain Economic Quarterly contains two special articles that provide an analysis of the microfinance industry in Bahrain and the positioning of the Kingdom within the global rankings. The Microfinance article provides an examination of the microfinance market in Bahrain, identifying key players and evaluating different aspects of the industry. The history and landscape of the microfinance industry dates back to 1998 and a brief outline traces its evolvement to the present day. An overview of all the microfinance providers services and the composition of their loans is given. Finally the article looks at possible improvements in the sector, and outlines several challenges which it faces. The Global Rankings article assesses Bahrains standing in international indices and reviews the Kingdoms performance in various component indices. This piece provides an update about the Kingdoms progress and identifies areas for further improvement. The analysis lists the most recent global rankings of Bahrain according to 16 leading international indices. Evaluation of the reports demonstrates that Bahrain has attained impressive results in a number of indices. Although some of this standing has been eroded lately, Bahrains position remains highly competitive on a global scale.
12
Microfinance: An Untapped Opportunity
What is Microfinance? The idea behind modern day microfinance is often attributed to Dr. Muhammed Yunus, winner of the Nobel Peace Prize and a Bangladeshi university professor who decided to create a bank which would extend financing to the poor. Its central objective was to reduce the exploitation of the poor by lenders and, by doing so, allow them to invest and create self-employment opportunities. This institution, known as Grameen Bank, remains a model for many microfinance institutions worldwide, which are seeking to replicate its success.4 The term microfinance refers to the provision of financial and non-financial services such as credit, savings, cash transfers and insurance to low-income individuals. The goal of microfinance institutions (MFIs) -- entities who provide this particular type of financing -- is to enable their clients to escape poverty by starting their own businesses and eventually generating a steady source of income. The loans offered by MFIs are usually modest in size, far smaller than those offered at conventional banks. Due to the disproportionate administrative costs associated with small loans, conventional banks prefer to focus on larger tickets where the proportion of such costs is lower. As a result, a large segment of the population in need of small loans are likely to struggle to gain access to funding from conventional sources. Due to these factors, MFIs are often not for profit, and a large part of their mission is social development. They also
4
share risks with their customers. Despite the growth of microfinance in recent years, it is estimated that only 10% of the worlds economically active poor have access to even the most basic financial services.5 Other factors differentiating MFIs from regular banks include: Minimal collateral requirements Minimal guarantees Core business that usually does not depend on collecting deposits Shorter loan tenors Higher interest rates A not for profit operating model designed to boost social wellbeing A predominance of business start-up funding Efforts designed to help clients succeed through initiatives such as workshops, training, and regular follow-ups Occasionally the reliance on unconventional methods such as group financing, a method in which several people apply for a loan as a group and share a joint responsibility for it. If the group defaults, then they will all be exempt from future loans. This creates social pressure to repay the loan
Benefits of Microfinance Recent estimates by the Social Insurance Organization indicated that close to 88% of businesses in Bahrain are micro-enterprises. Micro-enterprises are defined as businesses that hire up to 10 employees, and have a capital investment of up to BD 20,000 for the manufacturing sector, and annual
Grameen Bank <www.grameen-info.org>
Judith Brandsma & Deena Burjorjee, Microfinance in the Arab States (New York: United Nations Capital Development Fund, 2004)
13
turnover of up to BD 100,000 for all other sectors. In view of the sectors importance for the economy of Bahrain, microfinance can serve as an important tool for boosting overall economic development. Poverty and income inequality have become increasingly salient socio-economic issues in recent years. Microfinance has historically been proven to provide a powerful tool to help alleviate them. The advantage of microfinance over government- funded programs is the lesser fiscal burden involved in the former. Moreover, by relying on microfinance, low-income individuals can be expected to create a living for themselves and become economically independent instead of relying on regular grants from private or public organizations. Recent figures indicate that an increasing number of Bahrainis are resorting to social welfare as a source of income. The number of people receiving social welfare, according to Ministry of Human Rights and Social Development figures, grew by 93% between June 2009 and April 2010 alone.
Eligible Welfare Recipients Number of People
Growth: 93% 80,000 70,000 60,000 50,000 39,356 40,000 30,000 20,000 10,000 Nov-09 Dec-09 Jun-09 Sep-09 Oct-09 Jul-09 Feb-10 Aug-09 Jan-10 75,904
by dividing the total welfare pay-outs by the number of eligible welfare recipients) from BD 291 to BD 836 per month in the same period. Throughout the history of Microfinance, women have dominated among MFI clients. The main reason for this has been their greater vulnerability to poverty. They nonetheless tend to be more likely to use additional sources of income to nurture and develop their families, by spending on education, nutrition and health for other household members. Generally, they tend to have better repayment rates, which makes them more attractive customers to financial institutions. Microfinance can also serve as a powerful tool for the empowerment of women, who are more likely to be dependent on their spouses in developing nations. Many developing nations have high levels of income inequality and a generally small middle-class. Successful microfinance programs can help grow a larger middle class and potentially make it a majority rather than a minority of the population.
History and Landscape of Microfinance Institutions in Bahrain The origins of Bahraini microfinance can be traced to the launch in 1998 of the MicroStart Program, which was designed to combat unemployment while seeking to diversify the economy away from its finite oil resources. The MicroStart project was a joint collaboration between the United Nations Development Program (UNDP) and the Ministry of Labour and Social Affairs along with the NGOs (Awal society and the CMWS). The main objective of this project 14
Source: Ministry of Human rights and Social Development, EDB Analysis
Moreover, the average welfare payments given to welfare recipients also rose (taken
Mar-10
Apr-10
was to provide small short-term loans to low-income individuals, with a slight focus towards women. The program created a system of sustainable credit delivery, as well as a management capacity for this system in several national welfare Non-Government Organizations (NGOs). The total budget for this project was $1.5 million.
Statistics from the UNDP indicate that this project was relatively successful and by 2002, around 7,600 loans had been given to approximately 4,300 low-income individuals for a total value of around $2.5 million. These amounts made up around 40% of social assistance beneficiaries, or 30% of registered unemployed nationals at that time.6 This project provided training to the NGOs (Awal society and the CMWS) to move from a charitable approach to lending, to a more banking oriented approach, and estimates indicate that it increased the societies revenues between 25-50%. Societies were also given grants from the UNDP and MOLs funds to kick-start their lending. As a result of the success MicroStart and the highly positive impact it had on poverty reduction and civil society capacity development, the Government of Bahrain (represented by the Ministry of Social Development MoSD) along with the UNDP decided to continue the project with the purpose of expanding its impact and provide more focus on youth and women as its primary target. At the national level, the project contributes to achieving the national economic vision for the year 2030 which states that we aspire to shift from an
6
economy built on oil wealth to a productive, globally competitive economy, shaped by the government and driven by a pioneering private sector an economy that raises a broad middle class of Bahrainis who enjoy good living standards through increased productivity and high-wage jobs. Our society and government will embrace the principles of sustainability, competitiveness and fairness to ensure that every Bahraini has the means to live a secure and fulfilling life and reach their full potential. The new project named Expansion of Micro Finance Services to the Needy Citizens in the Kingdom of Bahrain; was officially signed between the MoSD and the UNDP on February 2008 for a three-year period ending in January 2011. The major objective of the new project was to create an enhanced environment for equitable job creation and sustainable economic growth. As such, the primary focus was to expand the number of loan recipients / micro entrepreneurs through three distinct action areas, these are: Targeting the youth, Increasing focus on women as loan recipients, and Increasing the number of NGOs participating in the project to expand access to credit through prudently managed civil society actors (NGOs).
The total project budget amounted to US$ 1.4 million of which US$ 500,000 was to be provided by the Ahli United Bank, US$500,000 by the Ministry of Social Development and the remaining US$400,000 by UNDP which was to raise this amount as part of its partnership with the government of Bahrain or from other resources. 15
Salman, Ali, UNDP. Personal interview. April 2012.
After consideration of the paradigms in the global microfinance industry, witnessing a growing number of Regulated Microfinance Institutions and Microfinance Banks entering into the field, the MoSD and Ahli Bank decided to re-channel part of their financial contribution to the Microfinance project to help establish a regulated Microfinance Institution, later called the Family Bank - FB. The decision was taken with a view to rooting the project within the mainstream financial system in the Kingdom of Bahrain and guaranteeing the continuation of activities beyond the life of the project, notwithstanding the role of the NGOs as partners besides the bank. Bahrain has by now seen the emergence of two microfinance lending institutions Ebdaa Bank and Family Bank. In addition, the Bahrain Development Bank which currently finances slightly larger loans to SMEs, initially offered micro financing. These banks target the same markets as the societies mentioned above, although the size of loans offered by the societies tends to be smaller (see figure below). In addition, the banks are licensed by the Central Bank of Bahrain, and thus have more stringent regulations than the societies do. Examples include a minimum capital requirement, Central Bank licensing fees, audit and publication of financial statements. There are also restrictions on the amount of capital that can be lent out relative to the liabilities (also known as gearing), which apply to the licensed MFIs.
Microfinance Banks
Table (1): Comparison of MFIs
Range (BD) Interest rate (p.a.) Paid up capital (BD) Net Profit 2011 Number of loans since inception Total value loans (BD) of Ebdaa 200 5,000 4-15% annually * 1,885,000 NA 2,624 3,571,249 68% Private public and Family 500 7,000 12%** 5,000,000 -519,576 861 1,309,999 64% Private public and
% of loans given to women Shareholding
Source: Family Bank and Ebdaa Bank *depending on the product, tenor, **6% subsidized by Tamkeen
Ebdaa Bank Ebdaa bank is a closed joint stock company which is 60% privately owned. It was formed in 2009 and aims to improve the social and economic conditions of Bahrainis through microfinance. Unlike family bank it 16
is not an Islamic bank, and offers conventional as well as sharia compliant services. Table (2): Ebdaa bank loans by age
Age 18 - 27 28 - 35 36 - 45 46 - 64
Source: Ebdaa Bank
Ebdaa Bank Range of Loan Amounts Bahraini Dinars

60% 50% 40% 30% 20% 10% 0%
Percentage of Total Loans 14.90% 26.14% 26.52% 32.43%
When looking at the geographic distribution of Ebdaa Banks loans by governorate, a clear predilection for the Northern directorate can be seen as in the case of Family Bank. The capital and southern directorates received a disproportionately low share of loans, probably in reflection of higher relative incomes in these areas.
Ebdaa Bank Loans by Governorate % of total number of loans 2012
Muharr aq 17%
% of total loans in this range Source: Ebdaa Bank
Source: Ebdaa Bank
The largest proportion of Ebdaa Banks loans, 32%, goes to people above the age of 46, closely followed by 36-45 year-olds who received 26.5% of the total, and 28-35 year olds who accounted for a comparable 26% share. 18-27 year olds received around 15% of total loans. The vast majority of loans are of short maturity, with over 84% being 24 months or less. Family Bank
Norther n 36%
Central 35% Souther Capital n 8% 4%
Source: Ebdaa Bank
The range of Ebdaa Bank loans is between BD 200-5000, with over 50% of the loans being of very small size, between BD 200 and BD 1000. As seen in the chart below, largest loans are relatively rare, with only 4% in the range of BD 4001- BD5000.
The Family Bank was established in 2010 as the first Islamic microfinance bank in the Middle East. It, much like other MFIs in Bahrain, aims to serve low-income families by financing their entrepreneurial projects. In addition to funding, it provides start-up services such as help with market research and training courses. As can be seen in the table above, the Family Banks recent results show that maintaining profitability is a challenge. To achieve the objectives of the program funding community-based organizations, Family Bank signed 17
cooperation agreements with several associations helping individuals and families with limited incomes.7 The vast majority of loans given by the Family Bank are in the trade sector, which accounts for 65% of the total loans given. Other popular sectors include food-related businesses (11%) and the services sector (6%). Fishing and Manufacturing make up 5% and 4% of total loans respectively, followed by Gift & Stationary Services, Agriculture and Salon Services at 3% each. Trade tends to be a common business for low-income persons due to the lower fixed costs and labour required to set up shops. Many trading businesses can be run by one person, often the owner himself, and do not require machinery or a large space. Foodrelated services can be expected to be popular among women in the informal sector, as many can create food preparation and distribution companies. This is convenient especially for mothers with children at home.
Family Bank Composition of loans by sector
Gift & Stationar Agricultu re y 3% Services 3% Salon services 3%
The Northern Governorate has been the largest beneficiary of Grameen program financing, the Family Banks largest program. It received 32% of the total funds disbursed, although only 23% of the population live there. The Southern Governorate on the other hand received 1% of Grameen program financing, and has a much higher percentage of population (8%) relative to the funds received. Muharraq also received a larger portion than its population, with 26% of financing relative to 15% of population. The Grameen program offers group financing and lower loan amounts than the other Family Bank program, the Microenterprise Financing (MEF). It also offers loans to entrepreneurs who are just starting and/ or who do have Commercial Registrations. Geographic areas with high concentration of loans tell us where microfinancing has been most widely used, perhaps due to more needy Bahrainis living in those locations. It may also indicate geographic areas which might be unaware of the programs available, and could be targeted by MFIs.
Grameen Program Beneficiaries by Geographic Location
Manufac turing 4% Fishing 5% Other Services 6% Food related 11%
Muharra q, 26% Trade 65% Central, 33% Source: Family Bank
Norther n, 32%
Sourther n, 1% Capital, 8%
Source: Family Bank
El Shabrawy, Atef. Family Bank. Personal Interview, April 2012.
18
Population by Governorate Bahrain 2009
Muharra q 15%
Northern 23%
These societies are an important part of the microfinance industry, and supporting them is crucial as they reach the lowest income groups and deal with clients on a personal basis, forming lasting relationships with them and following their success and failure.
Central 27% Capital 27% Source: Family Bank Southern 8%
Microfinance Challenges and Possible Improvements Clients-specific issues
Microfinance Societies (NGOs) In addition to the two banks, two NGOs offer Microfinance in Bahrain. Both the Awal Womens Society and the CMWS were involved in the initial launch of the MicroStart program, and were trained and supported by the UNDP and the government of Bahrain. These societies have a successful track record and offer loans of even smaller amounts than the microfinance banks. In the words of a society member, the people with whom they deal value a word more than any signed agreement. This appears to be true as both societies have very low default rates of around 2%.
Table (3): Comparison of NGOs
Awal Number of loans since inception Value of loans since inception (BD) Manufacturing Trade Services 15,273 3,789,800 23% 62% 15% CMWS 17,341 3,239,050 20% 66% 14%
A recent market research survey conducted by Planet Finance for the Ministry of Human Rights and Social Development looked at approximately 500 microfinance entrepreneurs, some clients and some nonclients. These entrepreneurs specialize in a variety of activities ranging from traders, to street vendors, to services and handicrafts. The survey results indicated that men tended to be more involved in services and commerce, whereas women tended towards less profitable activities, like handicrafts and street vending. The average monthly sales turnover for micro-entrepreneurs is BD 535, and the average profit margin is BD 290. This is slightly higher than the Bahraini minimum wage of BD 250 but lower than median wage of BD 489 as of the fourth quarter of 2011. This is something which may be improved through better guidance for entrepreneurs. Further, females run smaller business than males with 80% of small businesses with low sales turnover being controlled by females while they account for only 40% of the larger businesses. The reasons for this trend may include the sectoral preferences of women, as well as the amount of time which they can spend on their businesses. Increasing guidance for 19
Source: Awal Society and CMWS
women could encourage them to enter more profitable industries. Some of the most prevalent challenges faced by micro-entrepreneurs are sourcing money and the amount of monthly cash flow generated from the activity. Interestingly, the reimbursement of credit, keeping financial records and registering activities are the least challenging. Clients and non-clients awareness of MFIs is generally low, and thus something which could be improved through nation-wide or state-led marketing. For example those receiving unemployment and other government benefits could be notified of various micro-financing options.
industry has, increase awareness as more money can be spent on marketing, and give low income persons a single source which can give them information on all their options, reducing the time and difficulty it takes them to compare their options on their own.8
Regulatory and Legislative Challenges Bahrain currently has two MFIs licensed by the Central Bank of Bahrain (CBB), Family Bank and Ebdaa Bank. However, the CBB does not have a licensing framework specifically for MFIs, and the two existing institutions are registered under Volume 1 and 2, under which both mainstream conventional and Islamic banks are licensed. They hence operate under the same regulations as their larger counterparts. The CBB is currently in the process of developing a sector-specific framework for microfinance. This will include more lenient regulations than those applied to regular banks when it comes to minimum capital requirements, licensing fees, and public disclosure requirements, but also more stringent gearing requirements. It will exempt MFIs from capital adequacy requirements, and include things such as consultancy services. Currently, there is no legislation that covers the micro-financing activities of societies. Also, as the majority of the microfinance customers are considered informal this sector needs regulatory and technical support. Despite the registration as productive family members in the MOSD, the legal status of these micro activities is often not fully formalized, although such
8
Competition Among some MFIs main concerns were increasing competition in the market. The rise in the number of industry players in Bahrains small market has squeezed profit margins, and increased MFI dependence on government and donor sponsors. As a result industry players have little to no profits. In order for the micro-finance industry to be sustainable going forward, it is essential to reduce such dependencies. One possible option for the industry would be consolidation. Smaller players tend to have higher relative costs, and cannot take advantage of economies of scale. Indeed, international experience has shown that competition between MFIs in one country can limit their ability to achieve their goals of helping low-income individuals as MFIs will tend to be more attracted to consumer loans, which limits their economic impact on low-income individuals. Consolidation could strengthen the impact which the 20
Al Qassim, Wahid. Ebdaa Bank. Personal interview. April 2012.
activities are tolerated. This issue can be addressed through better regulation and creating a legal structure for such entities.
Cultural challenges Group financing is not very popular in Bahrain despite MFI attempts to offer it to their clients. This is mainly due to the different cultural differences between Bahrain and countries where the model took shape. Bahrainis are more inclined to take independent loans and to repay them on their own. Though there is a strong sense of community, independence regarding financial matters is a value Bahrainis seem to hold high. Some MFIs also found the need to introduce Islamic financing to their products. This is due to the strong cultural and religious values which tend to govern their client base. In addition, Bahrains culture of welfaredependence may also pose a challenge. It will take education and training to instil an entrepreneurial mind-set, and move people away from depending on social assistance. Although microfinance in Bahrain has developed remarkably since its initiation in 1998, in order for it to be most effective certain reforms must be made. These reforms will ensure that the sector is sustainable and helps Bahrainis have higher incomes and become self-sufficient and independent.
21
Bahrain Global Rankings Performance
This article benchmarks the Kingdoms international position in comparison to other economies with respect to a number of key economic and social indicators. It assesses Bahrains standing in international rankings and reviews the Kingdoms performance in various component indices. This piece provides an update about the Kingdoms progress in international rankings and identifies areas for further improvement. The analysis lists the most recent global rankings of Bahrain according to 16 leading international indices that are usually issued and updated on an annual basis. The analysis uses data from a number of widely respected sources including research and findings from the Heritage Foundation, Transparency International, United Nations Development Programme (UNDP) , United Nations Conference on Trade & Development (UNCTAD), World Bank , the World Economic Forum and the Fraser Institute.
Bahrain's Worldwide Rank
160 140 120 100 80 60 40 20 0
Some reports and indices rely only on statistical data while others build their findings on a combination of statistics and survey data. Statistical data consist of indicators capturing quantitative information, such as inflation rates, GDP, and life expectancy. These data sets are collected by international organizations including the IMF, the World Bank, and various United Nations agencies from reporting national entities (central banks and statistical agencies) in their member states. The survey data is more qualitative in nature and covers a variety of issues such as the protection of property rights, independence of the judiciary, and the quality of the educational system. The article addresses each index and helps illustrate the areas where the kingdom is outperforming or underperforming internationally.
Introduction Bahrain has attained impressive results in a number of recent global rankings. Although some of this standing has been eroded of late, Bahrains position remains highly competitive on a global scale. The indices that showed improvement were global competitiveness, corruption perception, education development index, and travel and tourism. The table below provides a snapshot of the Kingdoms performance in the latest reports compared to the previous ones.
Source: Various Reports
Freedom of the World Economic Freedom Financial Development Networked Readiness Enabling Trade Logistics Performance Global Competitveness Doing Business Travel & Tourism Human Development Corruption Perception Education Development Gender Gap Enviroment Performance
7/144 12/179 24/60 27/142 30/132 32/155 37/142 42/185 40/139 42/187 46/183 51/127
111/135 145/163
22
Table (1): Bahrains comparative ranking

Index Economic 1. Freedom Economic 2. Freedom of the World Ease of Doing 3. Business Global 4. Competiveness Financial 5. Development Networked 6. Readiness Corruption 7. Perception Education 8. Development Travel 9. and Tourism Competiveness Logistics 10. Performance Enabling Trade 11. Gender Gap 12. Environmental 13. Performance
Source: Various reports
Latest rank 12 7
Previous rank 10 10
Change in rank -2 +2
Programme. The Kingdom continues to feature in the category of Very High Human Development countries. The 2011 HDR presents Human Development Index (HDI) values and ranks for 187 countries for the year 2011 The HDI is a summary measure for assessing long-term progress in three basic dimensions of human development: a long and healthy life, access to knowledge and a decent standard of living. As in the 2010 HDR, a long and healthy life is measured by life expectancy. Access to knowledge is measured by i) mean years of adult education9, and ii) expected years of schooling for children of school-entrance age10. Standard of living is measured by Gross National Income (GNI) per capita which is expressed in 2005 constant prices.
42 35 24 27 46 51 40
39 37 23 30 48 45 41
-3 +2 -1 +3 +2 -6 +1
48 30 111 145
32 22 110 -
-16 -8 -1
Bahrains HDI value and rank Bahrains HDI value for 2011 is 0.806. Among the countries in the Very High Human Development category are Norway, Australia, Netherlands, the United States and New Zealand. Between 1980 and 2011, Bahrains HDI value increased from 0.651 to 0.806, an increase of 24% thanks to an annual increase of about 0.7%. The rank of Bahrains HDI for 2010 was 39th out of 169 countries. However, it is misleading to compare values and rankings with those of previous reports, because the underlying data and
9
Evaluation of the reports suggests that Bahrains main comparative strengths include the following: Macroeconomic stability (low inflation) Favorable tax regime Strong banking and finance sector High standard of human development Efficient business regulations ICT readiness
Human Development Index Bahrain occupied the 42nd position out of 187 countries in the 2011 Human Development Report (HDR) published by the United Nations Development 23
the average number of years of education received in a lifetime by people aged 25 years and older 10 the total number of years of schooling a child of schoolentrance age can expect to receive if prevailing patterns of age-specific enrolment rates stay the same throughout the child's life
methodology have changed, while the number of countries included in the HDI has increased to 187. Moreover, a number of key indicators for many countries were unavailable in the 2010 report. Bahrains HDI remains the 3rd highest within the GCC region.
Table (2): Bahrains overall rank in the 2011 Human Development Index
GCC Rank 1 2 3 4 5 6 Total Economy UAE Qatar Bahrain KSA Kuwait Oman 187 economies 2011 rank 30 37 42 56 63 89
To ensure as much cross-country comparability as possible, the HDI is based primarily on international data from the UN Population Division, the UNESCO Institute for Statistics (UIS) and the World Bank. To allow for assessment of progress in HDIs, the 2011 report includes recalculated HDIs from 1980 to 2011 according to its new methodology. These are displayed in Table 3 below. The Kingdom continues to perform well in health and education, the two main components of the HDI. Life expectancy at birth increased by 5.4 years, mean years of schooling rose by 5.3 years and the expected years of schooling advanced by 3.3 years. Bahrains GNI per capita decreased by about 12% between 1980 and 2011. Table 3 reviews Bahrains progress in each of the HDI indicators.
Source: 2011 Human Development Report
Table (3): Bahrains HDI trends based on consistent time series data, new component indicators and new methodology
Life expectancy at birth Expected years of schooling Mean years of schooling GNI per capita (2005 PPP$) HDI value
1980 1985 1990 1995 2000 2005 2010 2011
69.6 71.3 72.3 73.0 73.7 74.3 74.9 75.1
10.0 13.1 13.5 13.6 13.4 13.4 13.4 13.4
4.1 5.2 6.0 7.2 8.3 9.0 9.4 9.4
31,987 21,224 19,302 21,302 22,715 27,102 27,874 28,169
0.651 0.700 0.721 0.750 0.773 0.795 0.805 0.806
24
Assessing progress relative to other countries Bahrains 2011 HDI of 0.806 is below the average of 0.889 for countries in the very high human development group and above the average of 0.641 for the Arab States. Among the Arab States, countries closest to Bahrain in terms of their 2011 HDI rank and population size are Qatar and United Arab
Emirates. They are ranked 37 and 30 respectively (see Table 4).
Table (4): Bahrains HDI indicators for 2011 relative to selected countries and groups
HDI value HDI rank Life expectancy at birth 75.1 78.4 76.5 70.5 80.0 Expected years of schooling 13.4 12.0 13.3 10.2 15.9 Mean years of schooling GNI per capita (PPP US$) 28,169 107,721 59,993 8,554 33,352
Bahrain Qatar United Arab Emirates Arab States Very high HDI
0.806 0.831 0.846 0.641 0.889
42 37 30 -
9.4 7.3 9.3 5.9 11.3
Economic Freedom Bahrain has consistently been the regional top performer in terms of economic freedom. This position is evident in the Kingdoms performance in two prominent economic freedom indices discussed below.
The 2012 Index of Economic Freedom measures the level of economic freedom on 10 pillars: business freedom, trade freedom, fiscal freedom, government size, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labour freedom. Figure 2 displays the scores of the top 15 freest economies (in order from highest to lowest) according to the Index. It is apparent that Bahrain is among the strongest and most competitive economies in the world, a group that includes countries such as the United States, Hong Kong, Singapore and Australia. In addition, Bahrains score is higher than those of some European economies, for example: the United Kingdom and the Netherlands.
Index of Economic Freedom The 2012 annual Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal ranked Bahrain the 12th freest economy in the world out of 179 countries. Bahrain remains the freest economy in the Middle East and North Africa (MENA) and its economic freedom is well above the world average. Bahrain is the only country from the MENA region to feature in the Top 20.
25
100 90 80 70 60 50 40 30 20 10 0
Top 15 Freest Economies
Hong Kong Singapore Australia New Zealand Switzerland Canada Chile Mauritius Ireland United States Denmark Bahrain Luxembourg United Kingdom The Netherlands
According to the index, Bahrains main strengths are the financial sector, its openness to global commerce, and its competitive and efficient regulatory environment. A key area for improvement would be to reduce the high level of public spending which raises questions about fiscal sustainability. In addition, the index implies that improvements in property rights and corruption are critical for establishing a freer economy.
Table (6): Bahrain in details
2012 score 75.2 76.5 82.8 99.9 72.2 70.4 75.0 80.0 55.0 49.0 91.1 2011 score 77.7 77.4 82.8 99.8 80.2 74 75 80 60 51 97 Change -2.5 -0.9 0 0.1 -8 -3.6 0 0 -5 -2 -5.9
Source: 2012 Economic Freedom
Bahrains economic freedom score is 75.2 which is well above the world average. Its overall score is 2.5 points less than last year due to declines in six of the 10 composites, including freedom from corruption, property rights, and government spending. The report highlights that the Kingdom has been undergoing a challenging transition to greater openness and transparency, more visibly since early 2011. Compared to many other countries, Bahrain performs quite well on many of the four pillars of economic freedom. The report stresses that the Kingdoms openness to global commerce is sustained by its competitive and efficient regulatory environment.
Table (5): Index of Economic Freedom, GCC Ranking
GCC 2012 Rank 1 2 3 4 5 6 Total Economy 2012 rank 2011 rank change
Overall Business freedom Trade freedom Fiscal freedom Government spending Monetary freedom Investment freedom Financial freedom Property rights Freedom from corruption Labour freedom
Source: 2012 Index of Economic Freedom
Economic Freedom of the World Bahrain is ranked as the 7th freest economy in the world in the Economic Freedom index of the 2012 Economic Freedom of the World Report published by the Fraser Institute. The index measures the degree to which policies and institutions of countries are supportive of economic freedom in five broad areas: size of government, legal system and property rights, access to sound money, 26
Bahrain 12 Qatar 25 UAE 35 Oman 47 Kuwait 71 KSA 74 179 economies
10 27 47 34 61 54
-2 +2 +12 -13 -10 -20
Source: 2012 Index of Economic Freedom
freedom to regulations.
trade
internationally
and
regulations sub-area of credit market regulation.

Table (8): Bahrains rank in the areas of the 2012 Economic Freedom Index
Areas 1 2 3 4 Size of Government Legal System & Property Rights Access to Sound Money Freedom to Trade Internationally Regulation Credit Market Regulation Labour Market Regulations Business Regulations Total score 2010 score 6.88 7.0 9.18 7.90 2009 score 6.56 6.76 9 7.93 Change in score +0.32 +0.24 +0.18 -0.03
Hong Kong retains the highest rating for economic freedom, 8.90 out of 10. The other top 10 nations are: Singapore, 8.69; New Zealand, 8.36; Switzerland, 8.24; Australia, 7.97; Canada, Bahrain, 7.94; Mauritius, 7.90; Finland, 7.88; and Chile, 7.84. The rankings of other large economies include: United States (18th), Japan (20th), Germany (31st), South Korea (37th), France (47th), Italy (83rd), Mexico (91st), Russia (95th), Brazil (105th), China (107th), and India (111th). Bahrain has increased its scores and improved its relative level of economic freedom.
Table (7): Economic Freedom of the World, 2012 and comparisons with the 2011 report
GCC rank 1 2 3 4 5 6 Economy 2010 score 7.94 7.83 7.7 7.66 7.64 7.06 10 2010 rank 7 11 17 19 20 65 144 2009 rank 10 17 15 38 141 Change in rank +3 +6 -4 +18
8.73 9.0 8.87 8.33
8.74 10 8.74 7.48
-0.01 -1 +0.13 +0.85
10
Bahrain UAE Qatar Kuwait Oman KSA Total
Source: 2012 Economic Freedom of The World Report
Doing Business In 2011, Bahrain ranked 42nd out of 185 economies in the 2013 Doing Business Report published by The World Bank and International Finance Corporation. The Doing Business report measures ten areas of business regulations and their enforcement across 185 economies. Singapore tops the overall ranking, Hong Kong SAR, New Zealand, United States of America and Denmark round out the top five.
Source: 2012 Economic Freedom of The World Report
Bahrain in details The Kingdom has improved in the areas of size of government, legal system and property rights and access to sound money. Positive progress took place also in two sub-areas of regulations, namely business and labour Regulations. On the other hand, Bahrains rank has showed slight deterioration in freedom to trade internationally and dropped in one of the 27
Ease of Doing Business Rank

Regional Average ( MENA) Kuwait Oman Bahrain Qatar United Arab Emirates Saudi Arabia 0 Source: 2013 Doing Business Report 100 200
Bahrain dropped 3 places to 42nd in the 2013 rankings, but despite this deterioration, Bahrain performs comparatively well in many areas and occupies the 7th position worldwide in dealing with construction permits and the 7th position in tax payments and the 27th position in resolving insolvency. Areas of improvement for Bahrain include: trading across borders where the Kingdom moved up 2 places to 49th, and enforcing contracts (2 places up to 114th). Bahrains ranking dropped most markedly in the area of business start-up where it fell from 84th in 2012 to 88th in 2013. The second largest drop was in protecting investors, where Bahrain dropped three ranks to 82nd. The third largest drop was in getting credit, which saw a decline from 127th in the previous year to 129th. The other areas saw only minimal variations of one position.
Bahrain ranks 4th in the MENA region and ranks 42nd worldwide amongst 185 economies
Table (9): Ease of Doing Business, 2013 and comparison with 2012
GCC rank 1 2 3 4 5 6 2013 2012* Change in rank rank rank KSA 22 23 +1 UAE 26 29 +3 Qatar 40 40 No Change Bahrain 42 39 -3 Oman 47 49 +2 Kuwait 82 77 -5 Total 185 183 Source: 2013 Doing Business Report*All Doing Business 2012 rankings have been recalculated Country
Table (10): Bahrains rank in the pillars of the 2012 Doing Business Index Rankings DB 2013 rank DB 2011 rank
1 2 3 4 5 6 7 8 9 10 Starting a business Dealing with construction permits Getting electricity Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Resoling insolvency 88 7 48 29 129 82 7 54 113 27 84 6 49 29 127 79 6 53 113 27
Change in rank
No change No change No change -2 -3 -1 -1 -4 -1 +1
Source: 2012 Doing Business Report
28
Global Competitiveness Bahrain occupied the 35th position in the Global Competitiveness Report 2012-2013 published by the World Economic Forum. The Global Competitiveness Index (GCI), which is based on 12 key indicators, provides a comprehensive picture of the competitiveness landscape in countries around the world at all stages of development. The 12 pillars include institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market sophistication, technological readiness, market size, business sophistication, and innovation. Switzerland tops the overall ranking, followed by Singapore, Finland, Sweden, and the Netherlands. In the Middle East and North Africa, Qatar (11th), the United Arab Emirates (24th) and Bahrain (35th) improved their performance while Saudi Arabia (18th) and Kuwait (37th) saw slight decline. Bahrain moved up two positions to 35th place this year. The improvement in the Kingdoms standing reflects a better institutional framework (21st) and greater macroeconomic stability (29th). Bahrains competitiveness reflects highly efficient goods and labour markets (ranked 16th and 21st respectively), developed financial markets (18th) and high quality of infrastructure (29th). Going forward, putting the country on a more stable development path will require further investment with a view to improving the quality of scientific research institutions, enhancing the university-industry collaboration in R & D and developing the Kingdoms capacity for innovation. 29
Table (11): Global Competiveness Index

GCC rank 1 2 3 4 5 6 Country 2012 rank 11 18 24 32 35 37 144 2011 rank 14 17 27 32 37 34 142 Change 2011 2012 +3 -1 +3 - +2 -3
Qatar KSA UAE Oman Bahrain Kuwait Total
Source: 2012-2013 Global Competitiveness Report
Financial Development Bahrain ranked 24th out of 60 economies in the 2011 Financial Development Report published by the World Economic Forum, dropping one place compared to last year. The Financial Development Index analyses aspects of financial systems, including the institutional environment, the business environment, financial stability, banks, capital markets, and overall capital availability and access. Bahrains average score is 3.9 (out of a possible 7). Honk Kong- SAR tops the overall ranking, followed by the United States, United Kingdom, Singapore and Australia. Bahrain ranks 2nd in the GCC and 24th worldwide in the Financial Development Index. The Kingdom delivers relatively sound performances in both the business and institutional environments. It has relatively strong corporate governance (17th) and a high degree of financial sector liberalization (15th). Bahrain ranks 1st in the tax pillar. Financial stability offers mixed results for Bahrain where it ranks very high in terms of banking system stability (2nd). However the overall score in the pillar is offset by a 51st place rank in currency stability.
The banking and financial services improved in rank from 14th to 11th. Nonbanking financial services placed 36th in 2011 from 42nd place in 2010
Table (12): Bahrains rank in the Financial Development Index
GCC 2011 Rank 1 2 3 4 5 6 Economy 2011 rank 2010 rank 26 23 21 28 57 change
ICT Readiness Bahrain continues to feature prominently in the top 30 economies and is leading the Arab world in The Global Information Technology Report 2012, produced by the World Economic Forum in cooperation with INSEAD. The Kingdom has also improved its position within the top 30 global economies, climbing three places, and is now ranked 27th out of 133 economies worldwide. The Networked Readiness Index (NRI) assesses how prepared countries are to use ICT effectively on four criteria: General business, regulatory and political environment for ICT The readiness of three stakeholder groups individuals, businesses and governments to use and benefit from ICT; The readiness of infrastructure and digital content, alongside its affordability and the skills required; The impact on economic and social conditions.
KSA 23 Bahrain 24 UAE 25 Kuwait 28 Oman Qatar 60 economies
+3 -1 -4 -
Source: 2011 Financial Development Report
There has been a drop in financial stability from 23rd place in 2010 to 37th in 2011. This is likely due to a drop in rank of risk of sovereign debt crisis from 22nd in 2010 to 41st in 2011. The business environment is a strong advantage, ranking 16th, although it has dropped two places from 2010. The cost of doing business has fallen five places to 15th and the Kingdom has a relatively low score for currency stability, ranking 51st. Financial disclosure needs to be improved and has dropped from 36th place in 2010 to 37th place. Financial markets placed 45th, performing worse than the 42nd position achieved last year. Non-banking financial services represent an area for improvement. Bahrain is also limited in its levels of securitization (51st). Overall, improvements need to be made in non-banking financial services and financial markets, as well as stabilizing the currency and monitoring the cost of doing business.
Sweden and Singapore continue to top the rankings followed by Finland, Denmark, Switzerland and Netherlands. Bahrains performance is remarkable in many aspects. The Kingdom creates a fairly sophisticated enabling environment for entrepreneurship and innovation (11th) that, coupled with good ICT readiness (25th) in terms of infrastructure, affordability, and overall skills, has brought the kingdom to the forefront of ICT readiness. This progress has been led by a strong commitment from the government (4th), although this has not yet been matched by the business 30
community (39th). As a result, the progress in innovation and shifting toward more knowledge-based activities (54th) has been limited. Efforts to integrate ICT in a more general innovative ecosystem at the corporate level should help to boost the desired economic impacts of ICT and technology more broadly. The Kingdom can further improve its competitiveness by: Raising the level of existing scientific institutions and creating new ones Fostering scientific research and technological innovation Encouraging and increasing company spending on R & D Enhancing university-industry collaboration in R&D
The Corruption Perception Index ranks countries based on how corrupt a country's public sector is perceived to be. Country scores indicate the perceived level of public sector corruption on a scale of 0 - 10, 0 being absolutely corrupt and 10 being the least corrupt. The findings of the 2011 CPI show that the vast majority of the 183 countries recorded a score below five. New Zealand, Denmark and Finland top the list, while North Korea and Somalia are at the bottom of the index. As shown in Figure 5, Bahrain is perceived to be the 3rd least corrupt country in the GCC, moving up from 4th place in 2010. It has scored 5.1 out of a possible 10 (10 being least corrupt).
Corruption Perception Index
Table (13): Networked Readiness Index, 2012

Economy Bahrain Qatar UAE KSA Oman Kuwait Total economies 2012 rank 27 28 30 34 40 62 142 2011 rank 30 25 24 33 41 75 138 Change +3 -3 -6 -1 +1 +13
10 9 8 7 6 5 4 3 2 1 0 7.2 6.8 Qatar
5.1
4.8
4.6
4.4
UAE Bahrain Oman Kuwait Saudi Arabia
Source: 2012 Global Information Technology Report
Corruption Perception The Corruption Perception Index, published by Transparency International, ranks Bahrain 46th out of 183 countries. It moved up two places from 48th place in 2010.
Bahrain was the only GCC country that succeeded in improving its ranking in the 2011 CPI. The Kingdom advanced by two notches to arrive at position 46 globally.
31
Table (14): Corruption Perception Index

GCC 2011 rank 1 2 3 4 6 5 Economy 2011 Score 2011 rank 2010 rank change
Qatar UAE Bahrain Oman Kuwait KSA Total economies
7.2 6.8 5.1 4.8 4.6 4.4 10
22 28 46 50 56 57 183
19 28 48 41 54 50 178
-3 +2 -9 -2 -7
Source: 2011 Corruption Perception Index
Table (15): Education Development Index
Further improvement is likely to be conditional on stricter implementation of the United Nations Convention against Corruption. Bahrain needs to look into the possibility of joining the OECD AntiBribery Convention which criminalizes the bribery of foreign public officials.
2004
2008
EDI Primary Adjusted NER1
0.953 0.982
0.966 0.993
Adult Literacy Rate
0.865
0.908
Gender Index
Specific
EFA
0.964
0.973
Education The Education for All (EFA) and Education Development Index (EDI) published by UNESCO ranked Bahrain 51st out of 127 countries in the 2008 EFA report. The EDI provides an overall assessment of a countrys education system in relation to the EFA goals. The EFA goals include universal primary education, adult literacy, gender parity and equality, and quality of education. The latest EFA index data was in 2008 where Bahrain scored 0.966 (out of 1.00) and was featured in the category of High Education Development countries.
Survival Rate to Grade 5
0.989
Source: 2008 Education Development Index
The figure displays Bahrains EDI scores for each component, showing comparatively high scores. The lowest score is the adult literacy rate (0.908), though it is still high compared to global standards.
32
Bahrain's Education Development

1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 0.966 0.993 0.908 0.973
0.989
The figure illustrates the placement of the GCC countries in the global rankings. Bahrain has the second highest ranking in the GCC after the UAE.
Travel and Tourism GCC Rankings
100 90 80 95
EDI
Primary Adjusted NER1
Adult Gender Survival Literacy Specific Rate to Rate EFA Index Grade 5
70 60 50 40 30 40 42
62
61
Source: UNESCO Education Development Index
Bahrains score in 2008 improved on the previous EDI which was published in 2004. In 2004, Bahrain ranked 45th out of 125 countries. As shown in the table below, even though Bahrain ranked lower in 2008, the 2008 scores are higher than 2004.
30 20 10 0 UAE Bahrain Qatar KSA Oman Kuwait
Source: WEF Travel and Tourism Report
Travel & Tourism The 2011 Travel and Tourism Competitiveness Report published by the World Economic Forum aims to provide a platform for a multi-stakeholder dialogue to ensure the development of strong and sustainable national Travel & Tourism industries capable of contributing effectively to international economic development. The report ranked Bahrain 40th out of 139 countries. The rank improved one place since the 2009 report. Within the index, there are three subcategories. Bahrain ranked 20th in Travel and Tourism (T&T) business environment and infrastructure, 62nd in T&T regulatory framework and 78th in T&T human, cultural, and natural resources.
Bahrain is ranked 2nd in the GCC and 40th overall, up one place since the last assessment. The country benefits from good transport infrastructure, particularly for ground transport (ranked 11th), and from a well-developed tourism infrastructure th (ranked 26 ). Bahrain also has high-quality human resources (29th), along with high levels of safety and security. On the other hand, policy rules and regulations could be more supportive of the sectors development (ranked 58th), and environmental sustainability remains a particular area of concern (123rd).
33
Table (16): Travel Competitiveness Index

GCC 2011 rank 1 2 3 4 5 6 Economy 2011 rank 30 40 42 61 62 95 139
&
2009 rank 33 41 37 68 71 95 133
Tourism
Change
Table (17): Logistics Performance Index

GCC 2012 Rank 1 2 3 4 5 6 Economy 2012 rank 2011 rank Change
UAE Bahrain Qatar Oman KSA Kuwait Total economies
+3 +1 -5 +7 +9 0
UAE Qatar KSA Bahrain Oman Kuwait Total
17 33 37 48 62 70 155
24 55 40 32 60 36 155
+7 +22 +3 -16 -2 -34
Source: 2012 Logistics Performance Index
Source: 2011 Travel and Tourism Report
Logistics Performance Index The Logistics Performance Index (LPI) assesses a given countrys efficiency of customs clearance processes, quality of trade and transport related infrastructure, ease of arranging competitively priced shipments, quality of logistics services, ability to track and trace consignments, and the frequency with which shipments reach the consignee within the scheduled time. The 2012 LPI, published by The World Bank, ranked Bahrain the 48th most efficient in the world. Bahrain also ranks 4th in the GCC.
The Table below presents the score and rank for each component that make up the overall LPI. In 2012, Bahrains overall score was 3.05 out of 5.00 compared to a 3.37 in 2011. On a global scale Bahrain continued to perform well overall. The quality of the trade and transport infrastructure is good and the process of tracking and tracing consignments is efficient. However, Bahrains position has regressed in some components of the LPI with the sharpest declines recorded in the efficiency of the customs clearance process and the quality of logistics services.
34
Table (18): Bahrains rank in the pillars of the 2012 Logistics Performance Index
2012 Score Overall LPI Customs Infrastructure International shipments Logistics competence Tracking & tracing Timeliness Total economies
Source: 2012 Logistics Performance Index
2012 Rank 48 60 43 72 53 34 60 155
2011 Score 3.37 3.05 3.36 3.05 3.36 3.63 3.85 5
2011 Rank 32 37 30 54 30 26 39 155
Change in rank -16 -23 -13 -18 -23 -8 -21
3.05 2.67 3.08 2.83 2.94 3.42 3.42 5
Trade Bahrain occupies the 5th position in the MENA region and 30th worldwide in the Global Enabling Trade report published by the World Economic Forum. The Enabling Trade Index (ETI) measures the extent to which economies have developed institutions, policies and services facilitating the free flow of goods over borders and to destinations. The index breaks the enablers into four areas: market access, border administration, transport and communications infrastructure, and business environment. Singapore and Hong Kong SAR continue to occupy the top two positions in the Enabling Trade Index ranking, followed by Denmark, Sweden and New Zealand. Bahrain, although dropping 8 positions to 30th in the 2012 report as compared to the 2010 report, still demonstrates solid performance across many indicators in the analysis. Administration at the border has improved further from an already high level. The Kingdom ranks 12th in the efficiency of 35
custom administration - a rise of 3 places from the previous report. Bahrain is also strong in the quality of port infrastructure which ranks 12th, a rise of 5 places, and air transport infrastructure (17th) - up 3 places. Another distinct advantage is Bahrains regulatory environment which occupies the 10th position compared to 25th in the previous report. This is mainly driven by a transparent and efficient institutional framework. Another measure under the ETI is the Government Online Service Index which Bahrain ranked 9th, largely due to an active role by the government in promoting its online services. The Kingdom was also able to reduce the average number of days it takes to export goods from 14 to 11 days, improving the rank from 40th to 33rd. Despite progress achieved in specific areas, Bahrain could further benefit from its strategic geographic location through greater development in its transport services. Bahrain occupies the 67th position with respect to the availability and quality of transport services. Also, Bahrain ranks 59th with respect to General Agreement on Trade in Services (GATS) commitments in the transport sector. Bahrain ranks 45th in terms
of cost of importing goods and 48th in terms of cost of exporting goods reflecting the 15day average time needed to import goods. Ease and affordability of shipment is another area that needs improvement as Bahrain occupies the 72nd position.
Table (19): Bahrains rank in the 2012 Enabling Trade Index
GCC 2012 Rank 1 2 3 4 5 6 Economy 2012 Rank 19 25 27 30 32 66 132 2010 Rank 16 29 40 22 34 65 125 Change
FDI outflows from West Asia rebounded by 54% in 2011 after bottoming out at a fiveyear low in 2010. Bahrain ranked 9th in West Asia with $781 million in 2011. Some GCC countries experienced a dip in FDI in 2011, but FDI flows in the finance sector in Bahrain bounced back strongly in 2011 after a period of serious decline in the wake of the global financial crisis. After attracting investment of $1.8 billion in 2008, the inflow dropped to $257 million in 2009 and to $156 million in 2010.
UAE Oman KSA Bahrain Qatar Kuwait Total economies
-3 +4 +13 -8 +2 -1
Source: 2012 Global Enabling Trade Report
Foreign Direct Investment The 2012 World Investment Report published by the UN Conference on Trade and Development presents data on foreign direct investment (FDI) and traces global and regional trends in FDI. Globally, FDI inflows rose 16% in 2011, surpassing the 2005-2007 pre-crisis level for the first time, despite the continuing effects of the global financial and economic crisis and the current debt crisis in Europe. FDI to West Asia (broadly the Middle East region) decreased by 16% in 2011 to $49bn, affected by political instability and the general deterioration of global economic prospects during the second half of the year.
36
Table (20): GCC Inward FDI in $ US million

Year 2005 2006 2007 2008 2009 2010 2011 Oman 1,538 1,597 3,332 2,952 1,508 1,142 788 KSA 12,097 17,140 22,821 38,151 32,100 28,105 16,400 Kuwait 234 121 112 -6 1,114 319 399 UAE 10,900 12,806 14,187 13,724 4,003 5,500 7,679 Bahrain 1,049 2,915 1,756 1,794 257 156 781 Qatar 2,500 3,500 4,700 3,779 8,125 4,670 -87
Source: 2012 World Investment Report
Bahrain has been a significant outward investor with outward FDI flows reaching US$ 894 million in 2011, increasing from US$ 334 million in 2010 but still below US$ 1,791 million in 2009.
Inward FDI(2005-2011) as a share of nominal 2011 GDP
Table (21): FDI as a share of nominal GDP

Economy Oman KSA Kuwait UAE Bahrain Qatar Inward FDI:2011 as a share of nominal GDP 18% 28% 1% 20% 34% 16%
Source: 2012 World Investment Report 40% 35% 30% 25% 20% 15% 18% 28% 34%
20%
16%
The Global Gender Gap Report 2012 In the 2012 Gender Gap Report, published by the World Economic Forum, Bahrain ranked 111 out of 135 countries, with one drop in rank from the previous year. The report ranks countries on their ability to close the gender gap in four key areas: access to healthcare, access to education, political participation and economic equality. The index scores can be interpreted as the percentage of the gap that has been closed between women and men. 37
10% 5% 0%
Oman KSA
1%
Kuwait UAE Bahrain Qatar
Source: UNCTAD 2012 World Investment Report, EDB
According to the data, Bahrain has the third lowest FDI inflows in the GCC. However when the inward FDI is taken as a share of nominal GDP, Bahrain has the highest share (34%), as shown in figure 9 and the table below.
According to the report in the fields of health and education, while there remain critical gaps in some countries such as Pakistan, Ethiopia, Yemen and Benin, progress has been strong globally with 96% of health gaps and 93% of education gaps been closed across the 135 economies surveyed in the report. However, the global economic gender gap stands at 60%, while only 20% of the political participation gap has been closed. No country in the world has achieved gender equality. The five highest-ranking countries Iceland, Finland, Norway, Sweden and Ireland have closed between 78 and 86% of their gender gaps. Bahrain has closed 63% of its gender gap.
Gender Gap Score
0.66 0.64 0.62 0.6 0.58 0.56 0.54 UAE Kuwait Bahrain Qatar Oman Saudi Arabia
high on both educational attainment and health and survival, but scored low on economic participation and political empowerment. Bahrain holds the third position among the Arab countries and 111th among 135 economies. The Kingdom is characterized by higher-than-average performances on education attainment and health and survival sub-indices partly due to government investments within these two sectors. Bahrain has almost closed health and education gaps but show low levels of womens economic and political participation. The kingdom remains well positioned and its key strength continues to lie in the area of education. Bahrains rank has improved by 34 places in the educational attainment sub-index from 81st position to the 47th position. The secondary and tertiary education enrolment rates for women are higher than those of men, while the primary education enrolment rate is exactly the same for both genders. Gaps still persist within economic participation, particularly within senior positions, wages, and leadership levels.
Table (22): Gender Gap Index
GCC 2011 Rank 1 2 3 4 5 6 Economy UAE Kuwait Bahrain Qatar Oman KSA Total 2011 rank 107 109 111 115 125 131 135 2010 rank 103 105 110 111 127 131 135 change
0.6392
0.632
0.6298 0.6264 0.5986 0.5731
Source: WEF 2012 Gender Gap Report
Figure 10 illustrates the order in which the GCC countries fall in the Gender Gap Index, and their overall score. Although on a world scale Bahrain cannot compete, it is placed 3rd in the Gulf region. The 2012 Global Gender Gap report has ranked Bahrain at 111th globally in terms of overall gender gap between males and females; Bahrain scored 0.6298 (where 0.00 = inequality, 1.00=equality). Bahrain scored 38
-4 -4 -1 -4 +2 No change
Source: 2012 Global Gender Gap Report
Bahrain loses one place because of a worsening perception of wage equality between women and men for similar work. The estimated average income for men is $28,115 compared to $ 16,289 for women.
Another area with room for improvement is economic participation of females which is around 34% compared to 86% of male participation. Bahrain also has a very low level of female political participation.
The Kingdom has an educated talent pool and would have much to gain through greater female participation in the workforce. This can be partly achieved through putting in place practices and policies that will provide equal opportunities.
Table (23): Areas of Gender Gap

Economy UAE Kuwait Bahrain Qatar Oman KSA Total
Source: 2012 Gender Gap Report
Economic participation and opportunity 122 106 118 107 127 133
Educational attainment 1 60 47 36 96 91
Health & survival 111 111 111 127 62 55
Political empowerment 81 130 112 133 129 133
135 economies
Governance The World Bank Worldwide Governance Indicators (Kaufmann, 2011) capture six key dimensions of governance: voice & accountability, political stability and lack of violence, government effectiveness, regulatory quality, rule of law, and control of corruption. They measure the quality of governance in 215 economies. The indicators show that Bahrain scores reasonably on some of the dimensions, particularly: regulatory quality, government effectiveness, control of corruption and rule of law. In the area of regulatory quality, Bahrain is the leading GCC country. Bahrain also performs well against peers in its government effectiveness and control of corruption. By contrast, Bahrain does not score well on the dimensions of voice and accountability and political stability. 39
Table (24): Bahrains performance in the Worldwide Governance Indicators

Governance Indicator 2011 Percentile Rank11 2010 Percentile Rank Change
21.3 Voice and 14.1 Accountability 26.4 31.6 Political Stability/Absence of Violence 71.1 69.9 Government Effectiveness 75.8 75.6 Regulatory Quality 62.4 64.5 Rule of Law 63.6 Control of 64.9 Corruption 100 Total Source: 2012 Worldwide Governance Indicators
-7.2 -5.2
+1.2 +0.2 -2.1 +1.3
11
Higher percentile ranks indicate better governance ratings
Environmental Performance The 201012 Environmental Performance Index (EPI) published by Yale University ranks Bahrain 145th out of 163 countries. The 2010 report was the first time Bahrain was included in the index. The EPI compares countries based on the extent to which they preserve their environment. Bahrains overall EPI score is 42.0 (out of 100). In the environment of public health sector, Bahrain scored very highly (83.7). Within this sector, Bahrain excelled in water and its effects on humans (100), indoor air pollution (94.7), and environmental burden of disease (84.7). The main reason for the score averaging out to be 83.7 is outdoor pollution which had a relatively low score of 35.7. In the ecosystem vitality sector13, Bahrain scored very poorly (0.23). This is due to low scores in most of the sub-categories in this sector. Fisheries scored (35.4), Agriculture (34.5), Climate Change (25.49), Air pollution (17.7), and Biodiversity and Habitat (13.6). In the GCC region, Bahrain ranks 5th and in the MENA region it ranks 17th out of 19 countries. These results are an important indicator for Bahrain, suggesting that more attention should be placed on improving its ecosystem vitality and reducing CO2 emissions.
Conclusion The socio-political unrest that Bahrain witnessed during 2011, coupled with instances of broader instability in the Middle East region, had an effect on the Bahraini economy in the first quarter of 2011, although the economy recovered faster than expected in the second half of the year. Additionally the first two quarters of 2012 have performed positively; real GDP in Bahrain grew by 4.2% in the second quarter relative to the same quarter last year. Despite the recent challenges, Bahrains economy remains in a strong position and the Kingdoms key characteristics make it extremely competitive on a global scale. Above all, Bahrain benefits from macroeconomic stability, low inflation, low taxation, openness to global trade and a strong financial sector. That said, there are several improvements that need to be made to strengthen Bahrains economy and welfare, as well as to enhance its relative standing in the GCC and MENA regions. These include: Enhancing the university-industry collaboration in R&D and further improve the education system Reducing Bahrains high public spending (to avoid the risk of sovereign debt crisis) Reducing the time is takes to register a property Further empowering Bahraini females and support their integration in the labour market and help women in achieving political positions Increasing availability of credit for consumers and businesses Reducing the number of procedures an investor has to go through
12
The 2012 EPI is available but Bahrain is only featured in the 2010 EPI 13 Ecosystem vitality scores are based on seven constituent policy categories: air pollution (ecosystem effects), water (ecosystem effects), biodiversity and habitat, forestry, fisheries, agriculture and climate change.
40
Reducing the time it takes to set up a company Encouraging innovation and research and development Reducing restrictive business regulations Increasing inward foreign direct investment Improving e-government services Stricter implementation of the United Nations Convention against Corruption Improving adult literacy rates. Improving the efficiency of custom clearances and international shipments.
41
Chart Set
42
Chart Set
Key Economic Indicators
Annual Bahrain GDP Growth Rate
9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 6% 5% 4% 3% 2% 1%
Inflation rate Consumer Price Index
0%
Nov-09
Nov-10
Mar-10
Mar-11
Nov-11
Jan-10
Jan-11
Sep-09
Sep-10
Sep-11
Jan-12
Jul-10
Jul-11
May-10
-1% -2% -3%
Source: Central Informatics Organization - revised figures
Quarterly GDP growth in constant prices

3,500 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2009 2010 2011 3,000
Bahraini exports and imports ending Apr 2012 USD mn
2,500
2,000 1,500 1,000 500 0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan 2005 Source: IMF 2006 2007 2008 Exports 2009 2010 2011 2012
GDP quarterly growth
GDP Y-o-Y growth
Source: Central Informatics Organization , EDB analysis
43
May-11
Mar-12
Net International Investment Position BD Millions

9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2005 2006 2007 2008 2009 2010 2011
Bahrains Terms of Trade Annual Percentage Change

15% 10% 5% 0% -5% -10% -15% 2007 2008 2009 2010 2011
Source: Central Bank of Bahrain , National Oil & Gas Authority , Central Informatics Organization
Source: Central Informatics Orgnization , EDB analysis
Labour Market
Current Account Balance Percent of Nominal GDP
18% 16% 14% 12% 10% 8% 6% 4% 2% 0% -2%
Thousands 700 600 500 400 300 200 100 0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3
Employment by Nationality Persons
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011f
2002
2003
2004 Total
2005
2006
2007
2008
2009
2010
2011
Bahraini
Non-Bahraini
Source: Labor Market Regulatory Authority
44
600,000 500,000 400,000 300,000 200,000 100,000 0
Employment by sector Persons

Thousands 60 50 40 30
Public Sector Employment by Nationality Persons
20
10
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q1
Q3
Q1
Q3
Q1
Q3
0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q3 Q1 Q1 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Q3 Q3
2003
2004
2005
2006
2007
2008
2009
2010
2011
Private sector employment Source: Labor Market Regulatory Authority
Public sector employment
Bahraini Source: Labor Market Regulatory Authority
Non-Bahraini
25% 20% 15% 10% 5% 0%
Employment Growth Rate Year on Year Percentage
Thousands 450 400 350 300 250 200 150 100 50 0 Q1 Q3
Private Sector Employment by Nationality Persons
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q1
Q3
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
-5%
Q3
2003
2004
2005 Total
2006
2007 Bahraini
2008
2009
2010
2011
2002
2003
2004
2005 Bahraini
2006
2007
2008
2009
Q1
2010
2011
Non-Bahraini
Non-Bahraini
Source: Labor Market Regulatory Authority (LMRA)
Source: Labor Market Regulatory Authority
45
Bahrain's Unemployment Rate

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0
Banking and Finance

M3* BD bn
12 10 8 6 4 2 0
2005
2006
2007
2008
2009
2010
2011
2012
Source: Ministry of Labor
Source: Central Bank of Bahrain * M3 is the broadest measure of the money supply in an economy. It includes currency, time deposits, institutional and non institutional money-market funds and other large liquid assets
Foriegn worker visa issuance

Thousands 60 50 40 30 20 10 0 2009 Q1 Q2 Q3 Q4 2010 Q1 Q2 Q3 Q4 2011 Q1 Q2 Q3 Q4 300,000 250,000
Retail and Wholesale Bank Assets USD Million
200,000
150,000 100,000 50,000 0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May 2005 2006 2007 2008 2009 2010 2011 2012 Source: Central Bank of Bahrain
New Visas Source: Labor Market Regulatory Authority
Renewals
46
May
May
May
May
May
May
May
May
Sep
Sep
Sep
Sep
Sep
Sep
Sep
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Average Lending Rate Annual Percentage

10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2005 2006 2007 Business Source: Central Bank of Bahrain 2008 2009 Personal 2010 2011 100 95 90 85 80 75 70
Real effective exchange rate index based on CPIs 2005=100
Q2
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q3
Q4
Q1
2009
2010
2011
2012
Source: International Monetary Fund, World Bank WDI Note: Measure of the value of a currency against a weighted average of several foreign currencies
6% 5% 4% 3% 2% 1% 0%
Average Inter-bank Rate Annual Percentage

0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0
BHD/GBP
Q1
Q1
Q3
Q1
Q3
Q1
Q3
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
2005
2006
2007
2008
2009
2010
2011
2012
Short term Interest rate -BHIBOR: 3 month Interbank rate: Quarterly average: 6 months Source: Central Bank of Bahrain
Source: Central Bank of Bahrain
47
Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May 2005 2006 2007 2008 2009 2010 2011 2012
Q2
BHD/EURO
3,500 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 3,000 2,500 2,000 1,500 1,000 500
Bahrain stock exchange index: All shares July 2004=1000
May
Sep
Sep
Sep
Sep
Sep
Sep
May
May
May
May
May
May
Sep
May
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
0 Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan May 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bahrain Bourse
2005
2006
2007
2008
2009
2010
2011
2012
Source: Central Bank of Bahrain
BHD/JPY
6 5 4 3 2 1 0
Production
Quarterly oil production Thousands of barrels
May
May
May
May
May
May
May
May
Sep
Sep
Sep
Sep
Sep
Sep
Sep
Jan
Jan
Jan
Jan
Jan
Jan
Jan
Jan
28,000 26,000 24,000 22,000 20,000 18,000 16,000 14,000 12,000 10,000
Q3
2005
2006
2007
2008
2009
2010
2011
2012
2003
2004
2005
2006
2007
2008 Crude oil
2009
2010
2011 2012
Refined oil Source: Central Bank of Bahrain Source: National Oil & Gas Authority
48
Q1
Q1
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Q1
Q3
Seasonally Adjusted Gas Production Million cubic feet

145,000 140,000 135,000 130,000 125,000 120,000 115,000 110,000 105,000 100,000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Value BD Th 120,000 100,000 80,000 60,000 40,000 20,000 0
Sales and Production of Liquefied Petroleum Gas (LPG)
Volume Barrel Th 4,100 4,000 3,900 3,800 3,700 3,600 3,500 3,400 3,300 3,200
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Value Source: National Oil & Gas Authority Volume
Source: National Oil and Gas Authority
Oil price : Europe Brent Spot Price FOB (Dollars per Barrel)
140 120 100 80 60 40 20 0 10/1/2002 12/1/2003 11/1/2006 10/1/2009 12/1/2010
8/20 12
Hundreds 35 30 25 20 15 10 5
Aluminium Monthly Prices USD per Metric Ton
1/1/2001
8/1/2001
3/1/2002
5/1/2003
7/1/2004
2/1/2005
9/1/2005
4/1/2006
6/1/2007
1/1/2008
8/1/2008
3/1/2009
5/1/2010
7/1/2011
2/1/2012
0 9/2004 12/2004 3/2005 6/2005 9/2005 12/2005 3/2006 6/2006 9/2006 12/2006 3/2007 6/2007 9/2007 12/2007 3/2008 6/2008 9/2008 12/2008 3/2009 6/2009 9/2009 12/2009 3/2010 6/2010 9/2010 12/2010 3/2011 6/2011 9/2011 12/2011 3/2012 6/2012 Source: International Monetary Fund via Index Mundi
source: US Energy Information Administration
49
Thousands
250 200 150 100 50 0
Aluminium Production Metric ton

3,500 3,300 3,100 2,900 2,700 2,500 2,300 2,100 1,900 1,700 1,500
Seasonally Adjusted Electricty Production GW/h
Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2003 2004 2005 2006 2007 2008 2009 2010
Source: Aluminium Bahrain
Source: Centeral Informatics Orgniazation
Thousands 450 400 350 300 250 200 150 100 50 0
Petrochemical Production Metric ton

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0
Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12
Source: National Oil and Gas Authority
Source: Ministry of Municipalities Affairs and Urban Planning
50
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Number of Construction Permits
Number of Newly Issued Commercial Licenses

Thousands 2.5 2.0 1.5 1.0 0.5 0.0 Thousands 3,000 2,500 2,000 1,500 1,000 500 0
Non-Bahraini Visitors by Mode of Transport Per Quarter
Q1 2003 Q2 Q3 Q4 Q1 2004 Q2 Q3 Q4 Q1 2005 Q2 Q3 Q4 Q1 2006 Q2 Q3 Q4 Q1 2007 Q2 Q3 Q4 Q1 2008 Q2 Q3 Q4 Q1 2009 Q2 Q3 Q4 Q1 2010 Q2 Q3 Q4 Q1 2011 Q2 Q3
Q3
Q3
Q3
Q3
Q3
Q3
Q3
Q3
Q1 2003
Q1 2006
Q1 2009
Q1 2004
Q1 2005
Q1 2007
Q1 2008
Q1 2010
Total
Manufacturing
Construction
By Land Source: Ministry of Culture
By Air
By Sea
Source: Ministry of Industry and Commerce
Tourism
Non-Bahraini Visitors to Bahrain by Quarter
Thousands 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q3 Q1 2003 Q1 2004 Q1 2005 Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q3
Telecommunication
Mobile Subscribers Th Persons
2,000 1,500 1,000 500 0 2002 2003 2004
2005
2006
2007
2008
2009
2010
Q1 2011
2011
Total mobile subscribers Postpaid mobile subscribers Source: Telecommunications Regulatory Authority
Prepaid mobile subscribers
Source: Ministry of Culture
51
Q3
350 300 250 200 150 100 50 0 2004
Fixed Line and Broadband Subscribers Thousands
2005
2006
2007
2008
2009
2010
2011
Fixed telephone lines Broadband subscribers Source: Telecommunication Regulatory Authority
52
Sources
The Economic Outlook IMF World Bank IIF OECD US Federal Reserve Eurostat Bank of Japan Bloomberg Brent Oil Price History
Microfinance: An Untapped Opportunity Ministry of Labour United Nations Capital Development Fund Grameen Bank UNDP Ebdaa Bank Family Bank Awal Society Child and Mother Welfare Society
Bahrains Global Rankings Performance Heritage Foundation 2012 Index of Economic Freedom
Fraser Institute Economic Freedom of the World The United Nations Development Program 2011 Human Development Report The World Bank 2012 Logistics Performance Index Transparency International 2011 Corruption Perception Index UNESCO Education Development Index United Nations Trade and Development 2012 World Investment Report World Bank 2012 Doing Business Report World Economic Forum 2012 Financial Development Report World Economic Forum 2012 Gender Gap Report World Economic Forum 2012 -2013 Global Competitiveness Report World Economic Forum 2012 Global Information Technology Report World Economic Forum 2012 Global Enabling Trade Report World Economic Forum 2012 Travel and Tourism Competitiveness Report World Bank 2011 Worldwide Governance Indicators Yale University Environmental Performance Index
53
Abbreviations
CIO: Central Informatics Organization CMWS: Child and Mother Welfare Society CPI: Consumer Price Index CPI: Corruption Perception Index ECB: European Central Bank EDB: Economic Development Board EDI: Education Development Index EPI: Environmental Performance Index ETI: Enabling Trade Index FDI: Foreign Direct Investment GCC: Gulf Cooperation Council GCI: Global Competitiveness Index GDP: Gross Domestic Product HDI: Human Development Index HDR: Human Development Report IIF: The Institute of International Finance IMF: International Monetary Fund LMRA: Labour Market Indicators Library LPI: Logistics Performance Index MFI: Microfinance Institution MOL: Ministry of Labour MoSD: Ministry of Social Development NGO: Non-Governmental Organization NRI: Networked Readiness Index 54
OECD: Organization for Economic Cooperation and Development SIO: Social Insurance Organisation UAE: United Arab Emirates UNCTAD: United Nations Trade and Development UNDP: United Nations Development Program UNESCO: United Nations Educational, Scientific and Cultural Organization US: United States WB: World Bank WEF: World Economic Forum WGI: Worldwide Governance Indicators WIR: World Investment Report YoY: Year on Year

Bahrain Economy 2012

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Bahrain Economic Quarterly

Second Quarter 2012

Table of Contents The Economic Outlook ................................................................................................................. 3

Special Articles ............................................................................................................................ 12

The Economic Outlook

United States IMF

Euro Area IIF

1.6 1.4 1.2 1.0 0.8 0.6

ECB Policy Rate Percentage 2010-2012

10% 8% 6% 4% 2% 0% -2% Q3 2011

Q1 2012 Euro Area

Source: US Federal Reserve, Eurostat, Bank of Japan, OECD, IMF

Source: US Federal Reserve, Eurostat, Bank of Japan, OECD, IMF

Crude Oil Petroleum Prices USD per barrel

Source: bp Brent oil price history

and partly syndications.

GCC Real GDP YOY Percentage Growth 2006-2013*

This points to good progress of the increasingly broad-based recovery.

Bahrain GDP growth Quarterly change

Bahrain Sectoral Growth Quarterly

Unemployment Rate Percentage

Inflation rate Consumer Price Index 2009-2012

Source: Central Informatics Organization

Growth of Consumer Price Index Categories July 2011-July 2012

CPI Weights Percentage

Food and nonalcoholic beverages Miscellaneous goods and services

5.1% 5.4% 5.6% 7.0%

Source: Central Informatics Organization

Microfinance: An Untapped Opportunity

Grameen Bank <www.grameen-info.org>

Source: Ministry of Human rights and Social Development, EDB Analysis

Salman, Ali, UNDP. Personal interview. April 2012.

% of loans given to women Shareholding

Ebdaa Bank Range of Loan Amounts Bahraini Dinars

Percentage of Total Loans 14.90% 26.14% 26.52% 32.43%

% of total loans in this range Source: Ebdaa Bank

Source: Ebdaa Bank

Central 35% Souther Capital n 8% 4%

Source: Ebdaa Bank

Manufac turing 4% Fishing 5% Other Services 6% Food related 11%

Muharra q, 26% Trade 65% Central, 33% Source: Family Bank

Source: Family Bank

El Shabrawy, Atef. Family Bank. Personal Interview, April 2012.

Population by Governorate Bahrain 2009

Central 27% Capital 27% Source: Family Bank Southern 8%

Microfinance Challenges and Possible Improvements Clients-specific issues

Source: Awal Society and CMWS

Al Qassim, Wahid. Ebdaa Bank. Personal interview. April 2012.

Bahrain Global Rankings Performance

Source: Various Reports

Table (1): Bahrains comparative ranking

Source: 2011 Human Development Report

1980 1985 1990 1995 2000 2005 2010 2011

69.6 71.3 72.3 73.0 73.7 74.3 74.9 75.1

10.0 13.1 13.5 13.6 13.4 13.4 13.4 13.4

4.1 5.2 6.0 7.2 8.3 9.0 9.4 9.4

31,987 21,224 19,302 21,302 22,715 27,102 27,874 28,169

0.651 0.700 0.721 0.750 0.773 0.795 0.805 0.806

Source: 2011 Human Development Report

Emirates. They are ranked 37 and 30 respectively (see Table 4).

0.806 0.831 0.846 0.641 0.889

9.4 7.3 9.3 5.9 11.3

Source: 2011 Human Development Report