IBDE

However, the latest unrest which started with Tunisia to have a domino effect in the other countries in the Middle East seems to damage Bahrain’s economic and political reputation. Last week’s bloodshed is believed to considerably damage country’s economy and reputation. Furthermore, this fear of uncertainty could potentially affect the country’s credibility among foreign investors and its financial system. The cancellation of the Bahrain Grand Prix, the fall of Bahrain stock market, rising insurance can be seen as the most immediate impact on Bahrain’s economy.

Macroeconomic Stability

According to the World Economic Forum, (separate to the recent events) Bahrain’s economy is one of the most stable. The global financial crisis had an effect on Bahrain’s economy which resulted on slow economic growth during 2009. According to IMF, the economy of Bahrain managed the financial crisis well. As a result of financial crisis Bahrain experienced ‘a sharp fall in oil prices, a tightening of global capital markets, and decline in regional and local real estate markets’. During the 2010 according to IMF, Bahrain’s GDP has grown up to 4% (in sectors such like hotels, restaurants, manufacturing, financial corporations, transport, communication, construction, wholesale and retail trade). Whereas in 2011 is expected to grow up to 4.5%. According to Arab World Competitiveness Review 2010 Bahrain maintained positive growth rates by mitigating the effects of the economic crisis through expansionary fiscal policy, at the expense of macro-economic stability which dropped from the 6th place to 11th.

According to the annual Index of Economic Freedom 2011, Bahrain is ranked as the 10th freest economy in the world. According to the Index, Bahrain’s commitment to structural reforms and its openness to global markets have transformed the country into a financial hub and regional leader in the economic freedom. As one of the least oil-dependent economies, according to the Index, Bahrain benefits from a competitive tax regime and a sophisticated financial sector that facilitate the free flow. Its financial regulation has become more flexible and comprehensive. The financial services industry is regulated by the Central Bank of Bahrain.

Attractive Taxes System

According to a report of World Economic Forum (WEF),Bahrain has the fourth most favourable tax regime in the world, out of the 55 leading economies surveyed. Bahrain does not impose tax on personal income, on capital gains, no withholding tax and no restriction on repatriation of capital, profits or dividends. But, it does charge national citizens a 1% tax on the salaries and a 3% on the salaries of émigré employees working for companies with more than 50 employees. Most companies are not subject to a corporate tax, but a 46 per cent corporate tax is charged on oil, gas and petroleum companies. The WEF Financial Development Report 2010 ranked Bahrain the 23rd in terms of its financial system. According to the report Bahrain offers a good business environment with a highly favourable tax regime and a low cost of doing business.

Foreign Investments

Bahrain offers significant investment opportunities in several important sectors. Bahrain’s main exports are oil and gas which make over 70% of governments earnings. Since oil is seen oil reserves are in decline Bahrain has increasingly turned on production and refining of Petroleum. Furthermore, in order to create more opportunities for investors Bahrain has diversified its economy on other sectors away from its dependency on oil and gas such as financial, tourism, construction and building sectors, education and training sectors. Financial sector is one of the most developed sectors in the country. Focused on Islamic Banks has helped the country to transform into a world class financial centre. Foreign investments policies such as cancellation of profits tax, payroll tax, investor’s tax exemption for five years have transformed Bahrain into a very attractive place for foreign investments. As a member state of the common market in GCC, Bahrain opens the opportunity to companies that operate in other GCC member states to open branches in Bahrain offering them the same treatment as national firms.

Another attractive incentive for foreign investors will be its planned 40km Qatar Bahrain Causeway which will link Bahrain with Qatar. This Causeway which is planned to finish by 1013 will benefit those who invest their businesses in Bahrain getting easier access to a market of more than 100 million people.

Free Trade Agreement

Bahrain was the first country in the Gulf to enjoy a Free Trade Agreement (FTA) with the United States. Now the Kingdom has bilateral trade and economic agreements with 43 countries – including China, France, India, Singapore and the UK. The Cooperation Council for the Arab States of the Gulf (GCC), of which Bahrain is a member, has signed an FTA with Singapore; and also set up an FTA with the European Free Trade Asso-ciation (Switzerland, Norway, Iceland and Liechtenstein).

Highly skilled workforce

Bahrain offers a well-educated and multilingual (Arabic, English, Farsi and Urdu) work force. Unemployment, especially among the young, is a long-term economic problem. Bahrain continually seeks to address this challenge. Thus the government under the new legislation support those businesses that invest in training and developing the Bahrainis youth.