Investment Climate Statements for 2016 - Bahrain

Executive Summary

The investment climate in Bahrain is generally good, and has remained relatively stable in the last year, despite the precipitous drop in global oil prices;
Bahrain has a liberal approach to foreign investment and actively seeks to attract foreign investors and businesses;
In an economy largely dominated by state-owned enterprises, the Government of Bahrain aims to foster a greater role for the private sector in economic growth. Government efforts focus on encouraging foreign direct investment in Bahrain, including in the manufacturing and logistics, information and communications technology (ICT), financial services and tourism sectors;
The U.S.-Bahrain Bilateral Investment Treaty (BIT) entered into force in 2001. The BIT provides benefits and protection to U.S. investors in Bahrain, such as most-favored nation treatment and national treatment, the right to make financial transfers freely and without delay, international law standards for expropriation and compensation cases, and access to international arbitration;
Bahrain permits 100 percent foreign-ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without local sponsors;
The U.S.-Bahrain Free Trade Agreement (FTA) entered into force in 2006. Under the FTA, Bahrain committed to world-class Intellectual Property Rights (IPR) protection;
Despite the Government of Bahrain’s transparent, rules-based government procurement system, U.S. companies sometimes report operating at a perceived disadvantage compared with other firms in certain government procurements;
Some businesses report contracts are not always awarded solely based on price and technical merit;
Many ministries require firms to pre-qualify prior to bidding on a tender, often rendering firms with little or no prior experience in Bahrain ineligible to bid on major tenders;
A period of political and civil unrest began in Bahrain in February 2011. While the situation today is quite different and far more stable than in 2011, demonstrations continue to occur, occasionally developing into violent clashes against police;
Violent clashes, when they occur, sometimes make travel in and around parts of Bahrain potentially dangerous. There are no indications that Westerners or U.S. citizens are being targeted directly, but there have been isolated incidents in which protesters voiced anti-U.S. sentiments and burned U.S. flags. The unrest has had a limited impact on American businesses in Bahrain;
Bahrain’s Ministry of Industry, Commerce and Tourism (MoICT) made several changes to the commercial registration process in 2015 in an effort to enhance efficiency and transparency. The new Business Licensing Integrated System (BLIS) allows GCC companies and individuals to apply, track and get a “primary approval” for a new commercial registration online within two working days;
American citizens and companies, however, are still required to appear in person at the Bahrain Investor’s Center (BIC) to file their applications.

Table 1

Measure	Year	Index or Rank	Website Address
TI Corruption Perceptions index	2014	55 of 175	transparency.org/cpi2014/results
World Bank’s Doing Business Report “Ease of Doing Business”	2015	65 of 189	doingbusiness.org/rankings
Global Innovation Index	2015	59 of 143	globalinnovationindex.org/content/page/data-analysis
U.S. FDI in partner country ($M USD, stock positions)	2015	765 M	BEA
World Bank GNI per capita	2010	$21,060	data.worldbank.org/indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Attitude toward Foreign Direct Investment

The Government of Bahrain (GOB) has a liberal approach to foreign investment and actively seeks to attract foreign investors and businesses. Increasing foreign direct investment (FDI) is one of the government's top priorities. The GOB permits 100 percent foreign ownership of a business or branch office, without the need for a local partner; no other Gulf state allows this. The GOB does not tax corporate income, personal income, wealth, capital gains, withholding or death/inheritance. There are no restrictions on repatriation of capital, profits or dividends. Bahrain’s Ministry of Industry, Commerce and Tourism (MoICT) operates the Bahrain International Investment Park (BIIP), a 2.5 million square meter tax free zone located minutes from Bahrain’s main Khalifa bin Salman port. Only 5 percent of the land in the park remains available for new enterprises, though BIIP officials are confident they will attain new land to expand the park. In 2015 MoICT issued a decree doubling rental fees for industrial land. Despite this increase, however, industrial land in Bahrain is still less expensive than it is in other GCC countries. Bahrain is particularly keen on attracting investment from the United States. A Bilateral Investment Treaty with the U.S. entered into force in 2001 and the U.S.-Bahrain Free Trade Agreement commenced in 2006.

Other Investment Policy Reviews

The World Trade Organization (WTO) conducted a formal Trade Policy Review of Bahrain in 2014. Here is a link to the WTO site, where the report can be accessed: http://www.wto.org/english/tratop_e/tpr_e/tpr_e.htm

Laws/Regulations on Foreign Direct Investment

The U.S.-Bahrain Bilateral Investment Treaty (BIT) provides benefits and protection to U.S. investors in Bahrain, such as most-favored nation and national treatment, the right to make financial transfers freely and without delay, the application of international legal standards for expropriation and compensation cases, and access to international arbitration. The BIT guarantees national treatment for U.S. investments across all sectors, with exceptions only for ownership of television, radio or other media, fisheries, and privatization of oil dredging or exploration. Bahrain also provides most-favored nation or national treatment status to U.S. investments in air transportation, the purchase or ownership of land, and the purchase or ownership of shares traded on the Bahrain Bourse.

The national treatment clause in the BIT ensures American firms interested in selling products exclusively in Bahrain are no longer required to appoint a commercial agent, though they may opt to do so anyway. A commercial agent is any Bahraini party appointed by a foreign party to represent the foreign party's product or service in Bahrain.

Bahrain permits 100 percent foreign-ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without local sponsors. Wholly foreign-owned companies may be set up for regional distribution services and may operate within the domestic market as long as they do not exclusively pursue domestic commercial sales. Private investment (foreign or Bahraini) in petroleum extraction is permitted only under a production-sharing agreement with BAPCO, the state-owned petroleum company.

Expatriates may own land in Bahrain. Non-GCC nationals, including Americans, may own high-rise commercial and residential properties, as well as properties used for tourism, banking, financial and health projects and training centers. Expatriates may only own land in specific geographic areas designated via edict from the Prime Minister’s Cabinet.

Business Registration

MoICT made several changes to the commercial registration process in 2015 in an effort to enhance efficiency and transparency. The new Business Licensing Integrated System (BLIS) allows GCC companies and individuals to apply, track and get a “primary approval” for a new commercial registration online within two working days. American citizens and companies, however, are still required to appear in person at the Bahrain Investor’s Center (BIC) to file their applications. For more information on company registration, please visit the following GOB website: https://www.business.gov.bh/

Industrial Promotion

The GOB’s Economic Development Board (EDB), which is chaired by the Crown Prince, is tasked with marketing Bahrain as an investment hub, and helping companies establish a physical presence in Bahrain. The EDB targets FDI in the following sectors: manufacturing and logistics, financial services, information and communication technology (ICT), and tourism, including by publishing information on each of these sectors online and in its quarterly print magazine. EDB also has several offices overseas, including one in Washington, DC, from which staff travel throughout the United States to promote investment in these sectors.

The GOB also has several programs designed to support small businesses (companies with fewer than 5 employees). The Bahrain Development Bank, for example, offers low interest loans to support small businesses, while Tamkeen (the GOB’s private sector support fund) offers technical assistance, training, and grants. Would be entrepreneurs also can apply for a loan from Family Bank, which offers credit worth up to BD 8,000 (roughly USD 21,000).

Limits on Foreign Control and Right to Private Ownership and Establishment

The Kingdom of Bahrain imposes minimal limits in foreign control, and the right of ownership and establishment of a business. The Ministry of Commerce, Industry and Tourism maintains a small list of businesses that are restricted to Bahrain ownership, including press and publications, Islamic Pilgrimage, clearance offices, and workforce agencies,

U.S citizens may own and operate companies in Bahrain, though many such individuals choose to integrate influential local partners into the ownership structure to resolve bureaucratic issues such as labor permits, issuance of foreign visas, and access to industrial zones. The most common challenges faced by U.S firms are those related to bureaucratic government processes, lack of market information, and customs clearance.

Privatization Program

Bahrain's Crown Prince is an outspoken proponent of privatization, and he advocates increased foreign investment as a means of driving private sector growth. To promote this goal, he endorsed the establishment of a "one-stop-shop" for potential investors. Bahrain’s Economic Development Board works with Bahrain’s ministries to attract FDI by highlighting the business-friendly environment Bahrain offers to foreign companies. In April 2014, the Crown Prince appointed a new board of directors for the EDB, significantly increasing the number of private sector representatives on the board. In February 2015 the Crown Prince appointed a new CEO with a strong private sector background.

Screening of FDI

Bahrain does not designate a single entity to screen and/or approve FDI. In recent years, however, it is apparent the Government of Bahrain has become more selective in supporting and approving foreign investment projects. Decisions to approve or reject FDI appear to be primarily based on concerns over land scarcity and national security. The government also seeks to prioritize FDI that will generate the maximum number of jobs for Bahraini nationals.

Competition Law

There is no formal competition law in Bahrain, nor is there a specific agency that monitors competition-related issues. There are general restrictions on FDI in some sectors, including the oil and gas and petrochemicals sectors, in which all companies are government-owned.

2. Conversion and Transfer Policies

Foreign Exchange

Bahrain has no restrictions on the repatriation of profits or capital and no exchange controls. Bahrain's currency, the Bahraini Dinar (BD), is fully and freely convertible at the fixed rate of USD 1.00 = BD 0.377 (1 BD = USD 2.659). There is no black market or parallel exchange rate.

There are no restrictions on converting or transferring funds, whether or not associated with an investment.

Remittance Policies

The Central bank of Bahrain is responsible for regulating remittances, and its regulations are based on the Central Bank Law ratified in 2006. The majority of the workforce in the Kingdom of Bahrain is comprised of foreign workers, many of whom remit large amounts of money to their countries of origin. Commercial banks and currency exchange houses are licensed to provide remittances services.

The commercial banks and currency exchange houses require two forms of identification before processing a routine remittance request, and any transaction exceeding USD 10,000 must include a documented source of the income.

The Kingdom of Bahrain is a member of the Gulf Cooperation Council (GCC), and the GCC is a member of the Financial Action Task Force (FATF). Additionally, the Kingdom of Bahrain is a member of MENAFATF and the MENAFATF headquarters is located in the Kingdom of Bahrain.

3. Expropriation and Compensation

There have been no expropriations in recent years, and there are no cases in contention. The U.S.-Bahrain Bilateral Investment Treaty (BIT) protects U.S. investments by banning all expropriations (including "creeping" and "measures tantamount to") except those for a public purpose. Such transactions must be carried out in a non-discriminatory manner, with due process, and prompt, adequate, effective compensation.

4. Dispute Settlement

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts

Bahrain has a long-established framework of commercial law. English is widely used, and well-known international (including U.S.) law firms, working in association with local partners, provide expert legal services both nationally and regionally. Fees are charged according to internationally accepted practices. Although only a Bahraini lawyer can argue in a Bahraini court of law, lawyers of other nationalities can and do work on cases. In April 2007, the government permitted international law firms to be established in Bahrain; these firms provide services such as commercial and financial consultancy in legal matters.

Entrenched local business interests with government influence can sometimes cause problems for foreign companies. Interpretation and application of the law sometimes varies by Ministry, and may be dependent on the stature and connections of an investor's local partner. These departures from the consistent, transparent application of regulations and the law are not common, and investors report general satisfaction with government cooperation and support.

The GOB is eager to develop their legal framework further. The U.S. Department of Commerce’s Commercial Law Development Program initiated a training program for judges in September 2015, in cooperation with the Ministry of Justice, Higher Supreme Council for Judges, and the Judicial and Legal Studies Institute.

Bankruptcy

The GOB enacted its bankruptcy and insolvency law in 1987. Chapter 3 of the law states that if a business is facing financial difficulties, failing to make consistent financial payments, or failing to pay commercial transactions within a 30 day timeframe, either the company or debt collectors may declare bankruptcy or ask that the company be liquidated. Chapter 7 of the law specifies that the Supreme Court specializes in bankruptcy and liquidation cases. Chapter 2 briefly describes the procedures for managing insolvency: the Supreme Court designates a firm to represent the business in all legal and business procedures. The representative will be involved in managing the firm’s funds, making payments, and other administrative procedures.

CLDP attorneys have been working with the GOB for the last several years to help draft and ratify a new bankruptcy law.

Investment Disputes

The U.S.-Bahraini BIT provides for three dispute settlement options:

Submitting the dispute to a local court;
Invoking dispute-resolution procedures previously agreed upon by the national or company and the host country government;
Submitting the dispute for binding arbitration to the International Center for Settlement of Investment Disputes (ICSID) or any other arbitral institution agreed upon by both parties.

In November 2009, the Ministry of Justice established the Bahrain Chamber for Dispute Resolution (BCDR). In partnership with the American Arbitration Association, the BCDR specializes in alternative dispute resolution services. Since 2010, the (BCDR) has reviewed 86 commercial cases worth USD 1.582 billion. Most of the companies’ cases involved family-owned companies in the GCC region.

Bahrain Chamber for Dispute Resolution
Suite 301, Park Plaza
Bldg 247, Road 1704
P.O. Box 20006
Manama, Kingdom of Bahrain
Tel: + (973) 17-511-311
Website: www.bcdr-aaa.org

International Arbitration

Arbitration procedures are largely a contractual matter in Bahrain. Disputes are historically referred to an arbitration body as specified in the contract, or to the local courts. In dealings with both local and foreign firms, Bahraini companies have increasingly included arbitration procedures in their contracts. Most commercial disputes are resolved privately without recourse to the courts or formal arbitration. Bahraini law is generally specified in all contracts for the settlement of disputes that reach the stage of formal resolution, but is optional in those designating the BCDR. Bahrain’s court system has adequately handled occasional lawsuits against individuals or companies for nonpayment of debts.

The GCC Commercial Arbitration Center, established in 1995, serves as a regional specialized body providing arbitration services. It assists in resolving disputes among GCC countries or between other parties and GCC countries. The Center implements rules and regulations in line with accepted international practice. Thus far, few cases have been brought to arbitration. The Center conducts seminars, symposia, and workshops to help educate and update its members of any new arbitration related matters.

GCC Commercial Arbitration Center
P.O. Box 2338
Manama, Kingdom of Bahrain
Arbitration Boards’ Secretariat
Tel: + (973) 17278006
Email: case@gcccac.org
Website: http://www.gcccac.org/en/

ICSID Convention and New York Convention

The Kingdom of Bahrain uses multiple international and regional conventions to enhance its commercial arbitration legal framework. Bahrain is a party to the UNCIRAL Model Law on International Commercial Arbitration, the New York Convention, the Washington Convention (ICSID), and the GCC Convention for Execution of Judgments, among others. These conventions and international agreements established the foundation for the GCC Arbitration body, and the Bahrain Chamber for Disputes & Resolution (BCDR). Bahrain’s Constitution stipulates international conventions and treaties have the power of law.

Duration of Dispute Resolution – Local Courts

The Kingdom of Bahrain has no specialized commercial courts, and commercial cases can sometimes take a long time to resolve in the court system. Disputes referred to the BCDR usually are resolved within six months. Local Bahraini companies usually will only use the Bahraini court system as a last resort if a dispute cannot be resolved. After a court has reached its verdict, companies sometimes report difficulty ensuring that awards and/or fines are paid.

5. Performance Requirements and Investment Incentives

WTO/TRIMS

Bahrain has been a WTO member since 1995. The Government of Bahrain implements policies in a manner consistent with WTO/TRIMS.

Investment Incentives

The GOB offers a variety of incentives to attract FDI. The Bahrain Logistics Zone, Economic Development Board (EDB), Bahrain Development Bank (BDB), Bahrain International Investment Park (BIIP) and Tamkeen all offer incentives to encourage FDI. Some examples of incentives include: assistance in registering and opening business operations, financial grants, exemption from import duties on raw materials and equipment, and duty free access to other GCC markets.

Research and Development

U.S. and/or other foreign firms are able to participate in government/authority financed and/or subsidized research and development programs.

Performance Requirements

There are no special performance requirements imposed on foreign investors. The U.S.-Bahraini BIT forbids mandated performance requirements as a condition for the establishment, acquisition, expansion, management, conduct, or operation of a covered investment. Foreign and Bahraini-owned companies must meet the same requirements and comply with the same environmental, safety, health, and labor requirements. Officials at the Ministry of Labor, Labor Market Regulatory Authority and the Ministry of Industry, Commerce and Tourism supervise companies operating in Bahrain on a non-discriminatory basis.

The Central Bank of Bahrain regulates financial institutions and foreign exchange offices. Foreign and locally owned companies must comply with the same rules, policies, and regulations.

Data Storage

N/A

6. Protection of Property Rights

Real Property

In principle, private entities may freely establish, acquire, and dispose of interests in business enterprises, subject to the limitations noted in this chapter.

The U.S.-Bahrain FTA entered into force in January 2006. The agreement significantly expanded the scope of economic, commercial, and trade relations between the two countries. The FTA does not have a separate investment chapter and investment protections are covered in the U.S.-Bahrain BIT.

The BIT provides benefits and protection to U.S. investors in Bahrain, such as most-favored-nation treatment and national treatment, the right to make financial transfers freely and without delay, international law standards for expropriation and compensation cases, and access to international arbitration. The BIT guarantees national treatment for U.S. investments across all sectors, with exceptions for ownership of television, radio or other media, fisheries, and privatization of oil dredging or exploration. Bahrain also provides most-favored nation or national treatment status to U.S. investments in air transportation, the buying or ownership of land, and the buying or ownership of shares traded on the Bahrain Bourse.

Because of the national treatment offered American firms in the BIT, American firms interested in selling products exclusively in Bahrain are no longer required to appoint a commercial agent, though they may opt to do so anyway. A commercial agent is any Bahraini party appointed by a foreign party to represent the foreign party's product or service in Bahrain.

Foreign firms and GCC nationals may own land in Bahrain. Non-GCC nationals may own high-rise commercial and residential properties, as well as property in tourism, banking, financial and health projects, and training centers, in specific geographic areas that are designated by an edict issued from the Prime Minister’s Cabinet.

The government ratified Law Number (28) of 2014 regarding Real Estate Development to regulate licensing for major projects to prevent failures that occurred previously. The Law protects the foreign & local investors in initiated projects. Moreover the Decree By Law (66) for 2014 to revive the collapsed real estate projects that were mostly owned by foreign companies. The government intervened to resolve financial issues, and other legal difficulties to keep the projects from failing.

Intellectual Property Rights

Under the U.S.-Bahrain FTA, Bahrain committed to enforce world-class Intellectual Property Rights (IPR) protections. Bahrain signed the Berne Convention for the Protection of Literary and Artistic Works and the Paris Convention for the Protection of Industrial Property in 1996. Revised legislation to implement Bahrain's obligations under the WTO/TRIPS Agreement was ratified in May 2006. Bahrain joined the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. In May 2006, Bahrain passed laws related to intellectual property to bring Bahrain's local laws into compliance with its current Paris Convention commitment and to position it to join the Nice Agreement, Vienna Agreement, Patent Cooperation Treaty, Trademark Law Treaty, Madrid Agreement, Budapest Treaty, and the Rome Convention.

The government has made progress in reducing copyright piracy, and there are no reports of significant violations of U.S. patents and trademarks in Bahrain. The government's copyright enforcement campaign began in late 1997 and was based on inspections, closures, and improved public awareness. The campaign targeted the video, audio, and software industries with impressive results. Commercially-pirated video and audio markets mostly have been eliminated. However, audio, video, and software piracy by end-users remain problematic.

There are no technology transfer requirements that force firms to share or divulge technology through compulsory licensing to a domestic partner, nor are firms required to undertake research and development activities in Bahrain.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

The Embassy’s webpage also offers a link to local lawyers, some of whom specialize in IPR and/or patent law. http://bahrain.usembassy.gov/attorneys.html

Resources for Rights Holders

Aisha Y. Salem
Intellectual Property Attaché for the Middle East & North Africa
U.S. Embassy Kuwait City, Kuwait
U.S. Patent & Trademark Office
Tel: +965 2259 1455
Aisha.Salem@trade.gov

Embassy Attorney List: http://bahrain.usembassy.gov/attorneys.html

7. Transparency of the Regulatory System

In 2002, Bahrain implemented a government procurement law to establish the basic framework for a transparent, rules-based government procurement system. The law requires certain procurements to be conducted as international public tenders open to foreign suppliers. The law established a tender board to oversee all government tenders and purchases. In the past, government-tendering procedures for large projects were not highly transparent. U.S. companies sometimes reported operating at a disadvantage compared with other international firms. Some businesses reported contracts were not always decided solely based on price and technical merit. In some instances, only select, pre-qualified firms were occasionally invited to bid on major government tenders.

Since January 2003, however, the Bahrain Tender Board has processed all tender decisions valued at USD 26,525 (BD 10,000) or higher. U.S. firms report that the process greatly improved but challenges remain. A local representative with strong connections may still be important in the bidding process. Open tenders are listed on the Tender Board’s website: http://www.tenderboard.gov.bh/.

Entrenched local business interests with government influence can sometimes cause problems for foreign companies. Interpretation and application of the law sometimes varies by ministry, and may be dependent on the stature and connections of an investor's local partner. These departures from the consistent, transparent application of regulations and the law remain rare, and investors report general satisfaction with government cooperation and support.

8. Efficient Capital Markets and Portfolio Investment

Consistent with the Government of Bahrain's liberal approach to foreign investment, government policies facilitate the free flow of financial resources. Foreigners and Bahrainis alike have ready access to credit on market terms. Generally, credit terms are variable, but often are limited to 10 years for loans under USD 50 million. For major infrastructure investments, banks often offer to assume a part of the risk, and Bahrain's wholesale and retail banks have shown extensive cooperation in syndicating loans for larger risks.

Money and Banking System, Hostile Takeovers

Bahrain has an effective regulatory system that encourages portfolio investment, and the CBB has fully implemented Basel II standards, while attempting to bring Bahraini banks into compliance with Basel III standards. Bahrain’s banking sector includes 23 retail banks, 69 wholesale banks, and 36 representative offices; 24 of these banks are Islamic banks.

There are no restrictions for foreigners in opening bank accounts, nor corporate accounts. The Kingdom of Bahrain is home to prominent financial institutions such as Citi Bank, American Express, JP Morgan, and Standard Chartered Bank.

9. Competition from State-Owned Enterprises

Bahrain’s major parastatals are the Bahrain Petroleum Company (BAPCO), Aluminum Bahrain (ALBA), Gulf Petrochemicals Industries Company (GPIC), Gulf Air, Bahrain Telecommunications Company (BATELCO), the National Bank of Bahrain (NBB) and the Arab Shipbuilding & Repair Yard (ASRY). While the GOB maintains full ownership of oil production, refineries, and heavy industries, it allows investment in ALBA, BATELCO, and ASRY, and encourages private sector competition in the banking, manufacturing, telecommunications, shipyard repair, and real estate sectors.

Bahrain is not a party to the WTO Government Procurement Agreement (GPA), however in 2008 Bahrain was granted “observer” status in the GPA committee.

Private enterprises can, in theory, compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives. In practice, however, given the relatively small size of Bahrain’s economy, large SOEs like ALBA, BAPCO, GPIC and ASRY have an outsized influence in the market.

OECD Guidelines on Corporate Governance of SOEs

In 2002 the GOB instituted guidelines to ensure its State Owned Enterprises (SOEs) were in line with OECD policies on corporate governance. SOEs produce quarterly reports and are divided into two categories. Oil production, refineries, and petrochemical companies fall under the National Oil & Gas Authority (NOGA Holding), while the banking, telecommunications, shipyard, and real estate companies fall under Mumtalakat, Bahrain’s sovereign wealth fund. The National Audit Bureau monitors all SOEs and annually reports any irregularities, mismanagement, and corruption.

To enhance transparency and accountability the government appointed the Minister of Industry, Commerce and Tourism to be responsible for Mumtalakat. The Minister of Energy is responsible for NOGA Holding, and all the companies under its umbrella.

All Bahraini SMEs have an independent board of Trustees with well-structured management. The Mumtalakat Holding Company is represented by a Board of Trustees appointed by the Crown Prince, while NOGA Holding’s Board of Trustees is appointed by a Royal Decree. Each holding company then appoints the Board of Trustees for the SOEs under its authority. In some cases the appointment of the Board of Trustees is politically driven.

Sovereign Wealth Funds

The Kingdom of Bahrain established Mumtalakat, its sovereign wealth fund, in 2006. Mumtalakat conducts its business transparently, including by issuing an annual report online. The issuance of the annual report follows international financial reporting standards; it has been audited by external, internationally-recognized auditing firms since its inception. By law, SOEs under Mumtalakat are audited and monitored by the National Audit Bureau. In February 2015, Mumtalakat was ranked first by the Linaburg-Maduell Transparency Index, which specializes in ranking the transparency of sovereign wealth funds.

Mumtalakat often acts more as an asset management company than a sovereign wealth fund, including by taking an active role in managing companies and assets. Most notably, Mumtalakat has been instrumental in helping Gulf Air, Bahrain’s flagship air carrier, minimize its losses.

Mumtalakat’s does not directly contribute to the National Budget. Its contribution to the economy, however, is significant, as the companies it manages are major employers, and their production feeds development in downstream industries.

10. Responsible Business Conduct

The concept of responsible business conduct (RBC) is relatively new in Bahrain, and there is neither any law nor are there established guidelines issued by the GOB to promote RBC. Each state owned company must create its own strategy for addressing environmental and social issues. Some companies have a wide range of programs and initiatives, and some focus on charity work.

The GOB recently amended its Corporate Governance Law to enhance transparency and ethical business conduct standards. Among the changes, the GOB urged companies in Decrees By law 27 and 28 to submit audited ratified accounts to the Ministry of Industry, Commerce and Tourism.

11. Political Violence

Historically, Bahrain has been an open, politically moderate, economically liberal Gulf state that enjoys close ties to the United States, although it has experienced cyclical periods of political violence that have traditionally come from its Shi’a majority population. In the 1980s and 1990s, the country suffered from low-but-sustained levels of violent protest, although these largely went away when King Hamad took the throne in 1999 and instituted a reform program aimed at reconciliation with the country’s restive Shi’a majority. However, beginning in 2011, the country entered into what would become another sustained period of unrest, including mass protests calling for political reform. Between February and October 2011, at least 72 persons, including police, died as a result. In response, the government launched several dialogue initiatives with the opposition aimed at political reconciliation, which culminated with several recommended reforms being codified in the Constitution and across government agencies, including the security services. However, opposition groups have largely rejected the changes as insufficient and boycotted the most recent legislative election in November 2014 to protest what they consider to be the continuing marginalization of the Shi’a. The government’s arrests of several peaceful, high-profile opposition leaders since the opposition boycott and increasingly intolerant stance on political speech have prolonged tensions.

Periodic political unrest in outlying, predominantly Shi’a villages—and at significantly reduced levels—has continued since the events of 2011. Grievances from the Shi’a community have included housing shortages, unemployment, and allegations of sectarian discrimination, especially in the public sector and security services. In some instances, a violent minority of the opposition have used unrest to target security forces with improvised explosive devices, resulting in the deaths of three policemen in 2015. However, in late 2015, the seizure of several large weapons caches—combined with the arrests of dozens of Shi’a militant leaders—severely degraded their capabilities. During periods of heightened protests—such the February 14 anniversary of Arab Spring demonstrations—security services cordon off outlying villages to keep protest activity away from the capital and other key commercial areas.

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

12. Corruption

The King and Crown Prince have advocated publicly in favor of reducing corruption and some Ministries have initiated clean-up efforts. A law to thoroughly revamp government procurement procedures went into effect in 2003. Bahrain signed and ratified the UN Anticorruption Convention in 2005 and 2010, respectively. Bahrain, however, is not a signatory to the OECD Convention on Combating Bribery.

According to U.S. firms, high-level influence is sometimes an obstacle to foreign direct investment and contracting, particularly in the contract bidding process. Government tendering procedures are not always entirely transparent and contracts are not always awarded based solely on price and technical merit. The bureaucracy is sometimes inefficient but generally honest. Giving or accepting a bribe is illegal, although the relevant laws are rarely enforced. Officials have been dismissed for blatant corruption, but the grounds for dismissal are rarely tied to corruption. In 2015, the Government transferred a number of petty corruption cases to the Ministry of Interior for investigation, and later prosecution.

In 2005 Bahrain established the National Audit Bureau. The Bureau publishes annual reports, which highlight fiscal irregularities within government ministries and entities. The reports enable legislators to exercise oversight and call for investigations of fiscal discrepancies in government accounts. In 2013, the Crown Prince established an Investigation Committee to oversee the cases highlighted within the National Audit Bureau’s annual report. In 2014, the Minister of State for Follow-up Affairs announced that seven cases had been transferred for public prosecution. To date, there have been no convictions in any of the cases. In November 2015 the Prime Ministerial cabinet designated the Minister of Follow-Up Affairs to be in charge of resolving recommendations made by the National Audit Report. At the same time, the Crown prince urged all government entities and the Council of Representatives to work closely to implement the recommendations made in the report.

As a result of the 2011 National Dialogue process, the Ministry of Interior established an Anti-Corruption Directorate. In 2011 the Ministry of Interior signed a Memorandum of Understanding with the United Nations Development Program to enhance the Anti-Corruption Directorate’s capabilities.

Resources to Report Corruption

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

13. Bilateral Investment Agreements

Bilateral Taxation Treaties

Bahrain and the U.S. signed a bilateral investment treaty (BIT) in September 1999, the first BIT between the United States and a GCC state. The agreement entered into force in May 2001. The U.S.-Bahrain FTA does not include a separate investment chapter.

According to UNCTAD, Bahrain has bilateral investment protection agreements in place with Algeria, Belarus, Brunei, Bulgaria, the Czech Republic, China, Egypt, France, Germany, India, Italy, Iran, Jordan, Lebanon, Malaysia, Mexico, Morocco, Netherlands, Singapore, Spain, Sudan, Syria, Thailand, Turkey, Turkmenistan, United Kingdom, United States of America, Uzbekistan and Yemen.

Bahrain does not have a Bilateral Taxation Treaty with the United States.

14. OPIC and Other Investment Insurance Programs

Since 1987, the Government of Bahrain and the U.S. Government have maintained an Investment Incentive Agreement permitting the U.S.’s Overseas Private Investment Corporation (OPIC) to provide investment insurance and reinsurance for companies operating in Bahrain.

15. Labor

Bahrain’s Labor Market Regulatory Authority estimates the Bahrain labor force numbers 725,113, of which 566,785 are foreign and 158,328 are local workers. Therefore 78 percent of the total workforce is comprised of foreigners, the majority being unskilled construction workers. According to the most recent government statistics, foreigners comprise 52% of the total population. Government reports state that Bahrain’s unemployment rate is 3.4%.

The government's primary initiative for combating unemployment is "Bahrainization," or the replacement of expatriate workers by national citizens. In 2009, under the initiative of the Crown Prince, the Economic Development Board launched “Bahrain Economic Vision 2030,” a long-term plan to raise Bahrainis’ standard of living, reform the government, education, and health sectors, and increase privatization, training and education of the Bahraini workforce to establish Bahrain as a regional center for human capital. For more information please refer to: http://www.mofa.gov.bh/img/partners/Vision2030Englishlowresolution.pdf

Periodically, foreign firms experience difficulty obtaining required work permits and residence visas for expatriate employees due to Bahrainization efforts. However, this does not appear to be a matter of high-level policy, and often can be resolved on a case-by-case basis. Where problems occur, U.S. businesses are encouraged to appeal to the highest levels of the concerned ministries, and to consult with the U.S. Embassy.

In 2006 the King ratified the Labor Reforms Law, establishing two entities: the Labor Market Regulatory Authority (LMRA), and the capacity-building organization known as Tamkeen. The law imposed a monthly fee of BD10 (USD 26.60) on each expatriate employed by a company. The revenues collected under this program are earmarked to provide job training for Bahrainis. The LMRA fee was suspended after the unrest of 2011 and reinstated in 2013 with a change in fee structure. Now companies pay BD 5 (USD 13.35) for the first five foreign workers and BD10 (USD 26.67) for every employee over that limit.

In 2007 the Labor Minister introduced an unemployment allowance to be paid from a general labor fund. The fund is financed by deducting one percent from the wages of all workers and is the first such program in the GCC.

In 2002 the King approved the Workers Trade Union Law of 2002 that recognizes the right of workers to collectively organize and form trade unions, and provides limited rights to strike. The law prohibits workers from striking in certain vital sectors including security, aviation, ports, hospitals, and utilities. With the exception of domestic servants, foreign workers are allowed to join trade unions. The law prohibits employers from dismissing an employee for trade union activities. In 2011, the King issued a Decree By Law that changed Bahrain’s labor law as it pertained to trade unions and federations. Union leadership heavily criticized the new law for some of its other provisions that appear to inhibit freedom of association. The 2012 law prohibits multi-sectoral labor federations and prohibits individuals convicted of felonies from holding union leadership posts. While the amendment also allowed for the formation of multiple trade union federations, it gave the Minister of Labor the sole right to select the federation to represent the country’s workers in international fora and in national-level bargaining.

In 2010, the U.S. Department of Labor (DOL) and the Bahrain Ministry of Labor (MOL) convened the first meeting of the U.S.-Bahrain Sub-Committee on Labor Affairs, as established under the U.S.-Bahrain FTA, and reaffirmed their obligations under the FTA related to internationally recognized labor rights, including their obligations as members of the International Labor Organization (ILO) and commitments stated in the ILO Declaration on Fundamental Principles and Rights at Work (1998).

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

16. Foreign Trade Zones/Free Ports/Trade Facilitation

Khalifa bin Salman Port, Bahrain's primary commercial seaport, provides a free transit zone to facilitate the duty-free import of equipment and machinery. The Kingdom of Bahrain has developed two main industrial zones, one to the north of Sitra and the other in Hidd. The Hidd location includes a logistics zone. Foreign-owned firms have the same investment opportunities in these zones as Bahraini companies.

A 1999 law requires that investors in industrial or industry-related zones launch a project within one year from the date of receiving the land, and development must conform to the specifications, terms, and drawings submitted with the application. Changes are not permitted without approval from the Ministry of Industry, Commerce and Tourism.

17. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

	Host Country Statistical source		USG or international statistical source		USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data	Year	Amount	Year	Amount
Host Country Gross Domestic Product (GDP) ($M USD)	2014	$33.85 B	2014	$33.85 B	www.worldbank.org/en/country
Foreign Direct Investment	Host Country Statistical source		USG or international statistical source		USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions)	2014	N/A	2014	$765 M	BEA data available at http://bea.gov/international/di1usdbal.htm
Host country’s FDI in the United States ($M USD, stock positions)	2014	N/A	2014	$541 M	BEA data available at http://bea.gov/international/di1fdibal.htm
Total inbound stock of FDI as % host GDP	2014	N/A	2014	2.2%	N/A

Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data (2014)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment			Outward Direct Investment
Total Inward	16,104	100%	Total Outward	Amount	100%
Kuwait	5.401	34%	N/A	N/A	N/A
Saudi Arabia	3,920	24%	N/A	N/A	N/A
Libya	2,858	18%	N/A	N/A	N/A
UAE	1,022	6%	N/A	N/A	N/A
India	1,022	6%	N/A	N/A	N/A
"0" reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment

Portfolio Investment Assets (2014)
Top Five Partners (Millions, US Dollars)
Total			Equity Securities			Total Debt Securities
All Countries	35,416	100%	All Countries	5,835	100%	All Countries	29,581	100%
Turkey	5,947	17%	Cayman Islands	1,113	19%	Turkey	5,905	20%
UAE	3,752	11%	USA	668	11%	UAE	3,423	12%
Qatar	2,797	8%	Luxembourg	519	9%	Qatar	2,603	9%
USA	2,672	8%	KSA	495	8%	USA	2,004	7%
Cayman Islands	1,828	5%	UAE	329	6%	Brazil	1,293	4%

18. Contact for More Information

Christiaan De Luigi
Economic and Commercial Officer

U.S. Embassy Manama
P.O. Box 26431
Bldg 979, Rd. 3119
Block 331, Zinj
Kingdom of Bahrain

Telephone No. +973 1724-2700
E-mail address: manamacommerce@state.gov

ecoi.net description:: Annual report on investment climate, incl. information on legal and regulatory system, political violence, corruption, labour and economic issues, etc. (as of March 2016)

Country:: Bahrain
Source:: USDOS – US Department of State (Author)
Published:: 5 July 2016
Original link:: http://www.state.gov/e/eb/rls/othr/ics/2016/nea/254435.htm
Document type:: Periodical Report
Language:: English
Document ID:: 1159927 (former ID 332514)