In 2006 the United Nations Economic and Social Commission for Western Asia found that Bahrain has the fastest growing economy in the Middle East thanks to an unprecedented oil boom. Bahrain also has one of the freest economies in the World being ranked 25th freest in the world as published by the Heritage Foundation/Wall Street Journal in 2006 and is ranked first as the freest economy in the Middle East. See 2006 Index of Economic Freedom.

Bahrain’s main export is oil accounting for 60% of its Export receipts & 30 % of its GDP and so Bahrain’s economy is tied very closely to the price of oil which has been very high for the last few years resulting in a boom for Bahrain. This has not always been the case and during the 80’s when oil prices where at an all time low, Bahrain suffered an economic down turn which resulted in the Bahrain government looking at ways it could diversify away from the dependency of oil revenue.

The outcome of Bahrain’s economic diversification was the concentration on becoming a key financial & banking centre for the Middle East and an increase in investment in Tourism via the Bahrain F1 track and improvements in upgrading the tourist infrastructure.

As a result of these changes an increasing number of financial based companies trading in the Middle East now have their head offices based in Bahrain due to the freeing up of red tape and the change in law allowing companies to be based in Bahrain without having to take a local sponsor. I.e. foreign nationals can now have 100% ownership of a business based in Bahrain.

In 2004, Bahrain signed the US-Bahrain Free Trade Agreement, which reduced certain barriers to trade between the two nations.

Long term problems faced by the Bahrain economy :-

1) The depletion of natural oil reserves

2) The high unemployment amongst its younger population resulting in occasional bouts of civil unrest. Bahrain recently became the first Middle-eastern country to institute unemployment insurance.

3) The current instability within the region. Bahrain has invested heavily in tourism and could one day rival the likes of Dubai, however tourist are a fickle bunch and political and military unrest in the region can easily put of the average traveller, who will opt for a safer country rather then risk the chance of holidaying in a troubled region.

Page last updated 26/01/2010