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Bahrain Economic Quarterly
Second Quarter 2012
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Table of ContentsThe Economic Outlook ................................................................................................................. 3
The Global Outlook............................................................................................................................... 3
The Regional Outlook ........................................................................................................................... 6
Bahrain‘s Economy ............................................................................................................................... 7
Special Articles ............................................................................................................................ 12
Microfinance: An Untapped Opportunity ........................................................................................... 13
Bahrain Global Rankings Performance ............................................................................................... 22
Chart Set ...................................................................................................................................... 43
Sources ......................................................................................................................................... 53
Abbreviations .............................................................................................................................. 54
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3
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 pricesboosting 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
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 This is based on the new GDP breakdown which uses 2010as the base year. The previous base year, 2001, would givereal growth of 2.2% in 2011 and a projected 3.7% in 2012.
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 growthof 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.
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
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
United States Euro Area Japan China
GDP Growth Forecasts
2012
IMF OECD IIF Bloomberg Consensus
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4
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.
The Euro-zone continues to be in a mild
recession, albeit with considerable internalvariation, 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.
Although Germany saw an improvementwith 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 toausterity 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 Europeanoperations. 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.
-2%
0%
2%
4%
6%
8%
10%
Q3 2011 Q4 2011 Q1 2012 Q2 2012
Mature Economies
Quarterly GDP (YoY)
percentage growth
United States Euro Area Japan
Source: US Federal Reserve, Eurostat, Bank of
Japan, OECD, IMF
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
ECB Policy Rate
Percentage
2010-2012
Source: ECB
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5
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 theeconomy 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 open-
ended ―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.
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 moreconservative 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 largecurrent account imbalances. While growth
remains positive, it has been slowing
because of the region‘s exposure and
proximity to the suffering Euro-zone.
Although the Latin American economies
have benefitted from the structural growth in
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 USand Europe.
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 China‘s highdependence on exports against the backdrop
of a weakening global economy. In the
second quarter of the year, China‘s GDP
growth dropped to a 3-year low of 7.6%,
mainly due to weaker exports. Exports,
however, continue to make up a large
-2%
0%
2%
4%
6%
8%
Q3 2011 Q4 2011 Q1 2012 Q2 2012
Emerging Economies
Quarterly GDP
Percentage growth
Latin America Asia/Pacific
Emerging Europe
Source: US Federal Reserve, Eurostat, Bank of Japan,
OECD, IMF
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6
portion of China‘s GDP as efforts to
rebalance growth have brought limited
results.
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 year‘s 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 non-
oil 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.
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,
60
70
80
90
100
110
120
130
140
J a n - 1 0
A p r - 1 0
J u l - 1 0
O c t - 1 0
J a n - 1 1
A p r - 1 1
J u l - 1 1
O c t - 1 1
J a n - 1 2
A p r - 1 2
J u l - 1 2
Crude Oil Petroleum Prices
USD per barrel
Source: bp Brent oil price history
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7
and partly externally funded loan
syndications.
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. Non-
hydrocarbon GDP grew by 5.1% in 2011,
led mainly by construction and
manufacturing. Economic growth has
received a boost from the government‘s
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 isalso 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.
Bahrain’s Economy
The EDB expects Bahrain‘s 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 Sa‘fa fieldwhile the non-oil sector continued to
rebound, indeed by a remarkable 8.1% YoY.
2 This assumes that the temporary disruption in the AbuSa‘afa field only fully normalizes by the end of the year. An
earlier rebound or any compensation would boost thecontribution of the hydrocarbons sector.
-10
-5
0
5
10
15
20
25
30
% change
YOY
GCC Real GDP
YOY Percentage Growth
2006-2013*
Bahrain Kuwait
Oman Qatar
Saudi Arabia United Arab Emirates
*2012 and 2013 growth figures are IMF estimates
Source: IMF, World Bank and CIO
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8
This points to good progress of the
increasingly broad-based recovery.
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 overallGDP.
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
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 shrunkslightly 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.
-8%
-6%
-4%
-2%
0%
2%
4%
2,300
2,350
2,400
2,450
2,500
2,550
2,600
2011
Q1
2011
Q2
2011
Q3
2011
Q4
2012
Q1
2012
Q2
BD
million
Bahrain GDP growth
Quarterly change
growth GDP
Source: CIO
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9
Finance, which currently makes up 17% of
GDP, has been affected repeatedly byglobal 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. Mostrecently, one of Bahrain‘s 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 inthe 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
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 indicatesrenewed 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.
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.
-40.0%
-20.0%
0.0%
20.0%
40.0%
1st
Qtr
2nd
Qtr
3rd
Qtr
4th
Qtr
1st
Qtr
2nd
Qtr
3rd
Qtr
4th
Qtr
1st
Qtr
2nd
Qtr
2010 2011 2012
Bahrain Sectoral Growth
Quarterly
Mining
Manufacturing
Construction
Wholesale & Retail Trade
Hotels & Restaurants
Transport & Communications
Financial Services
Source: CIO
-400
-200
0
200
400
600
800
10001200
Jan Mar May Jul Sep Nov Jan Mar May Jul
2011 2012
Year on Year Growth in Credit to the
Private sector and Government
2011-2012
YoY growth in credit to the Government
YoY growth in credit to the Private Sector
Source: Central Bank of Bahrain
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10
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 whichincreased 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.
1The weights of the consumer price index reveal that thelargest contributions to the basket used to measure the CPIwas the category of food and non-alcoholic beverages,followed by miscellaneous goods and services, recreation andculture and education- these are all categories which recordedgrowth over the period which explains the sharp growth inCPI over the past year. Communication dropped by 5.6% andmakes up 5.4% of the basket, slowing the growth in CPI.
1
1.5
2
2.5
3
3.5
4
4.5
5
Unemployment Rate
Percentage
Source: Ministr of Labour-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
9 / 2 0 0 9
1 2 / 2 0 0 9
3 / 2 0 1 0
6 / 2 0 1 0
9 / 2 0 1 0
1 2 / 2 0 1 0
3 / 2 0 1 1
6 / 2 0 1 1
9 / 2 0 1 1
1 2 / 2 0 1 1
3 / 2 0 1 2
6 / 2 0 1 2
Inflation rate
Consumer Price Index
2009-2012
Source: Central Informatics Organization
-10.0% 0.0% 10.0% 20.0% 30.0%
Recreation and culture
Alcoholic beverages…Furnishing, household…
Transport
Miscellaneous goods…
Food and non-alcoholic…
Restaurants
Clothing and footwear
Healthcare services
Education
Housing, water,…
Communication
Growth of Consumer Price IndexCategories
July 2011-July 2012
Source: Central Informatics Organization
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11
16%
7.1%
7.0%
5.6%
5.4%
5.1%
2.0%1.3% 1.0%
CPI Weights
Percentage Food and non-alcoholic
beveragesMiscellaneous
goods and services
Recreation and
culture
Education
Communication
Restaurants
Electricity gas &
other fuels
Transport services
Source: Central Informatics Organization
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12
Special Articles
This edition of Bahrain Economic Quarterly
contains two special articles that provide an
analysis of the microfinance industry inBahrain 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 themicrofinance providers‘ ser vices 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
Bahrain‘s standing in international indices
and reviews the Kingdom‘s performance in
various component indices. This piece
provides an update about the Kingdom‘s
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, Bahrain‘s
position remains highly competitive on a
global scale.
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13
Microfinance: An Untapped Opportunity
What is M icrofi nance?
The idea behind modern day microfinance isoften 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 bystarting 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 Grameen Bank
share risks with their customers. Despite the
growth of microfinance in recent years, it is
estimated that only 10% of the world‘s
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 thegroup defaults, then they will all be
exempt from future loans. This creates
social pressure to repay the loan
Benefi ts of M icrofi nance
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
5 Judith Brandsma & Deena Burjorjee, Microfinance in the Arab States (New York: United Nations CapitalDevelopment Fund, 2004)
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14
turnover of up to BD 100,000 for all other
sectors. In view of the sector‘s 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.
Moreover, the average welfare payments
given to welfare recipients also rose (taken
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 majorityrather than a minority of the population.
History and Landscape of M icrofi nance
I nstituti ons 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 todiversify 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
39,356
75,904
- 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000
J u n - 0 9
J u
l - 0 9
A u
g - 0 9
S e p - 0 9
O c
t - 0 9
N o
v - 0 9
D e
c - 0 9
J a n - 1 0
F e b - 1 0
M a
r - 1 0
A p
r - 1 0
Eligible Welfare Recipients
Number of People
Growth: 93%
Source: Ministry of Human rights and Social
Development, EDB Analysis
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15
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-GovernmentOrganizations (NGO‘s). 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% ofregistered 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 MOL‘s 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 Salman, Ali, UNDP. Personal interview. April 2012.
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.
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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 MoSDand 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 sizeof 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.
Microfi nance Banks
Table (1): Comparison of MFIs
Ebdaa Family
Range (BD) 200 – 5,000 500 – 7,000
Interest rate
(p.a.)
4-15%
annually *
12%**
Paid up capital
(BD)
1,885,000 5,000,000
Net Profit 2011 NA -519,576
Number of loans
since inception
2,624 861
Total value of
loans (BD)
3,571,249 1,309,999
% of loans given
to women
68% 64%
Shareholding Private and
public
Private and
public
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
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is not an Islamic bank, and offers
conventional as well as sharia compliant
services.
Table (2): Ebdaa bank loans by age
Source: Ebdaa Bank
When looking at the geographic distribution
of Ebdaa Bank‘s 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.
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.
Source: Ebdaa Bank
The largest proportion of Ebdaa Bank‘s
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 shortmaturity, with over 84% being 24 months or
less.
Family Bank
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 Bank‘s recent
results show that maintaining profitability is
a challenge. To achieve the objectives of the
program ―funding community-based
organizations‖, Family Bank signed
Norther
n
36%
Souther
n
4%Capital
8%
Central
35%
Muharr
aq
17%
Ebdaa Bank Loans by
Governorate
% of total number of loans
2012
Source: Ebdaa Bank
0%
10%
20%
30%
40%
50%
60%
Ebdaa Bank Range of Loan Amounts
Bahraini Dinars
% of total loans in this range
Source: Ebdaa Bank
Age Percentage of Total Loans
18 - 27 14.90%
28 - 35 26.14%
36 - 45 26.52%
46 - 64 32.43%
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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, whichaccounts 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. Food-
related 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.
7 El Shabrawy, Atef. Family Bank. Personal Interview, April2012.
The Northern Governorate has been the
largest beneficiary of Grameen program
financing, the Family Bank‘s largest
program. It received 32% of the total funds
disbursed, although only 23% of the
population live there. The SouthernGovernorate 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 betargeted by MFIs.
Trade
65%
Food
related11%
Other
Services
6%
Fishing
5%
Manufac
turing
4%
Gift &
Stationar
y
Services
3%
Agricultu
re
3%Salon
services
3%
Family BankComposition of loans by sector
Source: Family Bank
Norther
n, 32%
Sourther
n, 1%
Capital,
8%
Central,
33%
Muharra
q, 26%
Grameen Program Beneficiaries by
Geographic Location
Source: Family Bank
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Microfi nance Societies (NGOs)
In addition to the two banks, two NGOs
offer Microfinance in Bahrain. Both the
Awal Women‘s 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 wordmore 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
Source: Awal Society and CMWS
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.
Microf inance Chal lenges and Possible
Improvements
Clients-specific issues
A recent market research survey conducted
by ‗Planet Finance‘ for the Ministry of
Human Rights and Social Development
looked at approximately 500 microfinanceentrepreneurs, some clients and some non-
clients. 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 beingcontrolled 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
Northern
23%
Southern
8%Capital
27%
Central
27%
Muharra
q
15%
Population by Governorate
Bahrain 2009
Source: Family Bank
Awal CMWS
Number of loans since
inception
15,273 17,341
Value of loans since
inception (BD)
3,789,800 3,239,050
Manufacturing 23% 20%
Trade 62% 66%
Services 15% 14%
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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 flowgenerated 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.
Competition
Among some MFIs main concerns were
increasing competition in the market. The
rise in the number of industry players in
Bahrain‘s 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 thatcompetition 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
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 theirown.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 1and 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 thissector 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 Al Qassim, Wahid. Ebdaa Bank. Personal interview. April2012.
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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 seemto 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, Bahrain‘s culture of welfare-
dependence 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 andindependent.
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Bahrain Global Rankings Performance
This article benchmarks the Kingdom’s
international position in comparison to
other economies with respect to a number ofkey economic and social indicators. It
assesses Bahrain’s standing in international
rankings and reviews the Kingdom’s
performance in various component indices.
This piece provides an update about the
Kingdom’s 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 areusually 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.
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, Bahrain‘s 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 Kingdom‘s performance in
the latest reports compared to the previousones.
7 / 1 4 4
1 2 / 1 7 9
2 4 / 6 0
2 7 / 1 4 2
3 0 / 1 3 2
3 2 / 1 5 5
3 7 / 1 4 2
4 2 / 1 8 5
4 0 / 1 3 9
4 2 / 1 8 7
4 6 / 1 8 3
5 1 / 1 2 7
1 1 1 / 1 3 5
1 4 5 / 1 6 3
0
20
40
60
80
100
120
140
160
F r e e d o m o f t h e W o r l d
E c o n o m i c F r e e d o m
F i n a n c i a l D e v e l o p m e n t
N e t w o r k e d R e a d i n e s s
E n a b l i n g T r a d e
L o g i s t i c s P e r f o r m a n c e
G l o b a l C o m p e t i t v e n e s s
D o i n g B u s i n e s s
T r a v e l & T o u r i s m
H u m a n D e v e l o p m e n t
C o r r u p t i o n P e r c e p t i o n
E d u c a t i o n D e v e l o p m e n t
G e n d e r G a p
E n v i r o m e n t P e r f o r m a n c e
Bahrain's Worldwide
Rank
Source: Various Reports
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Table (1): Bahrain’s comparative ranking
Index Latest
rank
Previous
rank
Change
in rank
Economic
Freedom
12 10 -2 ↘
Economic
Freedom of theWorld
7 10 +2 ↗
Ease of Doing
Business
42 39 -3 ↘
Global
Competiveness
35 37 +2 ↗
Financial
Development
24 23 -1 ↘
Networked
Readiness
27 30 +3 ↗
Corruption
Perception
46 48 +2 ↗
Education
Development
51 45 -6 ↘
Travel and
Tourism
Competiveness
40 41 +1 ↗
Logistics
Performance
48 32 -16 ↘
Enabling Trade 30 22 -8 ↘
Gender Gap 111 110 -1 -
Environmental
Performance
145 -
Source: Various reports
Evaluation of the reports suggests thatBahrain‘s 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 I ndex
Bahrain occupied the 42nd position out of
187 countries in the 2011 Human
Development Report (HDR) published by
the United Nations Development
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 ranksfor 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 ofadult 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.
Bahrain’s HDI value and rank
Bahrain‘s 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, Bahrain‘s 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 Bahrain‘s HDI
for 2010 was 39th out of 169 countries.
However, it is misleading to compare valuesand rankings with those of previous reports,
because the underlying data and
9 the average number of years of education received in a life-time by people aged 25 years and older10 the total number of years of schooling a child of school-entrance age can expect to receive if prevailing patterns ofage-specific enrolment rates stay the same throughout thechild's life
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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. Bahrain‘s
HDI remains the 3rd
highest within the GCCregion.
Table (2): Bahrain’s overall rank in the 2011
Human Development Index
GCC Rank Economy 2011 rank
1 UAE 30
2 Qatar 37
3 Bahrain 42
4 KSA 56
5 Kuwait 63
6 Oman 89Total 187 economies
Source: 2011 Human Development Report
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.Bahrain‘s GNI per capita decreased by about
12% between 1980 and 2011. Table 3
reviews Bahrain‘s progress in each of the
HDI indicators.
Table (3): Bahrain’s 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 69.6 10.0 4.1 31,987 0.651
1985 71.3 13.1 5.2 21,224 0.700
1990 72.3 13.5 6.0 19,302 0.721
1995 73.0 13.6 7.2 21,302 0.750
2000 73.7 13.4 8.3 22,715 0.773
2005 74.3 13.4 9.0 27,102 0.795
2010 74.9 13.4 9.4 27,874 0.805
2011 75.1 13.4 9.4 28,169 0.806
Source: 2011 Human Development Report
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Assessing progress relative to othercountries
Bahrain‘s 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): Bahrain’s HDI indicators for 2011 relative to selected countries and groups
HDI
value
HDI
rank
Life
expectancy
at birth
Expected
years of
schooling
Mean years
of schooling
GNI per
capita
(PPP US$)
Bahrain 0.806 42 75.1 13.4 9.4 28,169
Qatar 0.831 37 78.4 12.0 7.3 107,721
United Arab
Emirates
0.846 30 76.5 13.3 9.3 59,993
Arab States 0.641 - 70.5 10.2 5.9 8,554
Very high HDI 0.889 - 80.0 15.9 11.3 33,352
Source: 2011 Human Development Report
Economic Freedom
Bahrain has consistently been the regional
top performer in terms of economic
freedom. This position is evident in the
K ingdom‘s performance in two prominent
economic freedom indices discussed below.
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. Bahrainremains 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.
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, Bahrain‘s score is
higher than those of some European
economies, for example: the United
Kingdom and the Netherlands.
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Bahrain‘s 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
Kingdom‘s openness to global commerce is
sustained by its competitive and efficient
regulatory environment.
Table (5): Index of Economic Freedom, GCC
Ranking
Source: 2012 Index of Economic Freedom
According to the index, Bahrain‘s 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 publicspending 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
2011
score
Change
Overall 75.2 77.7 -2.5 ↘
Business
freedom
76.5 77.4 -0.9 ↘
Trade
freedom
82.8 82.8 0 -
Fiscal freedom 99.9 99.8 0.1
Government
spending
72.2 80.2 -8 ↘
Monetary
freedom
70.4 74 -3.6 ↘
Investment
freedom
75.0 75 0 -
Financial
freedom
80.0 80 0 -
Property
rights
55.0 60 -5 ↘
Freedom from
corruption
49.0 51 -2 ↘
Labour
freedom
91.1 97 -5.9 ↘
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 indexof 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,
0
10
20
30
40
50
60
70
80
90
100
H o n g K o n g
S i n g a p o r e
A u s t r a l i a
N e w Z e a l a n d
S w i t z e r l a n d
C a n a d a
C h i l e
M a u r i t i u s
I r e l a n d
U n i t e d S t a t e s
D e n m a r k
B a h r a i n
L u x e m b o u r g
U n i t e d K i n g d o m
T h e N e t h e r l a n d s
Top 15 Freest Economies
Source: 2012 Economic Freedom
GCC
2012
Rank
Economy 2012
rank
2011
rank
change
1 Bahrain 12 10 -2 ↘
2 Qatar 25 27 +2 ↗
3 UAE 35 47 +12 ↗
4 Oman 47 34 -13 ↘
5 Kuwait 71 61 -10 ↘
6 KSA 74 54 -20 ↘
Total 179 economies
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freedom to trade internationally and
regulations.
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 economicfreedom.
Table (7): Economic Freedom of the World,
2012 and comparisons with the 2011 report
GCC
rank
Economy 2010
score
2010
rank
2009
rank
Change
in rank
1 Bahrain 7.94 7 10 +3 ↗
2 UAE 7.83 11 17 +6 ↗
3 Qatar 7.7 17 - -
4 Kuwait 7.66 19 15 -4 ↘
5 Oman 7.64 20 38 +18 ↗
6 KSA 7.06 65 - -
Total 10 144 141 ↗
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 soundmoney‖. Positive progress took place also
in two sub-areas of ―regulations‖, namely
―business‖ and ―labour ‖ Regulations. On
the other hand, Bahrain‘s rank has showed
slight deterioration in ―freedom to trade
internationally‖ and dropped in one of the
―regulations‖ sub-area of ―credit market
regulation‖.
Table (8): Bahrain’s rank in the areas of the
2012 Economic Freedom Index
Areas 2010
score
2009
score
Change in
score
1 Size of
Government
6.88 6.56 ↗ +0.32
2 Legal System &
Property Rights
7.0 6.76 ↗ +0.24
3 Access to Sound
Money
9.18 9 ↗ +0.18
4 Freedom to
Trade
Internationally
7.90 7.93 ↘ -0.03
5 Regulation
Credit Market
Regulation
Labour Market
Regulations
Business
Regulations
8.73 8.74 ↘ -0.01
9.0 10 ↘ -1
8.87 8.74 ↗ +0.13
8.33 7.48 ↗ +0.85
Total score 10
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.
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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
Country 2013
rank
2012*
rank
Change in
rank
1 KSA 22 23 ↗ +1
2 UAE 26 29 ↗ +3
3 Qatar 40 40 No Change
4 Bahrain 42 39 -3
5 Oman 47 49 ↗ +2
6 Kuwait 82 77 ↘ -5
Total 185 183
Source: 2013 Doing Business Report*All Doing Business
2012 rankings have been recalculated
Bahrain dropped 3 places to 42nd in the 2013
rankings, but despite this deterioration,
Bahrain performs comparatively well in
many areas and occupies the 7 th position
worldwide in dealing with construction
permits and the 7th
position in tax paymentsand 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).
Bahrain‘s 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 threeranks 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.
Table (10): Bahrain’s rank in the pillars of the 2012 Doing Business Index
Source: 2012 Doing Business Report
0 100 200
Saudi Arabia
United Arab EmiratesQatar
Bahrain
Oman
Kuwait
Regional Average ( MENA)
Ease of Doing Business Rank
Source: 2013 Doing Business Report
Rankings DB 2013 rank DB 2011 rank Change in rank
1 Starting a business 88 84 ↘ -4
2 Dealing with construction permits 7 6 ↘ -1
3 Getting electricity 48 49 ↗ +1
4 Registering property 29 29 No change
5 Getting credit 129 127 ↘ -2
6 Protecting investors 82 79 ↘ -3
7 Paying taxes 7 6 ↘ -1
8 Trading across borders 54 53 ↘ -1
9 Enforcing contracts 113 113 No change
10 Resoling insolvency 27 27 No change
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Global Competi ti veness
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
Kingdom‘s standing reflects a better
institutional framework (21st) and greater
macroeconomic stability (29th). Bahrain‘s
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
K ingdom‘s capacity for innovation.
Table (11): Global Competiveness Index
GCC
rank
Country 2012
rank
2011
rank
Change
2011 -
2012
1 Qatar 11 14 ↗ +3
2 KSA 18 17 ↘ -1
3 UAE 24 27 ↗ +34 Oman 32 32 - -
5 Bahrain 35 37 ↗ +2
6 Kuwait 37 34 ↘ -3
Total 144 142
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. Bahrain‘s 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 51 st
place rank in currency stability.
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The banking and financial services
improved in rank from 14th to 11th. Non-
banking financial services placed 36th in
2011 from 42nd place in 2010
Table (12): Bahrain’s rank in the Financial
Development Index
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.
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 theWorld 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 socialconditions.
Sweden and Singapore continue to top the
rankings followed by Finland, Denmark,
Switzerland and Netherlands.
Bahrain‘s 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 (25 th) 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
GCC
2011
Rank
Economy 2011 rank 2010
rank
change
1 KSA 23 26 +3 ↗
2 Bahrain 24 23 -1 ↘
3 UAE 25 21 -4 ↘
4 Kuwait 28 28 - -
5 Oman - -
6 Qatar - -
60 economies 57
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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 thedesired 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 companyspending on R & D
Enhancing university-industry
collaboration in R&D
Table (13): Networked Readiness Index, 2012
Economy 2012
rank
2011
rank
Change
Bahrain 27 30 +3 ↗
Qatar 28 25 -3 ↘
UAE 30 24 -6 ↘
KSA 34 33 -1 ↘
Oman 40 41 +1 ↗
Kuwait 62 75 +13 ↗
Total
economies
142 138
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.
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 4
th
place in 2010. Ithas scored 5.1 out of a possible 10 (10 being
least corrupt).
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.
7.26.8
5.14.8 4.6 4.4
0
1
2
3
4
5
6
7
8
9
10
Corruption Perception Index
Qatar
UAE
Bahrain
Oman
Kuwait
Saudi Arabia
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