Running head: BAHRAINS ECONOMY 1

Bahrains Economy

[Name]

[Institution of Affiliation]
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Introduction

Over the past few years, Bahrain country has tremendously grown economically due to

its liberal economic policies. Statistically, the country has an annual GDP growth ranging

between 2.1% to 8.3%. With its diversified economy, Bahrain has become home to various

multinational organizations with business in the Gulf. Its highly developed transport and

communication facilities make it suitable and attractive to multinational firms. Besides its

diversification plans, the implementation of Free Trade Agreement with the United States in

2016 made it more appealing to investors (Bahrain, 2012). However, due to its small population

and lack of educational skills in the local market, it stills need to import foreign employees.

Additionally, this country still faces difficulties in hiring foreign employees due to the policies

enforced to hire local workers at the expense of the international ones. Therefore, Bahrain scores

61.1 out of 100 in the BIM Labor Market Risk Index and is placed sixth worldwide after China

and others.

Diamond of National Advantage

Demand Conditions

Over the past decades, Bahrain economy has been built by the petroleum products. This

was favored by the market conditions which favored the production of petroleum and oil

internationally. Therefore, the high demand for oil and other petroleum products led to a

tremendous growth in Bahrains economy since petroleum products comprise of 61% of the

countrys export goods. Moreover, this country also imports crude oil from Saudi Arabia which

has helped in exploiting the demand for oil and its related products. However, due to the stiff

competition on petroleum products from other nations, Bahrain has not been able to compete
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effectively due to a decrease in oil products. This led to a drop in oil prices which affected the

economy. The GDP growth declined to 3.3% in 2015 from its previous 5.3 level in 2012 and 4.7

in 2013. The non-oil GDP reduced during 2014 to 3.8 from 4.8 in 2013 regardless of the

resilience in restaurants and hotels sector. Moreover, the government expansionary fiscal stance

has resulted in deficits and raising debts. This situation worsened in 2015 due to declining in oil

revenues by 10% of GDP (International, 2007). Unlike China that depend on various resources,

Bahrain cannot still compete effectively with China since it mainly depends on petroleum

products as a source of revenue.

Factor Conditions

There exist two main factors that led to the demand for trade in oil products. Bahrains

geographical position played a great role since it has two seas on both sides. This made it an

excellent trading hub for many multinational companies and a trade route to many countries.

Secondly, the availability of petroleum products and hydrocarbons also played a tremendous role

in its economy. Bahrain is a hub for many big companies across the globe. This country has

proper communication and transport system which has made it competent for many multinational

corporations. Therefore, the existence of the latest technology has enabled this country remain

competitive since most of their operations are automated. Furthermore, Bahraini works at a fixed

regime whereby Bahraini Dinar is attached to the Special Drawing Rights, unlike China that has

a flexible regime. Besides, the government finances solely depend on oil prices since the oil

revenue accounts for over 71% of the total revenue. In 2008, Bahrain encountered a high fiscal

surplus of 8% of GDP in compared to 3.3% of GDP in 2007. Nevertheless, this surplus turned

into the deficit of (-3%) of GDP in 2009. This was as a result of economic and global financial
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crisis the country underwent due to oil market slump. However, this is not the same case with

China. China recorded a budget deficit of 2.3% of the GDP in 2015 compared to that of Bahrain

that recorded 9%(Bahrain, 2012). Therefore, the Bahrain government ought to diversify its

economy so as to achieves maximum becoming growth in other sectors. The overdependence on

oil has dragged this country behind due to inflation in petroleum products, unlike China.

Related and Supporting Industries

Bahrain has several industries which support the petroleum and natural gas production.

This is one of the countries whereby electricity is harnessed through thermal sources such as

natural gas. Statistically, it was noted that natural gas produces over 11.1 KWH of electricity

which is one-third of the total power production. Therefore, the generation of electricity through

natural gas led to a reduction in the usage of other alternatives such as hydro power generators,

unlike China where all sources are utilized. In every nation, the government has significant

influence in a countrys economy. For example, in China, the Chinese government brought an

important impact on the Chinese medicine industry. Therefore, the presence of centralized

systems of government in Chine played a great to the Chinese economy. Unlike in Bahrain, the

tension between the communities brought a lot of fear for investors. Besides, the overdependence

on one product has also led to the countrys downfall economically. For instance, the decline in

oil prices has made this country to be unbalanced since it is its main source of revenue. Other

than this, Bahrain is still not fit to compete with fast-growing nations such as China because of

the poor transparency in the government and regional volatility (International, 2007). Despite

being ranked the eighth most economically free country in the world, there are a lot of internal

and external challenging environment. Bahrain has inadequate capital to develop and market
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their industries. This calls for international support from investors. As a policy advisor, the

Bahrain government should start investing in other sectors of the economy so as to curb the

economic crisis that may arise due to oils slumps. Moreover, the policies enforced to limit the

import of foreign employees should be corrected to allow skilled employees across the world to

come and helped develop their industries.

Firm Strategy, Structure, and Rivalry

According to statics, Bahrain economy heavily relies on oil. Notably, petroleum refining

and production constitute more than 61% of Bahrains exports, 71% of the government incomes,

and 10% of GDP. Besides, other commercial activities comprise the production of aluminum

which is its second largest export product after oil, construction, and finance. In 2011, Bahrain

encountered some financial setbacks due to domestic unrest and stiff competition from other

competitors such as Iran and Saudi Arabia. Moreover, the ratio of oil produced to the amount

preserved for future usage is too small making it unsuitable to compete with other nations.

Therefore, the Bahrain should focus more on oil plants than oil production which might help in

boosting its economic condition. Unlike China that relies on other sources of revenue, Bahrain

should utilize or revive other sectors of the economy to help it boost its income. Moreover, the

tension between the ruling of Shia and Sunni community has also affected the countrys

economy. Peace plays a tremendous role to the economy of every nation. For example, China has

been able to grow very fast due to its centralized type of governance unlike Bahrain. Besides,

there exist other factors that are still making this country unsuitable for growing fast as China.

The poor data transparency, overdependence on oil revenues, and regional volatility has

drastically affected this nations economy. Unlike China, its economy depends on various
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resources such as manufacturing of electronics, construction among others. Therefore, Bahrain

should develop other sectors of the economy and rectify the governance of the country. This will

help in improving its revenue which will be seen by the revenues it collects annually. Moreover,

it should also diversify its economic polies and resources to help it venture into new markets

with ease. (Terterov & UK Trade & Investment, 2005).

Recommendations

The government should invest in tourism and hospitality. Due to its strategic position,

investing in tourism will help revamp the Bahrains coastline and endorse its cultural and

historical places of interest. The diverse society and tolerance of Bahrain make the Kingdom

more attractive to tourists than the nearby locations. In 2014, the hotel and restaurant sector

experienced 7% growth compared to the previous year which was at 5%(Ramady, 2014). This is

an indicator that the tourism industry is a potential source of revenue to the country. Moreover,

the revival of the formula one will also boost the countrys tourism sector. Therefore, the country

should construct more hotels, restaurants, and recreational facilities to promote the tourism

industry which has proved to be a potential source of revenue.

Other than the mentioned, Bahrain should also consider the number of public sector

within the country. Notably, most of the petroleum and oil refineries products are monitored and

controlled by the government which is not favorable or good for foreign investors. Moreover, the

government should invest in its infrastructure. Most developed nations have tremendously

developed their infrastructure which has made them compete effectively, for instance, proper

communication networks will improve the communication links between Bahrain and its trading

counterparts. Therefore, the Bahrain government should monopolize some of its main industries
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and also invest in infrastructure to attract more investors. Furthermore, it should also provide

more shares to these industries which is essential in empowering the economic conditions.

Bahrain should also increase the trade leads with other nations. This will help increase

its labor force which has dragged the Bahrain economy for the past few decades. Statistically, it

was noted that the man power required in Bahrain was too low to compensate the growing

economy. Moreover, the government should also improve the educational system in the country.

Education is the key to success. Therefore, proper invest in the education system will help the

country to train its citizens hence more skilled personnel. The establishment of higher education

City in 2007 boosted the economy of the country. Most industries could now hire local

employees. Therefore, Bahrain government should focus on improving its educational sector to

improve the labor force the country needs to compete effectively in the current market. However,

by employing this strategy, Bahrain will be in a position to compete effectively with other

countries. Therefore, Bahrain should focus on improving its labor force by recruiting and hiring

skilled personnel from other countries.

Since Bahrain relies on Petroleum and natural gas as its main source of revenue, the

government should import more crude oil. Notably, Bahrain has been using its resources which

has reduced by a wider margin compared to a decade ago. This is so because petroleum and

natural gas are renewable sources and may get depleted after a while. Therefore, as a policy

advisory, I would recommend government to import more crude oil and export refined oil which

will improve trade between Bahrain and other nations. Moreover, this will also help Bahrain to

maintain a good economy without exhausting its resources.

Conclusion
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In summation, for Bahrain to improve its competitive advantage among other nations, the

government should invest in other sectors of the economy. For example, the government should

revive the tourism industry, invest in the education system and infrastructure. Due to its

geographical location, this country can attract more tourist which will boost its revenues and

reduce create employment opportunities. This will increase its revenue which can be used to

improve other sectors. Moreover, improving the education system will also help educate their

citizens hence reducing the tension between the communities. This will also reduce the

additional incurred in importing foreign employees.

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References

Bahrain, 2012. (2012). Place of publication not identified: Oxford Business Group.

Ramady, M. A. (2014). Political, Economic and Financial Country Risk: Analysis of the Gulf

Cooperation Council. (Political, economic and financial country risk.) Cham: Imprint:

Springer.

Terterov, M., Bahrain., Big On Group., & UK Trade & Investment. (2005). Doing business with

Bahrain: A guide to investment opportunities and business practice. London: GMB Pub.

International, B. P. U. (2007). Bahrain business law handbook. Place of publication not

identified: Intl Business Pubns Usa.