Running head: BAHRAIN’S ECONOMY 1

Bahrain’s 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. With its diversified economy, Bahrain has become home to various

multinational organizations with business in the Gulf. 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, the country still faces difficulties in the global market.

This TMA seeks to discuss Bahrain’s competitiveness with a benchmark of China, then moves to

offer recommendations for Bahrain in order to enhance its global competitive advantage.

Diamond of National Advantage

Demand Conditions

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

trade to improve its economy. This was favored by the market conditions which favored the

production of petroleum and oil internationally. Therefore, the high demand for oil and other
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products led to a tremendous growth in Bahrain’s economy since petroleum products constituted

a bigger percentage of the country’s export goods. Moreover, this country also imports crude oil

from Saudi Arabia which has helped in exploiting the demand for natural resources and their

products. However, due to the stiff competition on fossil fuel products from other nations,

Bahrain has not been able to compete effectively due to a decrease in fuel products. This led to a

drop in oil prices which affected the economy. Other than the motioned, the government

expansionary fiscal stance has resulted in deficits and raising debts. This situation worsened in

2015 due to decline in oil revenues (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. Therefore, Bahrain should exploit other alternative

sources of generating electricity as well as modifying its trade policies to facilitate economic

growth.

Factor Conditions

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

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. In 2008, Bahrain encountered a high fiscal surplus compared to the year 2007.
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Nevertheless, this surplus turned into the deficit in 2009 (Bahrain, 2012). This was as a result of

economic and global financial crisis the country underwent due to oil market slump. However,

this is not the same case with China. China recorded a less budget deficit in 2015 compared to

that of Bahrain (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 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

country’s 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. The overdependence on one product

has also led to the country’s downfall economically. 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 their industries. This calls for

international support from investors. As a policy advisor, the Bahrain government should start
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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 and trade to improve its

economy. Notably, petroleum refining and production constitute a bigger percentage of

Bahrain’s exports and the government incomes (Bahrain, 2012). 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

(Bahrain, 2012). 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 country’s 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

nation’s economy. Unlike China, its economy depends on various 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
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should also diversify its economic polies and resources to help it venture into new markets with

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

Recommendations for Bahrain’s government to gain competitive advantage

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

investing in tourism will help revamp the Bahrain’s 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 a greater growth compared to the previous year (Ramady, 2014). This is an indicator

that the tourism industry is a potential source of revenue to the country.

Bahrain should also consider the number of public sectors within the country. 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

and also invest in infrastructure to attract more investors.

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. 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 the Higher Education City in 2007

boosted the economy of the country (Bahrain, 2012). 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,
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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

For Bahrain to improve its competitive advantage among other nations, the government

should invest in other sectors of the economy. The recommendations provided will help boost

Bahrain into the global market, allowing it to gain competitive advantage.

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References

“The Report: Bahrain, 2012”, 2012, Oxford busine group, retrieved from:

<https://www.oxfordbusinessgroup.com/node/779608/reader>

Ramady, M 2014, “Political, Economic and Financial Country Risk: Analysis of the Gulf

Cooperation Council”, 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.