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International Trade and Investment: Spotlight on Bahrain

Since its independence from Britain in 1971, the Kingdom of Bahrain has worked hard to maintain an attractive investment climate; the government’s Vision 2030 statement sets out their economic vision and long-term plan, the success of which led to the Wall Street Journal naming the country’s economy the freest in the Middle East and North Africa. So the big question is: what are they doing right?

The three key challenges identified under Vision 2030 are: transforming Bahraini economy by focusing on developing the quality and number of jobs for Bahrainis, competing in the global market place, and exploiting the growth opportunities in the Gulf Cooperation Council (GCC) region.

To address these challenges and support long-term sustainable growth in Bahrain’s economy, international trade is key. Bahrain has devoted unusual energy to forging strong trade links, and can serve as a positive case study – we take a look at how these links benefit Bahrain’s local businesses as well as international investors.

International trade links 

Bahrain courts the world’s major economies with favourable trade agreements, which support the local economy and government. The United States-Bahrain FTA, a bilateral commercial treaty enacted in 2006, supports the economic and political reforms of Bahrain and creates job opportunities for companies in the US. These companies offer everything from telecommunications and audio visual services to express delivery, distribution, healthcare, architecture and engineering services. In addition, the FTA enables farmers in the US to increase their agricultural exports to Bahrain.

In January 2010, Bahrain signed a Foreign Investment Promotion and Protection Agreement (FIPA) with Canada. As Bahrain is a member of the GCC region, it is considered a priority market for the Foreign Affairs and International Trade Canada, and Canada and Bahrain share common views on the importance of education. Agreements between universities in both countries further strengthen the ties between Canada and Bahrain. 

In 2012, the Bahrain Japan Business and Friendship Society (BJBFS) was incorporated to renew a focus on strengthening the economic ties through the promotion of business relations as well as fostering social and cultural interaction between Bahrain and Japan. During a meeting with a BJBFS delegation, the Chief Executive of Aluminium Bahrain B.S.C., one of the largest aluminium smelters in the world, expressed confidence in the potential to further broaden the relationships and understanding between the two countries and to create opportunities for greater growth.

Benefits to domestic businesses and international investors

International trade boosts the economic growth of Bahrain and other nations because it enables domestic businesses in Bahrain to achieve economies of scale by specialising in the production of goods and services for which they have a comparative advantage. Specialisation also leads to lower prices, making good and services more affordable for local consumers as well as foreign investors. Moreover, international trade provides people with a greater choice of goods and services, increasing competition and raising quality.

According to The Times 100 Business Case Study on HSBC, companies that buy and sell in overseas markets are able to develop and expand their businesses and increase their profits through the jump in sales volume. International trade also helps companies to introduce existing goods and services into new overseas market if they are facing a saturated market at home. Hence, reliance on domestic market can be reduced. In addition, when a company moves into international markets, it can improve their reputation at home. 

Conclusions?

While the specifics of Bahrain’s situation means that not all of their methods are applicable to other nations or regions, we can still take lessons from their success: namely, that international trade agreements that promote local and foreign businesses bring new opportunities and expand the domestic economy.