BAHRAIN INVESTMENT CLIMATE STATEMENT 2005

UNCLAS SECTION 01 OF 09 MANAMA 000103

SIPDIS

DEPT FOR NEA/ARP AND EB/IFD/OIA
DEPT PASS USTR JBUNTIN
USDOC FOR 4520/ITA/MAC/ONE/CLOUSTAUNAU AND THOFFMAN

E.O. 12958: N/A
TAGS: EINV EFIN ETRD BA
SUBJECT: BAHRAIN INVESTMENT CLIMATE STATEMENT 2005

REF: 04 STATE 250356


1. The following is post's Investment Climate Statement
submission for 2005.


2. Begin text:

INVESTMENT CLIMATE

OPENNESS TO FOREIGN INVESTMENT

The government of Bahrain has a generally liberal approach
to foreign investment and is eager to improve Bahrain's
attractiveness to international investors and businesses.
Top government officials make frequent public statements
citing growth of foreign investment as one of the
government's main priorities. According to the United
Nation Conference on Trade and Development's (UNCTAD) 2004
World Investment Report, Bahrain rates number 29 in
attracting foreign direct investment (FDI),with FDI
averaging $1.7 billion annually over the past three years.
The government has focused its efforts on the entry of new
private firms, particularly in the information and
communications technology, education and training services,
tourism, financial services, business services, healthcare
services and downstream industries. Bahrain's Crown Prince
is also an outspoken proponent of privatization in Bahrain.
The Crown Prince took over the chairmanship of the Economic
Development Board (EDB),a "one-stop-shop" for potential
investors, and in 2004 was entrusted with the King's labor,
economic, and training reform visions.
On September 14 2004, the U.S. and Bahrain signed a
bilateral free trade agreement (FTA),a comprehensive
agreement that will remove trade barriers and expand
commercial opportunities for the peoples of both countries.
Ratification is expected early 2005. 100 percent of
bilateral trade in consumer and industrial products will
become duty-free immediately upon entry into force of the
Agreement. In addition, Bahrain and the United States will
provide duty free access on virtually all products in their
tariff schedules and will phase out tariffs on the remaining
handful of products within ten years. Under the Agreement,
which covers all agricultural products, Bahrain will provide
immediate duty-free access for U.S. agricultural exports in
98 percent of agricultural tariff lines. Bahrain will phase
out tariffs on the remaining products within ten years.
Additionally, Bahrain will accord substantial market access
across its entire services regime, providing among the
highest degree of market access of any U.S. free trade
agreement negotiated to date. Key services sectors covered
by the Agreement include audiovisual, express delivery,
telecommunications, computer and related services,
distribution, healthcare, services incidental to mining,
construction, architecture and engineering.
Bahrain has earned a reputation as the Gulf region's
preeminent financial center. The Bahrain Monetary Agency
(BMA) meets the highest international standards of financial
regulation, and the Government of Bahrain has been a leader
in combating terrorist financing and money laundering.

The Bahrain Stock Exchange (BSE) allows GCC firms and GCC
persons to own up to 100 percent of listed companies. Non-
GCC firms/persons may own up to 49 percent of listed
companies. The Minister of Commerce chairs the BSE Board
of Directors, but it is operated as an independent corporate
entity. The Minister announced that within three years non
GCC-nationals would be offered up to 100 percent ownership.
Under the terms of the Bilateral Investment Treaty (BIT),
U.S. investors gained MFN (or GCC) treatment beginning
January 1, 2005.

In March 2004, as part of an effort to stimulate the
insurance industry and reinforce Bahrain's position as a
major insurance center in the Middle East, the BMA lifted
the requirement that foreign insurance brokers and loss
adjusters have a local partner to operate. These firms,
which were previously required to have at least 51 percent
Bahraini ownership, are now permitted to operate with 100
percent foreign ownership. The BMA is holding consultations
on further reform in areas such as captive insurance,
solvency, business conduct, risk management and financial
crime, enforcement, BMA reporting and public disclosure,
intermediaries, and Islamic insurance. Taxation and import
laws apply equally to Bahraini and foreign-owned companies,
and foreign investors must comply with the same requirements
and legislation, as do local firms.
In anticipation of the Gulf Cooperation Council Customs
Union, Bahrain reduced customs tariffs to five percent in
January 2002 for imported goods, except alcohol (125
percent) and tobacco (100 percent),and exempted a list of
417 food and medical items from customs duties entirely.
Bahrain was required to implement its GCC customs union
requirements in 2005, but in fact implemented them in 2003.
Upon ratification of the U.S.-Bahrain FTA, 98 percent of
U.S. exports to Bahrain will enter duty free.
In an economy largely dominated by parastatals (outside of
the financial services sector),the Government of Bahrain
seeks to foster a greater private sector role in economic
growth. Following the creation of a Supreme Privatization
Council in the spring of 2001, the King of Bahrain, Shaikh
Hamad bin Isa Al-Khalifa, issued a decree on October 2002
laying out guidelines for privatizing tourism,
telecommunications, transport, electricity and water, ports
and airport services, oil and gas and postal service
sectors.
The telecommunications sector was the first key sector to be
liberalized in Bahrain following the government's announced
interest in opening traditionally government-controlled
industries. The Telecommunications Regulatory Authority
(TRA),established in late 2002, awarded a mobile
telecommunications services license to MTC Vodafone, thus
ending the monopoly of Bahrain's telecom services provider,
BATELCO. The license was awarded under the
Telecommunications Law, which took effect January 2003.
Telecommunications liberalization also extended to paging
services, very small aperture terminal (VSAT),public access
mobile radio services, international telecommunications
facilities, international telecommunications services,
national fixed services, internet service provider (ISP) and
value-added services license following the full
liberalization of the sector on July 1, 2004. As of
December 2004, the TRA announced the provision of three
International Telecommunications Facility licenses (IFLs),
five International Telecommunications Services Licenses
(ISLs),five VSAT licenses, fifteen value-added Services
(VAS) "Class" licenses and eight Internet Service Provider
(ISP) licenses.

The public transportation service was also privatized in

2003. CARS, a Bahraini-UAE joint venture, started operating
in May 2003 with 41 new, air-conditioned, 52-seat buses. The
CARS company completed its plan to acquire 20 new buses by
the end of 2003. Its total investment in the public
transportation privatization project is approximately $10
million.

The Kingdom's first independent power plant project (IPP)
was also successfully tendered and awarded in 2004 to
Bahraini-based Al Ezzel Independent Power Producer (IPP),
which is equally owned by a Belgian-Gulf consortium of
Tractebel EGI and Gulf Investment Corporation.

Four international operators have also been short-listed to
manage Mina Salman and the new Hidd port.

The Government, under the privatization law, has made a
commitment to gradually dispose of its interests and stakes
in certain companies. But the National Assembly's lower
house members (Council of Representatives) have criticized
the Government's disinvestment of the remaining state
holdings in the Bahrain Telecommunication Company (BATELCO).

Bahrain requires that pharmaceutical products be imported
directly from a manufacturer with a research department and
that the products be licensed in at least two other GCC
countries, one of which must be Saudi Arabia. Drugs and
medicines may be imported only by a drug store or pharmacy
licensed by the Ministry of Commerce after approval by the
Ministry of Health. Bahrain prohibits the importation of
weapons (except under special license),pornography, wild
animals, radio-controlled model airplanes, foodstuffs
containing cyclamates, and children's toys containing methyl
chloride (and other articles declared harmful by the
Ministry of Health). Bahrain is also taking steps to ban
the import of 127 chemicals.

Bahrain has phased out most subsidies for export industries,
but permits duty-free importation of raw materials for
export products and of equipment and machinery for newly
established export industries. All industries in Bahrain,
including foreign-owned firms, benefit from government-
subsidized utilities.

Periodically, foreign firms experience difficulty obtaining
required work permits and residence visas for expatriate
employees due to the Bahraini government's efforts to
promote greater numbers of Bahraini citizens in the
workforce. However, this does not appear to be a matter of
high-level policy, and often can be resolved on a case-by-
case basis. Where problems occur, U.S. businesses are
encouraged to apply to the highest levels of the concerned
ministries and to consult the U.S. Embassy.

Bahrain offers several advantages to U.S. investors,
including a Bilateral Investment Treaty with the United
States (in force as of May 2001) and a bilateral Free Trade
Agreement (FTA) signed in September 2004.

The government actively seeks Bahraini and foreign private
investments in large infrastructure projects. Previously,
most such activity (other than hotels) was funded by
development agencies from other Gulf countries (particularly
Kuwait, UAE, and Saudi Arabia). Foreign-owned companies are
eligible for partial financing from the state-owned Bahraini
Development Bank (BDB),if they meet certain criteria such
as providing training and employment to a significant number
of Bahrainis.

CONVERSION AND TRANSFER POLICIES

Bahrain has no restrictions on the repatriation of profits
or capital and no exchange controls. Bahrain's currency,
the Bahraini Dinar (BD),is fully and freely convertible at
the fixed rate of USD 1.00 = BD 0.377 (1 BD = $2.659). There
is no black market or parallel exchange rate. Foreign
exchange is readily available and a devaluation of the
Bahraini Dinar over the next year is highly unlikely. There
are no restrictions on converting or transferring funds,
whether or not it is associated with an investment.

EXPROPRIATION AND COMPENSATION

There have been no expropriations in recent years and no
cases in contention. The U.S.-Bahrain Bilateral Investment
Treaty (BIT) protects U.S. investments by banning all
expropriations (including "creeping" and "measures
tantamount to") except those for a public purpose. In such a
case, it must be carried out in a non-discriminatory manner,
with due process, and prompt, adequate, effective
compensation.

DISPUTE SETTLEMENT

Bahrain has a long-established framework of commercial law.
English is widely used, and well-known international
(including U.S.) law firms, working in association with
local partners, provide expert legal services both
nationally and regionally. Fees are charged according to
internationally accepted practices. Although only a
Bahraini lawyer can argue in a Bahraini court of law,
lawyers of other nationalities can and do work on cases.

From May 2001, the U.S.-Bahraini BIT provides for three
dispute settlement options: 1) submitting the dispute to a
local court; 2) invoking dispute-resolution procedures
previously agreed upon by the national or company and the
host country government; and 3) submitting dispute for
binding arbitration to ICSID (International Center for
Settlement of Investment Disputes) or any arbitral
institution agreed upon by both parties.

The GCC Commercial Arbitration Center, established in 1995,
serves as a regional specialized body providing arbitration
services. It assists in resolving disputes between GCC
countries or between other parties and GCC countries. The
Center implements rules and regulations in line with
accepted international practice. Thus far, few cases have
been brought to arbitration. The Center conducts seminars,
symposia, and workshops to help educate and update its
members of any new arbitration related matters. The
Center's contact details are as follows:

GCC Commercial Arbitration Center
P.O. Box 2338
Manama, Kingdom of Bahrain
Tel: +(973) 17-214-800
Fax: +(973) 17-214-500
Website: www.gccarbitration.com
Email: arbit395@batelco.com.bh

Arbitration procedures are largely a contractual matter.
Disputes are historically referred to an arbitration body as
specified in the contract, or to the local courts.
Increasingly, Bahraini companies, in dealings with both
local and foreign firms, include arbitration procedures in
their contracts. Most commercial disputes are resolved
privately without recourse to the courts or formal
arbitration. Bahraini law is generally specified in all
contracts for the settlement of disputes that reach the
stage of formal resolution. Occasional lawsuits against
individuals or companies for nonpayment of debts have been
adequately handled by Bahrain's court system. The guidelines
laid down by the International Chamber of Commerce (ICC) in
Paris are generally respected, and disputes have been
occasionally referred to arbitration at the ICC in Paris.
Bahrain is a signatory to the New York Convention of 1958 on
the Recognition and Enforcement of Foreign Arbitration
Awards.

The United States government, under the Middle East
Partnership Initiative, is providing technical assistance to
Bahrain to expand the use of Alternative Dispute Resolution
techniques in commercial law disputes. Some American firms
have complained of Bahraini courts' willingness to accept
cases involving termination of contract when the U.S. firm
believes it was firmly within its rights to terminate the
contract.

PERFORMANCE REQUIREMENTS AND INCENTIVES

There are no special performance requirements imposed on
foreign investors. This is reinforced by the U.S.-Bahrain
BIT, which forbids mandated performance requirements as a
condition for the establishment, acquisition, expansion,
management, conduct or operation of a covered investment.
Foreign and Bahraini-owned companies must meet the same
requirements and comply with the same environmental, safety,
health, and other labor requirements. Officials at the
Ministries of Labor, Commerce, and Industry supervise, on a
non-discriminatory basis, companies operating in Bahrain.

Industries must be set up in identified industrial areas.
An Environmental Impact Statement (EIS) must be filed by all
manufacturing facilities. After one complete year of
operation, a manufacturing facility is eligible for relief
from tariffs imposed by other GCC states on imported goods.

RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

In principle, private entities may freely establish,
acquire, and dispose of interests in business enterprises,
subject to the limitations noted in this chapter.

The U.S.-Bahrain Bilateral Investment Treaty (BIT) provides
benefits and protection to U.S. investors in Bahrain, such
as most-favored-nation treatment and national treatment, the
right to make financial transfers freely and without delay,
international law standards for expropriation and
compensation cases, and access to international arbitration.
The BIT guarantees national treatment for U.S. investments
across all sectors, with exceptions for ownership of
television, radio (or other media),fisheries, and
privatization of oil dredging or exploration. Bahrain also
provides most-favored-nation or national treatment status to
U.S. investments in air transportation, the buying or
ownership of land, and the buying or ownership of shares
traded on the Bahrain Stock Exchange (BSE).

Because of the national treatment offered American firms in
the Bilateral Investment Treaty (BIT),American firms
interested in selling products exclusively in Bahrain are no
longer required to appoint a commercial agent, though many
chose to do so anyway. A commercial agent is any Bahraini
party appointed by a foreign party to represent the foreign
party's product or service in Bahrain.

Bahrain permits 100 percent foreign-ownership of new
industrial entities and the establishment of representative
offices or branches of foreign companies without local
sponsors. Wholly foreign-owned companies may be set up for
regional distribution services and may operate within the
domestic market as long as they do not exclusively pursue
domestic commercial sales. Private investment (foreign or
Bahraini) in petroleum production is permitted only under a
production-sharing agreement with BAPCO, the state-owned
petroleum company.

Since January 2001, foreign firms and GCC nationals may own
land in Bahrain. Non-GCC nationals may now own high-rise
commercial and residential properties, as well as property
in tourism, banking, financial and health projects, and
training centers, in specific geographic areas.

PROTECTION OF PROPERTY RIGHTS

The Bahraini legal system adequately protects and
facilitates acquisition and disposition of property rights.
The concept of a mortgage exists, and there is a recognized
and reliable system of recording such security interests.
However, there is currently no mortgage law that guarantees
lenders the right to repossess property in case of mortgage
non-repayment.

The U.S.-Bahrain FTA commits Bahrain to enforce world-class
IPR protection. Bahrain signed the Berne Convention for the
Protection of Literary and Artistic Works and the Paris
Convention for the Protection of Industrial Property in

1996. Revised legislation to implement Bahrain's obligations
under the TRIPS Agreement is currently under review. Bahrain
is also considering joining the WIPO Copyright Treaty and
the WIPO Performances and Phonograms Treaty. Bahrain has
drafted and is in the process of passing new laws related to
intellectual property to bring Bahrain's local laws into
compliance with its current Paris Convention commitment and
to position it to join the Nice Agreement, Vienna Agreement,
Patent Cooperation Treaty, Trademark Law Treaty, Madrid
Agreement, Budapest Treaty, and the Rome Convention.

The government has made dramatic progress in reducing
copyright piracy, and there are no reports of significant
violations of U.S. patents and trademarks in Bahrain. The
government's copyright enforcement campaign began in late
1997 and was based on inspections, closures, and improved
public awareness. The campaign targeted the video, audio and
software industries, with impressive results. The
commercially pirated video and audio markets have been
virtually eliminated. However, software piracy, which has
shifted from retail to end-user violations, remains
problematic.

There are no technology transfer requirements that force
firms to share or divulge technology through compulsory
licensing to a domestic partner, nor are firms forced to
commit to undertake research and development activities in
Bahrain.

TRANSPARENCY OF THE REGULATORY SYSTEM

In October 2002, Bahrain implemented a new government
procurement law that establishes the basic framework for a
transparent, rules-based government procurement system. It
provides that certain procurements may be conducted as
international public tenders open to foreign suppliers. To
implement this law, a tender board, chaired by a Minister of
State, was established in January 2003 to oversee all
government tenders and purchases. In the past, government-
tendering procedures for large projects were not highly
transparent. U.S. companies sometimes reported operating at
a disadvantage compared with other international firms.
Contracts were not always decided solely based on price and
technical merit, and selected, pre-qualified firms were
occasionally invited to bid on major government tenders. As
of January 2003, however, the Tenders Board processes all
tender decisions valued at $26,525 (BD 10,000) or higher.
Individual ministries and departments may still process
projects valued at less than $26,525 (BD 10,000). U.S.
firms report that the process is greatly improved over the
previous system, though some challenges remain. U.S. firms
have indicated that the Bahraini government does not always
strictly follow accepted procedures in the two-envelope
(technical and financial) tendering process. A local
representative with strong connections may still be
important in the bidding process.

In the case of manufacturing enterprises, bureaucratic
procedures and red tape created stumbling blocks mainly due
to the lack of coordination between government ministries,
which must sign off at one stage or another of the licensing
procedure.

In an effort to streamline licensing and approval
procedures, the Ministry of Commerce opened the Bahrain
Investors Center (BIC) in October 2004 for both local and
foreign companies seeking to register in Bahrain. This high-
tech, customer-friendly facility, located in one of
Bahrain's largest malls, is part of a larger effort by the
GOB to attract firms to use Bahrain as their "Gateway to the
Gulf" by setting up regional operations in the country. The
BIC is designed as a "one-stop shop" providing all
commercial licensing and registration services. It houses
representatives from all relevant ministries (over a dozen)
and private sector representatives from the
telecommunications, legal, banking, and consulting
industries under one roof.

Officials from the Ministry note that the BIC can process
and issue 80 percent of commercial registration applications
within 24 hours and an additional 10 percent of commercial
registrations within five working days. The remaining 10
percent, mostly those having to do with health, environment,
power and or other essential services, are processed
separately according to sector specific regulations and
licenses are issued on a case-by-case basis.

Draft legislations are proposed by the Cabinet and by both
the lower house (Council of Representatives) and upper
houses (Shura Council) of the National Assembly. Once a
draft law has been produced and submitted to the lower and
upper houses of the National Assembly for approval, it is
then passed to the Cabinet for the King's signature. After
the King signs the law, the law is published in the Public
Gazette and is promulgated.

Entrenched local business interests with influence the
government can cause problems for potential competitors.
Interpretation and application of the law sometimes varies
by ministry, and may be dependent on the stature and
connections of an investor's local partner. However,
investors are usually pleased with government cooperation
and support.

EFFICIENT CAPITAL MARKET AND PORTFOLIO INVESTMENT

Consistent with the government of Bahrain's liberal approach
to foreign investment, government policies facilitate the
free flow of financial resources. Foreigners and Bahrainis
alike have ready access to credit on market terms.
Generally, credit terms are variable, but often are limited
to 10 years for loans under $50 million. For major
infrastructure investments, banks will often offer to assume
a part of the risk, and Bahrain's onshore and offshore banks
have shown extensive cooperation in syndicating loans for
larger risks. Generally, Bahrain's banks are described as
eager for solid investment opportunities.

The banking system is sound, and undergoes examination and
supervision by the Bahrain Monetary Agency (BMA),which has
a solid international reputation. In November 2004 Bahrain
hosted the inaugural meeting of the Middle East and North
Africa Financial Action Task Force (MENA FATF). Bahrain
worked hard over the last few years to start this body and
to host it in Manama. There was an initial planning meeting
in January 2004 in Manama and the FATF unanimously endorsed
the MENA FATF proposal in July 2004. Bahrain's leadership
was instrumental in the establishment of this regional body.

POLITICAL VIOLENCE

Bahrain experienced intermittent civil unrest in the mid
1990's. These disturbances were directed primarily against
the regime, but in a few cases expatriate property,
including homes, vehicles, and places of business were
damaged or destroyed. Although the situation improved
steadily after 1997, the 2002 upsurge in violence between
Israelis and Palestinians sparked anti-Israeli and anti-
American demonstrations in Bahrain. The protests peaked in
April 2002 when a mob attacked the U.S. Embassy and set fire
to U.S. Government vehicles. Since that incident, large-
scale protest activity has subsided. Bored youths rioted in
downtown Manama on December 31, 2002 and inflicted
significant damage to public and private property. The 2003
Iraq war sparked a few political protests near the American
and British Embassies in which some private and government
property was damaged.

In October 2003, the Bahraini Court charged 10 youths for
violence during protests against a planned concert by a
Lebanese singer whose performance was deemed immoral by
Islamists. Protesters threw petrol bombs during pitched
battles with police, damaging private vehicles.

In March 2004, rioters protesting liquor sales attacked a
restaurant in Bahrain, burning and damaging privately owned
vehicles. The foreign co-owner of the restaurant estimated
$15,262 (BD 5,000) worth of physical damage to the property.

The government is prosecuting four extremists who are
accused of plotting to attack government and public
facilities in Bahrain.

CORRUPTION

According to U.S. firms, high-level corruption is sometimes
an obstacle to foreign direct investment and contracting,
particularly in the contract-bidding process. In the case
of some high-value contracts, government-tendering
procedures have not always been transparent and contracts
have not always been decided on the basis of price and
technical merit. However, petty corruption is relatively
rare in Bahrain. The bureaucracy is sometimes inefficient
but it is honest. Giving or accepting a bribe is illegal.
Officials have been dismissed for blatant corruption, but it
is never so stated officially; no one has been tried in
court for corruption. The King and Crown Prince have come
out publicly in favor of reducing corruption and some
Ministries have initiated clean-up efforts to reduce the
problem. The expatriate business community is cautiously
optimistic that there is growing transparency in the
government procurement process. A new law to thoroughly
revamp government procurement procedures went into effect in
January 2003. Bahrain is not a signatory to the OECD
Convention on Combating Bribery.
BILATERAL INVESTMENT AGREEMENTS
Bahrain and the U.S. signed a bilateral investment treaty
(BIT) in September 1999, the first BIT between the United
States and a GCC state. The agreement entered into force in
May 2001.

As of July 2003, Bahrain had bilateral investment protection
agreements in place with Algeria, China, Egypt, Jordan,
Malaysia, Morocco, Syria, Philippines and the UK. Bahrain
has economic and commercial cooperation agreements with
Australia, Bangladesh, China, Egypt, France, Greece, India,
(Iraq),Jordan, Morocco, the Netherlands, Russia, Singapore,
South Korea, Syria, Tunisia, Turkey and the UK. Bahrain has
air transportation tax agreements with China, France,
Greece, Singapore, Turkey, UK, U.S. and Yemen, and two
transportation agreements with Syria. Bahrain has concluded
double taxation agreements with Egypt, France, India,
Jordan, Malaysia, Morocco, the Philippines, Thailand and
Tunisia.

OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS

On April 25, 1987, Bahrain and the U.S. Government signed an
agreement regarding activity in Bahrain by the Overseas
Private Investment Corporation (OPIC). The agreement opened
the way for extension of such OPIC facilities as investment
insurance, reinsurance, and investment guarantees to U.S.
private investors interested in doing business in Bahrain.

LABOR
The Bahrain labor force is estimated at 330,000, nearly two-
thirds of whom are expatriates. The GOB publicly states
that unemployment, which official statistics put at 14.3
percent of Bahrainis in Bahrain's workforce, is the
country's foremost domestic political problem. The United
Nations Development Program (UNDP) estimates real
unemployment among Bahrainis to be 15 to 20 percent and as
high as 30 percent in some Shi'ite villages. In 2001
Bahrain's Cabinet approved a two-year project worth over $65
million to train and update professional skills of
unemployed Bahrainis. One of the government's primary
initiatives for combating unemployment is "Bahrainization,"
or the replacement of expatriate workers by national ones.
In 2002 the Government of Bahrain reserved certain
professions, including heavy vehicle drivers, for Bahraini
nationals.
Crown Prince Salman bin Hamad Al Khalifa launched a national
debate in 2004 that is aimed at creating a new economic and
labor vision for the Kingdom. Draft labor reform
legislation seeks to levy a monthly fee to employers of
foreign workers. The fees would enter a fund to be used for
training Bahraini workers. The proposal has attracted quite
a bit of controversy and it is not clear how the issue will
be resolved.
The Government of Bahrain is seeking to establish Bahrain as
a regional center for human resource development. Bahrain
has over 50 training institutes that offer training in a
variety of areas such as hospitality, information
technology, business studies, English language studies, and
banking. Major training institutes include the Bahrain
Institute for Banking and Finance (BIBF),Bahrain Training
Institute (BTI),KPMG, and the British Council. Bahrain has
agreed to host the U.S.-funded Entrepreneurship Center,
which will train regional business people in business
skills. Both educational and vocational training curricula
have been criticized recently for not adequately preparing
Bahrainis for the workforce. The government is making
concerted efforts to turn this situation around.

Another major step that the GOB is undertaking is the
formation of trade unions. Government officials developed a
new labor union law to allow trade unions and to establish a
system that would ensure and protect workers rights. The
new labor union law went into effect in Fall 2002.
Bahrain's trade unions must be associated with the Bahrain
Trade Union Federation.

FOREIGN TRADE ZONES/FREE TRADE ZONES

Mina Salman, Bahrain's major port, provides a free transit
zone to facilitate the duty-free import of equipment and
machinery. The North Sitra Industrial Estate is an
industrial free zone and another one is planned for Hidd.
Foreign-owned firms have the same investment opportunities
in these zones as Bahraini companies.

A 1999 law requires that investors in industrial, or
industry-related, zones launch a project within one year
from the date of receiving the land, and development will
have to conform to the specifications, terms and drawings
submitted with the application. Changes are not permitted
without approval from the Ministry of Industry.

FOREIGN DIRECT INVESTMENT STATISTICS

Foreign investments in Bahrain range from partial foreign
ownership of large parastatals in the oil and
telecommunications sectors to restaurant franchises. As the
economy is virtually tax-free, the government does not
maintain detailed statistics foreign direct investment
flows. The largest, by value, of foreign holdings in
Bahrain include:

-- Aluminum Bahrain (ALBA) and the Gulf Petrochemical
Industries Complex (GPIC),each of which are owned as joint
investments by several Gulf states.

-- Britain's Cable and Wireless' 20 percent holding in the
Bahrain Telecommunications Company (BATELCO).

-- U.A.E. based Majid Al Futtaim Investments are investing
$26.4 in the new Bahrain City Center cinema complex.

-- Bahrain National Gas Company (BANAGAS) is owned by
Bahrain, a Saudi investment firm and Caltex Bahrain.

-- Amwaj Islands tourism project is jointly owned by
Bahraini, Kuwaiti and Saudi corporate and individual
investors.

-- The $600 million tourism project of Al Areen Desert Spa
and Resort is owned by the Government of Bahrain, various
private investors and Gulf Finance House.

-- The development of the $1.3 billion Bahrain Financial
Harbor project, owned by Gulf Finance House, personal and
corporate G.C.C. investors.

According to U.S. Embassy records, approximately 180 U.S.
companies were operating, in one form or another, in Bahrain
as of January 2005. Many of the U.S. firms are in the
services sector and thus do not have a large capital
investment in Bahrain despite a significant local presence.
Among the larger U.S. investments are:

-- Citibank's new regional headquarters building, opened in
2001, valued at nearly $30 million.

-- Coca Cola's local bottling plant, purchased at a cost of
USD 13 million. Another $15 million flows into the economy
annually with operating costs investment.

-- Shaw-Nass, a manufacturing plant owned by Shaw
Industries, a U.S. pipeline manufacturer, in partnership
with a Bahraini firm, A.A. Nass.

-- Owners of The Diplomat Radisson SAS Hotel and Executive
Apartments expansion project cost owner, National Hotels
Company B.S.C., $18 million.

-- U.S. operational headquartered Foster Wheel Energy
Limited, a subsidiary of Foster Wheeler Limited, were
awarded a front-end engineering design (FEED) contract to
revamp Bahrain National Gas Company's (BANAGAS) liquefied
petroleum gas (LPG) facilities.

-- Marriot International signed a contract with
International Trading and Investment Company (ITICO) to open
and manage the first Marriot Executive Apartments in
Bahrain.

-- Wimberly Allison Tong and Goo (WATG) were appointed by
the General Organization for Social Insurance (GOSI) to
prepare the preliminary designs for the $212 million resort
development of the Marina Club.

American firms are also heavily involved in large-scale
consulting and construction projects in Bahrain. Here are
some examples:

-- Bechtel is responsible for the Engineering Procurement
Construction and Management (EPCM) of aluminum smelter
ALBA's $1.7 billion fifth potline expansion project.

-- Parsons are the designers and supervising engineers for a
$26 million-flyover project in Bahrain's Seef area.

-- Great Lakes Dredge and Dock is performing dredging
operations in conjunction with the $464 million new port.

-- Cisco Systems have signed an agreement with Bahrain's
Central Informatics Organization (CIO) establishing a
regional Cisco networking academy.

-- Binnie, Black and Veatch International Limited are the
consultants of Phase 3 of the Hidd (Power) and Desalination
Complex. The project was estimated to cost $400 million.

-- Kuljian Corporation, are consultants for Ras Abu Jarjur
desalination plant expansion, which is estimated to cost
$26.5 million.

WMONROE