Agriculture and Fishing
Despite the scant rainfall and poor soil, agriculture historically was an important sector of the economy. Before the development of the oil industry, date palm cultivation dominated Bahrain's agriculture, producing sufficient dates for both domestic consumption and export. At least twenty-three varieties of dates are grown, and the leaves, branches, buds, and flowers of the date palm also are used extensively. From the 1950s through the 1970s, changing food consumption habits, as well as the increasing salinity of the aquifers that served as irrigation sources, led to a gradual decline in date cultivation. By the 1980s, a significant number of palm groves had been replaced by new kinds of agricultural activities, including vegetable gardens, nurseries for trees and flowers, poultry production, and dairy farms.
By 1993 Bahrain's cultivated area had been reduced from 6,000 hectares before independence to 1,500 hectares. The cultivated land consists of about 10,000 plots ranging in size from a few square meters to four hectares. These plots are distributed among approximately 800 owners. A minority of large owners, including individuals and institutions, are absentee landlords who control about 60 percent of all cultivable land. The ruling Al Khalifa own the greatest number of plots, including the largest and most productive ones, although public information pertaining to the distribution of ownership among family members is not available. Absentee owners rent their plots to farmers, generally on the basis of three-year contracts. There are approximately 2,400 farmers, 70 percent of whom do not own the land they cultivate.
The small size of most plots and the maldistribution of ownership has tended to discourage private investment in agriculture. In addition, the number of skilled farmworkers progressively declined after 1975 because an increasing number of villagers obtained high-paying, nonagricultural jobs. Despite these impediments, official government policy since 1980 has aimed at expanding domestic production of crops through such programs as free distribution of seeds, technical assistance in adopting new and more efficient irrigation technologies, and lowinterest credit. Although these programs have contributed to significant increases in the production of eggs, milk, and vegetables, the circumscribed extent of Bahrain's cultivable area limits the island's potential productive capacity. Consequently, agricultural imports remain a permanent aspect of the country's international trade. In 1993 the main food imports included fruits, vegetables, meat, live animals (for slaughter), cereals, and dairy products.
The waters surrounding Bahrain traditionally have been rich in more than 200 varieties of fish, many of which constitute a staple of the diet. Before the development of the oil industry, most males engaged in some form of fishing. In addition, the pearl industry constituted one of the most important bases of the island's wealth, and more than 2,000 pearling boats operated during the late 1920s. After 1935 both fishing and pearling as occupations steadily declined. Although the prospect of steady wages attracted many pearl divers to oil-related jobs, pearling was even more adversely affected by the development in Japan of the cultured pearl. By 1953 only twelve pearling boats remained, and these all disappeared within a decade. Fishing declined more gradually, but by the early 1970s fewer than 1,000 fishermen continued to ply their trade. Fewer fishermen meant less fish available in the market despite rising consumer demand, and this situation led to the annual importation of tons of fish to supplement the local catch. In 1981 the government launched a program to revitalize the fishing industry by introducing trawlers, motorizing the traditional dhows, expanding jetties, constructing cold storage facilities, and offering training courses on the use and maintenance of modern fishing equipment. These initiatives contributed to an increase in the total fish catch, which according to estimates of the Food and Agriculture Organization of the United Nations, was 9,200 tons in 1989.
Pollution in the Persian Gulf became a problem in the 1970s. Shrimp in the northern gulf seemed particularly sensitive to marine pollution, and by 1979 they had almost disappeared from waters near Bahrain. Pollution was seriously aggravated in 1983 and again in 1991 by major oil slicks that emanated from wardamaged oil facilities and covered several thousand square kilometers of water in the northern Persian Gulf. The slicks were detrimental to the unique marine life in the vicinity of Bahrain, including coral reefs, sea turtles, dugongs (herbivorous sea mammals similar to manatees), oyster beds and shrimp beds, numerous fish species, and water fowl. The oil slicks, especially those of 1991, adversely affected the fishing industry, but as of early 1993, marine biologists remained uncertain about the longterm ecological impact of the pollution.
Showing posts with label The Economy. Show all posts
Showing posts with label The Economy. Show all posts
Monday, January 7, 2008
Petroleum Industry
In 1929 the San Francisco-based Standard Oil Company of California (Socal)--now known as Chevron--set up a subsidiary to acquire an oil exploration and production concession on the island of Bahrain. Socal drilling crews discovered oil in 1932, and two years later the first shipment of crude oil was exported from Sitrah. By 1935, when sixteen oil wells were in production and construction of the Bahrain refinery commenced, the royalties that Socal paid to the government constituted more than 40 percent of the state budget. In 1936 Socal sold half of its oil interest to Texas Oil Company (Texaco) and, with its new corporate partner, formed the Bahrain Petroleum Company (Bapco). In the years up to independence in 1971, Bapco oil revenues annually averaged 60 percent of government income and helped to finance major development, education, and health programs. The government of Bahrain acquired a 60 percent interest in Bapco in 1975 and assumed control of the remaining 40 percent in 1980.
Bahrain's proven oil reserves are limited in comparison with the extensive oil fields of Kuwait and Saudi Arabia. As early as 1965, Bapco estimated that one-half of the island's total oil had been depleted. Oil production peaked in 1977 at 77,000 barrels per day and steadily declined thereafter.
During the 1970s and early 1980s, two developments helped to maintain the government's relatively high income from oil revenues despite declining production. First was Bahrain's share of profits from the offshore Abu Safah oil field in the Persian Gulf between Bahrain and Saudi Arabia. When the two countries demarcated their marine boundaries in 1958, Bahrain ceded its claims to an area of the gulf north of the island in return for a Saudi agreement to share the profits from any oil that might be discovered there. Subsequently, oil in commercial quantities was found in the seabed, and from 1968 to 1986, revenues from the Abu Safah field contributed significantly to Bahrain's overall oil income. Since production from the Abu Safah field ceased in early 1987, Saudi Arabia has provided Bahrain with 75,000 bpd of crude oil as compensation for this loss.
The second development was the more than tenfold increase in oil revenues that followed the December 1973 decision by the Organization of the Petroleum Exporting Countries (OPEC) to triple the international price of crude oil. During 1974 and 1975, income from oil accounted for an unprecedented 80 percent of government revenues, although this percentage gradually declined in subsequent years. Nevertheless, as long as oil prices remained high, oil revenues remained high. At the end of 1985, however, Saudi Arabia significantly increased its own oil production, which resulted in a glut of oil on international markets and caused prices to fall by more than 50 percent in just a few months. Bapco could not increase production from its declining oil fields beyond 42,000 bpd, and consequently Bahrain's oil revenues in 1986 were 65 percent less than in 1985. Oil revenues did not increase substantially until 1990, when the regional political crisis that accompanied Iraq's invasion of Kuwait precipitated a rise in oil prices. In 1991 oil revenues constituted about 62 percent of revenues in the government's budget.
Although Bahrain has had an oil-based economy since 1935, by 1993 proven reserves were estimated at 200 million barrels, and the government anticipated that all oil would be depleted by 2005. Nevertheless, the country's economists expected oil to remain important long beyond that date because of the large refinery Bapco has operated at Sitrah since 1937. Periodically expanded and modernized, the refinery has the capacity to process 250,000 bpd of crude oil, at least five times the amount produced by the island's oil wells. During 1992 the United States firm Bechtel Corporation began expanding the refinery's capacity to 360,000 bpd. More than 80 percent of the petroleum that the refinery processes comes via pipeline from Saudi Arabia. The Sitrah refinery has been refining Saudi crude oil since 1938 and expects to continue to do so well into the twenty-first century. Its refined petroleum products, most of which are exported, include aviation fuel, fuel oil, and gasoline.
Substantial deposits of natural gas are associated with Bahrain's oil fields. Before 1979, when the government established the Bahrain National Gas Company (Banagas), an estimated 3 million cubic meters per day of this gas were being vented to the atmosphere. Banagas opened a gas liquefaction plant that collected this gas and processed it into propane, butane, and naphtha. There are also large deposits of natural gas in the Khuff field, which is separate from the oil fields. Banagas has drilled more than fifteen wells to tap this gas, which is used for fuel to power the oil refinery, electric generators, and the water desalination plant. Some of the gas is reinjected into the oil fields to maintain reservoir pressure and stimulate production. In 1990 Banagas estimated total natural gas reserves at 209 trillion cubic meters; daily production averaged about 20 million cubic meters.
Bahrain's proven oil reserves are limited in comparison with the extensive oil fields of Kuwait and Saudi Arabia. As early as 1965, Bapco estimated that one-half of the island's total oil had been depleted. Oil production peaked in 1977 at 77,000 barrels per day and steadily declined thereafter.
During the 1970s and early 1980s, two developments helped to maintain the government's relatively high income from oil revenues despite declining production. First was Bahrain's share of profits from the offshore Abu Safah oil field in the Persian Gulf between Bahrain and Saudi Arabia. When the two countries demarcated their marine boundaries in 1958, Bahrain ceded its claims to an area of the gulf north of the island in return for a Saudi agreement to share the profits from any oil that might be discovered there. Subsequently, oil in commercial quantities was found in the seabed, and from 1968 to 1986, revenues from the Abu Safah field contributed significantly to Bahrain's overall oil income. Since production from the Abu Safah field ceased in early 1987, Saudi Arabia has provided Bahrain with 75,000 bpd of crude oil as compensation for this loss.
The second development was the more than tenfold increase in oil revenues that followed the December 1973 decision by the Organization of the Petroleum Exporting Countries (OPEC) to triple the international price of crude oil. During 1974 and 1975, income from oil accounted for an unprecedented 80 percent of government revenues, although this percentage gradually declined in subsequent years. Nevertheless, as long as oil prices remained high, oil revenues remained high. At the end of 1985, however, Saudi Arabia significantly increased its own oil production, which resulted in a glut of oil on international markets and caused prices to fall by more than 50 percent in just a few months. Bapco could not increase production from its declining oil fields beyond 42,000 bpd, and consequently Bahrain's oil revenues in 1986 were 65 percent less than in 1985. Oil revenues did not increase substantially until 1990, when the regional political crisis that accompanied Iraq's invasion of Kuwait precipitated a rise in oil prices. In 1991 oil revenues constituted about 62 percent of revenues in the government's budget.
Although Bahrain has had an oil-based economy since 1935, by 1993 proven reserves were estimated at 200 million barrels, and the government anticipated that all oil would be depleted by 2005. Nevertheless, the country's economists expected oil to remain important long beyond that date because of the large refinery Bapco has operated at Sitrah since 1937. Periodically expanded and modernized, the refinery has the capacity to process 250,000 bpd of crude oil, at least five times the amount produced by the island's oil wells. During 1992 the United States firm Bechtel Corporation began expanding the refinery's capacity to 360,000 bpd. More than 80 percent of the petroleum that the refinery processes comes via pipeline from Saudi Arabia. The Sitrah refinery has been refining Saudi crude oil since 1938 and expects to continue to do so well into the twenty-first century. Its refined petroleum products, most of which are exported, include aviation fuel, fuel oil, and gasoline.
Substantial deposits of natural gas are associated with Bahrain's oil fields. Before 1979, when the government established the Bahrain National Gas Company (Banagas), an estimated 3 million cubic meters per day of this gas were being vented to the atmosphere. Banagas opened a gas liquefaction plant that collected this gas and processed it into propane, butane, and naphtha. There are also large deposits of natural gas in the Khuff field, which is separate from the oil fields. Banagas has drilled more than fifteen wells to tap this gas, which is used for fuel to power the oil refinery, electric generators, and the water desalination plant. Some of the gas is reinjected into the oil fields to maintain reservoir pressure and stimulate production. In 1990 Banagas estimated total natural gas reserves at 209 trillion cubic meters; daily production averaged about 20 million cubic meters.
Other Industry
By 1965 the government recognized that the island's long-term prosperity could not depend on the limited extent of its oil reserves. Accordingly, the government adopted industrial diversification as a primary objective of its economic policy. Tax incentives and low-interest loans encouraged private entrepreneurs to construct several small-scale manufacturing plants, including factories producing plastics, ceramic tiles, paper products, and carbonated beverages. The government assumed a more active role in the establishment of large-scale industry, as a result of which manufacturing contributed 13 percent of the gross domestic product in 1986. The two most important examples of large-scale industry were the aluminum plant and the ship-repair yard.
Aluminium Bahrain (Alba) was incorporated in 1968 as a joint government and private investment company for the construction of a mill to process imported raw alumina. Located near the Bapco refinery, the Alba plant began production in 1971 with an initial capacity of 99,000 tons of aluminum ingots. Since commencing operations, the Alba facilities have expanded considerably and by 1990 had an annual productive capacity of more than 215,000 tons. Associated with Alba are two other aluminum factories built during the 1980s. The Gulf Aluminium Rolling Mill Company (Garmco), a joint venture of the six member countries of the GCC, produces aluminum strip and sheet. The Bahrain Aluminium Extrusion Company (Balexco), owned 100 percent by the government, produces aluminum doors, window frames, and other products used by the construction industry. A third concern, the jointly owned Bahrain-Saudi Aluminium Marketing Company (Balco), markets Alba's products throughout the Middle East and Asia.
In 1977 the Arab Shipbuilding and Repair Yard Company (ASRY) was inaugurated near Al Hadd. ASRY was a joint venture of Bahrain and the six other members of the Organization of Arab Petroleum Exporting Countries (OAPEC). This large dry-dock facility has accommodations for up to ten supertankers simultaneously, and it annually repairs an average of seventy ships.
Aluminium Bahrain (Alba) was incorporated in 1968 as a joint government and private investment company for the construction of a mill to process imported raw alumina. Located near the Bapco refinery, the Alba plant began production in 1971 with an initial capacity of 99,000 tons of aluminum ingots. Since commencing operations, the Alba facilities have expanded considerably and by 1990 had an annual productive capacity of more than 215,000 tons. Associated with Alba are two other aluminum factories built during the 1980s. The Gulf Aluminium Rolling Mill Company (Garmco), a joint venture of the six member countries of the GCC, produces aluminum strip and sheet. The Bahrain Aluminium Extrusion Company (Balexco), owned 100 percent by the government, produces aluminum doors, window frames, and other products used by the construction industry. A third concern, the jointly owned Bahrain-Saudi Aluminium Marketing Company (Balco), markets Alba's products throughout the Middle East and Asia.
In 1977 the Arab Shipbuilding and Repair Yard Company (ASRY) was inaugurated near Al Hadd. ASRY was a joint venture of Bahrain and the six other members of the Organization of Arab Petroleum Exporting Countries (OAPEC). This large dry-dock facility has accommodations for up to ten supertankers simultaneously, and it annually repairs an average of seventy ships.
Labor
Bahrain's total labor force was estimated at 160,000 in 1992. Foreign workers constituted about 55 percent of the labor force, a slight decline from the 58 percent they had constituted in 1981. Foreign participation in the labor force increased dramatically after 1971, when such workers had constituted 37 percent of the economically active population. The composition of the foreign work force also has changed significantly. During the 1960s, more than one-half of all foreign workers came from Oman and Iran. Since the late 1970s, one-half of all foreign workers have come from South Asia, predominantly from India and Pakistan but also from Bangladesh, the Philippines, Sri Lanka, and Thailand. South Asian workers constituted 13 percent of the total population in 1990 and Iranians, 6 percent. Less than 10 percent of foreign workers come from other Arab countries. Egyptians, about one-half of whom teach in Bahrain's public schools, constitute the largest group of foreign Arabs, followed by Palestinians, most of whom hold Jordanian passports, and Lebanese. Arabs are more likely than Asians to be accompanied by dependents.
The government requires all foreign workers to possess valid residence and work permits. Although work permits are renewable after the expiration of the original contract period, authorities do not encourage long-term residency of foreign nationals. Most of the foreign workers, who are unskilled and semiskilled laborers, have few incentives to live in Bahrain permanently because their families generally remain in their native countries. These workers consequently remit a considerable portion of their employment income to their families in their countries of origin.
As the proportion of citizens declined to less than one-half the labor force, government planners drew up specific programs and laws designed to replace foreign workers with Bahraini nationals. Within the private sector, which provides jobs for more than two-thirds of all foreign nationals, employers have the option of designing their own special courses for training citizens or providing funds to finance government-operated training courses. Companies pay a special levy, equal to 4 percent of the salary of every employed foreigner but only equal to 2 percent for every local employee. At the completion of a foreign worker's contract, officials of the Ministry of Labor and Social Affairs urge the hiring company to take on more nationals.
Efforts to make employment indigenous encourage the participation of women in the labor force. Women, who constituted about 15 percent of all employees in the early 1990s, work outside the home in far greater numbers in Bahrain than in any other state of the Arabian Peninsula. The most dramatic rise in female employment occurred during the decade of the 1970s. Between 1971 and 1981, the proportion of women in the labor force increased from 3.8 to 13.3 percent. Bahraini women predominate in such traditionally female occupations as teaching and nursing, but, since the early 1980s, increasing numbers of women have been employed in administration, banking, commerce, finance, engineering, and the civil service. Despite the trend toward greater female participation in the work force, about 82 percent of Bahraini women do not work outside the home. The overwhelming majority of working women tend to be single women who work for two to five years after completing secondary school or university and before marriage.
In an effort to encourage continued participation of women in the labor force after marriage, the government has enacted labor legislation favorable to working mothers. For example, all employers are required to grant new mothers forty-five days of full-pay maternity leave plus fifteen days at half-pay. In addition, employers are obligated to provide nursing periods for new mothers. The law also forbids discrimination against working mothers.
The government requires all foreign workers to possess valid residence and work permits. Although work permits are renewable after the expiration of the original contract period, authorities do not encourage long-term residency of foreign nationals. Most of the foreign workers, who are unskilled and semiskilled laborers, have few incentives to live in Bahrain permanently because their families generally remain in their native countries. These workers consequently remit a considerable portion of their employment income to their families in their countries of origin.
As the proportion of citizens declined to less than one-half the labor force, government planners drew up specific programs and laws designed to replace foreign workers with Bahraini nationals. Within the private sector, which provides jobs for more than two-thirds of all foreign nationals, employers have the option of designing their own special courses for training citizens or providing funds to finance government-operated training courses. Companies pay a special levy, equal to 4 percent of the salary of every employed foreigner but only equal to 2 percent for every local employee. At the completion of a foreign worker's contract, officials of the Ministry of Labor and Social Affairs urge the hiring company to take on more nationals.
Efforts to make employment indigenous encourage the participation of women in the labor force. Women, who constituted about 15 percent of all employees in the early 1990s, work outside the home in far greater numbers in Bahrain than in any other state of the Arabian Peninsula. The most dramatic rise in female employment occurred during the decade of the 1970s. Between 1971 and 1981, the proportion of women in the labor force increased from 3.8 to 13.3 percent. Bahraini women predominate in such traditionally female occupations as teaching and nursing, but, since the early 1980s, increasing numbers of women have been employed in administration, banking, commerce, finance, engineering, and the civil service. Despite the trend toward greater female participation in the work force, about 82 percent of Bahraini women do not work outside the home. The overwhelming majority of working women tend to be single women who work for two to five years after completing secondary school or university and before marriage.
In an effort to encourage continued participation of women in the labor force after marriage, the government has enacted labor legislation favorable to working mothers. For example, all employers are required to grant new mothers forty-five days of full-pay maternity leave plus fifteen days at half-pay. In addition, employers are obligated to provide nursing periods for new mothers. The law also forbids discrimination against working mothers.
Banking and Finance
Bahrain's first commercial bank, a branch of the Britishowned Eastern Bank, opened in 1921. Two decades passed before a second bank, the British Bank of the Middle East, set up an office. It was not until 1957 that the first bank wholly owned by Bahraini citizens--the private National Bank of Bahrain-- commenced activities. Prior to 1965, when the government introduced the Bahraini dinar, the Indian rupee had functioned as the most commonly accepted currency for local transactions. The lack of an indigenous currency probably impeded the development of the banking sector. Once the Bahraini dinar replaced the Indian rupee and established itself as a strong, internationally convertible currency, banks began to find the island a more attractive location; by 1974 fourteen commercial banks operated in Bahrain.
The increase in the number of banks after independence prompted the government to consider creating a central monetary authority to regulate banking activities. In 1973 Shaykh Isa ibn Salman issued a decree that established the Bahrain Monetary Agency (BMA) as a legal entity possessing the powers of a central bank. In addition to its regulatory responsibilities, BMA issues currency, sets the official exchange rates for the Bahraini dinar, serves as a depository for government funds from petroleum production and its foreign currency reserves, and manages thegovernment's investments.
In 1975 BMA promulgated regulations for the creation of offshore banking units (OBUs) modeled on those operating in Singapore. OBUs are branches of international commercial banks exempted from foreign-exchange controls, cash reserve requirements, taxes on interest paid to depositors, and banking income taxes that are required of other banks in Bahrain. In return for these privileges, OBUs pay the government annual license fees, are prohibited from accepting deposits from citizens and residents of Bahrain, and must refrain from transactions involving Bahraini dinars. The OBU program has been successful; twenty-six OBUs were established during the first year. The civil war in Lebanon probably stimulated the OBU boom because several international banks based in Beirut transferred their Middle East operations to Bahrain after 1975. By the early 1980s, a total of seventy-five OBUs having assets in excess of US$62 billion were operating out of Bahrain.
Beginning in 1985, falling oil prices and a corresponding decline in oil revenues dramatically reduced the funds deposited in both onshore banks and OBUs. Several banks decided not to renew their OBU licenses, resulting in a net loss of OBUs. Nevertheless, a majority of OBUs, including those that are branches of leading United States, Arab, European, and Japanese banks, continue to operate from Bahrain-based offices. In 1990 a total of fifty-five OBUs were located on the island. Despite the fluctuations in gulf financial markets of the 1980s, Bahrain is well established as the principal banking and financial center of the gulf region.
The increase in the number of banks after independence prompted the government to consider creating a central monetary authority to regulate banking activities. In 1973 Shaykh Isa ibn Salman issued a decree that established the Bahrain Monetary Agency (BMA) as a legal entity possessing the powers of a central bank. In addition to its regulatory responsibilities, BMA issues currency, sets the official exchange rates for the Bahraini dinar, serves as a depository for government funds from petroleum production and its foreign currency reserves, and manages thegovernment's investments.
In 1975 BMA promulgated regulations for the creation of offshore banking units (OBUs) modeled on those operating in Singapore. OBUs are branches of international commercial banks exempted from foreign-exchange controls, cash reserve requirements, taxes on interest paid to depositors, and banking income taxes that are required of other banks in Bahrain. In return for these privileges, OBUs pay the government annual license fees, are prohibited from accepting deposits from citizens and residents of Bahrain, and must refrain from transactions involving Bahraini dinars. The OBU program has been successful; twenty-six OBUs were established during the first year. The civil war in Lebanon probably stimulated the OBU boom because several international banks based in Beirut transferred their Middle East operations to Bahrain after 1975. By the early 1980s, a total of seventy-five OBUs having assets in excess of US$62 billion were operating out of Bahrain.
Beginning in 1985, falling oil prices and a corresponding decline in oil revenues dramatically reduced the funds deposited in both onshore banks and OBUs. Several banks decided not to renew their OBU licenses, resulting in a net loss of OBUs. Nevertheless, a majority of OBUs, including those that are branches of leading United States, Arab, European, and Japanese banks, continue to operate from Bahrain-based offices. In 1990 a total of fifty-five OBUs were located on the island. Despite the fluctuations in gulf financial markets of the 1980s, Bahrain is well established as the principal banking and financial center of the gulf region.
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