Question. Which Persian Gulf country has the largest Jewish population and an ambassador to the US who is also Jewish? If you guessed Bahrain, you are correct. Bahrain has a very vibrant multi-ethnic society with an indigenous Jewish and Christian population that trace their heritage back to Biblical times. The reason I led off with this little bit of surprising trivia is because it gives a potential foreign investor an insight into the type of society, both socially and economically, that has been the hallmark of this island nation.
Needless to say, Bahrain’s economy is heavily dependent on oil and oil related products just like all the other Persian Gulf countries. But over the years they have diversified somewhat into financial services, with a heavy emphasis on Islamic banking. What is of growing concern is the rise in public debt, which is not entirely due to the slump in the price of oil because in 2013 when oil revenues were high, the public debt kept on rising.
The money was spent primarily to fund mega infrastructure projects. In an article from Al-Monitor.com titled “Bahrain’s rising public debt”, author Adnan Ahmad Youssef writes, “In June 2015, the public debt stood at 6 billion Bahraini dinars ($15.9 billion) compared with 1.35 billion dinars in 2009, registering a rise of 252% during 5½ years. However, substantial increases started since 2013 when the public debt rose from 3.9 billion dinars in 2012 to 5.1 billion dinars in 2013, an increase of 1.2 billion dinars. Even though Bahrain registered high oil revenues in 2013, it also registered a 150 million dinar increase in its budget spending and a budget deficit of about 410 million dinars.” This seems to be an unsustainable position which will eventually have an adverse effect on the economy.
GDP growth in the second quarter of 2015 actually expanded to 3.7% from 2.8% in the first quarter, mainly due to infrastructure projects. Of note, the Bahrain Bourse has about 50 listed companies and foreign investors can, through a stock broker, invest in most but can only own up to 1% of the outstanding shares. However, there are 10 companies in which such restrictions do not apply, and full details are available on the exchange website. Also of note is that Bahrain does not tax capital gains or dividends for either domestic or foreign investors.
US investors who would like exposure to this economy can do so by purchasing shares in either the WisdomTree Middle East Dividend Fund (
), or the Market Vectors Gulf States Index ETF (MES), in which Bahrain has some exposure. Having said that, as an investor, I would be reticent at present to invest because of the decline in oil prices and the high levels of public debt. I did visit this fascinating country last year and did notice all the construction going on around me. My suggestion, feel free to visit but hold off on investing until the debt situation is resolved and the price of oil has stabilized.
