Main economic sectors
Real GDP growth exceeded 5,5% in 2003, up from 5% in 2002. Non-oil performance rose from about 6% in 2002 to 6,5% in 2003, underpinned by strong growth in manufacturing and financial services. Growth will be stimulated in the coming years by strong increases in government spending in line with the strategy of improving the living standards of the population. Several large-scale projects are also expected to bolster growth, including a port and free zone development at Hidd, the expansion of Aluminum Bahrain (Alba), an upgrade of the refinery at Bahrain Petroleum Co. and the construction of a US$ 1 billion financial center called Bahrain Financial Harbour.
Bahrain has an advanced and well regulated banking system. The development of the offshore and Islamic banks is reinforcing the country's position as a regional banking center and is a positive contributor to the economic diversification process. The country hosts the largest concentration of banks and other financial institutions in the Middle East, with nearly 327 financial institutions offering diverse range of services, including portfolio management, investment advice and insurance products. The financial sector is growing rapidly and continues to attract banks and institutions from all over the world.

Bahrain also boasts the highest concentration of Islamic financial institutions in the world. A number of initiatives were taken to consolidate its position as an Islamic banking hub and introduced prudential regulations to ensure the soundness of the Islamic banks. As a result of the various initiatives taken by the government, the Islamic banking and finance industry has more than doubled in the last five years.
Bahrain is expected to continue to strengthen its financial regulation in an effort to remain one step ahead of Dubai, which is challenging Bahrain's position as the regional banking hub.
Although not a major producer of crude oil as compared to other GCC countries, Bahrain nevertheless remains dependent on oil for its revenue. Proven oil reserves stand at 125 million barrels and are expected to be depleted by 2010. Production peaked in the 1970s at 70,000 barrels per day, but daily output has fallen considerably to less than 40,000 barrels. Petroleum revenues however still form the largest single source of income for Bahrain, accounting for almost 70% of exports, 68% of government revenues and 24% of GDP.
Virtually all of the country's oil exports are in the form of refined products. The Sitra refinery has a capacity of 248,900 barrels per day and benefited from a US$ 900 million modernization programme which will allow Sitra to produce a wider range of products. Most of the output of the Sitra refinery is exported to India and the Far East.
The decline in the oil production has prompted Bahrain to increase production of its substantial natural gas reserves. Bahrain National Gas Company (Banagas) produces propane, butane and naptha at the liquefaction plant in Jabal Al Dukhan. Because of the growing demand for fuel for electric power generation, the country is expected to become a net natural gas importer in the coming years and the country could import as much as 500 million cubic feet per day from Qatar by the end of 2006.

Economic outlook
As part of the economic diversification programme, the government has tried to encourage the manufacturing sector which contributes some 12% to the GDP. Aluminum is the mainstay of the sector, but ship repairing and light industry are also well developed. Bahrain is also the base for several pan-Arab heavy industry ventures and the country is looking to join hands with operators form abroad in ventures that could benefit from its proximity to Saudi Arabia and its considerable oil and gas resources. Gulf Petrochemical Industries Company is another important player in the industrial sector and produces ammonia, methanol, urea and exports its production to the US, South America, India and Japan.
Alba is the country's major company and it has an undisputed position of leadership in the aluminum industry. Alba generates some 40% of the country's non-oil exports and is also one of the largest employers. Alba imports alumina from Australia and exports finished products mainly to the Gulf region and Asia, especially Japan, South Korea and Taiwan.
Downstream aluminum companies too have become active in marketing their expertise through joint ventures abroad. The largest downstream aluminum company is the Gulf Aluminum Rolling Mill Company (Garmco), which exports cold-rolled coil and sheet alloys to more than 40 countries.

Midal Cable, a manufacturer of steel-reinforced aluminum conductors and cables for transmission lines, is a key supplier to major electrification projects throughout the Gulf and exports worldwide. In addition to heavy industrial development, diversification policies aimed to foster private sector investment in light manufacturing for domestic and regional consumers have also been outlined. The objective is to promote Bahrain as a major regional center for maintenance and engineering.
The government has furthermore outlined capital expenditure plans in an effort to modernize and improve infrastructure. The main endeavour is to attract foreign investment in technology related projects. A major project is the construction of the US$ 1 billion Bahrain Financial Harbour, a financial center which will house about 10,000 workers in a strong of futuristic buildings and facilities. In tune with its economic liberalization projects, Bahrain initiated also the process of liberalizing the telecommunications sector, which is growing at 30% per annum. Local and international companies were invited to bid to run a second mobile phone network. In addition, international forms are invited to provide internet services, satellite networks and , ultimately, to open up the fixed line service to competition.

Bahrain is one of the most technologically advanced countries in the region. The country's telecommunications provider, Batelco, has led the build-up of an extensive network, which was one of the world's first fully digitized networks. Today, consumers enjoy a variety of advanced services such as ISDN, ATM, LAN Connect, International Direct Dialing to more than 200 countries and mobile fax and date services through the GSM network.
Bahrain has also well-developed utilities and road networks, constantly being enhanced to accommodate increasing traffic and ease the traffic flow.

Basic Economic and Financial Indicators, 1999-2003

Source.: Bahrain Monetary Agency and the International Monetary Fund