Down streaming Bahrain´s treasures

As the first country to discover oil in the region, Bahrain was also the first country to start the industrialisation process that grew around the upstream oil and gas industry and continue expanding towards downstream industries today.  Petroleum refining started modestly soon after the discovery of oil. BAPCO refinery in Sitra has currently an output of around 270,800 bbl/day. Since Bahrain oil production stands at less than 45,000 bbl/day most of the oil comes through pipelines from neighbouring Saudi Arabia. Over 80 percent of the refinery´s production is exported. In 1979 the Bahrain National Gas Company (BANAGAS) opened a gas liquefaction plant. Aluminium Bahrain (Alba)'s inception marks the beginning of Bahrain's strategy to diversify its economic base and reduce its dependence on oil. The aim was to establish an industry that would provide valuable export earnings, develop the country's resources and create training and employment opportunities for a large number of Bahrainis. Alba was incorporated by Charter in 1968 and officially commenced operations in 1971 as a 120,000 tonnes per annum smelter. Alba today produces more than 890,000 metric tonnes per annum of the highest grade aluminium, with products including standard and T-ingots, extrusion billets, rolling slab, propertzi ingots, and molten aluminium. Around 50 per cent of the output is supplied to Bahrain's downstream aluminium industry (namely Bahrain Atomisers International, Midal Cables, Garmco, AluWheel), with the rest exported to regional and international customers in the Middle East, Europe, Far East, South East Asia, Africa, and North America. Aluminium Bahrain (Alba) employs around 3,000 employees - as at December 31, 2012 - of which 87% are Bahrainis. Following the IPO in 2010, Alba is currently listed on London Stock Exchange as GDR as well as on Bahrain Bourse. Alba’s major stakeholders are Bahrain´s sovereign wealth fund, Mumtalakat Holding Company with a 69.38%, Sabic Industrial Investments Company with a 20.62% and 10% is public.Bahrain prime industries are aluminium, petrochemicals, and steel. Their outputs are downstream in other products creating a new set of side industries in Bahrain that generate the bulk of the industrial employment. 2010 saw the launch of Salman Industrial City, which combines the Bahrain International Investment Park, the Bahrain Investment Warf (BIW) and the Hidd Industrial City.  Investments in Salman Industrial City currently stand at around $3.5 billion and are expected to reach $7.6bn on completion.

A sheltered export industry

The export-oriented industry suffered the consequences of the local uprisings of 2011 but especially the global financial turmoil.  However, most of the companies in the sector did well and plans for new investments are on the table. “We are part of the overall economy and everybody was hurt. But as far as we are concerned, we are looking at the future, consolidating, sharpening our pencils, organizing our companies and trying to be more efficient.  Against a backdrop of difficulties, our industrial division did well because it depends on exports. We downstream Alba´s output and we export it. Around one third of our production goes to the MENA region and the rest to Europe, North America, South America, Africa, and Southeast Asia,” Khalid Al Zayani, Chairman of Zayani Investment and a leading business figure in Bahrain told GGC.  Al Zayani Investments operates a diverse portfolio of businesses that span the fields of industry, banking, automobile real estate, tourism and services. A mix of International joint ventures and national expertise with an eye for business are at the core of the conglomerate´s expansion secret. The company will inaugurate a new industrial venture in 2014 as a joint project with a French firm. With a total investment of $30 million the plant will produce embracive material produced from Alba´s output and then exported to India, Southeast Asia and Africa. “It will grow, it will multiply”, Zayani said. Total employment will amount to some 200 people most of them locals. “We have used the difficult times to build our locations and prepare our human resources”, Zayani noted.

“A global issue affects everybody. The important aspect is how you mitigate and counterfeit it with different plans. People like ALCOA lost US50 million in 2009. GARMCO made a profit. That gives you an indication of our performance. You need to have a solid base and a good reach of your market and then apply the basic principle on how to maintain your customer base by increasing their satisfaction. In 2011, 392 banks collapsed in America. GARMCO added 12 American customers to its portfolio. We have three offices in the US now. One of our biggest customers is Tefal that produces home utensils with aluminium. We have been supplying them for seven years without a single failure or confrontation”, Dr. Adel Hamad, CEO of GARMCO told GGC.

Location, taxes and workforce

Bahrain´s geographical location and infrastructure facilities are the main source of attraction to inward investment increasingly towards industrial projects related to oil and gas. “Don’t look at Bahrain as a single market. Out of Bahrain you can serve Eastern Saudi Arabia –linked to Bahrain through a 26 kms causeway -which accounts for nearly 80 percent of the country´s GDP and all the neighbouring countries. In fact, our business has multiplied in the region and now we export to East Africa, India, and Pakistan and as far as the Philippines. Some of our partners chose Bahrain to establish their regional business against other countries in the GCC because of its connectivity and because Bahrain is the most regulated country in the region, has an outstanding local, easy access to KSA, the biggest consumer market of the region, and is the more liveable. “We have pride in the skills of our younger generation. Education is second to none in the area and we have good infrastructure and good health services”, he added.

Bahrain has also a zero tax policy that represents a huge benefit for international companies seeking to operate in the Middle East. However, talks around the possibility of establishing some kind of corporate taxes are on the table. “We should be mature enough to look at it if it is reasonably placed for the benefit of the nation and discussed and approved by the parliament, who represents the nation. Don´t forget that Bahrain has no taxation, unlike the rest of the Gulf States, but still has to build hospitals, roads and schools”, Zayani told GGC. Another factor of concern in the development of the downstream industrial base of Bahrain is the country´s limited oil reserves. Although new technologies are applied to search for deeper oil and improve current production, government revenues from black gold are limited in time. The industry feedstock will increasingly depend on more expensive imports from neighbouring Saudi Arabia, the with the largest oil reserves in the world or Qatar, the world´s third natural gas exporting country. To improve connectivity between Qatar and Bahrain a planned “Friendship Bridge” is expected to be operational by 2022, before the celebration Football World Cup in Doha, Qatar.

An eye on light industries diver

The Vision 2030 foresees the creation of a new line of industries: the light industries sector. “Bahrain has to be an industrial and service country”, said Ahmed Al Ahmadi, CEO of Ahmadi Industries -Pepsi Bahrain.  The kingdom is resolved to implement a Bahrain´s Economic Vision 2030 stretched out by the government in 2008 when the Bahrain Economic Development Board (EDB) was created.  It contemplates the creation of a regional logistic hub with modern infrastructure that will seed the birth of new light industries with a regional focus. Industrial zonesinBahrainaremultiplying and following the success generated by the Bahrain International Investment Zone or the Bahrain Logistics Zone. Bahrain Logistics Zone (BLZ) is the Middle East’s first multi-model logistics hub that focuses on re-export and value-adding activities. Strategically located adjacent to Khalifa Bin Salman Port, which offers state-of-the-art warehouses the complex is 13km from the Bahrain International Airport and only 40km from Al Khobar in Saudi Arabia. New projects such as Bahrain Investment Gate Project (BIGP) by Al Manara Investment Company are expected to start operations soon and cater to the needs for logistics and freight forwarding activities of a growing regional economy. BIGPpresentsanumberofsolutionstolightindustrieswith an strategiclocationandlinkedtoamoderntransportsystem.

The government approach

Bahrain is one of the freest economies of the Middle East and although it is a small country it has always managed to attract big corporations from overseas that use the country as their springboard to the Gulf and the MENA region. Efficiency in all things, ease of doing business, a world-class infrastructure, connectivity and a lean and transparent governance are the magnet to foreign investors. However, the economy of Bahrain and the image of the country have been recently eroded due to the uprisings that swept the country on the back of the Arab Spring. “If we judge only by the figures, it is clear that the development of new projects into the Bahrain International Investment Park (BIIP) for example has increased significantly over the past 2 years regardless of the street demonstrations and political instability,” Dr. Hassan Fakhro told GGC. “BIIP was established in 2005 and by 2010 a total of 60 new projects had been approved to locate operations here. 26 of these projects were FDI. This works out at an average of 10 projects per year. In 2011, 12 new companies (5 FDI) committed to establishing their operations here. By June 2012 a further 15 new projects (10 FDI) were approved to locate operations here including some of the largest companies in the world --BASF and SIEMENS from Germany and JBF from India. By June 2012 total committed investment had grown to BD551m up from BD327m at the end of 2010.This trend is continuing into the 2nd half of 2012.” 

A New Economic City

The Ministry of Industry and Commerce is also developing a new Economic City that will create a paradigm shift creating new industrial and business clusters.  The New Economic City represents a major investment and an achievement set in Bahrain Vision 2030. The phased development of an integrated economic city is to be constructed between now and 2035 totalling 93 sq. km. in area. The local Bahraini population is projected to grow from .6 million at present to 1.0 million by 2040. The economy will diversify towards value adding manufacturing and service sectors from its current focus. To accommodate the demand generated from the manufacturing sector alone an additional approximately 7,800 hectares of land will be required. According to the ministry figures the city will generate BD 5 billion annually by 2040, around 20% of the Bahraini economy at that time. It will significantly improve productivity and create approximately 243,000 new jobs with the majority of these jobs in the services sector.

The prime focus will be on prioritizing and developing downstream and high value adding manufacturing sectors such as those in the areas of Automotive, Electronics/Electrical, Food Products, Metal Based Products, Pharmaceuticals, Plastics and related sectors, particularly in the parts of these sectors as they relate to the regional and wider economy. Alba’s production of a high purity grade of molten metal feeds Aluwheel manufacturing facilities for the production of passenger car wheels, truck wheels and wheel alloy ingots exported worldwide to OEM and aftermarket customers. The availability of raw materials such as aluminium, the low cost of energy and the availability of a skilled workforce are the main reasons behind a possible expansion of industries such as car manufacturing.

Bahrain also intends to become a hub of world-class export oriented service sector to cater to the demands of neighbouring and international markets in Education, Information and Communications Technology, Logistics and Business Process Outsourcing. In addition, it will focus on emerging innovative sectors, such as Advanced Manufacturing Sub-Sectors (Robotics, High Precision Technologies, and Information Technology), Energy Conservation Sub-Sectors (Green Technology, eRecycling) and areas such as Solar Technology, Wind Technology and Geothermal Components.

To support export growth and stimulate the private sector role in the local economy, the Ministry of Industry and Commerce and the Chamber of Commerce are about to open doors of a newly Export Development Centre.  The ministry also supports the sector by providing industrial lands and associated infrastructure, single window clearance system for industrial projects through Bahrain Investors Centre, customs duty exemptions, increased market access through bilateral and multilateral trade agreements etc. Bahrain was the first country in the GCC to sign a Free Trade Agreement (FTA) with the United States. “Our investment in America was established to sell our products and make use the Free Trade Agreement (FTA) Bahrain has with it.  We did a very comprehensive study on the segments our production could apply and we identified the medical sector, transport sector and construction and building with households appliances included”, Dr. Adel Hamad, CEO of GARMCO told GGC.

Regaining confidence

Unlike the industrial sector that remained almost untouched during the recent events in Bahrain, the retail sector felt the shock as a whole dependant of the local consumer confidence, which dropped to minimum during the uprisings. Business confidence decreased again in Q4 2102 in the GCC, with the largest drop in Saudi Arabia (-6.86 points) and Bahrain (-6.72 points), according to the new YouGov and McGill Consulting Group Business Confidence Index. It seems that the consumers are still on the saving mode despite the fact that the economy is showing strong signs of recovery, the government spending is escalating and credit is starting to float.  Shopping malls in Bahrain have been affected since the entrance of Bahrain City Center to the market in 2008. Malls now compete for a limited amount of tenants as well a limited population. Despite the fact that Kuwaitis and Saudis consider Bahrain as a shopping destination, the overall scene is being reshaped.

Despite these statistics, in June 2013 Bahrain´s Durrat Marina announced the development of the first phase of a new retail project spanning 5,200 sq metres a long a marina with space for over 40 outlets. Car sales, which are a good indicator of the status of the local economy, have continued to increase steadily during the past two years. According to Business Monitor International the car sales increased by 5 percent to over 52 thousand car sales in 2012.  BMI concludes reporting that “among all retail categories, mass grocery retail will be the outperformer through to 2017 in growth terms. Sales are forecast to increase by nearly 44% between 2013 and 2017, from US$1.21bn to US$1.74bn, as demand for packaged and convenience foods continues to pick up on the back of busier lifestyles and more Westernised eating habits.”

Kuwait in Spain

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Our latest investment report on Kuwait was recently published in one of the leading Spanish dailies, ABC.  FindMe in Kuwait explores the economic perspectives of Kuwait and the country´s future plans to compete with its fast developing neighbours. Once the leading country of the Gulf, Kuwait has remained silent for the past decade. And although many would like to see faster changes, Kuwait is moving, at its pace, to them. Inexorably. Learn about who is who in Kuwait and read what the leaders say about their own future in our upcoming release: FindMe in Kuwait Mobile app.


Stay tuned - Stay Ahead

GGC launches FMS and FMB mobile apps

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GGC concludes FindMe in Bahrain

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Global Gulf Consulting has concluded its latest production on Bahrain, FindMe in Bahrain giving the country a fresh approach after a couple of difficult years of local demonstrations that matched the global recession.  Bahrain is a small island in the Arabian Gulf with an incredible potential for logistics, industries and tourism. FindMe in Bahrain was supported by both the public and private sector of Bahrain.  Banagas, Nass Corporation, BBK and DHL were GGC strategic partners in the development of the series among others.  

FindMe in Bahrain is available at the local bookstores Jashamal and online as well as in the Apple Store. It is a full business leisure and business guide for any investor or visitor interested in traveling to Bahrain or for those that already live there.


New release: FindMe in Saudi 2013 Edition

FindMe in Saudi offers a multi-faceted overview combining business and leisure, economy and heritage. The book aims to capture the current development of Saudi Arabia in the words of the people who live and work there. It is an authoritative source of information for investors, businessmen and travellers produced to firmly position KSA as an attractive investment destination.

In contains general information about the country´ economic performance and who is who as a sectorial overview and a leisure guide.    

FindMe in Saudi 2013
FMS 2012 A4 v15 web.pdf
Documento Adobe Acrobat [45.4 MB]

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