Bahrain, a group of islands that together cover an area of only 700,000 sq km, is as small as it is significant in the historical development of the Gulf Cooperation Council (GCC) region. It was the first to discover oil, the first to open a university for men and then for women, the first to industrialise the country, and one of the first to form a national assembly. It was as well the first country in the region to confront political instability in 2011 in the back of the Arab Spring that raised the flags of youth unemployment and housing problems, and demanded greater political participation. The small island struggled handling the relations between a Sunni led government and a large Shia-majority population with a well intended National Dialogue failing to deliver solutions and creating an ongoing political stalemate that prevented the economy and business confidence recovery. “The fact that we confronted a situation like this means that we can evolve into something better”, Khaled Al Zayani, CEO of Al Zayani Investments and a well-known local business tycoon told GGC. Pioneer in virtually everything within the Gulf region, Bahrain might as well become the first to introduce a new set of reforms towards more democracy in the GCC. “The implementation of the recommendations that came out of the country’s first National Consensus Dialogue began in October 2011. Both the purpose of establishing the Dialogue and its outcomes have directly promoted increased transparency and openness in government and where it was possible, political recommendations relating to these values were brought into effect immediately”, Sheikh Hussam bin Isa Al Khalifa, Head of the Prime Minister´s Court told GGC. “The aim of the National Dialogue was to build consensus about reforms among the approximately 300 participants, representing all segments of society. The reforms covered the key four policy areas: Political, Economic, Social, and Rights,” he explained.
Hard to fight
Despite the adversities, Bahrain´s reputation as a major strategically located trade centre and a regional financial hub remains intact with growth picking up again to normal levels. The country´s financial system robustness stands on four decades of operations with regional companies using Bahrain's financial sector as a major source of funding. Furthermore, Bahrain is a key regional fund manager player and a global centre for Islamic Banking with some of the most successful shariah compliant products developed in the tiny island. A constitutional monarchy since 2002 with a bi-cameral Parliament, the country is the best and most regulated in the region and boasts an inward investment policy of zero taxation. The legal framework in Bahrain is a key pull-factor that encourages the growth of domestic investment as well as foreign direct investment, by removing obstacles to the establishment of businesses and providing transparent and predictable company formation procedures and regulations. Home to regional headquarters of a number of multinational corporations, its strategic geographical location with easy access to the $1 trillion GCC economies and remarkably to Saudi Arabia, the biggest consumer market of the Arab world, has granted Bahrain a natural commercial advantage over its neighbours. Unnaturally though but incredibly advantageous, Bahrain is connected to the oil rich Eastern region of Saudi Arabia through a 25 kms causeway over the sea and will be connected to Qatar through the “Friendship Bridge” by 2020. A regional initiative to provide the GCC countries with a common railway system will only reinforce Bahrain´s reputation as the gateway to the Gulf. Air connections are set to improve with the new expansion of the Bahrain International Airport (BIA) while APM Terminals, a new $300M port facility, was inaugurated in 2008. Logistics and industrial zones are expanding around the infrastructure exporting facilities supported by strategic free trade agreements. In 2006 Bahrain was the first country in the Arab world to sign a FTA with USA.
Clustering an Industrial base
As the first country to discover oil, it will also be the first to run out of it. Therefore a national strategy towards a broader diversification of the economy to reduce its dependence on crude oil revenues was adopted in the early stages of the oil boom throughout the 70´s. As a result Bahrain opened the first refinery of the region, BAPCO, and is home to Alba one of the largest aluminium smelters of the world. Downstream industries are growing in clusters around the natural feedstock contributing with an increasing share to the country´s GDP. However, Bahrain´s oil and gas sector still accounts for three quarters of government revenues, 60 percent of total exports and around 10 percent of GDP. Bahrain has proven oil reserves of around 100 billion bbl and produces around 45,000 barrels per day (bpd) from its only onshore field in central Bahrain, Awali.
In 2008 the “National Economic Vision 2030”, a revamped version of the old diversification strategy of the government, was launched by King Hamad bin Isa Al Khalifa. The comprehensive future development plan for Bahrain outlined the path of economic reforms and investments with the ultimate aim of shifting from an oil-driven economy to a global, competitive economy with higher productivity and better wages. Vision 2030 was the result of a dialogue between the government and the private sector as well as international consultancies and bodies and was built around three guiding principles; sustainability, fairness and competitiveness. Bahrain´s Economic Development Board (EDB) chaired by Crown Prince Salman bin Hamad Al Khalifa and created in 2000 has been a key pillar to the country´s National Economic Strategy developing the roadmap to achieve the Vision. Light manufacturing, logistics, ICT, education and training, and professional, industrial and financial services were defined as priorities. “Currently the Kingdom of Bahrain is undergoing a broad spectrum of economic reforms, including labour, education and health reforms with a focus on making the country more competitive, and supporting and motivating the private sector. The sharp-end of these reforms is the articulation of an economic plan to 2030, which has the objective of achieving higher levels of productivity, and a knowledge based economy clustered around a number of strategic sectors”, Dr. Hassan Fakhro, Minister of Industry and Commerce told GGC.
Lost years effects
In 2008 as the global recession erupted, Bahrain started to experience a weaker growth only to be aggravated with the uprisings in 2011. Rising expenditure in social investments and subsidies resulted in the increase of the country´s fiscal deficit as well as the downgrading of its sovereign bonds ratings. The International Monetary Fund (IMF) has urged Bahrain to cut spending to contain its government debt at 40 percent of GDP. With $27.1 billion nominal GDP at the end of 2012 according to data from the IMF, Bahrain has an outstanding debt of about $12 billion. “The cost of direct and indirect government subsidies alone is put at BD1.501bn in 2013 and BD1.583bn in 2014 while the central budget deficit is projected at BD662mn or 6.1% of GDP in 2013 rising to 6.6%, in 2014. Fiscal break-even oil price is projected at $122 in 2013 and $126 in 2014”, EDB projected in its 2012 economic report. Restructuring of the lost-making national carrier Gulf Air came to add financial pressure on top of the government sovereign wealth fund, Muntalakat, while real estate, major infrastructure and industrial projects and the whole privatisation process were put on hold. The transfer of Government assets to a commercially oriented holding company, in the form of Mumtalakat, will enable these assets to be managed more effectively. Future privatization of these assets will come in accordance with the need and climate and on the basis of a commercial decision. When this happens, new funds will become available to invest in new strategic assets fomenting diversification”, Dr. Fakhro said.
A silent but strong recovery
But the country´s economy has shown its resilience and strong signs of recovery started to emerge in 2013. Standard and Poor revised the kingdom’s credit outlook to stable from negative in January 2013. A much-awaited $10 bn “Marshall Plan” Fund from the GCC countries is expected to start pouring down into the country at a rate of 1 billion per year in the next 10 years. The Fund will further drive economic growth through higher levels of capital expenditure on large-scale infrastructure, housing, transport and power and water projects. With oil prices forecast to remain over $80 over the next three years, the new technologies applied to deeper oil exploration and higher productivity of existing oil wells will also contribute significantly to lift the country´s financial burden. A fresh public investment of $15 bn up to 2030 in the oil and gas sector predicts that oil production in Bahrain will rise to 100,000 bpd by 2020. The expansion of the industrial base of Bahrain will benefit from a planned liquefied natural gas (LNG) import terminal while plans on a USD4.8bn refinery upgrade, the first and one of the largest of the region, are well on their way. Aluminium Bahrain (Alba), has initiated the Bankable Feasibility Study (BFS) in 2012 to determine the viability of Line 6 expansion project of around USD 2.5 billion which is expected to add an additional 400,000 metric tonnes per annum to the current capacity of 890,000 metric tonnes, a USD1.2bn expansion by the Gulf Petrochemical Industries Company (GPIC) and a tender for the production of 5 MW of renewable energy opening up the space for growth to a more sustainable and environment-friendly new source of energy in Bahrain. According to the IMF World Economic Outlook, Bahrain´s economy will grow 4, 2 percent in 2013. “A key strategy, which has a significant impact on industrial diversification, is the adoption of an open-market policy as a development strategy. Attracting inward investment has broaden Bahrain´s industrial base and has provided a trigger for supporting new industries and creating a whole set of down-stream manufacturing. It has reduced the skill gaps and has provides higher value added employment to the domestic workforce”, the minister of Industry and Commerce told GGC. To cement the plan a new Economic City is in its development phase and aims to create a paradigm shift in the economy, creating new industrial and business clusters. According to EDB, the fastest growing sectors in 2012 were hotels & restaurants followed by social & personal services and manufacturing with double digits growth levels. “The construction sector which has gone through a substantial readjustment as a result of excess supply in parts of the real estate market has responded through a shift in activity towards affordable housing and infrastructure projects”, reported EDB. All sectors of the economy have nevertheless benefited thanks to bank lending growth.
As the first country to open a University in the Gulf, Bahrain is also home to the best skilled and educated workforce of the region, a fact that further reduces the total investment required to locate business operations in the country. Bahrain´s comparatively low costs of living and doing business are a major attraction to inward investment. Tamkeen, a government backed fund established in 2006, was created to build on the country´s talent offering subsidized education and professional training as well as funding for the small and medium enterprises expansion. The number of unemployed Bahrainis registered at the Ministry of Labour has remained above 6,000, although the official unemployment rate has dropped just below 4% from its June peak. Total local workforce is estimated at 183,391 people with 82,013 jobs covered by the private sector. Bahrain is also well known for the hospitality of its people and tourism, a major contributor to the country´s fight towards youth unemployment, remains one of the key selected sectors for investment. Although it experienced important setbacks as a result of domestic unrest, several factors indicate its recovery such as the return of the F1 race to the island as well as the increase of tourist cruise ships. “Hotel occupancy levels are edging up gradually into an estimated 47% “, EDB reported citing Ernst & Young. “Arrivals on the Saudi causeway reached 6.4mn in January-September 26.4% up from 2011 and passenger numbers at the Bahrain International Airport rose by 8.8% to a total of 8.5mn”.
Real estate developments are shaping a new skyline in Manama City and virtually creating entire new communities in cities like Muharraq and Riffa. With Bahraini hospitality as the base, health tourism and MICE are also expanding with Dilmunia Health Island as the growth catalyst of the sector and a new ExpoCity to be inaugurated in the next two years. The clear challenge ahead for Bahrain is to rebuild the social cohesion in order to achieve what was set out in Vision 2030 and the National Economic Strategy (NES) and be able to provide for future generations.
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.
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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.
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.
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