With the support of its GCC partners and a government committed to progress, Bahrain looks set to enter a new phase of growth
Bahrain has more than proved its mettle over the past decade, overcoming challenges presented by the global financial crisis, the political turbulence of the Arab Spring and the oil price crash of 2014. With the support of its GCC allies Bahrain now appears to be entering a period of greater prosperity.
Indeed, Gulf Arab allies pledged $10 billion in aid to Bahrain and finalised $2.5 billion in assistance for Jordan in recent weeks, in an effort to stabilise their fragile finances through years of planned austerity. The assistance to Bahrain will be spread over five years and cover half the government’s financing needs, including debt repayments, as it begins a programme of savings that aims to eliminate the budget deficit by 2022.
“The government would be looking to finance the other half through debt as and when needed,” Khalid Al-Rumaihi, chief executive officer of the country’s Economic Development Board, said earlier in October.
Data published in the latest Bahrain Economic Quarterly (BEQ) reveals that Bahrain’s economy – by certain metrics – has remained relatively robust in the past couple of years. Real GDP grew by 3.9% in 2017, with the non-oil economy expanding by 5%, making it the fastest growing country in the GCC.
According to the quarterly report produced by the Bahrain Economic Development Board (EDB), the pace of growth in the Kingdom ‘accelerated markedly’ in 2017 compared to 3.2% in 2016. This strong performance in the face of sluggish regional growth was driven by broad-based success across the highly-diversified non-oil private sector, led by tourism, a strong pipeline of infrastructure projects, and a record year for foreign direct investment (FDI).
Earlier this month, the IMF’s World Economic Outlook forecast that Bahrain’s economy would continue to be the fastest growing economy in the GCC in 2018, suggesting momentum is expecting to be maintained into the current year.
Regionally, the BEQ predicts a significantly brighter outlook for the GCC in 2018, with a pronounced pick-up expected as economic diversification and fiscal consolidation efforts transition to their next phase and create a broad revenue base across the non-oil economy. Speaking on the publication of the BEQ, Dr Jarmo Kotilaine, Chief Economist, Bahrain EDB, commented: “Bahrain’s economic resilience aligns with broader regional and global trends in which we see more diversified economies tending to achieve faster growth. Region-wide, business confidence and growth momentum are set to benefit from a more benign outlook in the oil sector and we expect 2018 to mark an important milestone as the GCC’s makes the economic paradigm shift towards diversified private-sector led growth economies”.
Growth in Bahrain is being driven by a variety of strongly performing industries, led by tourism with the hotels and restaurants sector expanding by 9.5% in 2017, total visitor expenditure rising by 8.9% and the average length of stay increasing 2.5% to 2.82 days, in line with the government’s strategy to boost the sector and encourage longer stays from existing visitors. Other high performing sectors in 2017 included social and personal services (9.4%), led by private education and healthcare, trade (8.5%), real estate and professional services (5.5%) and financial services (5%). Additionally, the EDB attracted BHD 276 million of foreign direct investment into Bahrain in 2017, a record year for the organisation. This represents an increase of 161% from 2016, and is expected to generate 2,800 jobs over the next three years.
Despite the demonstrable success of economic diversification, oil and gas remains a strong component of Bahrain’s economy, with the Kingdom’s oil sector set to transition to an era of renewed growth. Therefore, the recent announcement that Bahrain has discovered its largest oil and natural gas repository since it began producing in 1932, is a significant boost to its future economic outlook. The 2,000 sq km Khalij al Bahrain field, which is expected to start production within the coming five years, is mainly composed of shale oil and natural gas in quantities that far exceed Bahrain’s current reserves, with a recent resource evaluation suggesting levels capable of supporting the long-term extraction of oil and gas.
Bahrain has also benefitted from FDI inflows which grew 114% in 2017 to $519 million, according to data released by the United Nations Conference on Trade and Development (UNCTAD), the fastest growth rate in the GCC. The rapid growth came in spite of a drop in global FDI of 23%.
In 2017, The Bahrain Economic Development Board (EDB) attracted 71 new companies to Bahrain with investments amounting to BHD 276 Million (US $733 million). The record-breaking achievement helped increase the number of jobs by up to 72%, creating more than 2,800 jobs in the local market over the course of the next three years.
“Foreign direct investment creates jobs, diversifies the economy and fuels growth – so we are delighted to see such strong momentum, even against a challenging global backdrop. This proves the growing interest in the GCC opportunity is translating into investment,” said Khalid Al Rumaihi, Chief Executive, Bahrain EDB.
“We have undertaken a number of significant initiatives in the first half of this year to build on this success and we expect to announce a number of further measures in the coming months, helping investors to access the GCC opportunity.”
One of the most important questions a financial services firm needs to ask in selecting a location is: what are the annual costs of operations? In Bahrain, these costs are significantly lower compared with Dubai and Abu Dhabi. According to a recently published KPMG report, Bahrain enjoys a cost advantage in the financial services sector of up to 35% over both Dubai and Abu Dhabi.
In absolute numbers, this means that financial services firms which choose Bahrain can save up to $1 million a year compared to establishing in Dubai or Abu Dhabi. For an established firm, this cost reduction is a welcome profitability boost. For startups such as those in the FinTech space, it means they can focus on what matters most: innovation and growth.
One of the largest cost factors is commercial rent, which is significantly lower in Bahrain.
This is driven in partly by the fact that Bahrain doesn’t have free zones – the whole country is a free zone and there are no restrictions as to where companies can be based.
The largest operating cost, however, is of course manpower, and in Bahrain the average salary is 60% lower. This is primarily due to the Bahrain’s supportive visa policy, which makes it simple and affordable to bring in specialists from around the world. Additionally, the Kingdom’s highly skilled local workforce minimises the cost of labour.
Beyond business costs, living expenses matter too. Here again Bahrain compares favourably as an affordable country whose residential rental, utilities, cost of education and cost of domestic help are all considerably lower
“We aspire to be the most business-friendly economy in the Gulf and that is a challenge we work hard to live up to,” Al Rumaihi said.
Similarly, Bahrain continues to thrive because of its robust private sector. Private enterprises are the main driver of economic growth, employing 65% of Bahrainis.
A fintech hub
Among the most prominent developments in 2018 has been the growth of the Bahrain FinTech ecosystem, including the launch of Bahrain Fintech Bay, the largest fintech hub in the Middle East and Africa; the establishment of a $100m Al Waha Fund of Funds to help fund start-ups across the Middle East; and a growing number of companies using the Central Bank of Bahrain’s regulatory sandbox to develop new products and services.
Financial services in the Kingdom has seen an average growth rate of 4.2 between 2006 and 2016. With digital transformation now fundamentally disrupting this sector, FinTech has become a primary focus. We’re laying the foundation for a new wave of FinTech companies to flourish, with new infrastructure, tech-friendly regulations and regular infusions of fresh thinking. For example, entrepreneurs can test their ideas in the recently launched Regulatory Sandbox, which allows new products and services to be tested free from the usual regulations for a pre-agreed period. Moreover, at the newly launched Bahrain FinTech Bay, the largest dedicated FinTech hub in the MENA region, innovators can connect with fellow entrepreneurs and investors to dream big and develop products that can compete at a global level.
Business of Learning
Executive education is an important part of Bahrain’s diversification plans
Strathclyde Business School (SBS), the first triple accredited business school in Scotland and one of a select few worldwide to gain that standing, has entered into a unique partnership with Naqel Express, a local company in the Kingdom of Saudi Arabia, to create a corporate MBA programme in the country’s capital, Riyadh, that will have a “specialist focus on logistics”.
“This is an area that is vital for the nation in its 2030 vision,” says Alan McIntyre, Executive Director of Post Experience Programmes at the University of Strathclyde Business School. “The idea is that there will be a consortia of “like minded” organisations that will sponsor students from within their setups to study with us for this specialist MBA and we have an agreement that this will be a long term collaboration with the intention of recruiting five separate intakes over the next five years.”
In the Kingdom of Bahrain, where SBS established one of its eight international centres in 1995, SBS has partnered with the Bahrain Institute of Banking and Finance (BIBF) to provide a top 10 UK MBA from SBS, which is triple accredited, says McIntyre.
“Together, we have a very strong proposition which enables us to provide an MBA programme, which is in the top 1% in the world,” he explains. “With BIBF’s impressive reputation, we are able to attract students from around the world to Bahrain, where we jointly provide leadership skills for the nation and beyond. Our intention is to serve the business community beyond the MBA and deliver complementary programmes that work alongside the BIBF’s focus on finance and move into areas like Fintech and HRM.”
The SBS international centre in Bahrain is one of four already operating in the Middle East – with the other three situated in Oman, Abu Dhabi and Dubai. This, stresses McIntyre, is because the University of Strathclyde recognies the importance of the region for business growth.
“The Middle East is a growing part of the business world and we want to do our part to support those aiming for the top,” he explains. “The pace of growth in Bahrain grew markedly in 2017, and with a growing revenue base away from the oil economy comes a need for new skills.
A growing business economy needs top talent and we feel the Strathclyde MBA offers an educational gateway to those wishing to aim higher in their career, or switch sideways from one business area to another – an advantage over others in a rapidly changing business environment. A country with ambitions needs an ambitious and educated populace – offering our world-renowned MBA is our contribution to that.”
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