In an exclusive interview, Khalid Al Rumaihi, Chief Executive of Bahrain Economic Development Board, talks about the impact of the oil-price decline and diversification efforts on Bahrain’s economy.
QUESTION: How do you assess the Bahrain economy during this period of fluctuating oil prices, which is affecting the fiscal deficit?
We are very encouraged by the resilience that Bahrain’s economy has demonstrated in a low oil price environment, particularly in the non-oil sector.
Bahrain was one of the first countries in the region to diversify its economy away from the hydrocarbons industry, instead concentrating its efforts on developing sectors such as financial services, manufacturing and logistics. The oil sector today accounts for only one-fifth of Bahrain’s GDP. The non-oil sector expanded by an annual rate of 4.2 per cent in the first nine months of 2015 and we expect comparable growth in the near term as well.
This growth is further underpinned by a number of infrastructure projects the Kingdom is introducing over the next couple of years. The most strategically significant of these projects exceed $30 billion (Dh110 billion) in value and are financed by a variety of sources, mainly nongovernment, which means that they are unlikely to be affected much by the current oil cycle and are independent of government resources.
The Bahrain International Airport is, for example, undergoing a large modernisation project to expand cargo capacity and increase the number of passengers from 9 million to 14 million travellers. In addition, plans are in the early stages to build a second causeway linking Bahrain to Saudi Arabia, capitalising on Bahrain’s strategic location at the heart of the $1.6 trillion GCC market.
QUESTION: What are your latest efforts to diversify the economy?
Our main role is to attract leading international businesses that can add value to our economy, in economic sectors which we can offer investors significant strengths and advantages. If we are able to get this partnership right, it will help to create quality jobs, boost capital investment and help Bahrain to diversify its exports.
Sectors which are a priority for us at the moment include: financial services, manufacturing, transport and logistics, ICT and tourism. In all these sectors, we prioritise activities that have the best fit with Bahrain’s unique value proposition and which are most likely to lead to businesses not just coming to Bahrain today, but also thriving in the decades to come.
We are also working closely with the relevant government institutions to provide greater support to SMEs and entrepreneurs in the Kingdom, through access to financing, mentorship and training, and regulatory changes.
Most recently, the EDB supported a joint venture signed by Bahrain Mumtalakat Holding Company, the Kingdom’s Sovereign Wealth Fund, with Synergies Castings Limited, one of India’s leading aluminium casters and manufacturers of alloy wheels, to create an aluminium casting and speciality alloy wheel manufacturing facility in Bahrain. The EDB was heavily involved in attracting Synergies to Bahrain, first identifying the opportunity and then getting in touch with the company, before facilitating the partnership with Mumtalakat. This is an example of leveraging Bahrain’s historic and pioneering strength in aluminium smelting in activities that create more value, employment, and innovation.
As part of our role, the EDB organises events and conducts roadshows as well as direct marketing campaigns, in order to raise awareness about the investment opportunities on offer in the Kingdom of Bahrain. These also provide a platform for us to connect with various businesses and tell them Bahrain’s economic story.
For example, we visited China with a high level business delegation in September last year, where 15 agreements were signed with Chinese businesses and trade organisations. Agreements included three Chinese companies announcing their plans to establish operations in Bahrain. They are: Jinlou Water, World Wide Logistics and Baoshang Bank.
QUESTION: The EDB is the public investment attracting agency, do you think there is much interest from FDIs in the GCC markets during such difficult economic times?
The GCC remains a huge draw to potential investors; it is currently valued at around $1.6 trillion and is expected to reach $2 trillion by 2020. Despite the current global economic uncertainty, the strong economic fundamentals that have underpinned growth in the GCC in recent years are unchanged. We expect them to underpin future growth, making the GCC an attractive long-term investment. This is a region with a young and growing population, increasingly diverse economies, and exceptional global connectivity thanks to its unique position at the crossroads of three continents.
In the global context, the GCC offers a compelling story both in the near and the longer term, and our current efforts to diversify even further and to encourage private sector development represent important instance of supply side reform that have the potential to act as catalysts for future growth. In some cases, we are attracting growing interest from companies that are looking for new growth opportunities or, especially with emerging market companies, looking to diversify beyond their home markets.
We attracted $957 million in FDI in 2014 and the EDB has seen no sign that investors’ interest in the region is beginning to wane. The EDB directly attracted over $280 million of foreign investment from 2012 to 2014, creating more than 2,700 jobs in a range of key sectors. Foreign investments in recent years included Chinamex, JBF, BASF, CIGNA SAICO, and Schmidt Middle East Logistics.
QUESTION: Historically Bahrain is known to be a centre for trade in the region. Do you think it will keep such a status? What sets Bahrain apart from other markets in the GCC?
Bahrain has been an important trading hub for thousands of years and was an important stop on the Silk Road trading routes that connected Far East Asia to Africa and Europe and a meeting point for travellers from around the globe. This legacy lives on in Bahrain’s economic and cultural openness. The island is known for its liberal but mature, tried and tested business regulations as well as its inclusive and tolerant culture, which has absorbed and assimilated external influences for centuries.
Within the GCC, Bahrain offers a unique prospect for investors, because of our well-educated, economically active national labour force which can serve as a bridge to the broader region. Our strategic geographical location and excellent transport infrastructure links us by road, sea, and air to all corners of the region. Direct access via a 25 kilometre causeway to Saudi Arabia, which represents around 50 per cent of the combined GCC economy, is a big incentive for investors. Saudi Arabia’s industrial heartland, as well as its capital, are within a 400 kilometre radius.
In recognition of Bahrain’s liberal business environment, The Heritage Foundation’s 2015 Index of Economic Freedom ranked the Kingdom 18th globally. Bahrain was the only Middle East and North African country to rank in the top 20 of the countries surveyed. The Kingdom offers a unified jurisdiction where 100 per cent foreign ownership is the norm in most sectors. Its Free Trade Agreement with the US stands as an indication of the compatibility of its regulations with the highest global standards.
QUESTION: Bahrain has recently announced the first Cloud Accelerator in the Middle East and Africa — what role do you think these start-ups have to play in the GCC?
I think they have an important role to play. It is important to note that while SMEs account for a large percentage of the total number of companies in the Gulf, they do not generally contribute high levels of productivity or high-value job creation. For example in Bahrain, SMEs account for more than 99 per cent of the total number of companies and 75 per cent of private-sector employment, but they only account for 28 per cent of GDP.
But there is potential for smaller businesses to play a bigger role. The experiences of many countries have highlighted the importance of SMEs in generating growth and jobs on a scale that in aggregate terms often eclipses the role of larger companies and we believe that young people in the Gulf have the potential to create the sorts of businesses that generate high levels of quality employment and demonstrate strong levels of productivity. But we know that if they are to be able to do that, they will need the right support. They need the right ecosystem in which to grow.
It is in helping to create that ecosystem that we think accelerators like this have a role to play. Working with Amazon Web Services and the Bahrain Economic Development Board, the Cloud Accelerator aims to drive growth in the local and regional business ecosystem by enabling the rapid adoption of cloud technology which offers many distinct advantages over the traditional IT infrastructure.
While the accelerator will be based in Bahrain it will not be restricted to Bahraini businesses and will be open to companies from around the region. We want to provide the ecosystem that can enable people who have a good idea and a promising enterprise to turn that into something much bigger.
QUESTION: Given the recent lifting of sanctions against Iran, do you see more challenges for the GCC markets?
The lifting of sanctions opens the door for Iran to engage more with the wider region and we are hopeful of a positive outcome for the international community in the long-term. Bahrain welcomes the chance to strengthen intraregional ties and improve economic and political cooperation with all its neighbours. If this attracts more investor interest to the Gulf region, it can create a win for all concerned.
It is also possible that at the moment there is a window of opportunity for oil-exporting nations to concentrate their efforts on diversifying their economies and lay the foundations for more sustainable economic growth in the future. It is up to the individual governments to take advantage of this and implement the reforms necessary to drive development in other sectors, like Bahrain began doing over 40 years ago.
