Given the individual peculiarities of the two markets, there is plenty of scope for both the Bahrain Financial Harbour and Dubai International Finance Centre to be viable entities, according to Bahrain Minister of Economy and Finance Abdullah Hassan Saif.

"Bahrain has always pursued the development of a traditional banking system - we have moved on from retail, high-street banking to the very high-end syndicated loans," said the minister.

"At the same time, Dubai has its own strengths in its financial services sector. We see each other being complementary to the other, not competing."

Bahrain's ambitious BFH venture has started on the first phase of development, with the $260-million package taking care of the future financial centre facility.

In all, the "strategic investment zone", which will feature 26 separate packages, is being developed at a cost of $1.3 billion.

"The first phase has already got an occupancy of over 50 per cent by leading financial institutions. As we see it, BFH will develop into the focal point of the Middle East's financial industry," said Esam Janahi, chairman of Bahrain Financial Harbour Holding Co.

A further four parcels within the zone will be given out for development within the coming weeks. Expected to be complete by 2008, the BFH will eventually house the Bahrain Stock Exchange. Just over half of the zone's 38-hectare site will be built up, leaving the rest for public space, roads, a leisure resort and performance hall.

Gross building area of 570,000 square metre will be allocated as follows: Residential - 266,000 square metres, Commercial - 250,000 square metres

Retail - 54,000 square metres.