What developments have CEOs in Bahrain excited about upcoming business conditions?
20 Aug 2019
Bahrain’s economy witnessed a slowdown in 2018, with growth falling to 1.8%, compared to 3.8% the previous year. The main drag on economic growth was a slowing oil sector, which contracted by 1.3%. Notwithstanding, Bahrain’s economy represents one of the most diversified in the region, as its oil sector’s contribution as a share of GDP has fallen rapidly since the turn of the millennium, from 43.6% in 2000 to 17.8% in 2018. Over the same period the financial services sector has grown, with its share of GDP expanding from 13.6% to 16.5%, while manufacturing’s share rose from 12.4% to 14.5%.
The country’s muted growth in 2018 was in line with a broader regional slowdown, although forecasts are pointing to a more robust expansion of the national economy in 2019, with Bahrain’s $32.5bn infrastructure development plan set to underpin much of this and next year’s growth. The plan is being financed by a combination of government funding, the private sector and the GCC Development Fund. Meanwhile, the Fiscal Balance Programme, unveiled in October 2018, has reduced uncertainties around fiscal consolidation, with a comprehensive roadmap now in place to balance the budget by 2022.
All this appears to be contributing to a sense that the lower growth levels have bottomed out, with optimism for the future clearly evident in the most recent OBG Business Barometer: Bahrain CEO Survey, with 75% of CEOs surveyed saying they have positive or very positive expectations for local business conditions over the coming 12 months, up significantly on the 58.5% recorded in the 2018 OBG Business Barometer: Bahrain CEO Survey.
Positive sentiment for the future is also evident in the spending plans of those we interviewed, with 66% of CEOs indicating that they are likely or very likely to make a significant capital investment in the next 12 months.
A bright spot for the economy in 2018 came in the form of foreign direct investment (FDI) into the country. FDI rose by 6% last year, even as global FDI fell by 13%. This is as much an indicator of the attractiveness of the local market as it is about the transparency of the economic landscape. Some 90% of survey respondents say the level of transparency for conducting business in Bahrain is high or very high relative to the region.
This compares to the 87% that responded likewise in the 2018 CEO survey. It goes without saying that transparency is key to attracting international investors, but this is particularly the case for Bahrain’s financial sector, which has to compete with other international financial hubs in the region.
As the region races to develop and implement new technologies, another area in which Bahrain will find itself in increasing competition is innovation. National agendas centred around digital transformation have launched across the Gulf, and regional governments are mindful of striking an appropriate balance between overly rapid development – which risks too much disruption to the prevailing socio-economic frameworks – and not progressing quickly enough – which would risk stifling growth in a rapidly developing global industry.
So far the country appears to be staying ahead of the curve, and in 2018 Bahrain became the second GCC nation to introduce a personal data protection law, which is lauded as a key enabler of the country’s digital economy. Meanwhile, state-owned Bahrain FinTech Bay is at the forefront of the drive to digitise swathes of the economy. When asked about how this trend would affect their sector, 56% of CEOs say they expected to see high or very high levels of disruption from technology development in the short to medium, a figure we expect to see rise steadily in the coming years.
Looking ahead, the main concern for CEOs in Bahrain – and across the Gulf – remains regional political volatility, with 79% selecting this option when asked to identify the top external risk that could impact the economy in the short to medium term.
This is up from 69% in our last CEO survey for Bahrain, with the recent inflammation of tensions in the Gulf stoking this concern. Indeed, the apprehension of political tensions permeates beyond both Bahrain and the region: with one-fifth of the world’s oil supply passing through the Strait of Hormuz, the effects of any disruption to traffic through the waterway could reverberate through the global economy, too.