Interview: Zayed bin Rashid Alzayani
Which industrial sectors do you envisage leading the growth of the local economy in the near term?
ZAYED BIN RASHID ALZAYANI: Financial services, tourism, ICT, food, pharmaceuticals, logistics, manufacturing, and, with the expansion of Aluminium Bahrain, downstream aluminium. There is also an ongoing debate on whether logistics is an industry or a trade, but we believe it is an industry and an area that is growing in Bahrain. We are giving more attention to logistics with the upcoming second causeway to Saudi Arabia that will also connect Bahrain to the GCC rail network. We now have capacity at the Khalifa bin Salman Port to be a first point of entry to the GCC, and especially to the Saudi market. the airport expansion we will have a greater capacity for air cargo, so there is potential there as well.
What is being done to ensure research and development (R&D) becomes central to local industry?
ALZAYANI: It is very difficult to persuade a company in Bahrain to invest in R&D. You cannot take just one approach to it because different sectors have different requirements. For pharmaceuticals, it would be difficult to undertake any R&D in this sector, as we do not have the required level of sophistication, the universities or the medical labs, and we may even lack some legislation to do that, so it is further down the line. We are quite advanced in aluminium, so there may be some potential there, as well as in oil and gas, which is a traditional industry. We need to establish a whole ecosystem for R&D, and we need the legislation to do it, especially when it entails human consumption of food or drugs.
To what extent will the introduction of value-added tax (VAT) have an effect on the manufacturing base?
ALZAYANI: VAT is not something specific to Bahrain, so in terms of competitiveness within the region I believe it will have a zero-sum effect because it is imposed throughout the GCC – it will not provide any single country with a competitive advantage. Yes, it will have an impact on businesses and spending, especially in the initial stages, but at the rate it is being introduced it is not going to have a large impact. There will be some reluctance at the beginning, but then people will factor it in as part of normal life. We had similar experiences when we lifted subsidies on meat products. People did not stop eating them, we just saw a shift in consumption from beef to lamb. When we removed duties on cigarettes and other products, the former did not witness a reduction whereas the latter did. We see that some products are more sensitive than others.
Looking at competitiveness, how is Bahrain positioning itself to attract a larger slice of foreign direct investment than its regional neighbours?
ALZAYANI: First, our cost base is much lower than others’ in the region. If we look at some of our Gulf neighbours, we are about 30-40% more economical to operate in. Second, we have a good pool of local talent. We also have the most liberal expatriate workforce regulation, and it is becoming progressively more liberalised. We have completed the process of liberalising business activities within our ministry, and we are certainly one of the most open economies in the region. Today, only 2% of our business activities are restricted to Bahrainis, and from the remaining 98% about 62% of activity is available for full foreign ownership. Geography is also crucial, particularly regarding our proximity to Saudi Arabia – by far the largest consumer market in the region. Our excellent telecoms, infrastructure and banking systems are all plus points, too.
In terms of addressing our domestic weaknesses, our major issue is having a small local market. However, besides Saudi Arabia, there is no country in the GCC where it makes sense for a company to invest just to serve the local market. Today, if a company has a good logistics system and strong connectivity, it can be anywhere, and I think Bahrain offers everything that is needed at a more competitive operating cost.
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