The Report: Bahrain 2016

Energy and finance remain drivers of growth a crucial partner for peace and stability in the region education seen as a major strength for the population regional effort to improve food security in the Gulf.

Country Profile

The kingdom of Bahrain has been ruled as a constitutional monarchy since 2002 under the leadership of Sheikh Hamad bin Isa Al Khalifa. The country pioneered the Middle East’s oil production in 1932, thus establishing the region’s initial framework for the petroleum industry. The energy sector remains a pillar of the kingdom’s economy, accounting for the bulk of government revenues but a shrinking proportion of GDP thanks to early efforts to diversify the economy away from hydrocarbons. This led to the kingdom’s establishment as a chief financial centre in the region, with the country home to a thriving sharia-compliant segment and financial services representing the second-largest contributor to the country’s GDP. Elsewhere transport links across the kingdom are being upgraded, with major expansion works at Bahrain International Airport expected to boost the country’s status as a centre for trans-shipment and logistics as well as further fuel the country’s growing tourism industry.

This chapter contains an interview with Li Yong, Director-General, UN Industrial Development Organisation (UNIDO).

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Increasing revenues and reducing spending have been established as the core objectives of Bahrain’s economic policy, with subsidy reduction across the board likely to be a common theme in 2016. After energy, the financial sector continues to be the second-largest contributor to GDP, accounting for 16.5% of the total in 2014. This is followed by manufacturing which comprised 14.4% of GDP. Meanwhile the drive for greater private sector participation in the economy, particularly from small and medium-sized enterprises (SMEs), continues apace, and currently 97% of all companies in the kingdom fall into the micro or SME category, between them accounting for almost 30% of GDP. In recent years various government and non-government schemes have been launched offering SMEs financing, training, advisory services and infrastructural support.

This chapter contains interviews with Khalid Al Rumaihi, Chief Executive, Bahrain Economic Development Board (EDB); Shaikh Mohammed bin Essa Al Khalifa, Chairman, Tamkeen; and Mahmood Al Kooheji, CEO, Mumtalakat.

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Thanks to a prudent yet flexible regulatory system, Bahrain’s lenders have been able to extend from a relatively small domestic base to become significant regional and global players. The wide range of external markets served by Bahrain’s banking sector makes for natural risk diversification, which has helped the industry maintain strong performance against global economic challenges. The country’s banking industry is divided by the licensing regime into both conventional and Islamic, and retail and wholesale operations, with numerous institutions holding multiple licence types. Moving forward, intense competition for business in the credit card segment has seen entry-level requirements for credit fall considerably in recent years, while an internet penetration rate of around 96% means Bahrain is set to continue playing a major role in the regional boom in e-commerce.

This chapter contains a viewpoint from Rasheed Al Maraj, Governor, Central Bank of Bahrain; and an interview with Ahmed Dayyat, Country Head, Mashreq Bank Bahrain.

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Capital Markets

As of December 2015, the Bahrain Bourse was home to 46 listed companies distributed across several segments including: commercial banks, investment, services, insurance, industrial, hotels and tourism, closed companies and non-Bahraini companies. While falling oil prices and unrest in the wider Middle East region have continued to pose growth challenges to the Bahrain Bourse, a process of market development continues in the form of technical upgrades, legislative improvements and a steady stream of new investment instruments, including options, exchange-traded funds and real estate investment trusts. Meanwhile, initiatives are under way to increase awareness of the bourse’s offerings and benefits among the local population, including a strengthened social media presence and savings and investment seminars across the country.

This chapter contains a viewpoint from Najla M Al Shirawi, CEO, Securities & Investment Company.

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Islamic Financial Services

As a pioneer in Islamic finance regulations and the home of some of the most important standard- setting institutions in the global sharia-compliant arena, Bahrain is at the forefront of the international Islamic financial services industry. In 2001 Bahrain became the first country in the world to implement regulations specific to Islamic banking. Since then the Central Bank of Bahrain’s rulebook has been widely regarded as the benchmark for sharia-compliant governance. Takaful markets in particular have experienced rapid growth, with takaful firms accounting for around 22% of gross written premiums in 2012, up from 3% in 2001. Meanwhile in March 2015 the Central Bank of Bahrain issued its first one-week Islamic deposit facility based on a wakalah agent contract, by which the regulator invests cash on behalf of the lender.

This chapter contains interviews with Shaikha Hessa bint Khalifa Al Khalifa, Chairperson, Al Salam Bank-Bahrain; and Hassan Jarrar, CEO, Bahrain Islamic Bank.

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Insurance & Reinsurance

For decades Bahrain has been home to one of the GCC’s most developed insurance sectors, with domestic and international firms taking advantage of the country’s robust yet accommodating regulatory structure to pursue business both locally and in rapidly emerging regional markets. Some 25 locally incorporated insurers operate in Bahrain, with a further 22 locally incorporated firms restricted to pursuing business outside Bahrain. However, a penetration rate of around 2.1% in the local market, compared to rates of around 8% in more developed European markets, suggests that there is still room for further domestic growth. Meanwhile, the number of reinsurance firms licensed to operate from Bahrain has been increasing steadily since 2006, with five conventional players currently established. The segment has also begun to tap into the demand for sharia-compliant cover.

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Although the global drop in crude oil prices is a concern, the early adoption of economic diversification efforts has created positive growth trajectories in non-oil sectors in Bahrain, such as construction and transport.  Hydrocarbons continue to form the bulk of government revenues in Bahrain, with oil and gas accounting for 24.1% of Bahrain’s GDP in 2014. Neighbouring Saudi Arabia remains a vital energy partner for the kingdom, and recent Saudi investments in its Eastern Province have benefitted both countries in terms of hydrocarbons processing.  Meanwhile in June 2014 Bahrain opened its first solar energy facility in the town of Awali. The 5-MW facility relies on the concept of a smart grid that harvests energy through photo-votaic panels dispersed around the city.

This chapter contains an interview with Abdul Hussain bin Ali Mirza, Minister of Energy. 

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Bahrain’s transport sector is gearing up for expansion in both the short and medium term, with GCC funds being used to complete upgrades to the road network and airport facilities. The government is also investing in infrastructure improvements and new public transport initiatives. The Ministry of Works has invested $485m in road network upgrades, which include the remodeling of junctions, bridges and tunnels, and the widening of existing highways. Meanwhile, two proposals to transform Sheikh Khalifa Bin Salman Highway into a five- or six-lane dual carriageway are on the table. Costs for the project have been estimated at $223.9m or $329.3m, depending on the option selected. Elsewhere Bahrain International Airport is also expanding to enable it to cater to more passengers and cargo, thanks to $1bn in investment by the Abu Dhabi Fund for Development.

This chapter contains an interview with Maher Salman Al Musallam, CEO, Gulf Air.

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Construction & Real Estate

Bahrain’s construction sector is booming, with the country using billions of dollars of Gulf Development Programme donations to remodel its airport and highway system, as well as provide tens of thousands of affordable new homes for its citizens. In 2014 year-on-year sector growth was 7.3%, and was only surpassed by the hotel and restaurant sector, and personal and social services. In the first quarter of 2015 growth was 7.5%. Meanwhile the real estate sector is continuing to recover, with retail and hospitality capitalising on growing visitor numbers in recent years. Indeed, with the hotels and restaurants sector reporting growth of 9.9% in 2014, hospitality is a sector slated for significant future growth, as many new hotel builds aim at the luxury end of the market. In terms of the retanl market, a new tenancy law is expected to remove the confusion that has surrounded rental agreements, bringing clarity for both tenants and landlords alike.

This chapter contains an interview with Faisal Faqeeh, Chairman, Bin Faqeeh Real Estate Investment; and Mohammed Khalil Alsayed, CEO, Ithmaar Development Company.

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Bahrain is investing heavily in expanding its industrial sector, as the non-oil sector continues to drive growth in the kingdom. The oil and gas sector grew by 3% in 2014, while the non-hydrocarbons sectors expanded by 4.9%. In the first quarter of 2015, manufacturing was up 5.9% year-on-year. In June 2015 Aluminium Bahrain (Alba) announced it would be going ahead with a sixth production line, a $3.5bn project designed to boost annual production by 55%, or 514,000 tonnes, to 1.45m tonnes, making it the world’s biggest single-site smelter. The aluminium industry represents a major contributor to both GDP and export revenues. According to the Economic Development Board, the two most valuable non-oil export commodities from January to May 2015 were aluminium wires, worth $234m, and aluminium rods, worth $196.5m.

This chapter contains an interview with Tim Murray, CEO, Aluminium Bahrain (Alba).

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Known in ancient times as Dilmun, the inspiration for the Garden of Eden, and more recently as Ard Million Nakhla, or the Land of a Million Date Palms, Bahrain has been welcoming visitors for centuries. In 2014 tourism receipts reached $1.4bn, accounting for 4.2% of the country’s GDP, and they are forecast to grow by 4.9% annually between 2015 and 2025. Under the Bahrain Tourism Strategy 2015-18, a new Supreme Council for Tourism was created that aims to help guide development of the sector. Hotels and serviced apartments, known as “aparthotels”, are a segment forecast to expand by compound annual growth rates of 15.2% and 11.4%, respectively, between 2013 and 2018. The MICE segment meanwhile is another important component of the industry, contributing $400m in 2013 alone thanks to major events such as the Jewellery Arabia fair, which attracts more than 50,000 visitors.

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With the first modern school in the Gulf set up in the country in 1919, and the first girls’ school opened in 1928, Bahrain has one of the longest histories of education in the region. Greater investment in the sector aims to improve quality across the board while matching graduates’ skills with the needs of the labour market. The nation’s public schools continue to perform well with the National Authority for Qualifications and Quality Assurance of Education and Training rating twice as many public schools as “outstanding” compared to private institutions. Steps are being taken to integrate technology into the classroom, with the education ministry engaging major IT firms to promote technology as a teaching tool.  Meanwhile, as part of its push for the Bahrainisation of the workforce, the government is supporting a number of on-the-job training initiatives. Funding schemes, such as Tamkeen, have also set minimum industry quotas to be filled by Bahrainis and are redoubling efforts in vocational training.

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Home to the first modern hospital in the region, Bahrain has one of the oldest health care sectors in the Gulf. Sustained investment in the sector has seen outcomes improve considerably for the majority of the population, with life expectancy rising from 71 in 1983 to 77 in 2013 and infant mortality dropping from 21 per 1000 births in 1985 to five in 2013. The sector continues to see new investment from both public bodies and private investors, with recently opened and prospective new facilities including centers for blood disorders and cardiology. Meanwhile, in order to better balance rising costs in line with deficit reduction goals, the government is considering shifting from a state-sponsored health system to an insurance-based model.

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Telecoms & IT

Bahrain is home to one of the most liberalised telecoms sectors in the Middle East. Although it is a relatively small market, the country is keen to leverage telecommunications to facilitate broader economic growth, with the third National Telecommunications Plan, issued in 2012 and running until end-2015, envisaging the industry as a key enabler of socioeconomic development. Data services have continued to witness exploding demand in the country, with mobile broadband accounting for 38% of usage in the fourth quarter of 2013, up from 35% in the first quarter. In response to expected continued growth trajectories, the government has allocated funds of $68.5m between 2013 and 2017 for the further development of the national broadband network.

This chapter contains an interview with Muna Al Hashemi, CEO, Batelco.

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Legal Framework

This chapter contains an outline of the legal framework within which local and international firms operate within Bahrain, including an overview of the kingdom’s relevant rules and regulations, a look at the recent labour law, and a rundown of the new guidelines for rental units.

This chapter contains a viewpoint from Hatim Q Zu’bi, Partner, Zu’bi & Partners, Attorneys & Legal Consultants. 

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The Guide

The guide contains listings of some of the leading hotels and resorts in Bahrain, and contacts for important government offices and services. It also contains useful tips and information for first-time or regular and business viewers alike. 

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