The Report: Bahrain 2017

Bahrain has embarked on a reworking of its subsidy framework in a bid to ease the budgetary pressures associated with the fall in oil prices. Meanwhile, the government is also pushing forward with diversification efforts, with the kingdom’s $32bn investment strategy fuelling activity in various areas of the economy. Bahrain has embarked on a reworking of its subsidy framework in a bid to ease the budgetary pressures associated with the fall in oil prices. Meanwhile, the government is also pushing forward with diversification efforts, with the kingdom’s $32bn investment strategy fuelling activity in various areas of the economy.

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 its economy at an early stage. Consequently, the country established itself as a leading regional financial centre in the 1970s and 1980s, with its highly regarded regulatory system encouraging various regional banks looking to move their capital out of Lebanon during that country’s civil war to set up base in Bahrain.

This chapter contains an interview with Abdul Latif Al Zayani, Secretary-General, GCC; and a viewpoint from Theresa May, Prime Minster of the UK.

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The kingdom of Bahrain has thrived as one of the Gulf’s financial centres for decades. Despite increasing competition from emerging financial centres in the region, its advanced regulatory framework, educated workforce and relatively low-cost environment means that it remains an attractive platform for companies engaging with the wider GCC and beyond. The recent decline in oil prices, however, serves as a reminder of the government’s reliance on its hydrocarbons resources for revenues. Facing a stubborn fiscal deficit, Bahrain is in the process of overhauling its subsidy framework and seeking new income streams, both of which are challenging prospects in an economy renowned for generous social support and light-touch taxation. The kingdom’s long-standing diversification strategy, meanwhile, has taken on a new urgency with the prospect of volatile oil prices for some years to come.

This chapter contains interviews with Khalid Al Rumaihi, Chief Executive, Bahrain Economic Development Board; Mahmood Al Kooheji, CEO, Mumtalakat; and Ebrahim Mohammed Janahi, Chief Executive, Tamkeen.

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Bahrain’s banking sector has managed two years of a challenging low oil-price environment without seeing significant deterioration in its financial stability indicators. Conventional lenders and Islamic financiers operating within the kingdom’s famously robust regulatory framework have also managed to maintain profitability throughout this period thanks to efficiency drives and continued government spending on large infrastructure projects. However, with the industry facing a third successive year of low oil prices, efforts to maintain growth margins are becoming more challenging.

This chapter contains an interview with Jean-Christophe Durand, CEO, National Bank of Bahrain.

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Capital Markets

The region’s exchanges have operated in adverse economic conditions since the decline of oil prices began in the second half of 2014, and the Bahrain Bourse is no exception. However, the apparent stabilisation of global oil prices in 2016 has brought a similar firming of the main index and, after a year of shrinking stock prices, some increasingly attractive valuations. The larger story of 2016, however, has been of some important structural advances, such as the introduction of real estate investment trusts and the emergence of a vibrant secondary debt market. More legislative and infrastructural developments due in 2017 promise to sustain this forward momentum.

This chapter contains an interview with Najla M Al Shirawi, CEO, Securities and Investment Company.

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Islamic Financial Services

Bahrain’s sharia-compliant financial institutions enter 2017 after weathering the tumultuous economic environment and changing regulatory landscape of the previous year. Despite the challenges, the kingdom’s Islamic banks continue to expand in the domestic market and beyond, while activity in the newly reinforced sharia-compliant insurance sector is well positioned to continue along a trajectory of premium growth, outstripping that of its conventional counterparts.

This chapter contains an interview with Hisham Al Rayes, CEO, GFH Financial Group.

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The wide array of local and international insurance companies that operate out of Manama have flourished in a regulatory environment that has allowed them to serve the small domestic market while simultaneously extending their operations regionally. A history of sound prudential oversight has protected them from the series of economic shocks that have created a challenging economic environment since 2011, during which time they have continued to post year-on-year expansions in written premiums.

While low oil prices mean that adverse conditions are likely to persist in 2017, the promise of new mandatory lines maintains the possibility of renewed growth in the sector.

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Although its revenues from oil and gas have fallen, the government of Bahrain is ploughing new investment into the kingdom’s energy sector in the hopes that the broader economy will reap the benefits in the years to come. This counter-cyclical spending is designed to allow a significant increase in refinery capacity and a more secure supply of fuel for the country’s aluminium smelters, petrochemical factories, power stations and desalination plants. At the same time, the government has taken historic steps to reduce subsidies on fuel, food and utilities that have reduced its expenditure but increased the cost of living for its citizens. Bahrain, which has been a net importer of crude oil for many years, is reshaping the unspoken social contract between monarchs and citizens that characterises the economies of its oil-exporting GCC neighbours. The country’s natural resources may help fuel industries that employ many Bahrainis, but the trickle-down effect of oil wealth will no longer manifest itself in highly subsidised petrol, groceries or utility bills.

This chapter contains an interview with Sheikh Mohammed bin Khalifa bin Ahmed Al Khalifa, Minister of Oil.

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With construction under way on the $1.1bn expansion of its international airport and a further $700m investment being made on road and bridge building, Bahrain is working hard to improve its connections to the rest of the world while shortening journey times for its residents. Public transit is also a priority. Within six months of its new buses starting service in February 2015, some 33,000 passengers were using them daily, and the government is planning to commission a detailed feasibility study on a light rail network. Plans for a new rail and road causeway to Saudi Arabia have been discussed for some time, but this mega-project may have to wait a few years for its turn as Bahrain completes an ambitious programme for infrastructure.

This chapter contains an interview with Sheikh Ahmed bin Hamad Al Khalifa, President, Customs Affairs.

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Construction & Real Estate

With a raft of measures aimed at improving infrastructure, industry, housing and connectivity, the government of Bahrain has a $32bn investment strategy to accelerate economic diversification in the kingdom, providing abundant opportunities for the country’s construction sector. Even against a backdrop of falling oil prices that has seen the cancellation or deceleration of infrastructure investment in some neighbouring economies, Bahrain’s construction businesses have continued to outperform most other sectors. Some neighbouring GCC countries have stood by their 2011 commitment to finance $10bn in mega-projects in Bahrain over 10 years through the Gulf Development Fund (GDF), which has allowed construction to press ahead on some schemes despite a projected budget deficit of $4bn posted by the kingdom for both 2015 and 2016. According to Bahrain’s Economic Development Board, the aggregate value of GDF projects under way by August 2016 reached $4bn. This included a $1.1bn airport expansion project.

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

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Tourism & Retail

With its long history as a trading centre, its wildlife and its ancient forts and mosques, Bahrain has strong appeal to draw in visitors from near and far. Made up of more than 30 islands, the archipelago is easy access for people living in the Gulf region – making it a prime destination for short stays – and visitors are able to check in to one of the increasing number of four- and five-star hotels operating in the kingdom. With the arrival of major international players and an increase in retail properties, which have established themselves as important aspects of the kingdom’s tourist landscape, not to mention cheaper and more easily obtained visitor visas, there is a lot for those involved in the tourism sector to feel positive about. This chapter contains an interview Sheikh Khaled bin Humood Al Khalifa, CEO, Bahrain Tourism and Exhibitions Authority.

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As Bahrain continues to move from an oil-dependent economy to a more knowledge-based one, education is taking a driving seat in training the next generation of young Bahraini citizens in how to prosper in this new landscape. While education has long been a priority, the focus right now is on raising overall standards, from primary education on up. Perhaps the biggest changes taking place are in the field of higher education, with a new accreditation system being put in place by the Bahrain Higher Education Council, and the arrival of foreign universities offering courses both in partnership with domestic universities as well as at their own local campuses.

This chapter contains an interview Riyad Y Hamza, President, University of Bahrain.

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A rise in population is slowly putting pressure on Bahrain’s public health care sector, which is the oldest in the GCC region, with the first modern hospital in the Gulf established in Bahrain in 1902. The health care sector in Bahrain has historically been heavily dependent on government-run facilities and public money, but moves in recent years have set in motion the growth of the private sector. With new legislation allowing for 100% foreign ownership of private health care facilities, coupled with the arrival of a national health insurance scheme, there is now a drive for more involvement by private sector players in the near future, which will further push the development of the sector.

This chapter contains an interview with Sheikh Mohammed bin Abdullah Al Khalifa, Chairman of the Supreme Council of Health.

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From heavy industries largely owned by government entities to regional headquarters for multinational companies, Bahrain has a vibrant manufacturing sector that is growing steadily and playing an increasingly important role in the economy. The global downturn in both crude oil and commodities prices squeezed profit margins despite record production by Bahrain’s petrochemicals plants and aluminium smelter. However, the country is continuing to invest in the most ambitious industrial expansion plans for over a decade to capitalise on future global demand for its output. The single-biggest investment in the industrial sector is the $3bn project to build a sixth potline for Aluminium Bahrain (Alba), which will be the company’s largest expansion since potline five came on-stream in 2005. However, this individual development is part of a cluster of inter-related investments in Bahrain’s upstream and downstream industries that are designed to fire up the economy, attract additional investment and ensure long-term prosperity for the country’s citizens.

This chapter contains interviews with Zayed R Al Zayani, Minister of Industry, Commerce and Tourism; and Tim Murray, CEO, Alba.

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Bahrain now has a solid telecoms market with customers benefitting from a diverse array of services and increasingly competitive rates. The 2014 World Bank “Broadband Networks in the Middle East and North Africa” report singled out Bahrain as having the only mature broadband market in the MENA region, as well as being one of only two countries in the region to have a fully open telecoms market. The ICT sector, meanwhile, now forms a major pillar of Bahrain’s economy, and also one of the core sectors Bahrain is focused on developing, both to attract direct foreign investment and to grow human resources to help propel Bahrain as a regional ICT centre. Recent years have seen a significant expansion in the ICT landscape, as well as a push towards cutting edge technologies. The country’s fourth National Telecommunications Plan, which was released in early 2016, is a further example of the government’s strategic goals and planning when it comes to the sector.

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Accountancy & Tax

This chapter contains an overview of the tax framework in which local and foreign investors operate in Bahrain, including a summary of accounting standards and principles in the country, an analysis of Brexit’s impacts on GCC economies and a look ahead to the possible implementation of VAT in the GCC.

This chapter contains a viewpoint from Ahmed Alsulaiman, Managing Partner, KSI - Bahrain Consultants & Public Accountants.

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Legal Framework

This chapter contains an overview of the legal framework in which local and foreign investors operate in Bahrain, including a summary of marketing investment products and services, a rundown of the changes to foreign ownership laws for certain businesses and a look at the recent amendments to real estate laws.

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 and leisure visitors alike.

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