Bahrain has been a regional magnet for foreign direct investment (FDI) for decades. The accumulation of foreign capital over many years means that, relative to the size of the economy, it figures more prominently on the national balance sheet than in any other GCC state: according to the June 2017 “Economic Quarterly” report by the Economic Development Board (EDB), in 2016 total inward FDI stock stood at around $228.6bn. That equalled nearly 90% of GDP, compared to a global average of 35% and a developing economies average of 30.4%. The UN Conference on Trade and Development (UNCTAD), meanwhile, reported that total FDI inflows in 2016 totalled $282m.

COMPARATIVE ADVANTAGES: Numerous factors make the kingdom desirable for global investment capital. An analysis of UNCTAD data on Bahrain carried out by the EDB shows that the kingdom’s comparative advantages lie in regulation and human capital, and strong performances in key indices and publications, such as the Index of Economic Freedom by The Heritage Foundation and The Wall Street Journal, the World Bank governance indicators and the annual Doing Business reports. Bahrain is also well regarded for its ability to control corruption and for high education standards, the latter illustrated by strong secondary enrolment figures and sustained education spend.

Maintaining this solid track record during a slow period in the economic cycle has become a priority for the government. A 2016 decision to open a number of sectors to 100% foreign ownership was a direct response to the current conditions, with the privilege extended to manufacturing and technical activities, ICT, health and social work, administrative services and real estate. The move was broadly welcomed as an important advance for the kingdom’s investment environment, and one that would make Bahrain a more attractive location in which to live and work.

REGIONAL FOCUS: Boosting FDI from regional partners has emerged as a particular priority since economic growth slowed in 2015 due to lower global oil prices. According to a survey of FDI inflows in 2015 published by the Information and eGovernment Authority, the main sources of investment were Kuwait with BD158m ($419m), Saudi Arabia with BD115m ($305m) and Qatar with BD60m ($159m).

More recently, the UAE has emerged as an important source of investment, with public and private sector bodies from Abu Dhabi and Dubai seeking opportunities in Manama. For example, the Abu Dhabi Fund for Development (ADFD) has directed $919m towards upgrading Bahrain International Airport to increase passenger throughput. The ADFD, along with Saudi Arabia and Kuwait, is also an important investor for housing schemes in Bahrain, which are central to the government’s attempts to reduce the waiting list for homes in the kingdom (see Real Estate chapter). Private UAE capital recently channelled into Bahrain includes the Abu Dhabi-based Edge Hills’ $3bn investment in Marrasi Al Bahrain, an upscale residential, hotel and shopping development located near the airport. Bahrain’s more established investment partners, meanwhile, continue to show an interest in the country: the $93bn Avenues Mall, which opened in October 2017 on Manama’s King Faisal Corniche, was a joint venture between a number of Bahraini investors, the retailer M H Alshaya and the Mabanee Corporation of Kuwait.

The importance of FDI inflows from the GCC is demonstrated by another recent regulatory change by the government to further improve the business environment. In April 2017 Bahrain revealed its intention to issue a Bahraini ID to all citizens of GCC countries residing in the kingdom. Those who meet the eligibility criteria are able to visit one of the country’s eGovernment centres and receive their local ID on the same day. The initiative is expected to facilitate transactions, spur investment and strengthen the already deep ties between Bahrain and its Gulf neighbours.