The Report: Bahrain 2019

Despite its diversified economy, Bahrain has nonetheless faced pressures in recent years as a result of the 2014-15 drop in global oil prices. However, a multibillion-dollar aid package from other Gulf states and an accompanying fiscal adjustment plan, as well as growth following a partial oil price recovery and a major oil and gas discovery, offer hope for an economic turnaround in 2019.

Country Profile

The country’s national plan, Bahrain Economic Vision 2030, aims to enhance private sector growth and continue government investment in infrastructure, affordable housing and human resources. The kingdom maintains a developed industrial sector and hosts the world’s largest single-site aluminium smelter, Aluminium Bahrain (Alba), with downstream businesses creating products for export. Other industries in Bahrain include downstream oil and gas products, as well as a growing food industry, serving both the Saudi market and the global economy. This chapter contains a viewpoint from King Hamad bin Isa Al Khalifa.

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Bahrain is among the smaller economies in the GCC, but it is also one of the more diversified, with well-developed financial services and manufacturing sectors. Despite its diversified economy, Bahrain nonetheless faced pressures in recent years as a result of the 2014-15 drop in oil prices. However, an aid package from other Gulf states, announced in late 2018, and an accompanying fiscal-adjustment plan, as well as growth on the back of a partial oil price recovery and a recent major oil and gas discovery, offer hope for a turnaround in 2019. This chapter contains interviews with Khalid Al Rumaihi, Chief Executive, Bahrain Economic Development Board; Mahmood Alkooheji, CEO, Mumtalakat; and Sameer Nass, Chairman, Bahrain Chamber of Commerce and Industry.

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Growth in the banking sector has maintained an upward trajectory in recent years, with banking assets growing and investors taking note of the favourable and robust regulatory environment. This, combined with the sector’s profitability, high penetration rates and investment in financial technology, has strengthened Bahrain’s position as a regional leader in banking. Bahrain’s proximity to Saudi Arabia, combined with the availability of an experienced banking workforce, the ease of recruiting expatriates and respect for the Central Bank of Bahrain, have seen it maintain a role as a regional, and in particular Saudi-focused, centre for financial services. This chapter contains an interview with Jean-Christophe Durand, CEO, National Bank of Bahrain.

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Capital Markets

Despite macroeconomic challenges, the kingdom’s stock market has performed reasonably well over the past two years. Although listings activity has been weak recently, developments such as the introduction of a real estate investment trust in 2017 and the initial public offering of a local logistics operator in 2018 bode well for the market. A range of reforms being undertaken by the bourse, including new listing rules and plans for new products, are set to further support market liquidity and increase the exchange’s attractiveness.

This chapter contains an interview with Sheikh Khalifa bin Ebrahim Al Khalifa, CEO, Bahrain Bourse.

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Islamic Financial Services

In light of its history as a regional financial hub, and the presence in the country of several major international Islamic financial institutions and support bodies, Bahrain has a well-developed, sharia-compliant financial services sector. The Islamic banking and takaful (Islamic insurance) segments have been posting healthy growth in recent years, though profit margins in each are under greater pressure than in their conventional counterparts. Both segments are also witnessing a trend towards consolidation, which industry players say should help create stronger institutions better able to invest in expansion and technological development. The kingdom is a major global centre for the Islamic finance segment, and is home to four standard-setting institutions and infrastructure providers.

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The growth of new firms and the consolidation of older players are helping the sector advance. With 36 insurance and reinsurance companies in operation as of December 2017, Bahrain’s insurance sector is well developed, particularly when taking into account the size of the economy by both GCC and emerging market standards. The market comprised 14 conventional locally incorporated firms (including two reinsurers), 12 branches of foreign conventional firms (including three reinsurers), and eight takaful (Islamic insurance), firms (including two re-takaful, or Islamic reinsurance, firms). The market also includes 32 insurance brokers and 25 firms licensed to operate outside of Bahrain.

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By utilising technology to maximise value from existing reserves and investing in exploration, Bahrain’s energy sector is working to maintain and even increase levels of oil and gas production. Efforts in this direction have been helped significantly by the recent discovery of a large-scale, unconventional oil and gas reserve, which could substantially boost output over the coming decade. Officials are also moving to upgrade oil refinery and hydrocarbons import infrastructure, as well as expand the use of renewables and energy efficiency initiatives in the utilities sector, in part to free up locally produced gas for industry. This chapter contains interviews with Sheikh Mohammed bin Khalifa bin Ahmed Al Khalifa, Minister of Oil; Pete Bartlett, CEO, Bahrain Petroleum Company; and Sheikh Mohamed bin Khalifa Al Khalifa, CEO, Banagas.

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Bahrain is home to a dynamic transport sector, including one of the Gulf’s oldest airlines and a causeway linking the kingdom to Saudi Arabia, the region’s largest economy. A second such link is in development, and soon the kingdom will also be connected by rail to the GCC train network. In addition, it will gain an expansive urban light rail system, a new airport and a revitalised national aircraft fleet. Bolstered by such projects, the sector is expanding. The transport and communications industry grew by 5.4% in 2017 in real terms, which was faster than the overall GDP growth of 3.8% and an increase from 2.5% the previous year. This chapter contains interviews with Mohamed Al Binfalah, CEO, Bahrain Airport Company; and Krešimir Kučko, CEO, Gulf Air.

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Construction & Real Estate

A major contributor to employment and GDP, the Bahraini construction sector has continued to expand in recent years, despite slower regional growth. This performance continued into the first half of 2018 with an uptick in activity, supported by a series of major infrastructure projects, in part financed by neighbouring GCC states. Furthermore, with demand for transportation and industrial facilities set to rise and a number of new projects in the pipeline, the sector appears set to remain busy over the coming years, despite constraints on the government’s capital expenditure budget. This chapter contains interviews with Sheikh Mohammed bin Khalifa Al Khalifa, CEO, Real Estate Regulatory Authority; and Mohammed Khalil Alsayed, CEO, Ithmaar Development Company.

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Bahrain is one of the most diversified economies in the GCC region, due in large part to a well-established manufacturing industry. The kingdom’s biggest industrial segment by far is aluminium production, and its importance is set to grow further with the launch in 2019 of a new pot line at national aluminium producer Aluminium Bahrain (Alba), which will increase the firm’s capacity by nearly half. A range of other manufacturing segments are also well established, including refining and petrochemicals, and recent years have seen growing foreign investment in the development of other industrial segments such as food and pharmaceuticals. This chapter contains an interview with Tim Murray, CEO, Alba.

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Tourism & Retail

Benefitting from a diverse portfolio of tourist draws including UNESCO World Heritage sites, the popular Formula 1 Gulf Air Bahrain Grand Prix event and a variety of high-end retail developments and hotels, Bahrain’s tourism sector has been an economic success story in recent years. Visitor numbers, revenues and investments have been on an upwards trajectory since 2016, and authorities have intensified efforts to develop the sector, channeling billions of dollars into new infrastructure, including mixed-use developments, an expansive airport upgrade and a new convention centre. Although a recent surge of new hotel rooms has weighed on occupancy and room rates, the sector remains well positioned to continue on a strong growth path in 2019, with demand set to rise as the kingdom ramps up its international marketing activities.

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Bahrain’s education sector benefits from regionally strong and improving student outcomes, rising K-12 and private school enrolment, and an expansive, ongoing reform agenda aimed at improving the quality of teaching and infrastructure across all levels. Investment in the sector is set to soar over the medium term, bolstered by the high-potential pre-school and kindergarten segments, as well as rising demand for private primary and secondary instruction. Nevertheless, the sector faces flat public spending, a strained public university system, worsening gender disparity at the K-12 level, and a mismatch between post-secondary preferences and labour market needs. Still, education foundations remain solid, with expanded inspection programmes and a potential resurgence of expatriate students expected to support a steady near- and mid-term growth outlook. This chapter contains an interview with Jeff Zabudsky, CEO, Bahrain Polytechnic.

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Although major health indicators have improved in recent decades, a growing and ageing population, an elevated incidence of non-communicable diseases and rising care costs have weighed on Bahrain’s health sector in recent years. The government is currently making major strides in addressing these challenges, however, most notably through the planned rollout of a national health insurance system, as well as a flagship inspection and accreditation programme aimed at improving patient outcomes and quality of care. Bolstered by rising out-of-pocket expenditure and the development of large-scale, integrated medical infrastructure, investment in the sector is set to rise in the coming years, supporting steady and sustainable expansion. This chapter contains an interview with Dr Mariam Al Jalahma, CEO, National Health Regulatory Authority.

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Bahrain boasts one of the most-developed telecommunications markets in the region, and the authorities are planning for further infrastructure upgrades, including the rollout of an ultra-fast broadband network across the country. Work is under way to develop the kingdom as a regional ICT hub, with a particular focus on areas such as the cloud, e-commerce, gaming, cybersecurity and the local start-up scene. Such efforts have been bolstered by a recent surge in foreign investment into the ICT sector, led by a landmark investment by Amazon Web Services in 2017 in the cloud and data centre segment. This chapter contains an interview with Mohammed Ali Al Qaed, Chief Executive, Information and eGovernment Authority.

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Legal Framework

In recent years Bahrain has seen the introduction of a series of laws designed to further develop the kingdom’s financial sector, facilitate local and foreign investment, and promote Bahrain as a transparent, secure and cost-effective place to do business in the MENA region. Contains a viewpoint from Hatim Q Zu’bi, 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 features useful tips and information for first-time or regular, business or leisure visitors alike.

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