The Report: Bahrain 2012
Although 2011 was a difficult year for Bahrain, with domestic political unrest making headlines around the world, the country’s long-term fundamentals – its business-friendly operating environment, proximity and good transport links to neighbouring Saudi Arabia, and its well-developed industrial and financial services sectors – are still in place. Bahrain has weathered the effects of a difficult global economic period fairly well, and its recovery has been solid. The government’s drive to diversify away from oil and gas has been renewed, and a wealth of ambitious non-oil sector projects – from infrastructure to alternative energy technology – is now in the pipeline. As the Kingdom branches out into more diverse and specialised segments within tourism and industry, the country is set to develop an even more broad-based and resilient economy.
Country Profile
This chapter includes information about Bahrain’s history, economy, government, financial services sector (including Islamic financial services), population, climate, natural resources, language and culture. It also includes a viewpoint with King Hamad bin Isa Al Khalifa, and Abdul Latif bin Rashed Al Zayani, Secretary-General of the GCC. This section also includes an interview with Princess Sabeeka bint Ibrahim Al Khalifa, President, Supreme Council for Women.
Explore chapterEconomy
Financial services, industrial manufacturing and a business-friendly environment have traditionally differentiated the island Kingdom from other GCC states. Lacking the hydrocarbons of its neighbours, Bahrain has spent years diversifying its economy to meet future challenges. This made it one of the first GCC states to move its economy beyond a traditional reliance on hydrocarbons exports, and Bahrain has always been a good base from which to build a business targeting regional opportunities. The need to make wide-ranging infrastructure upgrades to improve the economy in areas such as housing, health care and education will be used by the government to provide public works contracts for local private firms. Planned infrastructure improvements are important for putting the economy on a stronger footing with its regional competitors, but the wider aim of the spending drive is to increase the level of activity and participation of the private sector in the economy overall. This chapter includes interviews with Sheikh Nasser bin Hamad Al Khalifa, Chairman, Supreme Council for Youth and Sports; Mahmood Hashem Al Kooheji, CEO, Tamkeen; and Surapong Tovichakchaikul, Thailand’s Minister of Foreign Affairs.
Explore chapterBanking
Famously one of the most diverse in the region, the Bahraini banking sector is composed of local, regional and international firms that have flourished in a liberal but well-regarded regulatory environment. The past year has been a challenging one for the industry, particularly given the unrest in the early months, yet most licensed lenders in Bahrain entered 2012 on the back of robust financial results. Key sector indicators remained positive in 2011: assets grew 2.6%, lending increased 14.9% and deposit growth registered a 10.1% rise year-on-year. There are certainly challenges ahead, most notably for Bahrain’s wholesale banks whose traditional reliance on funding from European banks has resulted in a potential vulnerability. However, thanks to a government policy of fiscal expansion, the short term presents the prospect of a wealth of new business opportunities. This chapter includes an interview with Abdulkarim Ahmed Bucheery, Chairman, Bahrain Association of Banks, as well as a dialogue feature with Mazin Manna, CEO, Citibank and Patrick Gallagher, CEO, HSBC.
Explore chapterCapital Markets
With new regulations, the continued implementation of development strategies and the historic opening of the nation’s second exchange holding the interest of market participants, Bahrain’s capital markets have been receiving significant attention from investors. However, a number of challenges have presented themselves. The European debt crisis, local and regional unrest, and the lingering effects of the global economic slowdown have combined to create a difficult environment for exchanges across the Gulf. The market capitalisation of the Bahrain Bourse (BHB) peaked in 2007 at $10.19bn but has since lost value due to political and economic difficulties, ending 2011 at $6.25bn. However, the sector is widely expected to enter a period of expansion, with new products and innovations planned for both of Bahrain’s exchanges in the coming year. These include the introduction of a delivery-versus-payment (DvP) system, whereby delivery of securities is carried out simultaneously with payment. Further regulatory reforms in the pipeline are aimed at creating a more attractive investment environment. This chapter includes an interview with Fouad Rashid, Director, Bahrain Bourse.
Explore chapterIslamic Financial Services
A history of clear regulation and prudent oversight has served the Islamic financial services sector well in the challenging years since the onset of the global economic downturn. It also accounts for the sense of optimism within the sector, despite the challenges that are facing the broader global finance industry. In 2011 the opening of the Bahrain Financial Exchange added new depth to the country’s capital markets and brought with it an Islamic platform, the Bait Al Bursa, which has broken new ground with its sharia-compliant instruments and represents the latest in a long series of sharia-compliant innovations to emerge from Manama. As of April 2012, some 27 Islamic banks had been licensed by the Central Bank of Bahrain to operate in the Kingdom. The presence of such a large number of industry bodies which exert an influence far beyond the borders of Bahrain is one of the reasons why the country will remain a key player in the global Islamic financial service industry. This chapter includes interviews with Mohammed Ebrahim Mohammed, CEO, Bahrain Islamic Bank; and Mohammed Bucheerei, CEO and Member of the Board at Ithmaar Bank.
Explore chapterInsurance
The Kingdom’s insurance industry has traditionally been strong, regularly posting double-digit year-on-year growth, mirroring the expansion of the wider financial sector. The global financial crisis and recent political unrest, however, have presented the industry with a number of challenges in recent years. For example, the unrest made the implementation of the planned new mandatory health law difficult. Yet despite the global economic downturn, the insurance sector has been able to achieve consistent growth in consolidated gross premiums and total capital resources. Bahrain’s open and diverse economy, a robust yet flexible regulatory framework, a growing awareness of insurance concepts and a significant pipeline of infrastructure development work form the basis of the market’s potential. The industry certainly enjoys a number of opportunities. Life business, in particular, is widely seen as an area with significant growth potential: a growing awareness of the benefits of long-term insurance and an increasingly sophisticated consumer base underlie a growing demand for sophisticated savings schemes.
Explore chapterTransport & Logistics
As one of the most modern and efficient shipping centres in the region, the transport and logistics facilities on Bahrain’s Muharraq Island continued to draw business to the Kingdom throughout 2011. The Khalifa Bin Salman Port (KBSP), which opened in 2009, showcases the government’s dedication to further developing the country’s transport offerings, which it sees as integral to its diversification push. On the roads, although traffic in Bahrain has increased and can be acute at rush hour and on weekends, a variety of upgrades are planned or are under way which should substantially alleviate existing congestion problems. The Ministry of Works (MoW), which oversees road design and construction projects, is in the process of implementing a comprehensive plan for the nation’s road and highway system. This chapter includes an interview with Hassan Ali Al Majed, Director-General, General Organisation of Sea Ports.
Explore chapterEnergy
As the first GCC country to discover hydrocarbons, Bahrain is now moving into a new period in its history where more complex techniques are required to extract its oil and natural gas deposits. Given that high oil prices have helped sustain the oil sector’s export earnings and contribution to the economy, the Kingdom has undertaken a renewed effort to increase its crude oil output. The country plans to invest more than $20bn in the energy sector over the next two decades. Some $10bn-15bn is earmarked for upstream exploration and increased production from onshore and offshore fields, while $5.7bn will be used to modernise and upgrade the country’s refinery at Sitra. The Kingdom is also planning a new LNG import terminal, which will give Bahrain the option to secure foreign sources of gas. However, with the output of hydrocarbons steadily falling since the 1970s, greater use of renewable energy in power generation projects is expected in the near future, with a host of solar and wind energy projects already in the pipeline. This chapter includes an interview with Abdul Hussain bin Ali Mirza, Minister of Energy.
Explore chapterIndustry
While the Kingdom’s established heavy industries continue to play an important role in the economy, the government is seeking to diversify industrial activity into areas such as high-tech manufacturing and the downstream aluminium segment. After aluminium, petrochemicals is the largest industry in Bahrain, with ammonia, methanol and urea all produced locally. While steps are being taken to increase petrochemicals production in the Kingdom, one challenge that remains is ensuring the supply of natural gas at a price that allows Bahrain’s goods to remain competitive in the regional market. But Bahrain has a history of success in diversification, and shifting towards high-tech manufacturing and other new areas will help the industrial base develop further and reduce reliance on heavy industry. In the future, rather than using finite natural resources, these niches will rely on developing the skillsets of the national workforce and also making use of the Kingdom’s geographical position midway between developed markets in the US and Europe and the quickly expanding economies of Asia. This chapter includes an interview with Chris Potter, Chief Executive, Arab Shipbuilding & Repair Yard.
Explore chapterConstruction & Real Estate
Despite a challenging few years, the Bahraini construction sector looks set to grow in 2012. Local construction and development companies have reoriented towards areas of the market with the most potential, including social housing and transport infrastructure projects. The government aims to increase public transport usage from 5% to 25% of total journeys per day, planning a wealth of public transport system upgrades (including light rail, monorail, tramway and buses). Another key segment will be housing, and it has been estimated that 51,519 extra households will be eligible for social housing by 2020. Overall, in a sign of recovery from the global financial crisis, the value of contracts is forecast to grow, from $949m in 2012 to $1.49bn the following year. The private sector also appears to be going through a period of reinvigoration, with activity starting up again at projects that were previously on hold. This chapter includes interviews with Essam bin Abdulla Khalaf, Minister of Works; Aaref Hejres, Chairman, Bahrain Property Development Association; and Mohammed Khalil Alsayed, CEO, Ithmaar Development Company.
Explore chapterTelecoms
A decade has passed since Bahrain’s telecoms sector was revolutionised by the liberalisation of the industry and the formation of an independent regulator. Fixed and mobile telephony and broadband services reach nearly every household, and many mobile users maintain multiple SIM cards, giving a mobile penetration rate well over 100%. Within such a highly competitive sector, telecoms companies are constantly pressed to find innovative ways to keep their share of the market. A continuously evolving regulatory regime is ensuring that few barriers exist to customers who wish to change telecoms service providers. While investors in the sector face a saturated market with a high degree of competition, the relatively underdeveloped mobile broadband segment holds great potential for growth. This chapter includes an interview with Mohammed Ahmed Al Amer, Chairman, Telecommunications Regulatory Authority.
Explore chapterIT
The Kingdom’s tradition of innovation continues to makes it one of the most vibrant IT centres in the region. Sustained investment from the public and private sectors has seen businesses and government services move online, bringing cost-saving gains in efficiency. Throughout 2011, which saw many Bahraini businesses challenged by decreased investor confidence and consumer spending, the IT sector has proved to be one of the most resilient, with the market growing some 8.1% year-on-year. One of the main factors driving growth is public investment in the eGovernment programme, which aims to simplify access by moving public services online. The initiative is an important facet of the Kingdom’s Economic Vision 2030, the country’s long-term development plan. In a push towards greater diversification of its economy, the Kingdom is also investing heavily in its human capital by introducing funding and a number of IT training programmes. This chapter includes an interview with Abdul Razak Jawahery, Vice-Chairman and Managing Director, Menatelecom.
Explore chapterTourism
After a difficult year in 2011, the return of the Formula 1 (F1) Gulf Air Bahrain Grand Prix in late April 2012 signalled a possible turning point for the country’s tourism sector – a sign that, perhaps, things are now on a path towards renewed growth after what has been, by all accounts, a difficult year. However, not all of the Kingdom’s tourism segments were affected, nor have the fundamental strengths that have made it a leading destination for business travel been damaged. Indeed, Bahrain’s performance and outlook as a site for meetings, incentives, conferences and exhibitions (MICE) remains a bright spot for the country. Business tourism has traditionally proven less sensitive to negative publicity than other forms of tourism, and MICE tourism in Bahrain has remained strong over the past year. Indeed, tourism has been identified as key to economic diversification, according to the Kingdom’s long-term development plan, Economic Vision 2030. This chapter includes an interview with Sheikha Mai bint Mohammed Al Khalifa, the Minister of Culture.
Explore chapterEducation
As a central pillar of the reforms outlined in Economic Vision 2030, the Bahraini government’s long-term development plan, education plays a key role in the economy. Indeed, having recognised the importance of human capital development, the government has taken significant steps in recent years to improve its public schools and higher education institutions. These include reform efforts at the school level, most notably through the School Improvement Programme (SIP) and the move to develop a new curriculum. One aspect of the country’s approach to education that is distinctive and commendable is the fact that it is largely “home-grown”, centred around empowering locals and using local leadership. At the same time, regulatory organisations keep a close eye on the system to ensure the provision of quality education, both by public and private sector institutions. Taken together, recent educational reform efforts should ultimately help to make Bahrainis more competitive in the workplace, as well as provide additional employment opportunities. This chapter includes an interview with Sheikha Hessa bint Khalifa Al Khalifa, Executive Director, inJAz Bahrain.
Explore chapterHealth
The Bahraini government is working to create favourable conditions for encouraging growth in the private sector and is taking steps to shift the state’s role from provider to regulator. The promotion of the health care sector is in line with the priorities set forth in Economic Vision 2030. Accordingly, the state has undertaken and made plans for a number of initiatives to expand and upgrade the existing public health care facilities. In addition to expansion of existing facilities, the private sector is building new hospitals and other facilities, partially in response to growing demand for medical tourism. The Kingdom is also looking to train more Bahraini doctors and reduce dependence on expatriate medical staff. The opening of King Hamad University Hospital (KHUH) in December 2011 is expected to provide opportunities for local students to gain practical experience.
Explore chapterAccountancy & Tax
Bahrain has the lowest corporate and personal taxes of all the GCC states. There is no personal income tax; no tax on capital gains; no withholding tax; no restriction on repatriation of capital, profits or dividends and very few indirect taxes. This chapter outlines rules and regulations for corporate and labour taxation, and provides an analysis of the significant changes proposed for the accounting and disclosure of revenue from contracts in Bahrain.
Explore chapterLegal Framework
With major infrastructure and industrial projects now being undertaken across the Kingdom, a flexible but robust legal framework has developed to meet challenges and efficiently minimise risks. For those advising on project financing, full recovery of the extended finances, along with the profit or interest returns, remains a primary concern. This chapter outlines the different forms of collateral and security, regulations for real estate investment trusts, and dispute resolution. The chapter also includes an interview with Qays H. Zu’bi, Senior Partner at Qays H. Zu’bi Attorneys & Legal Consultants.
Explore chapterThe Guide
Horses are believed to have been part of Bahrain’s culture for as long as 4000 years, dating back to the Dilmun civilisation. This chapter examines how equestrian sports have become a popular leisure activity in the Kingdom. The chapter also includes a listing of the country’s leading hotels and resorts, as well as useful telephone numbers and facts for visitors, including information about etiquette, language, visas, currency, transport and more.
Explore chapterTable of Contents
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