Country Profile:
Bahrain
Bahrain
Long a leader in the Gulf in sectors ranging from industry and banking to education and Islamic finance, Bahrain has continued to build on the success of its economic development and diversification programme despite the global slowdown. The Kingdom has been highly ranked by leading international organisations, including the World Economic Forum and the World Bank, for its business environment, a fact that has not escaped the attention of investors around the world.
ISBN: 978-1-907065-22-4
ISSN (Online): 1744-442X
ISSN (Print): 1758-7611
TABLE OF CONTENTS
COUNTRY PROFILE
This section provides a quick overview of some facts about the country, its population, natural resources, geography, education system, language, religion and climate.
POLITICS
Renowned for its transparent business climate, Bahrain is seeking to join liberal economic reforms with a wider process of political and social change. Upon coming to power in 1999, King Hamad bin Isa Al Khalifa began a process of steady democratisation, instituting a constitutional monarchy along with parliamentary elections and women’s’ right to vote. As a leader of the economic reforms under the Economic Vision 2030 as well as a strong proponent of governmental reforms, Crown Prince Sheikh Salman bin Hamad bin Isa Al Khalifa is helping to further this spirit of political liberalisation in coordination with economic advances. Labour reforms have emerged as an important point of political/economic convergence, as the reforms, which target both the national and expatriate community, coupled with the job creation that the Vision 2030 plan calls for, are expected to reduce socioeconomic tensions. Along with the cancellation of the expatriate worker sponsorship system, a move lauded by human rights groups, the labour market has also seen a significant increase in the participation of women to about 24% of the workforce – one of the highest rates in the region. As a member of the GCC, Bahrain saw increased economic integration with its regional counterparts in 2008 with the launch of the Gulf Common Market at the start of the year. Some headway has also been made in the GCC monetary union, though there is some way to go before it will be up and running. Outside of the Gulf, Bahrain is maintaining existing ties with Western powers like the UK and US, while also reinforcing links with Asia, including a free trade agreement signed with Singapore in late 2008.
This chapter features an interview with Shaikh Salman bin Hamad Al Khalifa, Crown Prince of Bahrain; and Boutros Boutros-Ghali, Former UN Secretary-General. Also included are viewpoints from Javier Solana, EU High Representative for the Common Foreign and Security Policy; Bil Rammell, Former UK Minister of State for Foreign and Commonwealth Affairs, presently Minister of State for the Armed Forces; and Lim Hng Kiang, Minister of Trade and Industry for Singapore.
THE ECONOMY
Bahrain was not only the first oil producer in the region, but also the first to experience a decline in production. As a result, the process of economic diversification away from hydrocarbons has a longer history in the Kingdom compared to some of its GCC neighbours. Energy revenues, while not entirely central to the economy, have contributed to budget surpluses and GDP growth, which in turn have fuelled economic activity. The Vision 2030 plan – the document guiding Bahrain’s economic trajectory over the coming 21 years – is wide reaching but much of the diversification has been focused on the financial sector. With the Kingdom being the traditional financial centre in the Gulf, the sector now accounts for 22% of GDP. Ambitious rivals like Dubai and Qatar have helped to raise the level of competition within the region, but Bahrain is fighting hard to retain its title. The $3bn Financial Harbour project in Manama – one of several large-scale construction projects – will, once completed, be the centrepiece of its diversified economy. Moreover the financial services sector boasts one of the highest proportions of national workers – now about 70% – an important tenet of the Vision 2030 plan. In 2007 GDP growth stood at 7%, though cooled slightly to 5.2% the following year as declining oil production meant that the country became a net importer of hydrocarbons (in monetary terms) for the first time. Oil output has been in decline since the 1970s and has now stabilised at around 35,000 barrels per day (bpd), with petroleum production and refining accounting for 60% of Bahrain’s export receipts. In addition to oil, the Kingdom also produces about 1bn cu ft per day of natural gas from its offshore Khuff formation, a third of which is used to fuel aluminium production, the country’s biggest export after oil. The Economic Development Board (EDB) is working to expand industry further, along with other sectors, by attracting more foreign direct investment (FDI) and has so far shown great success. Various international economic reports from 2008 and 2009 bestowed multiple superlatives on Bahrain, including first in the Middle East and North Africa region on the Heritage Foundation’s Index of Economic Freedom and first in the GCC for inward FDI relative to size, according to the UN Conference on Trade and Development. Looking ahead, Bahrain, along with the rest of the GCC energy producers, will experience a challenging year in 2009 but with diversification well under way, strong budget surpluses from previous years and low inflation, the Kingdom is well placed to continue its economic makeover.
In this chapter OBG sits down with Sheikh Mohammed bin Essa Al Khalifa, Chief Executive, Economic Development Board; Sheikh Ahmed bin Mohammed Al Khalifa, Minister of Finance; Juan José Daboub, Managing Director, The World Bank; Masood Ahmed, Director, Middle East and Central Asia Department, IMF; and Talal Al Zain, Mumtalakat Holdings Company.
BANKING
Bahrain’s banking sector followed a trajectory similar to other GCC nations, with an ebullient run through the first half of 2008 followed by a steep decline. But building off decades of experience as a regional financial centre, the Central Bank of Bahrain (CBB) responded swiftly and thoroughly to the crisis with initiatives to increase liquidity and adopt stricter supervision and regulation. Even before the crisis struck, the CBB had its eye on exposure risks, requesting that banks review their large exposure policies in May of 2008. New limitations were then set in place, especially for real estate activity, which is now capped at 30% of a bank’s portfolio. The CBB has also worked to improve liquidity and has been monitoring the liquidity profiles of banks on a daily basis since September of 2008. The financial sector of Bahrain is complex, encompassing 400 financial institutions spanning the range of conventional and Islamic banks, and the CBB has played a major role in keeping the sector afloat. Overall, 2008 will not be a year that is likely to be remembered fondly by bankers, and the sector is generally resigned to difficult conditions in the short term. But the CBB is working hard to restore confidence in the long term, with continuing upgrades to the regulatory framework. As the overall economy diversifies and the well-respected CBB guides the entire financial sector – which contributes 27% of GDP – Bahrain could likely emerge from the crisis in a stronger regional position.
The banking chapter includes interviews with Rasheed Mohammed Al Maraj, Governor, Central Bank of Bahrain; Sir Howard Davies, Director, London School of Economics and Political Science, and Former Chairman, UK Financial Services Authority; and a roundtable interview with Abdulkarim Bucheery, CE, BBK (Bank of Bahrain and Kuwait); Abdul Razak Abdulla Hassan Al Qassim, CEO National Bank of Bahrain; Micheal Lee, CEO Ithmaar Bank; and Sabah Almoayyed, GM, Eskan Bank.
ISLAMIC FINANCIAL SERVICES
The Islamic financial services (IFS) sector of Bahrain is among the largest in the region, with 26 Islamic banks, including four of the five largest in the world, a wide range of other IFS companies and sector development organisations. Immediately following the autumn 2008 financial collapse in the West, IFS was seen as a sort of safety net for the overall financial sector. Since sharia law prohibits interest-based financial products, Islamic banks around the world were not exposed to the subprime and other toxic assets wreaking havoc on the balance sheets of their conventional counterparts. In Bahrain Islamic banks continued to experience strong growth into the third quarter, building off a decade long growth spurt that saw total assets increase by a factor of 18. But moving towards 2009, as oil prices plummeted along with real estate prices, the effects of the pervasive economic crisis began to catch up with Bahrain’s IFS sector, with several banks posting losses in the fourth quarter. Both conventional and Islamic banks entered 2009 cautiously, and the first half saw mediocre returns. The takaful (Islamic insurance) and sukuk (Islamic bonds) sectors have also found themselves in a slow period following years of steady growth due to the economic repercussions of the financial fallout. However, IFS in Bahrain is still moving forward. In 2009 thus far three new IFS providers have been granted licences by the CBB and it was announced that Bahrain will be the headquarters for a new Islamic bank, planned to be the largest in the world. With consumer and investor trust in conventional banks shaken by the events of 2008, interest in Islamic financial products and capital markets is rising in the Muslim and non-Muslim worlds alike, building off a reputation of great stability. As a leader in Islamic banks as well as a strong role in the development of sharia-compliant capital markets, Bahrain is focusing on using this time of economic lethargy to reinforce its position as a major regional – and international – player in Islamic financial services of all kinds.
This chapter includes a round table discussion between Khalid Al Bassam, Chairman, Bahrain Islamic Bank; Abdulrahman Al Jasmi, Vice-Chairman, Global Banking Corporation; and Aabed Al-Zeera, CEO, International Investment Bank; as well as interviews with Mohamad Nedal Alchaar, Secretary-General, Accounting and Auditing Organisation for Islamic Financial Institutions; and Jamal Zaidi, CEO, Islamic International Rating Agency.
CAPITAL MARKETS
The Bahrain Stock Exchange (BSE) was one of the better performers in the GCC during one of the most volatile years in recent memory. Relatively small, with just 51 companies listed in 2008, the BSE tends to remain stable in both good times and bad. Certainly the downturn of 2008 presented challenges, given the strong presence of commercial banks and financial companies in the market, but it was spared the worst of the crash, unlike some of its neighbours. The BSE performed soundly in the first half of the year and market capitalisation increased by 33.8% in June to $31bn before shrinking to $21bn in December. But there were still signs of growth. Smaller sectors, such as hotels and tourism, which registered an overall gain of 23% for the year, performed well. The Central Bank of Bahrain (CBB) is ploughing ahead with volume six of its Capital Markets Rulebook and new regulations are expected to increase confidence in the market after the shake-up of 2008. One of the new frameworks, issued in February of 2009, governs takeovers, mergers and acquisitions, as well as share repurchase transactions (TMA) and seeks to protect minority investor rights through one of the most detailed takeover codes in the region. The TMA module and the rest of the Rulebook are likely to come in handy as Bahrain’s economy continues to attract foreign companies and expands its capital market with new international links. For example, under an agreement signed last year the BSE will undergo a comprehensive study by the Singapore Stock Exchange, while Financial Technologies of India has announced it is planning to base its multi-currency exchange in Manama in 2010.
Along with analysis this chapter offers interviews with Fouad Rashid, Director Bahrain Stock Exchange (BSE); and Mita Natarajan, Senior Vice-President, Corporate Development, Singapore Exchange; along with a viewpoint from Anthony Mallis, CEO, Securities & Investment Company. SICO provides analyses for selected BSE-listed shares.
INSURANCE
The continued development of the Kingdom as an important financial centre has made it an attractive location for insurers, both domestic and foreign, and has transformed Bahrain’s insurance sector into one of the most dynamic in the Gulf. With the domestic market rapidly expanding, Bahraini insurers are now turning away from offshore activity – once the central focus of the industry – and looking inward. The effects of the global downturn will certainly pose some challenges to growth, however, given the inherent link between the insurance industry and general economic health. Nevertheless, with strong oversight and a growing number of locally incorporated insurance companies – by the end of 2008 there were 26, compared to 19 in 2006 – as well as those in the offshore segment, Bahrain’s insurance sector is widely acknowledged to be in better shape than most. The Central Bank of Bahrain (CBB) oversees all financial sectors, including insurance, and is in the process of instituting a comprehensive rulebook. It will offer a new set of regulatory requirements that encompasses such promising segments as reinsurance and takaful - and sharia-compliant insurance, as well as outlining the new insurance reporting standards. In the creation of the rulebook the CBB is working closely with Bahraini insurers, who are represented by the Bahrain Insurance Association. One of the most significant issues on the table is the possible decision to implement compulsory health insurance in the next few years. The introduction of a compulsory medical scheme would reduce the burden on the state as well as offer significant new opportunities for industry investors. The government has set the stage for its introduction by decree but confusion remains about the actual status of the bill as it awaits final approval by parliament. In the meantime the industry is looking toward developing segments like takaful, which has shown to be particularly fruitful in Bahrain. Between 2006 and 2007 the Islamic insurance segment grew by nearly 60%, and is expected to continue its upward trend while bringing more depth to the Bahrain insurance market.
This chapter also offers interviews with Ashraf Bseisu, Chairman, Bahrain Insurance Association; and Mahmood Al Soufi, CEO, Bahrain National Holding.
ENERGY
The Gulf’s original oil state, Bahrain has preserved its status as a key player in the oil and gas industry and remains focused on meeting its future energy requirements. While economic diversification away from hydrocarbons is also a top goal, petroleum production and refining activities still contribute around 25% to GDP, as well as accounting for two-thirds of government revenues. The strategy of the National Oil and Gas Authority (NOGA), the sector regulator and policymaker, is to maintain and develop existing resources while optimising production by expanding downstream activity. To this end, NOGA announced plans in May 2009 to invest $15bn in exploration and production, with an additional $5bn earmarked for the modernisation of the Bahrain Petroleum Company (BAPCO) refinery. NOGA is also looking at possibilities to import gas and electricity from abroad as well as developing renewable energy resources. While heavy industrial activities – which consume the most energy – are being downgraded in favour of light industry, ensuring adequate gas supply is a major concern of NOGA. Bahrain’s gas production is estimated at 1.2bn standard cu ft per day, all of which is consumed domestically, and the country is now looking towards imports from Iran and Qatar as a means to reach demand, expected to grow to 2bn scf per day in 10 years’ time. Power demand is also on the rise thanks to increased economic development and an expanding population. The Electricity and Water Authority (EWA) estimates that by 2020 the country’s power and water requirements will have doubled and it is counting on privately developed independent power projects (IIPs) to close any future supply gaps. In August 2008 a greenfield IIP with a capacity of 1234 MW and 218m litres of water was approved, bringing the total number of IIPs within the Kingdom to three. With a variety of approaches to the twin problems of dwindling oil and gas supplies and rising energy demands, Bahrain is certainly taking a holistic approach to its energy policy. The financial crisis and volatile oil prices will reduce profits in the short to medium term, but they do not appear to have halted investments and Bahrain looks prepared to plough ahead with its comprehensive energy plan.
In this chapter OBG sits down with Dr Abdul Hussain bin Ali Mirza, Minister of Oil and Gas Affairs, Chairman of the National Oil and Gas Authority and Chairman of the Bahrain Petroleum Company; Abdulkarim J Al Sayed, former Chief Executive, Bahrain Petroleum Company; Sheikh Mohamed bin Khalifa Al Khalifa, General Manager, Bahrain National Gas Company; Abdul Rahman A Hussain Jawahery, General Manager, Gulf Petrochemical Industries Company; and Bernt Andersson, CEO, Tabreed Bahrain.
TRANSPORT
Bahrain is in the midst of a massive infrastructure upgrade in a bid to place itself as a regional centre of transport. Progress is already visible on the ground, with the centrepiece of the Kingdom’s logistics plan, the colossal Khalifa bin Salman Port (KBSP), set to be completed through the first phase of construction by the end of the year. Designed to replace Manama’s Mina Salman Port, the nearly $350m KBSP harbour promises to boost the country’s container capacity from approximately 400,000 twenty-foot equivalent units (TEUs) to 1.1m TEUs. With increased capacity, Bahrain aims to take advantage of its geographical position to establish itself as the gateway to the Northern Gulf as far as Kuwait. In order to fully capitalise on the new port, new infrastructure is also cropping up on land. A 1-sq-km logistics zone (Bahrain Logistics Zone) is being constructed very near to the port and will provide ample opportunity for private investment. KBSP, too, is now in private hands after the February 2009 official handover to APM Terminals Bahrain, a joint venture, which won a 25-year concession to operate the port. The importance of KBSP is enhanced by Bahrain’s direct link to the Saudi Arabia market via the King Fahd Causeway, a four-lane highway completed in 1986, but now in need of greater capacity. As a result the international transit link is being upgraded through a $17m five year plan, currently in progress, which aims to increase vehicle capacity by 300%. But the most publicised road project by far is the Bahrain-Qatar Causeway, which will span a total of 40 km to connect the Kingdom with its eastern neighbour. Construction is expected to start in 2009 and upon completion will make what is now a five-hour journey by car a mere 30 minute drive. Meanwhile, Bahrain is also upgrading its internal highways with about $685m earmarked to increase capacity. In the air, the Kingdom’s skies are busier than ever before, with passenger traffic growing at a healthy clip of 20% per year. Expansion of the Bahrain International Airport has become a necessity and plans are set to be revealed soon. Of course, the economic downturn has raised questions about future traffic patterns in the short term, but projects are moving ahead and infrastructural improvements still stand as an integral aspect of the Vision 2030 plan.
Included in this chapter are interviews with Sheikh Daij bin Salman Al Khalifa, Chairman, General Organisation of Sea Ports; Steen Davidsen, Managing Director, APM Terminals; Osama Al Ali, CEO, Bahrain Airport Company; and Björn Näf, Former CEO, Gulf Air.
CONSTRUCTION & REAL ESTATE
Despite numerous hurdles in 2008– including high material prices, inflation and land shortages – construction in Bahrain continued apace with strong government backing. The Vision 2030 document, which outlines long-term economic development, maintains state commitment to essential projects for infrastructure and real estate development as an ever-increasing population puts more pressure on state facilities. A housing shortage currently exists in the market and the government plans to push ahead with projects despite the global financial slowdown. Also moving forward is the Bahrain-Qatar Causeway, a $3bn bridge between the two states, set to be one of the most high-profile and influential Bahraini infrastructure projects to date. Once completed in 2013 it will be one of the longest causeways in the world. From the last quarter of 2008 on, steel and cement prices cooled significantly, easing the pressure on contractors and real estate developers. But price volatility and cement production cuts in Saudi Arabia, Bahrain’s main supplier, have prompted the industry to diversify its supply base and some contractors are now looking towards new producers in countries like Turkey and Spain to meet their needs. Given the government’s commitment to infrastructure development, a steady and reliable stream of materials will be crucial to bringing plans to fruition for years to come. Despite the knock-on effects of the global financial crisis, Bahrain’s construction sector is moving apace and should offer opportunities for development at least until the end of 2009.
Over the past few years, rapid population growth, rising tourism levels and a strong financial services sector served to drive the real estate market to new heights, with nearly $8bn worth of real estate projects currently under development. While the Kingdom has by no means completely escaped the effects of the global financial crisis, it has been more resilient thanks to a high proportion of nationals compared to other, more expatriate-dominated, Gulf states. Locals make up over 50% of the population in Bahrain and, according to the Ministry of Information, nationals account for over 90% of all real estate transactions, suggesting that the market is driven by end-users, instead of speculative buyers. As a result, the property market has not experienced a severe crash so much as a cooling and developers are moving ahead cautiously. In light of the changing economic climate, a gradual shift among developers is taking place towards projects in tune with market needs, such as industrial parks and mid-range housing.
EDUCATION & HEALTH
Vision 2030, the guiding document of Bahrain’s economic future, demands a strong emphasis on human capital. As such the education sector is an area of focus for the government and the Ministry of Education, along with the Economic Development Board (EDB), is aiming to develop an internationally competitive education system. Under the National Education Reform Initiative (NERI), a multi-phase plan to overhaul the system, progress is already under way. In 2008 the Bahrain Teachers College, viewed as an integral part Vision 2030; Bahrain Polytechnic, the first institution of its kind in the Gulf with a focus on business, administration and engineering; and the Quality Assurance Association (QAA) were established. The QAA, Bahrain’s first independent review body, will measure scholastic performance regularly, increase transparency by making its reports available to stakeholders and play a crucial role in bringing the system up to international standards. The QAA will be monitoring vocational schools closely as well. This tenet of QAA responsibility dovetails with the move towards Bahrainisation, or increasing the proportion of nationals employed compared to expatriates. As the first country in the Gulf to establish a state-funded school system in 1919, education in Bahrain has long held a prominent place. Ongoing reforms and new institutions will continue this tradition and help to better prepare Bahrainis for an increasingly competitive labour market.
Over the past few years the government has invested increasing amounts in its health care sector – with an emphasis on new infrastructure and local training facilities – in an effort to bring the Kingdom up to international standards. It faces challenges similar to many of its neighbours, namely rapid population expansion and high incidence of non-communicable diseases, but has also managed to achieve consistently high scores on international measures such as the UN’s Health Development Index. Much of the recent population growth was caused by a rapid rise in expatriate workers, and while this influx is expected to slow somewhat due to the global financial crisis, Bahrain is likely to introduce a new policy of compulsory health insurance for non-Bahrainis. If it goes through, the move is expected to be a major boon for private medical providers, especially in the middle- and lower-end of the market considering the high-proportion of blue-collar expatriates. But there is certainly room for development at the high end, as Bahrain is pushing to become a regional centre for medical tourism. The Ithmaar Development Company is working on a $1.6bn health and real estate development on reclaimed land known as Dilmunia Health Island and the country is looking to build off its reputation as a Gulf leader in medical education to bolster its credentials as a medical tourism destination. Some hurdles to further private development remain, however, including a shortage of trained staff and significant bureaucracy slowing the hiring process of foreign employees. But the government’s hope is that with a continuing focus on human capital development and quality health care, a Bahraini workforce will soon be able to adequately fulfil the demands of a growing population.
In this chapter OBG speaks with Majed bin Ali Al Noaimi, Minister of Education; Mohammed Khalil Alsayed, CEO, Ithmaar Development Company; and Jawad Habib Jawad, Chairman, Bahrain Competitiveness Council.
TELECOMS & IT
Bahrain’s telecoms market is one of the most dynamic in the region. Liberalisation of the sector began in 2003 with the creation of the Telecoms Regulatory Authority (TRA) and has most recently culminated with the grant of a third mobile licence in early 2009. Prior to the era of the TRA, Bahrain Telecommunication Company (Batelco) held a monopoly over both the fixed-line and mobile segments. Just over a year after its creation, the TRA offered up a second mobile licence, which was awarded to MTC Vodafone – later rebranded as Zain – one of the largest operators in the Middle East. The entrance of a second operator helped to spur greater innovation within the sector, push down prices slightly, and also dramatically increased the rate of mobile penetration, which is currently estimated at 138%. Now, with the entrance of Saudi Telecom (STC) to the market in the second half of 2009 as Bahrain’s third operator, competition and economic efficiency is set to increase further, benefitting both consumers and producers.
Once a clear leader in the IT sector, Bahrain now has to work harder to keep up with other oil-rich Gulf states that have emerged as sector innovators in recent years. But since 2007 the government has directed considerable funding to the sector which, combined with increased interest from private investors, is underwriting the re-emergence of Bahrain’s IT market as one of the most innovative in the region. The Kingdom has continually scored high on widely recognized measures of overall connectivity, performing well beyond the regional average. Much of this sector reinvigoration has come about as a result of the process of liberalisation originally launched by the TRA in 2003. With a third mobile operator coming into the market, broadband prices are continuing to fall as competition increases. Accordingly, Bahrain records the second-highest level of internet penetration in the MENA region. New technologies are afoot, with WiMAX spreading across the Kingdom and the eGovernment Authority moving to upgrade and standardise the level of information and communications technology across all state entities to encourage more public use of the e-government system. Moreover, given the potential for high-skilled job creation and Bahrainisation, the sector has been targeted by the EDB as a means to reach one of its most ambitious goals – doubling the GDP per capita by 2015.
This chapter includes interviews with Alan Horne, General Director, Telecommunication Regulatory Authority; Peter Kaliaropoulos, Chief Executive, Bahrain Telecommunication Company; and Mohammed Zainalabedin, General Manager, Zain Bahrain.
INDUSTRY & RETAIL
Already a well-established sector, industry is being targeted as a key component to overall economic diversification, in line with Vision 2030, the Kingdom’s long-term development plan. Currently it accounts for 13% of GDP and has one of the most active industrial bases in the GCC. The government aims to double the sector’s GDP contribution over the next decade and hopes to attract more foreign direct investment through a recently-launched promotion campaign. The Ministry of Industry and Commerce (MoIC), along with the Economic Development Board (EDB), is currently expanding industrial land and creating special investment clusters such as the Hidd industrial zone and the Bahrain Logistics Zone. The free trade agreement (FTA) with the US has also greatly facilitated inward investment, and the GCC’s recent FTA with Singapore is expected to do the same. The sector has already shown remarkable growth – an increase of 250% – since 2005 and in 2008 alone, investments in new industrial projects reached more than $2.6bn. Though heavy industry is currently expanding to meet growing demand for steel, given the uncertainty over the future of Bahrain’s gas supply the overriding strategy is to move away from energy intensive activities and towards lighter industry, such as manufacturing and service-based segments. Aluminium production is one successful example of non-hydrocarbons manufacturing and forms the cornerstone of Bahrain industry. It also dovetails with Vision 2030’s mandate to develop value-added segments as the Kingdom is looking to extend the aluminium segment into automobile and aircraft parts manufacturing. Aluminium Bahrain (Alba) has grown into one of the world’s largest smelters and is also among the country’s largest employers of Bahrainis, as 88% of its workers are nationals. The petrochemicals sector is also a vital segment and government-operated Gulf Petrochemical Industries Company (GPIC) remains committed to upholding production targets. Moreover, GPIC will integrate a carbon-recycling mechanism to its production cycle, making it the first petrochemicals plant in the region to adopt this eco-friendly technology. Meanwhile, even though the Kingdom is looking to reduce its dependency on oil and gas, it is still trying to secure its energy supply in light of population growth and increased economic activity. Accordingly, nuclear energy plans are on the table alongside gas deals with Iran and Qatar. While industry at the moment is still energy intensive, plans to move up the value-added chain and away from hydrocarbons-heavy segments are continually unfurling, encouraged by a steady stream of incentivised inward investment.
The retail sector has flourished over the past 10 years, driven by a growing expatriate population, rising tourism arrivals and intensive construction activity. The Economic Development Board (EDB) has earmarked the sector as one with high-growth potential and is also expected to be one of the largest providers of employment within the next five years. Consumer choices are ever-expanding, with malls and hypermarkets emerging as the favoured method of retail development. The Kingdom now has 19 malls – covering around 17% of gross leasable area (GLA) – that function not only as shopping centres but also recreation and entertainment spaces highly popular with locals as well as GCC visitors and expatriates. Developments such as the recently opened Bahrain City Centre Mall have been very successful in securing tenants willing to pay a premium for space thanks to steady footfall. The hypermarket format caught on relatively late in Bahrain but the segment is now poised for rapid growth due to major expansion plans from France’s Auchain and the UAE’s EMKE Group. Meanwhile, convenience foods are rising in popularity and with the opening of a 60,000-sq-metre Kraft processing plant – the American food giant’s first direct investment in the GCC – Bahrain is set to gain a solid foothold in the growing regional food processing segment, worth about $7bn per year. The global economic crisis did serve to damper consumer confidence slightly through the first quarter of 2009, but with a strong base for demand for foreign fashions and food, along with an inviting business climate, the retail sector should continue its upward trajectory undeterred.
This chapter features interviews with Mahmood Hashim Al Kooheji, Chairman of the Board of Directors, Aluminium Bahrain; Chris Potter, CEO, Arab Shipbuilding and Repair Yard Company; and Mona Almoayyed, Managing Directore, YK Almoayyed & Sons.
TOURISM
Tourism is one of Bahrain’s fastest-growing sectors, and is set to play a key role as the momentum for economic diversification builds. Visitor numbers have grown rapidly over the past five years and tourism accounted for 7.5% of GDP in 2007. Over the years Bahrain has built a reputation as a liberal yet family friendly destination and has typically been a strong player in the meetings, incentives, conferences and exhibitions (MICE) segment. Now, Bahrain is trying to broaden its appeal to high-end tourists, especially those with families and residing within the Gulf region. Plans for improved transport links between Bahrain and the region – most notably the multibillion-dollar Bahrain-Qatar Causeway – are expected to increase visitor numbers from within the Gulf. Qatar Airways also announced in 2008 that it will add five new weekly flights to Bahrain. Weekend tourism looks to be a promising sector, as Bahrain offers extensive entertainment and retail facilities not found in some nearby Gulf states, such as Saudi Arabia. Meanwhile the MICE segment continues to grow, though numbers are expected to take a slight hit considering the shaky global economic environment. Nevertheless, new facilities are coming on-line, with the Bahrain Events and Conferences Authority pushing a new 150,000-sq-metre conference complex for completion in 2011. The Bahrain Grand Prix – long a popular event in the international F1 circle – is also expected to boost MICE tourism. With an eye to expanding several segments of the tourism industry, further development will occur under the auspices of the new Tourism Authority, once it is created. Previously, the Ministry of Culture and Information managed tourism affairs and the new authority is expected to take over within a year.
This chapter includes an interview with Martin Whitaker, CEO, Bahrain International Circuit.
THE BUSINESS GUIDE
With the help of Ernst & Young, this chapter offers a comprehensive look into the ins and outs of Bahrain’s business environment, including a run-down of the many incentives on offer within the Kingdom. In the legal section, Qays H Zu’bi Attorneys and Legal Consultants guide OBG readers through relevant information on the legal system, including a focus on recent important developments on the country’s labour laws.
Viewpoints are also provided by Al Jowder, Senior Partner, Ernst & Young; along with Qays H Zu’bi, Managing Partner, Qays H Zu’bi Attorneys and Legal Consultants.
THE GUIDE
The Guide includes listings of the country's leading hotels and resorts, essential telephone numbers for visitors and useful tips, including information on visa requirements, currency and social etiquette.
