Bahraini Business Sentiment Exceeds Moderate Growth Outlook
12 Apr 2018
Among the GCC countries, Bahrain was in many senses the first to fully embrace the need to diversify its revenue streams away from hydrocarbons. The arrival of banks from Lebanon in the late 1970s gave it a head start in developing financial services and, in particular, offshore investment fund activity. This has stood the economy in good stead, but competition in sectors targeted for diversification, such as financial services, logistics, industry and tourism, has risen dramatically.
Transparency key to attracting investment
Bahrain has traditionally been good at providing an environment receptive to foreign investment, particularly through the initiatives of the Economic Development Board (EDB). Key to attracting the type of investment the kingdom is seeking is transparency. In many senses, and in particular in the financial services sectors, this has never been more critical. A decade on from the global financial crisis, banks, insurers and investment houses continue to be under scrutiny, widely viewed as being responsible for the events of 2008.
It will therefore be welcome news to policymakers that of the C-level executives who took part in the most recent OBG Business Barometer: Bahrain CEO Survey, 87% said relative transparency was high or very high. Spreading this message will be key to continuing to attract foreign and domestic investors.
Investment expectation high despite moderate growth outlook
However, when it comes to growth predictions for the overall economy, those surveyed were more circumspect, with the vast majority expecting more moderate expansion of between 1% and 3% in the year ahead. Although this is largely in line with the IMF’s 2018 projection of 1.6% and the EDB’s more upbeat forecast of 2.7%, it is nevertheless below the kingdom’s average annual rate of expansion for the decade to 2017, which the IMF puts at 4.1%.
Conversely though, when those surveyed were asked a more focused question on spending within their own businesses, sentiment was more buoyant. Some 63% said they were either likely or very likely to make a significant capital investment in the next 12 months. This would suggest that despite the broader economic outlook, many still see opportunities for growth, and are prepared to spend to capitalise on the potential.
It’s worth bearing in mind that the relative independence of the private sector from public sector investment may have something to do with the positive business sentiment, and could explain the disconnect between the respondents’ feelings towards broader economic performance and that of their own sector.
Domestic innovation offsets regional instability concerns
It will come as little surprise that the single biggest risk factor identified by CEOs was not a hike in US Federal Reserve interest rates, Chinese demand growth or trade protectionism, but regional political volatility. Bahrain is nestled between rivals Saudi Arabia and Iran, while the dispute with fellow GCC member Qatar, which lies just off Bahrain’s coast, also poses a potential challenge to regional cooperation.
Despite these concerns, confidence is buoyed by the government’s efforts to create an environment where the private sector can play an even greater role in the economy and investors can find new opportunities. This is evidenced by a number of innovative steps undertaken by the authorities, such as the implementation of a new real estate law and the establishment of a financial technology regulatory sandbox. The decision by Amazon Web Services to build its regional data centre in the kingdom in 2017 is evidence that this strategy is yielding
So while Bahraini CEOs are cognisant of exogenous risk factors, sentiment in the country remains largely positive. It will be intriguing to see if this is the case when we look at the next set of results from our OBG Business Barometer in 12 months’ time.
Covid-19 Economic Impact Assessments
Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.
Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.Register Here×