Center of Affairs

What factors are behind the rapid development of Bahrain’s industrial and commercial sectors?

Bahrain has the most central location in the GCC region and is more outward looking and open minded toward the attaining of its economic, cultural, and technological development. Over the course of her long and colorful history, the Kingdom of Bahrain has served as a gateway between trading nations and civilizations. This is reflected in the attitudes of both people and government, as they strive to overcome obstacles concerning welfare, prosperity, and progress. Bahrain’s drive toward industrialization and economic development testifies to this fact. Consistent, flexible, and rewarding programs were adopted in the late 1960s to establish and foster a viable industrial base. It was the first in the region to attract oil exploration investments and discovery and the first to achieve public education, health, social, and financial services. Lacking any sizable agricultural or oil resources prompted Bahrain’s early embracement of economic diversification. Both the manufacturing and service sectors gained early attention and priority, and have consequently yielded the highest share of the nation’s gross domestic product (GDP) and employment opportunities. Having been ranked as one of the freest economies in the region reflects the liberal economic, trading, and fiscal policies of Bahrain. The lack of corporate or income taxes, near duty-free imports, and 100% private ownership of most investment activities, coupled with its properly regulated business friendly environment, have also contributed to the expansion of trade and investment inflows into Bahrain. Such a pioneering performance has been even more invigorated over the past decade by the economic and social reforms initiated by HM King Hamad Bin Isa Al-Khalifa, as well as through the launch of Economic Vision 2030, a plan aimed at attaining a knowledge economy and renewable energy, green economy, and vertical agriculture technologies.

Manama was named the Capital of Arab Tourism in 2013 and it hosted the International Conference on Exploring New Cultural Horizons for Tourism, receiving 6.7 million of visitors in 2011, almost 50% of them from Saudi Arabia. What role do you envisage for the sector in Bahrain as a stable growth driver?

Certainly, tourism is one of the most vibrant service sectors with sound growth prospects in Bahrain. Its returns extend beyond hotels and restaurants to impact a wide range of other service sectors including transportation, retail, trade, exhibitions, family entertainment, and telecommunications services. Over 10% of the country’s workforce is also dependent on this sector. The fact that Bahrain hosted 6.7 million tourists in 2011 is a source of pride and gratification. The Bahrain tourism strategy envisages the improvement and expansion of tourism infrastructure, facilities, and attractions, with the active participation and involvement of the private sector. The enlargement of the King Fahd causeway to Saudi Arabia and other GCC countries will be complemented by the new causeway connection to Qatar, and supported by the GCC railroad network. Such logistical improvements will easily double the tourism inflows to Bahrain. The energetic heritage, cultural, and creative initiatives, projects, and events run by the Ministry of Culture have been among the most attractive factors for awarding Bahrain the Capital of Arab Culture in 2012, and the Capital of Arab Tourism in 2013.

The merchandise exports and imports of Bahrain were $19.7 billion and $13.9 billion in 2012, according to the WTO, a share of 0.11% and 0.07% of the world’s total exports and imports. What actions do you plan to reinforce the trade position of Bahrain in the region and at a global level?

While these rates seem small compared to other regional or international trading entities, they conceal the fact that Bahrain is among the highest merchandise trading countries worldwide in relation to its GDP, and second only to the UAE in this regard. Bahrain is a traditional trading country. Being a historic world navigation port of call has established the trading culture and transit standing of Bahrain. Yet, the far-sighted vision and open mindedness of the Bahraini leadership helped to establish a rewarding economic, investment, and trading relationship with many countries worldwide. Accordingly, Bahrain enjoys most-favored nation (MFN) status and preferential trade pacts on bilateral, regional, and multilateral levels. Moreover, Bahrain is fast becoming a regional depot, where goods are warehoused for transshipment to other locations in the Middle East, and it is also the most convenient center for handling business in Iran and Iraq. Manufacturers can take advantage of our new Hidd Industrial Area, which is conveniently situated close to the air and seaports, and lease out land at very competitive rates. And, for service providers and other businesses, there is an abundance of high-quality offices, with new landmarks springing up all over the island, most notable being the new Bahrain Financial Harbour and World Trade Centre projects.

Bahrain is ranked the 12th most open economy worldwide by the Heritage Foundation and Wall Street Journal’s 2013 Index of Economic Freedom. How does this promote the development of the economy and what actions for further openness do you plan?

Besides its pronounced economic freedom and trade liberalization, Bahrain is the most diversified economy in the Gulf region and has achieved this by maintaining an investor-friendly environment and adopting a policy of open markets as an economic development tool. There is zero taxation, no exchange control, and 100% foreign ownership permitted in all activities. Bahrain is also undertaking serious and sound steps toward the materialization of its economic strategy and its Economic Vision 2030, through which it hopes to achieve competitiveness, sustainability, and fairness objectives. Moreover, Bahrain has the best legal and regulatory infrastructure in the region, and our new Commercial Companies Law will be one of the most progressive in the world—we most certainly have the most stable and supportive political environment and world-class infrastructure that provides good logistics in terms of communications and transport. Our workforce, which has been nurtured over the years by substantial government investment in the education and health systems, is healthy, educated, and willing, and we have also used our excellent foreign relations, such as with other GCC countries, the US, Singapore, and the European Free Trade Area (EFTA) countries, to expand our internal market by means of free trade agreements.

Low value-added products historically dominate Bahrain’s exports. What is being done to boost value-added?

There has been consistent growth of industrial output in the Bahraini economy and there is enough room for future expansion as this economy is geared to acquire a leading position as a global center for private business and an attractive destination for FDI. Despite limited natural resources, the Kingdom has a strong presence in industrial sectors such as aluminum and petrochemicals and a good network of light industries with all raw materials being available within easy reach. A very distinguishing factor in Bahrain’s industrial development is the share of the manufacturing sector in total exports. The manufacturing sector accounts for more than 30% of total export earnings, compared to nearly 4.3% for the entire GCC. While Bahrain pioneered oil refineries in 1936, most mega energy processing, petrochemicals, and metal manufacturing started in the mid-1960s and early 1970s. Numerous downstream industries have consequently flourished in Bahrain. As a result of consistent high quality, Bahrain’s aluminum metals and engineering, with current production output levels of 830,000 metric tons per year, has made its way across the globe, exporting to 25 countries and even venturing into outer space, when Alba’s aluminum was used to build the Mars explorer Sojourner.

In which sectors do you see the most potential for commercial integration between Bahrain and Turkey?

Bahrain and Turkey have a long-standing trade and economic relationship. Both economies are growing at over 4% annually, in contrast to contractions in many other countries in the world. There are several agreements between our two countries in trade, investment, double taxation, and economic cooperation. Our private sectors and the business communities in both countries could contribute to the enhancement of our mutual beneficiary relationship with the help of the Business Councils’ encounters, trade visits, and other platforms. Joint investments and industrial cooperation projects could be profitable to the two parties and should be enhanced in most of Bahrain’s established industrial sectors, as well as in the fields of food processing, engineering, metalworking and car parts, feed industries, fiber-glass products, SMEs, and some service sectors like finance, telecommunications, and tourism. In addition to the growing Bahraini market, we have duty-free access to the larger GCC and Pan Arab Free Trade Area (PAFTA) markets, as well as duty-free access to the huge US market through a free trade agreement, which could have wide implications for Turkish businesses to take advantage of opportunities to manufacture products or provide services to the US from Bahrain.

© The Business Year – January 2014