Why do business in... Bahrain?

Source: Exec Digital UK

Date :22/09/2008 10:29:00

Bahrain is an ideal point of entry for businesses looking to locate in the Middle East, with its fast-growing economy and skilled workforce. Exec learns more about the ‘Gateway to the Gulf’

Written by Ellie Duncan

Bahrain has long been an important settlement in the Middle East – it was the first location in the region to discover oil back in the 1930s. Now, it has one of the most diversified economies in the Gulf thanks to its geographical position and a transparent and well-regulated business environment.

Kamal Ahmed is the COO of the Economic Development Board (EDB), an organisation keen to support the advancement of the country’s economy and encourage inward investment. “The Kingdom combines modern infrastructure with a Gulf identity and, unlike other countries in the region, its prosperity is not solely a reflection of the size of its oil wealth, but is also related to the popularity of its people and their forward-thinking attitude,” he explains.

Bahrain has the easiest access to Gulf markets and in particular to Saudi Arabia via the King Fahd Causeway. From 2013, the Bahrain-Qatar Friendship Causeway will provide direct access to Qatar.

ECONOMIC GROWTH

Bahrain boasts the lowest tax jurisdiction in the Gulf, with no ring-fenced ‘free zones’. According to Ahmed, it was named among the top 20 freeist economies in the world by the 2008 Index of Economic Freedom.

“Bahrain has long been the ‘Gateway to the Gulf’,” says Ahmed. “With the best market access to the Gulf Cooperation Countries (GCC) – comprising Bahrain, Kuwait, Oman, Saudi Arabia, Qatar and the United Arab Emirates. Already worth US$735 billion, by 2050 they could close the gap on the G7 economies.”

Such a bold statement should not be taken lightly. Even with the current crisis in the petrochemical industry, Bahrain has been able to weather the storm because it no longer relies on oil to the extent of the rest of the Middle East – oil and gas contributes to less than 20 percent of GDP growth.

“When the price of oil plummets and the other Gulf economies seriously suffer, a firm in Bahrain can continue operating profitably, albeit at lower margins for a period of time,” explains Robert Ainey, Chief Executive of the Bahrain Association of Banks.

He goes on to explain that, in practical terms, a business can be more sustainable over the long-term in Bahrain.

The country’s GDP is US$10.9 billion (2006) and its economy is expanding at around six percent per annum. Despite the pace at which Bahrain is growing, Ainey believes that because of the steady pace of business development, the infrastructure improves at a “constant rate” to meet development.

He also has a great respect for the highly skilled workforce that the country has produced. “Bahrain has a highly-educated, local workforce with good work ethics. That means a business can recruit and train Bahrainis to fill both managerial and technical positions,” Ainey explains.

Statistics from the EDB show that approximately 10,000 people were employed by the finance sector in 2006, 72 percent of which were Bahraini nationals, a trend that continues today.

One of the main benefits enjoyed by businesses in Bahrain is that it permits 100 percent foreign ownership of companies, and it is the only member of the GCC to do so. Ahmed believes that the country’s buoyant economic growth is what attracts international businesses and corporations, including Microsoft, Hewlett Packard, Kraft Foods, BNP Paribas, HSBC and Citigroup.

“Bahrain’s internationally acclaimed strong financial regulations, economic and political stability, strategic location and strong legal framework have transformed it into a high standard investment and commerce destination,” ?he explains.

The Bahrain Investors Centre (BIC) is on-hand to guide potential investors through the incorporation procedure and speed up the process.

ACCESS ALL AREAS

“In total, Bahrain is spending US$2.9 billion to upgrade its logistics infrastructure including the new bridge to Qatar, an airport expansion, the logistics zone and a larger port,” explains Ahmed. The EDB confirms that the expansion at Bahrain International Airport will bring annual capacity to 45 million passengers. Meanwhile, the Khalifa bin Salman Port, already the second-largest deepwater port in the Gulf, will be developed in conjunction with the Bahrain Logistics Zone to become one of the region’s largest shipping and transport hubs.

Ahmed explains that its transport infrastructure and low operating costs has seen DHL locate its regional headquarters in Bahrain.

In 2004, Bahrain became the only country in the GCC to have ratified free trade agreement with the US, which Ahmed sees as an endorsement of the Kingdom’s transparent and well-regulated economy.

“The Middle Eastern market is a huge market of opportunity, worth US$735 billion annually and growing at double digits in some countries,” Ainey adds.

The financial sector is, without question, enjoying strong growth and currently contributes around 30 percent of the nation’s GDP. According to the EDB, as of July 2008, there were 409 licensed institutions in Bahrain in the sectors of banking, insurance, investment houses, capital markets and funds. “It is recognised as the most successful monetary authority in the Arab world, especially in regards Islamic banking – the newest growth area for Bahrain,” Ainey says.

Ahmed is keen to emphasise Bahrain’s other emerging markets: “On top of a thriving financial sector in Bahrain, the Kingdom has strong professional services, logistics, ICT, manufacturing, healthcare, education and training, alternative energy, tourism and real estate sectors.”

Within the manufacturing industry, Aluminium Bahrain has the largest single-line aluminium smelter in the world, while the Government has allocated sites for light industry and high-tech manufacturing.

LIBERAL ENVIRONMENT

Part of Bahrain’s attraction is its political stability and economic growth and development. However, Ainey acknowledges that Bahrain does have problems of its own, “every country and society does. But the Government and societal leaders face them head-on and address them proactively”.

Of interest to businesses considering locating in Bahrain is its reputation as the most socially liberal state in the Middle East. Ainey, himself a long-term expatriate, can attest to this: “Bahrain is a liberal but safe environment within which to live, work and raise a family with excellent schools, medical care, housing, and leisure facilities.”

So how will Bahrain grow in the next five years? “Bahrain is well-placed to capitalise on this growth – nowhere else in the Middle East is quite so business-friendly and competitive,” explains Ahmed. “We have been welcoming foreign investors for decades, so we understand their needs and how to help them prosper.”

Ainey also thinks that Bahrain’s Government and business leaders are set for continued growth. “Given the diversified nature of the economy, I think that Bahrain is best-placed to weather any changes in the regional and global economy.”