Finance
Typography
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

Much like the wider GCC, the Kingdom of Bahrain has entered a paradigmatic yet opportunistic shift. The country’s national strategy is pivoting to become more sustainable and competitive by investing in future-defining oil-proof sectors, as the COVID-19 pandemic underscored the need for economic growth through the accelerated uptake of innovation and digital economy. As a result, the Kingdom has amplified plans for economic diversification through Foreign Direct Investment (FDI), backed by several competitive advantages that make FDI attractive.

Arthur D. Little (ADL), the leading management consultancy firm with the longest-standing presence in the Middle East region, expounds this viewpoint in their latest report entitled Situating the Kingdom of Bahrain in a Future World: Opportunities for Foreign Investment. The report analyzes the opportunities and challenges awaiting Bahrain in light of neighboring economic activity and an increasingly tech-oriented global economy, providing insight on how Bahrain can ultimately become a fully enabled Smart country.

“Despite being a smaller market in regional terms, the Kingdom of Bahrain’s highly favorable investment environment is clear for all to see,” explained Andreas Buelow, Partner, Arthur D. Little Middle East. “The country has the infrastructure and potential to attract robust FDI across various emerging sectors in the short, medium, and long-term, with projects holding high-success rates in areas such as renewable energy, health management, financial services, cloud computing, and technology incubation. Challenges always accompany opportunities, and disruption of varying degrees will continue casting uncertainty as national ambitions are pursued in the years ahead. However, the Kingdom of Bahrain is favorably positioned to not only capitalize on FDI openings, but also create the same vibrant future that the Kingdom’s leadership and wider business community both envisage.”

A positive national outlook

Already, the Kingdom of Bahrain has embarked on an economic diversification campaign to establish the GCC’s first ‘post-oil’ economy. The country recently unveiled a plan to balance the public budget by 2024. It aims to implement investment projects worth USD 30 billion and is targeting a 5% growth in the non-oil economy for 2022, prioritizing six key sectors: oil and gas; tourism; logistics; financial services; telecom, IT, and digital economy; and manufacturing. The kingdom boasts the highest FDI per capita in the region, as well as an FDI inward stock of 92% in terms of nominal gross domestic product (GDP) – the highest in the GCC. Therefore, the foundations are in place for heightened FDI attractiveness that dramatically boosts the current GDP of USD 30 billion.

The report sheds light on the specific competitive advantages through which the Kingdom of Bahrain can realize this objective, including high government responsiveness, low cost of doing business, and full foreign ownership. Moreover, the country houses a skilled local workforce and a series of global trade agreements, such as free trade agreements (FTAs) with 22 countries, foreign investment protection and promotion agreements (FIPAs) with 34 countries, and double taxation avoidance agreements (DTAAs) with over 40 international partners. Given this level of strategic positioning, there are numerous possibilities for the Kingdom of Bahrain to consider and pursue in due course.

For instance, the regional renewables investment outlook is particularly optimistic, and the Kingdom of Bahrain could consider joint renewable energy projects with the Kingdom of Saudi Arabia (KSA) by installing solar energy panels across the King Fahad Causeway the links the kingdom over water with the Kingdom of Saudi Arabia. Another possibility concerns manufacturing by building on a national pillar of strategic importance such as the expansion of existing and well-developed industrial sectors, notably aluminum. The Kingdom of Bahrain remains one of the world’s major aluminum smelters and the largest in the GCC.

As such, the country could increase its current advantage by exploring sub-sectors where aluminum end-use is attractive, including automobile parts, packaging, and renewable energy components. Furthermore, the kingdom could act as a technology incubator and testing center for nationwide 5G applications, developing 5G infrastructure and services across different sectors. As for Financial Services also, it remains one of the strongholds of the Kingdom of Bahrain whereby the country has recently managed to attract a global technology hub for Citibank for over 1,000 coders, demonstrating the attractiveness of the country in this area.

Kingdom of Bahrain’s challenges and next steps

Having examined the kingdom’s entire FDI landscape, Arthur D. Little’s newest report identifies specific challenges in anticipation and provides insights about the most prudent courses of action for overcoming obstacles and making full use of upcoming opportunities. The country’s small domestic market and challenging fiscal position could be overcome by carving a niche in the global landscape for specialized economic activities, whilst continuing to act as a trusted regional economic partner and leverage in full the global potential of its local workforce.

“As the Kingdom of Bahrain prepares to move forward, driving innovation, establishing new partnerships with neighbouring countries, and utilizing existing resources are viable, effective avenues for overcoming the most difficult challenges at hand,” added Andreas Buelow, Partner, Arthur D. Little Middle East. “Technology will certainly be a key enabler of any positive eventualities and central to all future economic activities. Consistent implementation over the long haul will be key to success.” 

Situating the Kingdom of Bahrain in a Future World: Opportunities for Foreign Investment concludes by discussing the groundwork required for the kingdom to become a fully enabled Smart country. The role of Fintech in crypto, insurance, and trade finance is further examined, with frequent legal environment finetuning, developer dividend monetization, and physical and digital infrastructure upgrades among the essential next steps identified. 

Source: MSL Group