Reported by: banking|Updated: March 16, 2016
Bahrain is emerging as a new target for investments – not just in oil but in sectors like financial service, IT, tourism and other services. Khalid Al Rumaihi, CEO, Bahrain Economic Development Board, elaborates on the investment climate in the country at the 5th annual Euromoney GCC Financial Forum
Human capital is the key factor that stands out for Bahrain being a destination for global investors, says Khalid Al Rumaihi, CEO, Bahrain Economic Development Board, the public agency in the country with overall responsibility for attracting investments into the country. He says any investor or any financial services firm that comes to a country would first be looking at the human capital that is available in that country and and in this regard Bahrain can claim to have a strong human capital resource. “Some 45,000 people are employed in the banking and financial services industry in Bahrain and 60% of these employees, including in the financial services, are from Bahrain itself. The bilingual capability of Bahrainis to handle English and Arabic enhances their value,” he said at the 5th annual Euromoney GCC Financial Forum held in Bahrain recently.
Participating in a keynote interaction at the conference, Al Rumaihi said regulations prevailing in Bahrain make the country more distinctive. “We have unified regulations. We are also looking at Bahrain Economic Development Board to be advising the government and helping the central bank and the ministry of commerce on jurisdictions,” he added.
EDB works with current and prospective investors ensuring that Bahrain’s investment climate is attractive, identifying its key strengths and where opportunities exist for further economic growth through investment. It focuses on several economic sectors that capitalize on Bahrain’s competitive advantages and provide significant investment opportunities.
Al Rumaihi said business operating costs are the lowest in Bahrain as far the region is concerned. “According to KPMG’s 2015 report, Bahrain has less cost of operating business in terms of employment cost, leasing of office space etc. It is 40% cheaper compared to either Dubai or Doha,” he mentioned.
“Besides, Bahrain being the financial services center in the region, I think there is more opportunity for growth. Our infrastructure in place is well equipped to accommodate middle and back office operations of international and local firms. Citibank has a back office with 100 people and among them 90 is from Bahrain itself,” said Al Rumaihi. Bahrain is also well connected with all the countries in the Gulf as well as with the leading financial centers of the world.
He maintained that Bahrain has the leadership position in Islamic banking in the world. “The Central Bank of Bahrain has set up a shariah board that would now work on standardizing the Islamic banking sector in the whole of GCC. This initiative would bring in uniformity across banks that offer Islamic banking and finance. It is in fact a step towards simplification of Islamic banking business.”
Al Rumaihi said Bahrain faces competition from Dubai and Egypt. “We have an edge over Dubai. Egypt offers competition in terms of infrastructure, business process outsourcing and hardworking human capital. But, deregulation and strong telecom set-up gives Bahrain strong value proposition.” he added.
He felt that while the world in general says active asset management is a thing of the past with robo advisors and technology minimizing human intervention, there is precise need for human intervention in wealth and asset management. “You can’t replace it with technology.”
Al Rumaihi was of the view that generational changes are happening in trust law – in inheritance, in jurisdiction etc. Bahrain has been able to maintain a leadership position in creating regulations and evolving jurisdictional norms on assets. “The country is investing in well known trust lawyers and firms to ensure excellence in wealth management,” he added.
Bahrain has recently set up a $100 million fund to promote fintech companies. Al Rumaihi said seed funding and angel investing for fintech companies is an important area and Bahrain is very active in this domain. “We had set up our first cloud based accelerator and we are partnering with Amazon. Partnering with global leaders will bring in their knowhow and this will promote fintech companies in country,” he added.
Al Rumaihi underlined the fact that regulations should be strong but they should at the same time ensure ease of doing business. “In Bahrain, we have regulations to address concerns of bankers and private companies. Our vision for the next 12 months is to actually allow businesses to operate in an easy and uninterrupted manner. We would make regulations sensible and allow banks as well as other businesses to grow, hire cheaply and enable them to grow and diversify,” he averred.
He also mentioned that in the context of the falling oil prices, Bahrain would want to reduce dependency on oil. “Currently our economy is 80% based on oil. Our vision is to increase the contribution of ICT from 8% to 15% and financial services from 17% to 25%.”
Jarmo Kotilaine, chief economist at Bahrain Economic Development Board, who spoke to Banking Frontiers, said Bahrain has a well diversified investment model. “We have invested in education, infrastructure and developmental projects. Most of it is strategic and not limited to specific sectors. We have infrastructure projects with a total aggregate value equivalent to $30 billion. Infra projects are becoming very powerful growth engines. Once the projects are approved, there is a whole opportunity for bank lending. The reality is that construction sector is overly important backbone for economic activity when the oil price is challenging,” he said.
He mentioned that Bahrain has undertaken several initiatives to encourage more enterprises. “We are beginning to see some interesting innovations from SMEs which want to look at alternative capital sources. I am optimistic that some of this would improve the situation,” he said.
Kotilaine said there are several initiatives now under way to encourage more companies to come into the market. “We are beginning to see some interesting innovations from the SME sector, which are looking at alternative capital sources.”
Kotilaine also said enterprises in the oil sector are very strong in terms of resources and are supported by strategic vision and support of the government. The governments in the region are determined to make the region dominant in global oil production. The magnitude of the challenges is less when compared with other economies, he said.
“I’m tempted to say not much in terms of bank credit and bank productivity. These have remained strong and in some cases even improved,” said Kotilaine, adding “We have liquidity in system. It is partly reflected in the fact that banking sector in the country could come through the financial crisis and gradually return to normalcy. Some of the infra projects undertaken are coming as very powerful growth engines. Once projects are approved, there is a whole opportunity for bank lending. The reality is that construction sector is an overly important backbone for economic activity when the oil prices are challenging.”
He felt enterprises in the oil industry in the country remain strong in terms of resources and are supported by strategic vision and the government. The governments in the whole Gulf region, he said, are determined that the region should remain dominant in global oil production. So the magnitude of challenges is less than that of other economies.
Kotilaine does not think the recent downgrade of the economy is a major issue for concern. “It needs to be tackled and has to be addressed by the government. This is being done with reenginering of the the fiscal system while taking care of the growth at the same time,” he added.
He also spoke about subsidies and said there is need for competitive growth, better utilization of existing resources and innovations. “I think the needs of of the people would be very clearly taken up when it comes to the issue of the removal of subsidies,” says Kotilaine. “The subsidies have benefitted people with higher disposable income. I think what is also important is that GCC countries have grown in an expensive manner. We need increasing growth, better utilization of existing resources and innovations. In the new environment there is a need for productivity related strategy. The new policy on subsidies is forcing companies to rethink models to position themselves for a growth trajectory for the economy. I am sure the economy will emerge stronger based on this strategy.
He maintained that global economy does not significantly affect Bahrain’s economy. The region is more concerned about absorbing global changes.”Of course, the main concern right now is the interest rate. In fact we are starting from a very low base. The fact is that the confidence level of the country is quite strong and also the banking system is very liquid. We will continue to shield this economy from global effects at least for the time being. Marginal effects may be there from global effects, but nothing significant,” he said.
He said that in the last couple of years the GCC economy has insulated itself from the economies of the outer region as well as the global economy mainly because the local growth drivers are quite well understood and quite strong. “People are in a situation that they can measure the risk themselves. If there is any significant impact from these countries, it will not only affect GCC, but also the emerging economies across the globe,” he said.
He felt that the regional economies are trying to create a growth atmosphere and job opportunities to better capitalize and mobilize the flow of capital through a more sophisticated and developed financial sector.