Bahrain is in the midst of a large-scale transformation. Several years into a modernisation programme – underpinned by $32bn of planned infrastructure projects and a large industrial hinterland that stretches well beyond the King Fahd Causeway – the island kingdom is already starting to see real economic benefits.
This huge slab of investment, an overwhelming proportion of which is not only earmarked but being spent on projects now well underway, consists of $10bn of government funding, $7.5bn under the GCC Development Fund, and $15bn worth of investment in the private sector.
It is being focused on six key verticals, all designed to accelerate the kingdom’s move away from energy production: tourism and hospitality, retail, real estate, finance (especially fintech), infrastructure and oil and gas services. If there is a theme that envelops these diverse sectors it is, in the view of Dr Jarmo Kotilaine, chief economist at the Bahrain Economic Development Board, “efficiency- and value-driven modernisation”, particularly in the industries that have supported Bahrain’s economy for the better part of two generations such as finance, energy and logistics.
The innovation now being introduced to the banking sector is one such example. Investments are now pouring into fintech as well as various kinds of ancillary and mid-office activities in financial services, perhaps best embodied by the impending launch of Bahrain FinTech Bay – a joint venture between the EDB and FinTech Consortium – in Q1 2018.
Oil and gas, the backbone of the economy for many years, is also undergoing necessary transformation as the drop in the price of oil and reduction in resources have seen the country’s national oil company Bapco (Bahrain Petroleum Company) diversify into other sectors. “On current projections, it’s not going to increase its production several fold, so I think the opportunity really is increasingly in the downstream area, and of course that’s an area where Bahrain also was a pioneer,” Kotilaine says.
“There is still opportunity in capacity expansion and also for different types of trading activities because of our location and regional connectivity. I think it’s very much echoing a broader strategic thrust that we’re seeing in the GCC – a sort of greater value chain capture through related activities. So for instance, that will mean certain types of petrochemicals or further refinement of the oil distillate.”
One of the more conspicuous recipients of the $32bn investment tranche is Bahrain International Airport, which is now undergoing a $1.1bn modernisation programme in order to raise its annual passenger capacity from 9 million to 14 million by 2020. The move will enable Bahrain to come full circle and return to its original regional status as a specialist in logistics and transportation services.
“There was a time when this was the pioneering hub for many of these activities, and then over time we started to see more competition as other countries started investing,” says Kotilaine.
What is interesting is that the fundamental geographic and economic realities that allowed Bahrain to lead the way in the 1930s haven’t changed; the Bahraini logistics infrastructure can serve as an entry point into the broader regional market, and above all the Saudi market. From a logistics perspective, Bahrain has a significant hinterland.”
The links with Saudi’s Eastern Province, whose population is about five times the resident population of Bahrain, are