Khalid Al Rumaihi, chief executive of Bahrain’s Economic Development Board, talks to James King about moving the country's economy away from oil, leveraging its financial hub credentials to attract fintechs and how Amazon gave it a vote of confidence by locating its first regional data centre there.
Khalid Al Rumaihi, chief executive of Bahrain’s Economic Development Board (EDB), is on a mission to transform the economy. In partnership with government ministries and other public sector agencies, the EDB is pushing hard to develop a globally innovative, competitive and transparent economic model.
Speed is of the essence. Though gross domestic product (GDP) growth is expected to reach 3% in 2018 – faster than Bahrain’s Gulf Co-operation Council peers – it is anticipated to fall to 2.3% in 2019. This is well below historical norms, according to the International Monetary Fund. Adding to these woes are years of fiscal deficits and a growing public debt problem, both of which show little sign of abating in the short term.
Financial services strengths
But Mr Al Rumaihi and his colleagues are taking seriously both of these challenges and the associated questions of how to reform the economy. “One hundred dollar per barrel oil is unlikely to come back. So Bahrain has to find a way to generate growth and jobs that is built around high-value-added, non-oil private sector activity,” he says. To address this problem, the EDB has looked to Bahrain’s traditional strengths as a financial services hub, and considered what role it can play in a burgeoning and globalised fintech market.
“Today, Bahrain’s economy is 80% non-oil. [But nearly] 17% of total GDP is made up of financial services because the country has been a regional hub since the 1970s. So we want to protect and develop that position while preparing for a future in which technology is going be a game changer,” says Mr Al Rumaihi.
The result was the launch of Bahrain’s very own fintech sandbox. “We didn’t need to reinvent the wheel when it came to fintech. We looked at various jurisdictions that had developed regulatory sandboxes. We then worked with the government and the Central Bank of Bahrain to draft and implement regulatory sandbox legislation and launched Bahrain’s sandbox just weeks later, in June 2017,” he says.
This development is seemingly in line with the achievements of regional peers; Abu Dhabi and Dubai have both developed their own sandboxes. The key difference with Bahrain, however, is that it is onshore. “We think we have a competitive advantage. Other countries that have developed sandboxes have done so in offshore centres or free zones. In Bahrain, we have onshore capability,” says Mr Al Rumaihi.
The fundamental difference here is that fintech start-ups operating in offshore jurisdictions are restricted from engaging with any onshore companies or individuals. In some cases, this somewhat mitigates the utility of operating in a sandbox in the first place, he says. “If a payments system provider or peer-to-peer lender wants to offer its services to a company or individual onshore, they can’t because they operate in a free zone.
“We have had companies out of neighbouring countries come to us because we are the only onshore sandbox in the region. Besides onshore regulation, we allow innovation in our own country even if it leads to disruption. We will allow the disruption of national institutions or industries and I’m not sure you see that everywhere in the region,” says Mr Al Rumaihi.
In February 2018, Bahrain launched its own fintech co-working space and accelerator, known as the Bahrain Fintech Bay. It has also attracted venture capital funds to the country that, together with the regulatory sandbox, present an attractive proposition to new start-ups. “We have a very complete ecosystem that will be very interesting to start-ups across the region and beyond,” says Mr Al Rumaihi.
WE HAVE A VERY COMPLETE ECOSYSTEM THAT WILL BE VERY INTERESTING TO START-UPS ACROSS THE REGION
Khalid Al Rumaihi
Beyond the narrow band of fintech, Bahrain’s credentials as a broader technology hub received a big boost in late 2017 when Amazon Web Services (AWS), a subsidiary of Amazon, announced plans to build its first ever Middle East data centre there. AWS offers cloud-computing capability to global clients and its Bahrain data centres are likely to be developed by 2019.
“Our ability to convince Amazon to develop a data centre in Bahrain is a vote of confidence in the country. It’s going to enable high-level skills to be developed in Bahrain and in turn stimulate technological development in the future,” says Mr Al Rumaihi.
Bahrain may have a long way to go, but Mr Al Rumaihi and the EDB are demonstrating a much-needed commitment to the innovation (and, more importantly, the disruption) that will pay dividends over the long term. Its neighbours should take note.
Source: The Banker