Diversification, digitalization, direct investment

Khalid Humaidan, Chief Executive of the Bahrain Economic Development Board, on what makes Bahrain a regional leader

GI: Last year, Bahrain saw record-breaking foreign direct investment (FDI) at a time when FDI numbers were decreasing globally. Can you tell me why Bahrain is a unique investment destination? What are its competitive advantages in the manufacturing and technology sectors?

Instead of looking specifically at 2020, we should consider the groundwork we have laid over the past decade, and our strategic initiatives to diversify the economy and drive FDI. Bahrain has developed an internationally-competitive business environment in which the manufacturing and technology sectors in particular are at the center of ambitious efforts to turn the country into one of the easiest and best-value locations in the world to set up and operate a business. The government of Bahrain is at an advanced stage in its digital transformation journey, with nearly all business processes – from establishment, to employing staff, to litigation and more – being digitalized, ensuring a seamless and frictionless experience. A number of global tech and manufacturing giants already use Bahrain as their regional hub, including AWS and Mondelez. Following our signing of a Free Trade Agreement with the U.S. in 2006, our government committed to enforcing world-class intellectual property protections, revising its legislation to be in line with the World Trade Organization/Trade-Related Aspects of Intellectual Property Rights agreement. It is also easy to file for a trademark, patent or industrial design in Bahrain, and to raise disputes. We also have a highly-educated local workforce and offer expatriates a relaxed and comfortable lifestyle. Other than the recently-introduced value-added tax, we are also a tax haven on the doorstep of one of the largest and most lucrative markets in the region, the Kingdom of Saudi Arabia. With this groundwork already in place, it came as no surprise that Covid-19 disruption to our FDI inflows was minimal. In fact, in 2020 we saw a near 6 percent year-on-year increase in FDI – at a time when the UN Conference of Trade and Development had predicted that global FDI flows would fall by around 40 percent.

GI: How is Bahrain handling the worldwide shift towards e-commerce, coming from a traditionally mall-centric purchasing culture (similar to Japan)? Have businesses been able to adapt adequately to mitigate the impact of Covid-19 on the retail economy?

Bahrain has been gradually moving towards a cashless society for some time now. It is true that the restrictions of the pandemic acted as a catalyst for change, but it merely accelerated the existing trends. Electronic payments surged by some 300 percent in 2020, largely driven by an uptick in the adoption of our national e-wallet, which saw its usage increase by nearly 800 percent last year. Across the Middle-East and North Africa (MENA) region, e-commerce was expected to grow exponentially from US$8.3 billion in 2017 to US$28.5 billion in 2022. In Bahrain, we already had the necessary soft and hard digital infrastructure in place to ensure that the transition for businesses was as seamless as possible. This included a first-of-its-kind Data Jurisdiction Law, which allows data stored in Bahrain to fall under its home country’s legal jurisdiction, and the rollout of a nationwide 5G network with the support of global tech companies. At the start of the pandemic, the government took steps to further speed up digitalization and the adoption of e-commerce business models, including the launch of a first-of-its-kind national e-Mall and online platforms to help Bahrain businesses access regional and international markets.

GI: Japanese companies such as Sumitomo and SBI Pharmaceutical enjoy a strong presence in Bahrain. What are some of the advantages of operating from Bahrain that they enjoy?

Manufacturers in Bahrain enjoy some of the region’s best-value set-up and operating costs; Bahrain is more cost-effective than its neighbors, according to KPMG. This is in addition to 0 percent income tax and a relatively low cost of living. However, what really sets Bahrain apart is its unparalleled regional and global market access, including direct access to the US$3.7 trillion Gulf Co-operation Council (GCC) market. The Middle East is undergoing a regional population boom and a marked increase in consumer spending. It is now home to some 450 million consumers with similar tastes, who prefer manufacturing that is catered specifically to them. This presents clear opportunities for Japanese manufacturers to operate out of Bahrain, which is fast emerging as the region’s de facto manufacturing and distribution hub. Manufacturers in Bahrain enjoy duty-free access throughout the GCC and Greater Arab Free Trade Area. In addition, a free trade agreement with the U.S. and trade and economic agreements with over 40 countries – including China, France, India, Singapore and the U.K. – stimulate inward investment, expand key sectors, encourage skills exchange and stimulate growth. A number of global manufacturers are already benefiting from these advantages, such as F1 safety equipment provider Bell Helmets, which moved to Bahrain both its research and development facilities from Italy and its factory from China.

GI: From your experience with Japanese investments and investors, what sectors are most attractive? In which sectors would you like to see more Japanese investment?

As economic diversification efforts and pro-innovation regulation drive Bahrain’s rapid digitalization, technology presents exciting opportunities. An example of a company making use of this industry is electrical engineering and software company Yokogawa, which is playing a key role in the Kingdom’s ongoing digitalization process. As for FinTech, Japanese financial institutions such as MUFG and Daiwa Capital Markets already play a prominent role in Bahrain’s financial services sector – the oldest and most established in the region. Bahrain has capitalized on its banking and financial services expertise to grow one of the region’s most dynamic FinTech ecosystems, presenting a clear opportunity for Japanese innovation. There may also be future opportunities for more manufacturers to look at the success stories of companies listed in my previous answer, as well as that of Kintetsu World Express, a Freight Forwarder, and see how Bahrain’s unique geographical location and other attributes has benefited their operations.

GI: Bahrain is fast emerging as a regional data center hub and is already known for its ICT readiness. Can you shed some light on the regulations in the tech and innovation space, and more specifically MENA’s first data protection law?

Much of Bahrain’s success when it comes to attracting FDI is due to the easy access investors have to decision-makers and regulators. We call this our ‘Team Bahrain’ approach, and it ensures that the government operates at the same pace as the private sector. Team Bahrain worked closely with some of the world’s leading ICT players to pioneer regulations to make us an attractive ICT and data center hub. Businesses operating in Bahrain can now enjoy best-practice laws designed to keep their data safe, including MENA’s first personal data protection law modelled after that of the U.K., as well as the previously mentioned data jurisdiction law. Cloud is another area that presents new opportunities for innovation, scalability and cost savings. Bahrain’s cloud-first policy is seeing the entire government make a concerted shift to the cloud, in large part due to AWS choosing Bahrain for the site of its first Middle East ‘region’ and hyperscale data center, which has already driven massive growth in data traffic towards MENA. Moreover, it stands to create a clustering effect as other global providers, including AWS’ partners and competitors, turn their attention to this increasingly attractive region, with Bahrain at its center.