Bahrain made an early start in diversifying its economy away from a dependence on petroleum, after reserves and production declined in the 1970s. Growth in sectors such as hospitality, retail and aluminium production formed part of long-term economic growth plans, although oil continues to account for a significant percentage of the country’s reserves.
Following a slowing in economic growth in 2018 and US$10bn aid package from regional neighbours, Bahrain’s economy is now expected to grow by 2.3% in 2019 and 2.4% through to 20221 – the same year it targets a balancing of its budget. Cuts to expenditures, the introduction of VAT, large investment in infrastructure development and increased contributions from non-oil and private sector avenues are all expected to help manage the books.
The Kingdom of Bahrain is a particularly open economy and plays a key role in trade between its larger neighbours. It was, for example, the first Gulf state to enter into a Free Trade Agreement with the US in 2006. It is also open to foreign investment, with few limitations on foreign business ownership and a favourable tax regime, including the lowest corporate and personal tax in the region2. This, combined with its free trade rules and a superior logistical infrastructure, makes it an attractive stepping-stone for overseas businesses wishing to trade in the Gulf region. The three guiding principles of Bahrain’s Economic Vision 2030 sum up this attitude: sustainability, fairness and competitiveness.
Bahrain has worked hard to establish itself as a leading banking centre for the region, and boasts a highly regarded regulatory structure and a highly skilled labour force. The service sector accounts for more than half of the economy and almost two thirds of employment opportunities, with high levels of non-national employment. Bahrain has also regularly been ranked by expatriates as one of the best places to live, with quality of life, working hours and job security scoring highly3.
“Bahrain’s highly-diversified economy, mature governance environment and highly-developed banking system makes it a great choice for inward investment and a strong candidate for businesses looking to establish a foothold in the region. Significant digital and logistical infrastructure investment supports this,” says Mel Betley, CEO for Bahrain at HSBC.
The country’s digital transformation has seen high levels of investment in infrastructure, with 98% of the population registered as internet users and this forms a key pillar of Bahrain’s Economic Vision 2030, along with smart cities, fintech initiatives such as Bahrain Bay, and intelligent working. A government focus on facilitating ICT investment through both infrastructure and regulatory investment has created a climate ripe for investment, with set-up costs typically 15-20% lower than in other countries in the region 4.
Ranked 62nd in the World Bank’s Ease of Doing Business Report 2019, above the regional average5, Bahrain is keen to promote its openness, with high levels of FDI, particularly from other states in the region.
“With over 75 years’ experience in Bahrain, HSBC has developed strong relationships that span government, public sector and long-standing corporate businesses. We look forward to fostering the next 75 years, as Vision 2030 unfolds, and new local and international businesses capture opportunities that arise,” Betley adds.