The role of Bahrain’s government in its economy is changing as it steps back from being an operator to become a regulator that oversees an active private sector.
“If you look at the history of Bahrain, the government was forced to act as an operator initially because everything was new,” says Minister of Industry, Commerce and Tourism Zayed bin Rashid al-Zayani. “Now we have reached a maturity level where the private sector can take more responsibility. Today the private sector [accounts for] 80 per cent of our GDP, and we would like to see [it] taking over more and more.”
For the industrial sector, this means allowing businesses in Bahrain to determine what competitive advantages should be exploited, rather than prescribing the development of certain industries.
“We will not say we need a factory in Bahrain that makes either product A or product B. The private sector should be mature enough and wise enough to pick up an opportunity, taking advantage of what resources are available in the country. We make sure they have the markets to sell them. What we can help with is facilitating logistics so they can export more easily,” says Al-Zayani.
In addition to traditional industrial activities like aluminium and steel production, Bahrain has, somewhat unusually, identified logistics as a key industrial sector.
“Some might argue that logistics is not an industry, but we think that in the modern age it is,” says Al-Zayani. “Logistics is a huge part of e-commerce; you cannot have e-commerce without a proper logistics system.”
Although Bahrain is a small island with a population of about 1.5 million, it punches above its weight when it comes to logistics.
“Bahrain is a regional hub,” Al-Zayani says. “[The country] offers features that make it competitive regionally, starting with its geography. We are right in the middle of the region. Also, the cost base is much lower than others, the logistics network is excellent, there is local talent, and to supplement that we have quite liberal labour laws to facilitate expatriates coming over to work.”
For commerce, the key focus is supporting small and medium enterprises (SMEs). “We believe that this is where the future growth is. We have a growing young population and the challenge there is to convert the mindset from being job seekers to job providers,” says Al-Zayani.
“We see the opportunity to create a growing and flourishing SME sector where new opportunities are created and people are willing to take more risk and be more entrepreneurial.”
Bahrain launched a national SME strategy in February 2018 with five-year targets. Al-Zayani says the three main targets are to increase the SMEs’ share of total exports from 8 per cent to 20 per cent; increase the number of Bahrainis working for SMEs from 36,000 to 43,000; and to increase the number of SMEs.
To support the achievement of these targets, there are 17 initiatives aimed at supporting smaller businesses. “One is the commitment of the government to buy 20 per cent of its procurement through SMEs and we are working on the final steps now to change the tender law that facilitates that, including a 10 per cent price preference for them,” says Al-Zayani.
Another initiative is a recently launched export credit agency. Known as Export Bahrain, the export credit agency aims to give Bahraini companies a more global outlook when it comes to marketing their products. “We want to cultivate the export culture. We don’t want people to start in Muharraq and think about selling to Riffa. We want them from day one to be thinking ‘where in the world can I sell to?’” says Al-Zayani.
Another major change is Bahrain’s bankruptcy law. “We introduced a new bankruptcy law that offers a safety net, since the chance of failure for any startup is much greater than an existing business,” says Al-Zayani. “So that will facilitate a rebound if things don’t go well.”
Another initiative involves incubators and accelerators. “Again we did not launch them as our product. We just created the framework and legislation for them. After two years we have about 22 operating and about 600 startups,” says the minister.
To help these new companies avoid high real estate costs, Al-Zayani is working with Bahrain’s Economic Development Board (EDB) to launch co-working spaces. “This is an added feature because a lot of these start-ups don’t want to have high overheads and rents or space, so a co-working space is a facilitator for someone starting with an idea. Also people meet each other and develop ideas in a co-working space,” he says.
Another key area of focus for future economic growth is tourism. Momentum has already been developed and in 2018, there were 12.8 million visitors to Bahrain – a 6 per cent increase on 2017. The target is to grow the number of visitors to 15 million over the next four years.
Bahrain is confident that its growth target is achievable. “We have the fundamentals to be an international tourist destination, from the weather to the location, culture, history and modernity. The people of Bahrain have always been welcoming throughout time and we have always had good feedback from people that visit or live in Bahrain, so we have the right ingredients,” says Al-Zayani.
As with commerce and industry, his job is to realise that target by supporting the private sector. “The philosophy of the ministry and the tourism authority is to act as a regulator and a stimulator, not as an investor in the sector,” he says. “So you will never see us building hotels or restaurants. What you will see is us facilitating for investors to be in that sector.”
There has been a step change in the focus the tourism sector has been given by the government over the past three years following the launch of Bahrain’s first national strategic plan for tourism. That plan had clear key performance indicators (KPIs) to be delivered by the end of 2018, such as creating a brand for Bahrain.
With the basics in place, the targets for the next strategic plan are shifting to developing new markets. “We are now starting on the next phase of that tourism strategy, which is to develop our product to go beyond the GCC and neighbouring countries,” says Al-Zayani.
Connectivity in focus
The minister is also chairman of national flag carrier Gulf Air, which will play a pivotal role as the sector’s KPIs are now geared towards attracting tourists from new markets outside the GCC, mainly west Europe, China, Russia and ultimately the US. “That has to work hand in hand with Gulf Air expanding its network because we need direct connectivity,” he says.
Another initiative aimed at boosting international tourism is the development of a new exhibition centre next to the Bahrain International Circuit in Sakhir. The new facility will be capable of hosting global events such as the World Economic Forum once it is completed. “We are working on the new exhibition and conference centre because we feel that Bahrain can be a global MICE [meetings, incentives, conferences, and exhibitions] destination,” says Al-Zayani.
Bahrain is also establishing itself as a market for Indian weddings, and since September 2018 has secured 10 large-scale weddings that involve the full booking of major hotels such as the Four Seasons and Wyndham, and Gulf Air flights chartered from India.
Saudi Arabia’s potential
As new markets develop, Saudi Arabia will continue to offer great potential. “We see it as an opportunity if we play our cards right,” says Al-Zayani.
During the holidays in January, the island received 1.2 million people from Saudi Arabia in 10 days. “[The visitors] from Saudi Arabia today are predominately from the Eastern Province and Riyadh, but it is a country of 33 million,” says Al-Zayani. “We have to position ourselves in the Saudi market; until two-and-a-half years ago we had never participated in any tourism event in Saudi Arabia and we had never even advertised.”
Reflecting its more proactive approach to developing its tourism sector, Bahrain now participates in the Riyadh travel show, actively advertises in the Saudi market, and recently opened a representative office.