Bahrain calling

Bahrain is fast becoming a regional financial powerhouse, attracting some of the biggest global names.
Bahrain calling
By Noura Aylal
Fri 25 Apr 2008 04:00 AM

Bahrain is fast becoming a regional financial powerhouse, attracting some of the biggest global corporate names and calling the shots in the race to become the definitive destination for international investment.

Over the last five years Bahrain has been transformed into a globalised Gulf state that boasts a multitude of attractions for companies eyeing a base in the region.

The result has been an economic boom that has grasped the attention of some of the top investment and financial companies around the world.

"The continuity of the current economic boom in Bahrain is determined by our success as investors, alongside the government, in creating economic vehicles capable of development," says Ahmed Al Amir, president of the board at Gulf Holdings.

The area overall is witnessing a great deal of changes — politically, socially, and economically.

Meanwhile Essam Janahi, chief executive of Gulf Finance House, insists that the Bahraini market has become a stage for big investment opportunities, which is confirmed by the staggering number of sealed investment deals.

Janahi believes this is largely due to the public sector, which has shown flexibility and dynamism in containing economic change, as well as responding with the efforts of the Bahraini government to create an attractive investment environment.

Janahi adds that the sectors that have attracted most capital have been finance, real estate and commercial industry.

"Since as far back as the beginning of the 60s, Bahrain has been determined to put in place all the necessary requirements to help transform it into a commercial, financial, and tourism hub and a global financial market," he suggests.

"And so it set out to build its primary structures and provide numerous vehicles and regulations to support this goal.

It started by changing laws, lifting restrictions on investment, allowing absolute freedom when it comes to the flow of capital, and finally providing security and stability for business to flourish.

That same spirit can be seen four decades on with the arrival of Bahrain Financial Harbor as a regional commercial hub that has transformed the Gulf's financial offering.

"The Bahrain Financial Harbour has succeeded in embodying a modern Gulf and Arabic economic vision for the financial, banking, real estate and insurance sectors," he continues.

The harbour presents a suitable financial environment that offers indispensable services for organisations and companies working in the kingdom.

With a total investment that exceeds US$1.5bn, this landmark has been able to completely transform the financial and investment sectors as well as all the complimentary financial and banking bodies operating under it.

Yousef Al Issa, CEO of Addax Bank, sees Bahrain as a country that stands out in the region as a result of its strategic location in the Arabian Gulf.

"Today, the kingdom has made big strides towards preparing its national economy to meet global changes by developing its infrastructure, and elevating the quality of its services for local and international investors," he argues.Al Issa adds that the kingdom would not have been able to get to this point in time without expanding and varying its economic base, and therefore realising a sustainable rate of economic growth.

"The laws and regulations put forward by the government of Bahrain in recent years have enabled it to strengthen its position in the region as an attractive investment hub, and an international financial centre," he says.

Al Issa anotes Bahrain's position as a centre for Islamic and conventional banks in the region.

In this area, the Bahrain Financial Harbour has played a key role and is expected to elevate the position of Bahrain and the region in the global financial markets, especially in the light of the homecoming of over US$5.1 trillion of immigrated capital over the last decade.

"The area overall is witnessing a great deal of changes, politically, socially, and economically," adds Al Issa.

Contrary to some of its Gulf neighbours, Bahrain is not rich in oil reserves. This is exactly what forced it to expand its banking, real estate and tourism sectors, according to Gulf Holdings' Amir.

"Today, Bahrain is the Gulf's leading banking centre, especially in Islamic banking, which is emphasised by Gulf Finance House," he says.

He adds that Bahrain is currently undergoing a period of unprecedented growth which has resulted in a huge influx of liquidity, and therefore an increase in general spending.

Infrastructure spending has soared where the number of regional and global investments has risen, and there has also been significant investment in sectors such as energy, communications, manufacturing, education, health, and services.

"At the heart of this period of prosperity have been the government's all-encompassing reform programmes, as it has issued numerous laws and regulations that contribute to attracting foreign investment and organising the trade business," he insists.

The best indication of this progress, believes Amir, is the massive expansion of Bahrain's development projects and active investments, which has enabled it to diversify its sources of income, alongside oil, amounting to around US$5 trillion.

"There is a general direction in all Gulf countries to diversify sources of income away from oil, which has led to an economic openness with the adoption of free trade policies that put the investor first, and encourage the private sector to play a greater role in economic development," he says.

In the midst of the region's economic prosperity, estimated at trillions of dollars, a large gap has appeared between large investments and insufficient funding.

This has resulted in a financing issue that has sometimes acted as a hurdle to investment not only in Bahrain but across the region. However, it has also opened the door for specialised investment firms to come in and give a positive boost to the market.

The numbers indicate a pressing need for a real financial industry, especially as during the economic revival in Bahrain and the real estate boom, there have been clear signs that financing will only support the investment sector, says Al Amin.

"As the investment market hit unbelievable figures, the financial sector was still left short of the needed liquidity injection, especially in the real estate sector where investment laws are still vague," he says.

This is the reason preventing international investment firms from putting their cash in the sector, and this is the reason why regional and especially Bahraini banks and companies have been reluctant to grant loans when observing the current regulatory framework."Consequently, it makes it vital that existing companies expand their investment programmes and pump in more capital. I am not just talking about the private sector, but the government also has to be part of it and take responsibility by launching initiatives," he adds.

Education is one of the growth sectors that interests Al Issa.

"We have a special focus on investing in the education sector, despite some people's view that the returns on investment in the sector are relatively low - we believe they are entirely wrong," he says.

It has very healthy returns that might be quite surprising when you look at some of the figures relating to educational projects in the region.

What this sector needs, says Al Issa, is qualified and professional management that is capable of taking care of both the financial and educational elements required.

"Investment in primary and secondary education and even kindergarten normally achieves returns ranging from 20-30%, and indications confirm that this sector's growth will continue, especially as 60% of the Arab world's population is below the age of 30," he adds.

Al Issa sees a multitude of investment opportunities in this sector, especially as some governments in the Arab world have failed to provide their nations with sufficient education of a high standard in national schools.

"In time, Arab families have realised the importance of education for their children's future, to the extent that some parents with very limited income have sacrificed a very large percentage of that on better education," he points out.

"On the other hand, getting a high return on investment is more challenging when it comes to higher education.

Janahi at Gulf Finance House sees big opportunities for an investment bank in the real estate, tourism, and infrastructure sectors - where Gulf Finance House plays a key and active investing role.

The company's investments have a very wide geographical scope, explains Janahi, ranging from the Middle East and East Asia, through North Africa and Europe and even in the US.

"We have been able to establish an excellent reputation in the region, Bahrain specifically, by offering a wide range of investment opportunities that have won the support and encouragement of the bank's investors," he says.

"We are planning to develop our financing model and expand our activities to reach a larger number of global markets.

Based on our medium-term forecasts, we have launched a unit for preferred European stocks, which aims to focus on investment in preferred stocks in the European continent in addition to the preferred stocks unit for the Middle East and North Africa.

This will enable us to achieve sturdy growth in returns over the coming five years.

On Bahrain's bid for economic freedom, Janahi says that the kingdom has worked hard to break away from monopolies across all sectors, adding that "the wheel of monopoly and the wheel of economic development do not roll in the same direction".

Janahi believes that economic development is not possible as long as monopoly prevails."The kingdom liberated the communications sector by founding a supervisory entity that overlooks the sector, in addition to the creation of the Financial Supervision Council," he notes.

"There have also been numerous government attempts to encourage the private sector to partake in development plans," Jahani continues.

It is evident that the large wave of investments in a variety of sectors such as tourism, banking and industry has mirrored itself in a rise in the national income and the creation of additional investment domains that will help ease the issue of unemployment in Bahrain.

"Globally, the economically-safe rate of employment ranges from 3% to 6%. In Bahrain unemployment has not exceeded this rate.

At Gulf Holdings, Amir concludes: "The challenge now is maintaining the level of growth that Bahrain has become accustomed to, as well as the effective and successful management of liquidity in the markets. This of course, is a joint responsibility between the government and the private sector.

He adds that the region, generally, still needs more private investment in infrastructure and requires more effort in order to establish a unified Gulf economic entity capable of adding more value to the region's economies, and enabling it to deal with other economic bodies.

"This said, there is also an urgent need today to develop a more flexible economic investment regulatory framework, as well as create new and wider investment channels that can contain the large capital available in, and coming to, the region."

Economic overview 2008Bahrain's economy continued with its growth momentum in 2007 and is expected to show strong growth for 2008 as well on the back of high oil prices and strong regional liquidity, coupled with the sound economic reforms and increased investment in productive capacity and social infrastructure, according to a report by Gulf Finance House.

The report also predicted exceptionally strong oil revenue and the rise in economic confidence as a result, which has encouraged the government to plan for the future by continuing with the pace of reforms and also carry out high level of infrastructure and construction development activity in the country.

The thrust on infrastructure development and the current reforms carried by the government will play an important role in taking the economy to a higher growth trajectory in the near term.

Bahrain has enjoyed one of the most diversified sources of income in 2007 when compared to other GCC countries. Its economy grew at a healthy pace with the nominal Gross Domestic Product (GDP) estimated to have grown by 17.6% in 2007 to reach US$15.83bn while real GDP grew by 6.5% to reach US$10.92bn in 2007.

The oil sector GDP is estimated to have grown by 22.3% in nominal terms. The financial, insurance and hotel sector are poised to grow at a rapid pace as it witnesses increased private as well as foreign participation in the respective sectors.

The contribution of the manufacturing sector to the GDP has grown at a healthy rate in the last couple of years. In addition, trade is also an important contributor to the economy.

The kingdom has long been an open economy that has attracted foreign investment. Whether it is the financial sector, telecoms sector or the real estate, Bahrain has been witnessing strong private and foreign participation over the past few years.

The strong growth in demand and increased profitability has spurred the corporate to invest in new ventures or expand their existing facilities.

The main reason that the foreign companies have eyed Bahrain as the place to enter the region is primarily for its geographical environment, well-regulated authorities and low cost factor in setting up operations. The recent diversification and privatisation initiatives of the government have helped things further.

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