In finance, as in every form of business, facts are better than slogans. There is no better guide to how Bahrain is emerging from the Middle East and north Africa (MENA) region's most tumultuous year than the actions of the major global businesses that are based on the ground in Bahrain.
The fact is that the number of financial institutions registered in the kingdom has continued to rise, with 408 registered institutions in the second quarter 2011 – up from 401 at the same point a year earlier.
This is not to deny that the global context remains challenging and Bahrain itself has had to face its own difficulties. That is why the government remains resolutely committed to fiscal prudence and policies designed to maintain stability.
Growth focus
Bahrain’s commitment to innovation continues – for example, through the recent financing and development of Tatweer Petroleum’s new Central Control Facility, to ensure a more effective and productive operation.
The GCC economy is already worth $1000bn – a market as big as India, with a tiny fraction of the population. And it is forecast to double in size by the time the FIFA World Cup comes to the region in 2022
Led by His Majesty King Hamad, Bahrain has undergone 10 years of reform focused on establishing a stable and fair society, as well as a sustainable economy. The commitment to reform is not new, but in light of recent events, Bahrain's government is renewing and strengthening this – for instance, by fast-tracking implementation of the national dialogue to improve democratic scrutiny and accountability, and by implementing the recommendations of the Bahrain Independent Commission of Inquiry.
Perhaps the most significant development of all is the closer co-operation between the six neighbouring nations that make up the Gulf Co-operation Council (GCC). The nations of the GCC are responding to the situation in the MENA region by forging closer bonds and increasing their co-operation. Bahrain sees the growth of neighbouring GCC states as an essential element of our own economic growth because they are not only our neighbours, they are our best customers and our biggest investors.
The GCC economy is already worth $1000bn – a market as big as India, with a tiny fraction of the population. And it is forecast to double in size by the time the FIFA World Cup comes to the region in 2022. As the regional economy grows, so will the opportunities that businesses can find in Bahrain.
This is particularly reassuring at a time when the eurozone struggles with its debts and the shadow of financial crisis still darkens the prospects of so much of the developed world. We have already seen an encouragingly disproportionate increase in trade between GCC members, relative to trade with markets outside the GCC. On a medium-term view, the possibility of further co-operative reforms within the GCC – such as 'passporting' the sale of investment funds across the region – is very exciting indeed for an outward-looking economy such as Bahrain. The strong ties between the GCC nations have been further underlined by the $10bn that has been committed to support Bahrain through the Gulf Development Fund.
The Arab springboard
Bahrain is fortunate to be an access point of choice – a springboard – into the GCC’s trillion-dollar market. For Bahrain, this trend is gradually transforming more and more of the country's companies from local companies into international ones.
This has not happened by accident. As part of our pro-business culture, we take good care to maintain dialogue with banks, financial institutions and businesses to ensure that we continue to provide them with the most supportive infrastructure and environment, underpinned by laws and regulations that are transparent and realistic. By working together, the public and private sectors are able to devise strategies that operate well for everybody.
For example, we know how much an international institution values ease of access and ease of exit when deciding where to locate a new venture. Our Economic Development Board is tasked with being an on-the-ground partner to businesses seeking to locate or expand in the country. Our purpose is to guarantee fair treatment for business owners, to foster an encouraging atmosphere in which to do business, to meet the needs of banks and companies without complexity or delay, and thereby to enable them to concentrate their efforts on their core activities. We have the confidence to open our markets ever more fully to best competitive practices and to widen the range of our free-trade agreements as part of the GCC.
Similarly, we understand the importance of providing regulation that is coherent and consistent across the entire financial sector. That is why we have the Central Bank of Bahrain as the sole financial regulator whose role is to encourage prudent business conduct in a safe investment environment without stifling innovation and development.
We also keep updating our system of education and training, especially in applied sciences and specialist financial programmes, with a view to providing incoming business with a suitably skilled local workforce and well-qualified support services.
Access to services
For us, human capital is the most valued capital of all. Higher productivity, especially in high-value sectors, requires people with the right skills for each position. We realise furthermore that business in general, and financial institutions in particular, cannot succeed unless they have ready access to the accountancy, banking IT, legal and other services that modern companies require. In all these we have long since achieved critical mass.
We believe that, in order to be sustainable, business just as much as government should be treated as a long-term activity – a marathon rather than a sprint. We have consistently maintained a mature approach to capital adequacy, since long before the global financial crisis. Our conservative approach occasionally encountered criticism some years ago, but its value is now generally recognised as having helped to ensure the long-term sustainability of the banking system and of business generally in Bahrain. In addition to the region’s standard economic incentives, Bahrain offers 100% foreign ownership of business assets and real estate in most sectors of the economy.
A global vision
Looking ahead, we will continue to enhance the financial operating environment in Bahrain, especially as Bahraini companies become increasingly international ventures rather than purely local companies. Indeed, just recently a Bahraini delegation on a visit to the UK visited the work being done by a Bahraini company, BFG, on the multi-million pound re-cladding of the Mersey Tunnel.
Bahrain will also put the $10bn Gulf Development Programme to careful use, with an emphasis on accelerating our investment in sustainable developments, not least in strengthening our social and business infrastructure. And we anticipate further streamlining of the registration and authorisation process for funds and for enhancing fund structures.
There are also more developments in the pipeline for Islamic finance – already among the world’s fastest growing financial markets – in banking, insurance and fund management.
Preserving stability
Bahrain went through some difficult times in 2011. But, as calm returns, it is time for international banks and businesses to make a clear distinction between passing phases and permanent trends. Bahrain takes the unrest last year very seriously. Overwhelmingly, social stability is returning to the country and our focus is now on sustainable reform and targeted investment to maintain stability for the long term.
Government decisions will continue to be based on the principles of sustainability, competitiveness and fairness, to ensure that all Bahrainis have the means to live a secure and fulfilling life and reach their full potential.
We are well advanced in our strategy of shifting from an economy built on oil wealth to a productive, globally competitive economy, shaped by the government and driven by a pioneering private sector – an economy that empowers a broad middle class of Bahrainis who enjoy good living standards through increased productivity and high-salary jobs and thus have a stake in preserving social stability. Significant increases in life expectancy and decreases in infant mortality over the past 20 years show that our strategy has achieved important, tangible results.
Increasingly, what matters, too, for corporate profitability and for family living standards alike, is the permanent trend of closer GCC partnership in trade and investment.
Taken together, then, strategic fundamentals such as these explain why no sizeable financial institution left Bahrain during the disturbances and why the growth of the Bahrain financial community has continued unabated – major institutions take decisions on a long-term basis and not on today’s transient headlines. On any realistic longer-term view, the prospects for the Gulf region remain very strong – and so do Bahrain’s prospects within the region.
Shaikh Ahmed bin Mohammad Al Khalifa is Bahrain's finance minister.
