Despite being the smallest nation in the GCC, the island of Bahrain punches well above its weight in attracting foreign direct investment (FDI) due to an environment that supports small to medium-sized enterprises (SME), with the added advantages of a lower cost of living and a well-educated population.
This approach has been gradually bolstered by innovative and open regulations and, unlike other GCC member states, investors in Bahrain can benefit from 100% foreign ownership across most sectors, with no requirement for a local partner.
According to the Bahrain Economic Development Board (EDB), it attracted 134 companies in 2019. This was expected to result in a total investment of US$835 million and was projected to create more than 6,000 jobs in the local market over the next three years.
The investment was made in a number of sectors, including: financial services, information and communication technology (ICT), manufacturing and logistics, real estate, tourism, education, and healthcare. The companies were from a number of countries including Kingdom of Saudi Arabia, the United Arab Emirates, Kuwait, France, India, Japan, the UK and Hong Kong.
EDB chief executive Khalid Ebrahim Humaidan said: “We are always excited to see new companies launch operations in Bahrain, one of the leading investment destinations in the Gulf. Companies will find that we have an ideal investment climate, boasting some of the region’s most competitive costs and skilled workforces, allowing businesses to thrive.”
In 2018, Bahrain implemented the Legislative Decree No. 56 of 2018 In Respect of Providing Cloud Computing Services to Foreign Parties (Cloud Law). This provides a legal framework that “encourages Foreign Parties use of an investment in Cloud Computing Services within Data Centres”.
As a consequence, Amazon Web Services (AWS) opened three data centres in Bahrain last July: the company’s first in the region, bringing its global network to 69 centres in 22 locations. AWS has predicted that 10,000 data solutions architects will be needed across the region within the next five years.
The government has confirmed that 2,500 Bahraini nationals have already signed up for AWS training programmes. This is indicative of the growing success of Bahrain’s innovative strategies to encourage cloud computing services.
In addition, Bahrain has the most comprehensive fintech strategy in the Arab world and it is a model that is now bearing fruit. It started with the launch of the region’s first regulatory sandbox whereby ideas could be tested, refined, and licensed within a controlled environment until they were ready for market. The central bank has since set out rules and frameworks that govern things such as crowdfunding, cryptoassets, robo-advice, open banking and insurance aggregation, as well as creating the FinTech and Innovation unit to smooth the process for start-ups.
Bahrain has enacted laws that allow start-ups to innovate without the fear of legal consequences that are typically associated with insolvency in the Arab region. This is alongside a new data protection policy and a push to encourage the take-up of cloud-based services to lower costs and improve competitiveness.
At the same time, Bahrain Fintech Bay, the region’s largest fintech incubator, was formed in association with more than 30 corporate partners, including banks, insurers, payment processors, telecoms and technology companies. It has established the National Fintech Talent Programme in partnership with professional development agency Tamkeen, which aims to create a steady supply of fintech-ready residents — 200 Bahrainis will have completed the programme by the end of 2020.
Similarly, the Bahrain Development Bank, which supports small and medium businesses in the kingdom, moved to bridge the venture capital gap through the creation of the Al Waha Fund of Funds in 2018, which successfully closed a US$100 million fundraising round to invest in regional startups, making it the first active venture capital fund of funds in the region. It allows VC fund managers to apply for capital allocations that in turn must be invested in the region.
As a result of investments like these, Bahrain now has one of the most diversified economies in the region, with the hydrocarbons sector representing less than a fifth of its annual GDP. Bahrain’s infrastructure and attitude have positioned the kingdom as more than just a fintech hub. There are a number of promising sectors for technological investment including renewable and clean energy, travel and transport, smart mobility, additive manufacturing, education, health and agriculture.
Given its proximity to Saudi Arabia, Bahrain also enjoys excellent access to the region’s most lucrative market with a gross domestic product (GDP) of more than $680 billion and a population of 33 million of which 70% are below the age of 30. This demographic is ‘tech’ savvy with strong purchasing power and the Saudi Arabian market offers a real prospect of growth for start-ups.
These represent just a small selection of the opportunities available to international investors, businesses and entrepreneurs looking to enter the market in Bahrain. We would encourage you to contact us for a personalised discussion.