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Bahrain Reforms
Friday, March 22nd, 2002, U.S.-Arab Tradeline
Ghada H. Elnajjar

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With a proposed US-Bahrain free trade agreement (FTA) in the pipeline, the Kingdom of Bahrain is on the course for a major economic boost. The proposed FTA was followed by a government pledged action plan for dynamic economic growth based on openness, described as a launching pad for the kingdom’s progress and modernization. As the Bahrain economy is becoming more open and transparent, more companies are bidding on projects in the kingdom.

The announcement of a possible FTA between Bahrain and the US came this Sunday during the recent visit of US Vice President Dick Cheney to the region. TradeArabia.com reported that at a joint press conference with the vice president, Crown Prince and Bahrain Defense Force (BDF) Commander-in-Chief Sheikh Salman bin Hamad Al-Khalifah said that negotiations on the proposed FTA could begin soon. According to Sheikh Salman, in order for the agreement to happen, a “structured dialogue” needs to take place first to establish the necessary “mechanisms.” For now, “getting the process started would be our main goal in the coming months,” added the crown prince. Vice President Cheney noted that improving trade relations with Bahrain was a “worthy objective.” This echoed an earlier statement at the beginning of March by US Ambassador to Bahrain Ronald Neuman, during which he said that the US government is giving renewed focus to economic and commercial relations with Bahrain.

Also discussed at the joint press conference were Bahrain’s political and economic reforms. Bahrain declared itself a constitutional monarchy on February 14th and it plans to hold its first parliamentary elections in October and municipal elections in May. “America supports the Bahrain government as it pursues political and economic reform that works for the good of all of its people,” said the vice president. He congratulated Bahrain’s King Sheikh Hamad bin Isa Al-Khalifa on his intention to conduct parliamentary and municipal elections that will allow women to be candidates. Although women could vote, work and own business in Bahrain, this will be the first time that they will be allowed to stand for election.

The following day, Monday, after the press conference, Bahrain’s Prime Minister Sheikh Khalifah bin Salman Al-Khalifa met with members of the government’s Administrative Development and Financial Control Committee and pledged an action plan working towards economic growth. As reported by TradeArabia.com, the prime minister underlined the crucial importance of administrative development and fiscal responsibility, in bolstering strategic requirements of the kingdom. This will also serve its plans and drive for development, and achieve the government’s aspirations of reaching openness, transparency and justice.

The issue of transparency was the topic discussed by US Deputy Secretary of Commerce Dr. Samuel Bodman during his recent visit to Bahrain in early this month. As noted by Dr. Bodman, more transparency in government decision-making is needed to attract US companies. He urged that Bahrain set up a one-stop-shop for foreign investors interested in investing in the country to help speed up the different licensing procedures involving different government agencies. Dr. Bodman named protection for intellectual property and democratic reforms among the achievements being made by the kingdom. He also praised the Bahrain Monetary Agency (BMA) for its “sophisticated approach” to financial regulation.

Bahrain’s central bank, BMA, has an unparalleled reputation in the region for regulation, reinforced by close relations with the Bank of England and other international regulators. According to the Gulf News, the kingdom houses some 176 financial institutions, including 19 onshore commercial banks, 48 offshore banking units (OBUs) and 33 investment banks, including regional giants Arab Banking Corporation (ABC), Gulf International Bank (GIB) and Investcorp. Firm regulation will help banks in Bahrain prevail with increased international competition, especially when it has to open its market to foreign banks in 2003 as required by its membership with the World Trade Organization (WTO).

In an annual survey, the 2002 Index of Economic Freedom, conducted by the US-based Heritage Foundation and the Wall Street Journal, Bahrain has been rated the freest economy in the Gulf region. The survey concludes that the Gulf country maintains few barriers to foreign investment and the government is actively promoting foreign investment.

As the Bahrain economy is becoming more open and transparent, more companies are bidding on projects in the kingdom. Leading financial institutions, such as the GIB and the ABC, are looking to regional corporate and project finance deals as a significant growth area. King Sheikh Hamad has issued a decree approving the addition of $793.71 million to the state budget for 2001/2002, to be used for recurrent expenditure and development projects. Meanwhile, Bahrain is forging ahead with several major tourism and infrastructure development projects. According to Jamal Ali Al-Hazeem, chief executive officer of Bahrain’s Economic Development Bureau (EDB), each project is aimed at bringing foreign investment to the country.

EDB, an autonomous semiprivate agency, has published an “Investor’s Guide” to business opportunities in the Gulf country and launched a website, www.bahrainedb.com, aimed at the potential investor. The book offers details on the economy, incentives for investors and legal procedures. The EDB plans and executes strategies aimed to boost Bahrain’s economy and to promote the flow of foreign direct investment into the country. It targets investments mainly in six economic clusters: IT and telecoms; healthcare; education and training; tourism; banking and financial services; and downstream industries.

Al-Hazeem revealed that the EDB is drafting a telecommunications law that will open the country’s telecom sector. As he explained, “Bahrain always strives to maintain touch with the developments in the telecom and information technology markets.” Bahrain appointed a consultant in January to examine deregulation of the telecom sector, and it is likely that shortly it will have many service providers. The firm, Intercai Mondiae Limited (IML) would provide advisory services, including help on economic and legislative matters, with the aim of liberalizing Bahrain’s telecom sector. Legal consultants White and Case LLP were asked to open a branch office in Bahrain to provide legal and logistical advice for the project. Bahrain Telecommunication Company (Batelco) is currently the sole provider of telecommunication services in the kingdom. The government owns 39 percent of Batelco, while Cable and Wireless of Britain owns 20 percent, with the rest traded on the Bahrain Stock Exchange.

Another major project being embarked upon is the expansion of Aluminum Bahrain (Alba), which will see the smelter become the largest in the Western world. On September 23rd, the cabinet approved the $1.7 billion expansion project, which will increase output from the plant’s current level of 510,000 tons a year (t/y) to about 750,000 t/y, raising the smelter’s capacity by 50 percent. The US firm Kaiser Engineering conducted the feasibility study and the award of the engineering, procurement, construction and management (EPCM) contract will soon follow. According to the Middle East Economic Digest (MEED) the banking community is watching developments closely and will soon be asked to draw up financing proposals. The financing process, however, will depend on Bahrain’s other development projects, particularly the proposed refurbishment of the refinery operated by Bahrain Petroleum Company (Bapco), which will also look for financing proposals.

The flourishing business economy in Bahrain is encouraging to incoming investment, as it offers a lucrative market for international investors. Bahrain’s ongoing political and economic reforms, which may eventually lead to a FTA with the US, cannot be overlooked when forecasting Bahrain’s growth potential. All these factors coalesced together to create a growth equation that produce an economic environment ripe for expansion and ideal for investment opportunities.