The Kingdom has a plan for its economy
Bahrain, like many of its neighbours from the GCC, depends on the production and refinement of oil for much of its wealth. In 2019, the kingdom depended on oil revenue for 85% of its total budget.
This dependence has not yet been a problem for the country. In fact, the wealth from oil has been a strength that has driven the country forward and improved the living standards of much of the local and expatriate population. However, with sustainability efforts gathering pace worldwide and the expected decrease in demand for oil, they do have a need to grow the economy beyond the strong dependence on oil.
It does have other sources of income, like tourism from the neighbouring countries, its success as a financial centre as well as trade through its ports. However, there is still clear room for improvement. This is especially true when you consider the many strengths that it has, location-specific and otherwise.
To any investor or professional who may hold an interest in Bahrain, or is even considering investing in the country, it is important to know how there is a plan in place for the economy of Bahrain. Having a solid plan to diversify the economy of the country beyond just oil, despite the continued value of it as an economic resource, indicates the strength of the economy and perhaps more importantly, the lack of unnecessary risk.
Bahrain’s diversification plan for its economy
The bulk of Bahrain’s efforts to diversify its economy comes as part of its vision for 2030, the plan for which were first envisioned as early as 2008 by its leadership. There are now solid efforts to invest and improve different aspects of its economy with a view to gaining overall strength.
There are also intentions to have these goals be met with some key principles in mind. The plan intends to have a diversified economy that is sustainable, fair and competitive.
But how exactly are they planning to achieve these lofty goals? What efforts have already gone into making sure the Kingdom and its economy is on the right path toward achieving these goals?
In this article, we will look into the key areas where Bahrain plans to gain improvement and what measures they have already taken or intend to take, in order to diversify and strengthen its economy.
Tourism
Tourism is one prominent industry where the country is vying to improve its performance in. While Bahrain is already a favourite destination for travellers from some countries in the Middle East, especially KSA, there are now efforts to make it more appealing to travellers and tourists from other parts of the world as well.
And the country does have the location and physical characteristics for it, with pristine beaches around the island an especially attractive feature. There are also the 3 UNESCO heritage sites, the Middle East’s first F1 track, and the potential for adventure in attractions like Dive Bahrain, the world’s largest underwater theme park.
The country is actively taking steps to make it more attractive to the over 200 million people who are as close as a mere 2-hour flight from the country. The country is investing more than $10 Billion in projects such as museums and hotels, improving the tourism infrastructure in the country. There is also the new airport terminal which was opened in January 2021, with a marked improvement in its capacity to nearly 14 million passengers every year.
The country also established the Bahrain Tourism and Exhibitions Authority (BTEA) in 2015 with the intention of boosting the contribution of the tourism industry to the overall economy of the country. There is also an increasing amount of collaboration among the BTEA and other important bodies in the country, like the Ministry of Industry, Commerce and Tourism (MICT) and the Economic Development Board (EDB), all with the intention of improving the prospects of the tourism industry in the country.
Retail
Among the reasons why tourists choose to travel to Bahrain, shopping is the most prominent. Nearly 6 million people travelled to the country in 2019, primarily motivated by the prospects for shopping in the country.
The country has several destinations for shopping, with a diverse array of options ranging from historic markets to large, modern malls. And as tourism to the country grows, retail is expected to grow with it. The growth of tourism in the country is especially important to the retail industry, considering the fact that only 24% of the retail market is driven by the resident population. A massive 76% of the retail market is driven by the tourists in the country, and with tourism expected to grow, stands to reasons that retail does the same.
It is projected that the retail sector of the country will grow to reach $10 Billion by 2025, almost twice what it was valued at in 2019. Also, with the burgeoning tech industry in the country as well as the high levels of internet usage, e-commerce is also expected to grow alongside retail.
The country is attracting investments from major companies like Majid Al Futtaim, who have found significant success in the country with their Avenues and City Center malls, and Lulu Group International, one of the largest retail companies in the world.
There is also the Manama Souq, one of the busiest cultural attractions in the country. There are now plans to develop the Souq even further, making it better suited to serving the shopping needs of its residents and visitors while preserving the cultural aspects that make it special. The Manama Souq Development Committee (MSDC) oversees this initiative under the authority of BTEA.
Real Estate
Bahrain places itself as a real estate investment opportunity for investors from other countries, especially, for those from the GCC, offering them full ownership in all areas of the country.
The total value of real estate transactions in Bahrain reached $1.9 Billion in 2020, despite the impacts of the ongoing pandemic. There are also active plans to improve the real estate market even further, with a National Real Estate Plan, approved in February 2021, that acts as a comprehensive tool to develop the activities and opportunities in the sector.
There is growth to be found as well, even as the economic impact of the pandemic continues, with a marginal 0.4% increase in prices of high-end apartments during Q1 2021. The real estate market, on the whole, is expected to be on the road to recovery, sooner rather than later.
Being a small island country, Bahrain is limited in the amount of physical space it has. This may also be a contributing factor to increasing returns from investments in the industry, especially as the country and the economy continues to grow.
Financial and Fintech
The financial sector is the largest employer out of all industries in the country, with locals from the country making up 65% of the total workforce.
The country has found success in establishing itself as a banking and financial hub for the Middle East, with banking assets standing at $192 Billion, over twelve times the annual GDP. This goes on to show the significance of the financial sector to the country, and the importance that it has in growing the country’s economy beyond oil.
The country has also found remarkable success in the Islamic Banking sector, with assets totalling a massive $25 Billion as of 2016. The country also hosts several major organizations that work toward developing Islamic finance, like the AAOIFI, LMC, IIRA and the Shariya Review Bureau.
The Central Bank of Bahrain works with and, in some cases like that of the Shariya Review Bureau, regulates the institutions that work toward developing Islamic finance. There are active steps to ensure that the country does its part and thereby benefits from the rapid increase in popularity and use of Islamic finance.
Overview of the actions taken by Bahrain for economic diversification
The country has, with its investments and other related actions, made it clear that it sees the private sector as the chief driving force of its economic diversification efforts. But the country has not made the public sector redundant either, with considerable investments into strategically important areas like infrastructure.
Investments have already been made in improving the infrastructure for international travel, like the new airport terminal. Also, there are now plans in place to set up a metro rail network in the country to serve the transportation needs of its residents, especially as Bahrain’s expatriate population continues to grow.
The country has benefited greatly from oil, like its neighbours from the GCC and beyond. However, there is no desire to continue to make oil the centrepiece of the economy anymore.
There are now plans and more importantly, actions being taken to find greater strength for its economy in diversifying its sources of wealth beyond oil. Each of the aforementioned industries, along with other smaller ones, are intended to form a strong core for the new, diversified economy of Bahrain.
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