Bahrain Economy Overview

H.E. Shaikh Mohammed bin Essa Al Khalifa, Chief Executive of the Bahrain Economic Development Board (EDB) “Our aspiration is to place the GCC as a third destination; for people to talk about India, China and the Gulf. It’s about all of us being a bigger player on the global stage.” In your opinion is GCC going to play a significant role on the global stage alongside giants such as China and India?

The GCC region already plays an important role on the world stage. As a significant exporter of oil and capital and a major importer of a wide range of capital and consumer goods as well as foreign labour, the GCC is and will remain an important pocket of wealth in the world. By 2020, the GCC will be a US$2 trillion economy, providing nearly one-quarter of the world’s oil supplies as well as increasing quantities of petrochemicals, metals and plastics. With a current estimated population size of 38.5 million, it is unfair to compare the GCC with China and India, with 1.3 billion and 1.1 billion people respectively. However, the region’s geographic proximity to the industrializing giants of the east gives it certain advantages, which may be attractive for investors from the West and elsewhere. The region is largely open and welcoming to foreign investors, it is fairly easy to do business in most GCC countries, the markets for a range of industries and services are fairly well regulated and the region offers a hospitable environment to live in. Having said that, it is imperative that the countries of the region redouble their efforts to forge a single market, akin to the EU. Individually, the GCC states are too small to command much attention, but together they can wield a lot more clout, economically and politically.

According to the Central Bank Bahrain’s economy should grow by 3% in 2009 amidst he global economic downturn. What are the key engines fuelling this growth and how well is Bahraini economy insulated from the effect of the global economic downturn?

The global financial and wider economic crisis has taken a toll on the economies of most countries which are a part of the global economy. The impact on each country has varied only in its degree. Bahrain, which is very much a part of the global community of nations, is also feeling the pinch of the crisis. Oil prices, which were spiraling at this time last year, have settled at more modest levels, global market conditions have put a squeeze on credit markets and the property boom has ended. All this has slowed the pace of the frenetic activity of the recent past but it has not halted economic activity or growth in Bahrain. Lower oil prices will also take their toll on the Bahrain economy as it is still considered to be a net exporter and investment flows from GCC investors will decline in the coming years. Therefore, Bahrain economy is expected to slow sharply in 2009 to 3% after growing by 8.1% and 5.7% in 2007 and 2008 respectively, as regional growth moderates and government finances are squeezed. With oil prices going up again after tumbling to $30 per barrel, and global market conditions improving, Bahrain economy is expected to recover and to return to its expanding phase with over 5% rate of growth. One must remember that oil prices, even at their current levels, are much higher than a decade ago. This provides the government of Bahrain the resources needed to continue its planned projects and create prosperity within the domestic economy. Over the past three decades, Bahrain has positioned itself as the financial hub of the Middle East, which is a testimony to the successful implementation of the country’s diversification strategy. The country boasts a fairly large banking and financial services industry, which contributes more than a quarter of Bahrain’s GDP and is the 2nd largest contributor to GDP, after oil. The financial sector has held up well so far and has not experienced the kind of turbulence witnessed in Europe and the US. The Central Bank of Bahrain has not had to rescue the banks, which remain, by and large, robust and well capitalized, although investment banks have seen a deterioration in their asset quality and portfolios. The tourism and hospitality sector remains fairly unaffected, despite the more severe effects we are seeing elsewhere in the region, while the manufacturing and construction sectors have been negatively impacted, to varying degrees. As long as the global economy remains in recession, the various segments of Bahrain’s economy will remain vulnerable. However, there are structural positives and the outlook remains bright.