InterviewsNovember 30, 1999

Bahrain Financial Harbour Key Real Estate Project in Bahrain

: Published: November 30, 1999

Jean Christophe Durand, Regional Director of BNP, declared that out of all the regional hubs Dubai and Qatar had underlined Bahrain’s benefits. What are the key advantages for international banks to establish themselves in Bahrain?

Managing Director of Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: I think Mr. Durand has mentioned one of them but there are so many other factors that would encourage people to come and invest in Bahrain. Apart from what people usually say about the geographical location and the proximity of the place to the Kingdom of Saudi Arabia which is the largest market in the GCC. Bahrain is a well regulated place, it has established laws that have been put in place more than a few decades back and people have foreseen for a long time that they cannot depend on the oil as the only source of income, they tried to diversify from early on and present themselves to the world as a service provider and an offshore centre where you are located between Europe and Asia so we can qualify as a connection between the two continents and perhaps with America also. Since the 70s Bahrain has developed company law, general business law and part of the Sharia law has been implemented, so it is kind of an international attraction for businessmen. Education has been here for a long time, if you go around Bahrain you will find that girls schools date back to 1919 which is a very long period for this part of the world if not for the whole world. That’s why you have qualified professionals here in Bahrain. The location also helps Bahrain to accept expatriates; it has been a place where people have come from India, the Far East, Africa and other parts of the world. It’s a mixture of religions too: you have Muslims, Buddhists, Jews, Christians and you have schools for everybody. There are French schools, Japanese Schools, Philippine schools, English schools etc. So you have a community that look up upon expatriates rather than look down on them. We see them as people we can learn from rather than people who come just to leave their homeland. I think it’s been made socially acceptable to mix with any other race. It’s a secure place, there are lots of people who work elsewhere in the gulf but have their families here because of that security, the society is welcoming and the population is bigger than most of the GCC countries. We have a ratio of about 50:50 with locals to expatriates which encourages people to mix. It’s the interaction between the two which allows the foreigner to feel at home here and the Bahraini feels like the others are providing useful services to his country and he aims to learn from them. So it’s the location plus education, traditions, the regulations etc. of the country that allow security for all. The regulations on economic development are very well established, we have borrowed from Europe and the UK to create a very secure environment for businessmen. Also the financial regulators like the Central Bank of Bahrain which is one of the well reputed organizations. We also have most of the standard international services; most international firms have set up here providing the products and services that they offer. You have the best selection of international law firms providing services that the financial sector or banks will need.

What is the impact in your opinion of all these investor services on the attractiveness of Bahrain?

Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: Generally you will find that these agencies establish their reports on general factors. They have a number of criteria and they apply them everywhere without other conditions, they look for the same anywhere they may invest. If you apply it internationally it could be that way but if you’re looking at Bahrain, it has never been 100% dependant on the oil sector and I think because the price came down from $147 per barrel to less than $40 per barrel it has affected us. But I think if you are looking at a specific country like Bahrain you’ll find that the rating we had before the decline in price is better than the rating they gave to us now. Bahrain has never based its budget on the oil price whether it is $140 or $100 it is always considered as oil, as a commodity with a price that we should not rely on. Now the new budget has been reissued recently, you will find that the deficit of the budget is very much controllable because the price of oil on which the budget was based was less than $60 so coming down from $140 to $50 has not affected Bahrain that much to the extent that we have to downgrade the budget. We think that if the price of oil which is now a lot more than what Bahrain has based its budget on in the past years I think Bahrain should maintain its rating rather than be downgraded. It is true that we have looked at the international administrations in Bahrain and probably most of these have been affected outside but they have not looked into Bahrain as a special case like other GCC states. We are different from the other GCC countries like Qatar, UAE or Kuwait etc. Bahrain has a lot of investments that are original and these have not been hit as hard by the credit crunch. Bahrain also depends on services and services are not affected so much, the prices go up and down but the income is still there so the country and the population will not be downgraded in terms of these services. In addition, I think Bahrain is densely populated by the Islamic Banks who have been the least effected and this should give Bahrain credit at least to maintain the rating it has if not increase it.

You mentioned Islamic banking and the country’s strength in asset management and private banking; especially Islamic banking which has held up during the crisis because of prohibition of conventional debt Bahraini will remain the leading Islamic banking sector in the region and perhaps the world. So what is your assessment of Islamic banking and do you see a change in the Bahraini financial system?

Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: There are certain things you should know about Islamic banking. First, we have helped a lot during recent times in building the infrastructure of the country because concentration on development of building the infrastructure has very much helped this country prepare itself for the future rather than for the past. This is something with the population at hand, we are able to do. Second factor, you have to take into consideration the risks that the Islamic banks are facing are much less than the risks of the conventional banks when they go into financing certain projects. This is the nature of Islamic financing, it is an example of real estate development here; it’s a kind of partnership it’s not that the bank will lose and you will not be able to carry on. Financing means you have to pay installments from the beginning and you only get the commodity or the benefit of the house or building after you have almost settled the whole thing. During this time there is concern e fact between you and the bank it’s not only you or the bank. The fact that the bank is financing you will be limited by the fact that you have paid installments over the period of construction, at the end of the construction it will be like you have paid the contractor directly. That is the risk you are facing, which is less than the conventional banks. Certainly because of international events that have taken place elsewhere a lot of cash has come to this region and a lot of it has been kept in the Islamic banks, being a growing business, it still does not have a lot of products like conventional banks. The products in which they invest are very much limited and this is also contributing to the fact that the risks are limited because they chose the products and the market opportunities here are limited not like when you go to a conventional bank and you see products like supermarket products, there are so many things to invest in and you talk about so many things and then you are advised by some economic advisor. However, there it is very specific to what you are exposed or are offered; I think till now this has given the Islamic banks some strength that is why we talk about little or less exposure to this financial crisis than other sectors of the market. Bahrain has attracted more than 50% of the Islamic banks in the world, the only competition are some Asian countries and some small Arab countries but the culture of Bahrain is definitely a factor that will give it some support in becoming more attractive than any other centre. Islamic banking is based on the faith the religion of Islam and Bahrain is an Islamic country with diverse Islamic scholars but when you combine the Islamic religion with the Arabic language you always come out with a better respected scholar who can become more influential when it comes to these modern transactions. A lot of Islamic scholars today are asked to give different definitions of not just halal and haram but also how transactions can work within the Islamic laws. This combination of Arabic, Islam and being here next to Saudi Arabia gives Bahrain an advantage. Although you find more Muslims in Indonesia or India for example but I think here it will be at its best as there are fewer clashes with cultures or other factors that you might find in other countries. From this point of view, I think Islamic banks have a good role to play and that they will contribute to the future progress and development of Bahrain.

Traditionally many Bahraini investment bankers would live in more liberal Manama commute to Riyadh and the eastern province of Saudi Arabia as the richest market in the Gulf continues to slowly but surely open its economy it may be that people are tempted to move to Saudi Arabia. How do you assess this challenge?

Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: I don’t think this is true because I think the two countries complement each other. Saudi Arabia is a country whose income is based on oil revenue and minerals generally. It is a country with a big area and because of the large income from minerals it pays little attention to the service sector. I think they can concentrate on their industry. The oil companies are government owned, and provide the funding for the services; this kind of economy will not divert itself to a provider of services and other attractions. They simply don’t need it. Secondly Bahrain is the opposite, it does not depend on natural resources and minerals it depends on providing services and it is in a good position to do so. There are other factors as well, you don’t pay tax for example which is one of the reasons why people set up in Bahrain. The leading private sector banks in Bahrain are all Saudi businesses, the laws we have here are similar to the laws that they have at home. Also, Saudi Arabia is an Islamic country and always will be, its laws comply with Islamic law. Bahrain will remain a place where you can come and put up your flag and you will be at ease with the laws, the social life and the customs and conditions. We can easily say that they are complementing each other; I can’t see a situation where Saudi Arabia would be competing with Bahrain. The countries are very diverse in terms of what they offer to the public. Bahrain is open to all cultures and faiths which allows it to offer services internationally and attract different people to what Saudi Arabia would attract.

When you compare Bahrain’s market as a business and finance market is seven years too late admits the top investment banker in Bahrain, do you agree with this statement?

Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: I don’t agree with this, I think they have missed the point because Bahrain is taking very steady and sure steps. The seven years is in reference to rapid growth, this is based on factors that are not applicable to Bahrain. Bahrain’s population was more than the expatriate population, the demand is different for this population and the investment management is different. The investors there are mostly foreigners, they are there when the investment is doing well and not there when the investment is not doing well. The investment is also concentrated on real estate and they let the regulations and laws which are established make it a very solid kind of business that will continue over a long period of time and you can obviously see the results. Here the demand is different because the population is more than half local, the investors are not from all over the world, and most are from the gulf countries that have a relative in Bahrain or some other connection. Lots of Saudis come to Bahrain to invest in this way. So I’m not talking about foreign investments coming to Bahrain, I’m talking about family members from various parts of the gulf coming to invest here. If land or real estate developers which are the main developments, then they will be used as the population needs housing for itself. Here whatever we develop we need and that means the demand here is more than the supply we can always continue as long as we have the population growing. Apart from foreign investors the local demand itself will support the market better than anywhere else.

As you mentioned Bahrain is starting to feel the effects of the global economic crisis but its more modest growth rate compared to some neighboring markets should prevent it from staying in sharp decline.

Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: Well I wonder what sharp decline means because until now the Bahrain is one of the places that has been able to maintain their prices, in the past few months the value of the land is almost the same as the prices two or one year ago. Secondly, we don’t have the occupancy problems, we have an occupancy that has reached 75% and we have negotiations that will increase this capacity, we are hopeful that by the end of the year we can increase occupancy. We don’t feel that downturn the way it is felt elsewhere. We still have a lot of debate in Parliament, you can see in the newspaper that people are demanding banks to give them money to let them build their houses. There are more than 40,000 applications for new houses which is a large number which includes the middle class and the lower class, you have projects like Al Muharraq that has a population of 100,000 which is a large portion of Bahrainis population. The high prices that you get in Dubai or other places have not been the same here, we have been paying the same rent since 1993.

To summarize this how do you see future development in the real estate market in Bahrain?

Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: I think we still have a demand which is higher than supply, we have diversity in the type of projects that we are doing in Bahrain that will be supported by the local population generally plus the regional population and by that I mean the people that are tied to Bahrain from the other gulf countries and I think in this the economic agreement among the gulf countries will help Bahrain very much because its leading to unity, more investments coming from abroad and Bahrain is in a position of neutral brother among these. Bahrain does not suffer from any jealousy of any other neighboring country, when investments are coming to Bahrain they come without the kind of political push that others may use, we have shown all over that we can act civilized. There was a dispute with Qatar but it was taken to the court and we accept the result whatever it is, this is a problem that was resolved quickly and fairly. So I think it is a promising place for investors in the GCC to come, it will maintain its ways as a tax heaven as a provider of services and I think it will continue to grow.

Now Bahrain Financial Harbour is one of the first developments in the Middle East to combine financial business, leisure and residential components under one roof.

Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: The idea is starting to grow, a lot of people were thinking about it but now it is becoming a reality. The idea is to have a self contained city financially, we have offices and we provide the services such as banks and investment companies and we give them the offices but in the mean time we are building luxurious flats for their accommodation, so the whole family can be accommodated within this city. We have great ambitions to fill the area with restaurants, cafes and shopping places for the families. We have a sports club, social clubs, fitness clubs and we aim to build an opera house and a fishing harbor. We really aim to have it as a self contained city not only for the businessmen and those working there but also for families so we provide communications, transportation you don’t have to worry about traffic and so on. So our aspirations are that kind of self contained city that provides everything to the population. It is a very ambitious project and we have huge plans for it.

What is the scale of the project?

Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: Well, we are talking about the northern part of Manama. We started with the harbour but now we are expanding: to the East we have Bahrain Bay, to the West we have other projects and I think all this will make Manama a truly regional city because of the facilities there, we are providing top management services rather than local, we are trying to get the support of all the local entities that specialize in these fields and we are not here just to make profit. We are building an opera house for promotion of the cultural life in Bahrain, we are building the fisherman harbour next to this and we are only selling you a blueprint which is a piece of land with the information about the land and the limits to which you are exposed such as height limits etc. After we started this project we felt we need more parking areas, so we sacrificed a lot of land if you look around you will see they are building car parks. This is very valuable land and I think you will find you can get 6000 or 7000 dollars per square metre but we sacrificed it by building car parks instead for the welfare of the community that will be living there. So the whole project is not aimed at profit making it’s aimed at giving the country the image that is needed for it to become a financial centre and boost the economy as a whole by being a heaven for institutions like the national banks, the investment companies and the national service providers.

What are the major challenges you are facing?

Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: Well, I think because our ambitions are outstanding that at any one point maybe the challenges we have are to maintain our goals and to continue with them without having some sudden obstacles like the financial crisis that happened. I think the main problem would be the infrastructure completion, we should concentrate on infrastructure completion we have managed to build a lot of infrastructure within this at the projects cost and we know that no project will succeed without firstly establishing a very solid infrastructure for it. It becomes a matter of priority for the state to develop the infrastructure.

Is DIFC in Dubai posing a threat to you?

Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: No it’s not, as I mentioned in several occasions I think we are people who are racing in the same direction, we are not going to collide and if you are racing in the same direction maybe one will reach first maybe one will pass the other for a while but we are targeting similar goods and we are not confronting each other. I think whoever succeeds first will benefit the other. We are limited markets, we are not markets that can accommodate everything that deserves to be accommodated and you get saturated in some areas and when this happens the excess goes to the neighbor, which is what is happening in the UAE for example. Sharjah is benefiting from what Dubai is doing, the spillover is always there. Whoever is ahead doesn’t matter because it will change. I don’t think we are in conflict.

How do you envision Bahrain Financial Harbour in 2015 in terms of international strategy?

Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: We are looking at a very cosmopolitan place with so many cultures. We are dreaming of having a specific centre where people from diverse parts of the world can come and live in harmony, where we can be proud of it from a cultural point of view and at the same time to provide the best services that are available at a place that you can do your work and at the same time enjoy your life and feel proud that you are living there.

What image do you think Bahrain has abroad? What image would you like to send to those overseas?

Bahrain Financial Harbour (BFH), Dr. Omer Al Mardi: By this time I think that you have realized that this is a multicultural place, a place with very ancient civilization that goes back thousands of years. If you go to the museum you will see the history that we have here. We want the image of Bahrain to be known as a place of history, a place of multiple cultures, a tolerant place, a heaven for people of all religions, races and cultures and a place that is destined to be as prosperous as any country can be. We are small in size; our potential is limited, our abilities are limited by these factors. We can show everyone what a small country can contribute to the world.