Bahrain economic growth in 2017 ahead of forecasts
▶ Country has been exploring fintech with two companies already approved
Economic growth in Bahrain this year is ahead of forecasts as the tailwinds felt from subsidy reforms, business-friendly legislation and the impact of billions of dollars of investment from its Arabian Gulf neighbours spur non-oil sectors such as construction, the chief executive of its Economic Development Board (EDB) said.
“The first quarter was 2.9 [ per cent in terms of overall GDP growth]. It’s in line with what we saw in 2016, 2015. We are confident that we can achieve those. Our official forecast is 2 per cent. I’m a little more bullish on that. I believe the numbers say it, with the capex spend, we expect 3 per cent,” said Khalid Al Rumaihi, who was appointed in 2015 to lead the public agency mandated to attract businesses and foreign direct investment to Bahrain.
The IMF is less bullish on its outlook and says that despite the country’s fiscal reform efforts, lower oil prices last year meant that the deficit reached nearly 18 per cent of GDP and government debt rose to 82 per cent of GDP. Real GDP growth is expected to slow to 2.3 per cent and 1.6 per cent this year and next year respectively, according to the IMF.
Speaking on the sidelines of the International Institute for Strategic Studies’ (IISS) Bahrain Bay Forum conference in Manama on Sunday, Mr Al Rumaihi said that despite flat growth in the oil sector, the non-oil portion of the economy is performing well and growing at about 4.5 per cent.
“So our GDP growth is north of what the IMF is estimating. We did about 2.9 [per cent] in 2016, it was 3 per cent in 2015. We expect to hit 3 per cent this year just based on what we see so far and our optimism,” he said.
A pipeline of about US$32 billion in infrastructure spending, which is not reliant on the budget, including $7.5bn from Saudi Arabia, Kuwait and the UAE, is starting to pick up pace, he said.
“That will have a trickle-down impact, which we observe in the construction sector. We expect that to be counter cyclical, to assist our growth in the economy throughout this year and next year. That is going to be a great tailwind to our economy.”
A key project is the $1.1bn new airport terminal at Bahrain International, backed by the Abu Dhabi Fund for Development. Arabtec won the main construction contract last year.
A $3bn, three-tranche bond issue was heavily oversubscribed last week, despite negative outlooks from rating agencies off the back of the low price of hydrocarbons, income from which the Bahrain is still heavily reliant on despite its economy being 80 per cent diversified away from a reliance on oil.
Mr Al Rumaihi said the government had been working hard on fiscal issues, including cutting back on energy subsidies.
“On the fiscal side, our government is very focused on how to manage through this low oil price environment. We still have more work to do, clearly,” he said.
Foreign direct investment is also set to exceed expectations this year, he said, and the EDB has already sourced $330 million so far this year.
“Last year we had $281m of direct investment that was sourced through the EDB. This year our project, our target, was $350m. Already by August, $329m to $330m has been generated, again just through the EDB. We are expecting not only an excess on last year but [to be] ahead of our target, we are going to beat our target,” said Mr Al Rumaihi.
There are no figures available for overall foreign direct investment into Bahrain for this year, he said, but last year it was about $1bn.
The country has been exploring the potential benefits of fintech, such as the financial centres of the UAE have provided, but Mr Al Rumaihi believes Bahrain has the advantage of being able to offer an onshore regulatory environment.
“We have had resounding response from the market and the central bank has already approved two [fintech companies]. We are introducing crowdfunding, equity was introduced last week and debt, that is going to allow platform operators to come. We are looking at government policy and the government to lead in terms of them looking at digitilisation,” said Mr Al Rumaihi.
Later this month, Bahrain will announce plans to leverage technology and innovation, Mr Al Rumaihi said.
“We want to create all the regulation and the ecosystem elements that will allow Bahrain to be an active hub for that,” he said. “More importantly we don’t just want to invest in Silicon Valley companies. We want to allow innovation to take place here, not just for local entrepreneurs but for regional entrepreneurs. We are going to put in policies, regulations and institutions that are going to help do that.”
That includes plans to overhaul the country’s bankruptcy legislation, he said.
“We want to look at restructuring and Chapter 11, we have a bankruptcy law right now but it doesn’t allow restructuring. Plus, if you’ve gone bankrupt [currently] you’re almost persona non grata. Banks won’t open an account for you until two years have passed – that doesn’t speak to the spirit of entrepreneurship, so we want to address that.”