Bahrain shifts gears
From F1 to finance, Gulf state jostles for pole position as the Middle East’s most liberal economy
The roar of Formula One car engines will blast out from Bahrain’s 20th Grand Prix in less than a fortnight. When F1 arrived in 2004, the Gulf country was catapulted into the public consciousness and the event set off a string of copycat attempts to replicate its sporting success.
Neighbours including Saudi Arabia, Qatar and the United Arab emirates have all set up their own races in a bid to muscle in on the sport and the way it acts as a showcase, attracting international investors.
But with the 20th anniversary of its Grand Prix fast approaching, Bahrain is jostling for pole position in the burgeoning finance and tech sectors.
In finance particularly, officials and business leaders are keen to talk up the country’s history as a bridge between east and west.
The strategy bodes well for the UK – which is considered a key destination for Bahraini investment cash – and British banking giants are a dominant force in the country’s financial industry.
As The Mail on Sunday revealed recently, the country’s £14.4 bn sovereign wealth fund, the Mumtalakat, is planning to plough a wall of cash into the UK through a series of investments, including in the North of england.
Mumtalakat already controls Woking-based racing car maker McLaren, where investors last month approved a restructuring that will make it easier to sign partnership deals.
Mumtalakat’s chief executive Sheikh Abdullah bin Khalifa has declared he wants the fund to become ‘an engine for deals’ and to expand internationally. Bahrain and the UK have deep and long-lasting ties. The country was a British protectorate for more than 100 years before it gained independence in 1971.
The connections extend into business. London-based Standard Chartered was the first bank to set up shop in Bahrain in 1920 and helped establish it as a key financial centre in the region.
The kingdom has tried hard to retain its strong links to the West. The island is playing host to the US Navy’s Fifth fleet as well as a Royal Navy support facility.
It is also the only Gulf country formally part of the US-UK coalition to protect shipping in the Red Sea following attacks by Iranianbacked houthi rebels from Yemen in response to the conflict between Israel and hamas in Gaza.
Sandwiched between oilrich Saudi Arabia to the west and gas-rich Qatar to the south, Bahrain likes to play up its credentials as a trade and diplomatic link both between its fellow Gulf States and the world at large.
A key trade port since antiquity, the island was for millennia known for its pearl fisheries and was one of the first Middle eastern states to discover oil in 1932.
But the kingdom knows the perils of relying too heavily on fossil fuels and began diversifying its economy in the late 1970s – another example its niftiness in getting ahead of its Gulf neighbours.
Liberalisation of the economy has been ramped up over the past two decades and was accelerated after the pandemic as Bahrain’s oil and gas reserves, which still account for a large chunk of government revenues, rapidly dwindle.
Since that first Grand Prix, the economy has soared. National income has grown to more than £35 bn in 2022 from under £8 bn two decades prior.
Key areas of interest these days are banking and tourism. The former received a boost in the 1970s and 1980s when the Lebanese civil war forced that country’s large financial sector to flee from Beirut to Bahrain’s capital Manama.
Singapore, another small nation that rapidly developed off the back of its position on key trading routes, seems to be a template.
Bahrain’s lucky geography could also help it become a hub for international data cables.
A strategy to exploit developments in artificial intelligence is being drawn up, along with plans to use the desert plains as a location for the vast data centres that power cloud computing.
The country has already seen success with the likes of Amazon establishing a data centre in the country while in 2021 Citigroup picked Bahrain as the location for its first global technology hub in the region.
Khalid humaidan, the former head of Bahrain’s economic Development Board and now the governor of the country’s central bank, points out that its financial sector has overtaken oil and gas and is the largest contributor to the country’s gross domestic product (GDP) at 17.5 pc.
Overall, non-oil sectors account for nearly 80 pc of the country’s GDP. This is in stark contrast to Saudi Arabia, which relies on oil sales for 40 pc of its GDP while natural gas exports account for around 60 pc of the GDP of Qatar.
‘While oil and gas continues to be an important sector for Bahrain’s national economy, we have shifted our focus,’ humaidan said.
Beyond business, Bahrain is also keen to emphasise its status as a more liberal place to operate compared to its neighbours in a bid to encourage more global firms to set up shop and bring in their international workforce.
Alcohol is legal and same- sex relationships have been permitted since 1976. This contrasts with Saudi Arabia, where both are strictly prohibited.
The country is also aiming to dispel lingering concerns about its human rights record following a crackdown on protests in 2011 sparked by the Arab Spring wave of demonstrations that swept the Middle east. With the region once again facing a period of instability, Bahrain has a difficult balancing act to maintain if it is to stay ahead of the race.