The financial sector in Bahrain has managed assets totaling approximately $377.5bn in 2005. Of this the financial services accounts for over 27.6 percent of the total GDP output in Bahrain and Stephen Rothel, CEO of BFH, strongly believes that with the significant infrastructure projects, government and regulatory initiatives (US FTA etc) for the sector that are nearing completion, the sector’s contribution to the economy as a whole is only going to increase significantly.

The strength of the economy
Over the years Bahrain, due to its strategic location and strong economic fundamentals and regulatory framework, has emerged as an ideal investment destination and has gained the reputation of being the financial capital of the Middle East. The macro-economic statistics amply validate this claim. Bahrain today boasts of some of the best economic statistics in the region. With an inflation rate of 2.7 percent (2005), a trade surplus of 19.3 percent of the GDP, a real GDP CAGR of 5.9 percent (2000-2005) and a per capita GDP of $20,500. It is no surprise that Bahrain has received sovereign ratings of A, A3 and A from S&P, Moody’s and Fitch respectively. Furthermore, with an upgrade of the Kingdom’s sovereign ratings from stable to positive and with over 370 financial institutions, Bahrain has also re-enforced its position as a strong international financial centre in the Middle East. Mr Rothel said; “This is a position we strongly believe that will only be strengthened post the formal launches of the various development projects being undertaken in the Kingdom such as the Bahrain Financial Harbour, the Bahrain-Qatar Friendship Causeway, to mention just a few.” In 2006 Bahrain’s GDP continued its expansion growing approximately 11.3 percent (as per an HSBC report). This growth has primarily been non-oil in nature and has not only resulted in Bahrain being voted as the freest economy in the Arab World but has also resulted in significant job creation – a trend that has also seen a significant influx of expatriate workers. The Kingdom has also been ranked as the number one country for the last 10 years in terms of human development by UNDP. Bahrain also boasts of highly investment friendly central policies promoted by the government and a world-class regulatory framework. Bahrain also boasts of one of the highest literacy rates in the Gulf Co-operation Council (GCC), a highly and well-educated bilingual workforce and excellent work ethics.

The case for BFH
The $1.5bn BFH was conceived with the aim of re-enforcing Bahrain’s position as the financial capital of the Middle East and further enhancing the attractiveness of Gulf Co-operation Council nations as a whole for global financial sector players. Additionally, Mr Rothel says; “it aims at playing a key role in the development of emerging financial tools and trends such as Islamic finance, along with creating an environment that is at the forefront of innovation and best-practices, thus creating a distinct position for the region in the global financial markets.” Furthermore, Bahrain currently does not have a focused ‘financial district.’ At best it can be termed as a scattered financial district. As is the case with most rapidly evolving economies, there is limited physical space in Manama, Bahrain’s capital, for the continued growth of the financial sector, causing an increase in congestion. Moreover, there are no such waterfront developments in Bahrain. This has resulted in the urban centres moving away from the shoreline. Mr Rothel says BFH was conceived to address these problems. “It has been designed to offer a financial sector that is focused, world class and to be a fully integrated master-planned water front development,” explained Mr Rothel. “It is the first development of its kind in the Middle East. It will uniquely combine business, leisure and residential components under one canopy and by evolving a highly focused, committed and advanced financial environment.”

The location – why the harbour?
The reason for reclaiming land from the sea for BFH was that most of the financial sector in Bahrain is focused in its capital Manama. However, being an island and a rapidly expanding economy, the strain on available land resources in Manama was very high and it was not capable of supporting a project of the scale of BFH. “Additionally we wanted BFH to be a waterfront property to significantly enhance the attractiveness of the project in line with leading international business districts such as Hong Kong for example. Thus, the best route available to us at the time was to reclaim land of the Manama coast for BFH. Attempting to place BFH in the centre of the city would have only added to the congestion in Manama and have been limited by available infrastructure. BFH through careful master planning, has been able to incorporate new purpose designed infrastructure that will perform to international standards, said Mr Rothel.

From hydrocarbons to finance
It has been some time now that the Middle East economies have actively been diversifying their economies to reduce the contribution of petro-dollars. Bahrain is no different. Today the financial services alone contribute over 25 percent of the GDP and this is being actively supported by growth in the tourism and manufacturing sectors. Additionally, the recently signed FTA agreement with the US and the announcement of the causeway with Qatar will only add momentum to this trend.

The rise of Islamic finance
BFH is also ideally placed to take advantage of Bahrain’s central role in the sphere of Islamic finance, which is one of the fastest growing sectors in the financial world. Having emerged as one of the fastest growing segments in the global financial landscape, Islamic finance however started being practiced in an organised manner only 30 years ago post the Organisation of Islamic Conference recommendation of establishing an Islamic economic system. Media reports last year quoted the British Financial Services Authority estimates of assets under management in Islamic finance is in the range of $200 to $500bn. Other semi-official statements by GCC officials suggested that ‘Islamic’ deposits account for 10 percent to 20 percent of total deposits in those countries. Traditionally, centres such as Bahrain have spearheaded the Islamic finance movement. Bahrain not only houses over 25 of the world’s largest Islamic finance institutions but has also played host to some of the regions most innovative and successful Islamic finance instruments such as Mudaraba and Sukuk issues. On January 12, 2002, the Central Bank of Bahrain became the first central bank to issue regulations for Islamic banks, under the title ‘Prudential Information and Regulations Framework for Islamic Banks’ (PIRI). Through these regulations, which in essence formed the base for setting international accounting and auditing standards in Islamic finance, Bahrain became the first country to publish a legal framework for Islamic finance.

Bahrain’s regional competition
“The regional financial marketplace is one of the fastest growing in the world and as frontrunners in the sector, we feel that it is our collective responsibility to develop and promote it. I don’t think that there is overcrowding in the Gulf market for financial services or that along with the other financial centres in the region (Dubai and Qatar) we will cannibalise each others’ business for two key reasons. Firstly, all three markets have a distinct focus and although there is some amount of overlap, their broad agenda remains vastly different. And secondly the financial markets in the region are at a very nascent stage and there has never been any integrated development such as these in the region before. Thus, not only would these centres help collectively enhance the profile of the region as a whole but will also help cater to the rapidly growing need for such facilities in the GCC,” continued Mr Rothel.

Perfect location
BFH, with its first mover advantage, excellent and unique product offering and strategic location of Bahrain is well-equipped to play its part in this endeavour. Bahrain’s perfect location, at the international crossroads of the major continents – facilitates 24/7 global trade with access to over $1.5trn regional private wealth and the highest literacy rate in the GCC. With one of the oldest and most robust regulatory bodies in the Middle East, the Central Bank of Bahrain has also over time developed the reputation of being the most respected regulatory body in the Middle East. But there is another significant factor, as outlined by a leading English daily in Bahrain, which has in recent times gained tremendous significance while determining to a large extent the sustenance of economic success of any city or country – the low cost of living. It is here that Bahrain gains significantly against more prominent economies in the region. It is ranked amongst the lowest in the GCC on the Cost of Living Index making it an attractive destination for both expatriates and businesses alike. All these factors together present a very compelling investment rationale for any global financial sector company setting up in the region to do so through Bahrain. “Given this overall backdrop, we at BFH are very confident that the region driven by Bahrain and other emerging centres will be able to once again drive the next wave of exponential growth in the Islamic finance sector, which would see it establish its position as a significant alternative to conventional finance not just within the region but also on the global landscape. Furthermore, we are also confident that BFH, with an integrated model ideal for the co-existence and co-operation between academics, researchers and financial institutions in the space along with its strategic location in Bahrain, will emerge as a significant enabling centre in this incredible growth story,” add Mr Rothel.

The regulatory framework
Financial freedom (with the appropriate non-interfering regulation) is a must anywhere in the world. In Bahrain the model has now entered a stage of maturity and the benefits are visible for all to see. A significant component of this model is flexibility in the ability to swiftly adapt to change. The regulatory framework set up in Bahrain has insured that this flexibility is maintained and thus allowing Bahraini business to constantly adapt to changing marketing dynamics in the process ensuring them a significant competitive edge.

The future
Bahrain is the largest financial centre in the region and already boasts of over 370 financial institutions (the largest in the Middle East). With projects such as BFH, the Friendship Causeway to Qatar, the US-FTA agreement and others the Bahrain Financial Harbour success story will only be strengthened with better and better year-on-year performances from the sector in the Kingdom. “We think there is much to look forward to,” concluded Mr Rothel.

For further information:
Tel: +973 17 563 563
Email: srothel@bfharbour.com
Website: www.bfharbour.com