Bahrain’s industrial zones offer a range of investment incentives

While the kingdom prides itself on offering tax-free incentives to businesses, it has also been developing industrial zones with added benefits for foreign investors, including contracts protecting tenants against future tax changes and, in some cases, bonded warehousing, which provides companies with certain exemptions from paying import duties.

Three such industrial areas were included among the top 20 global free zones of the future in a 2012 report by the Financial TimesfDi magazine, despite not being seen as free zones per se within the kingdom. The areas mentioned were the Bahrain Logistics Zone (BLZ), the Bahrain International Airport (BIA) and the Bahrain International Investment Park (BIIP). Although not on the list, the Bahrain Investment Wharf (BIF) is another key location for companies focused on shipping and processing of raw materials and trade.

Logistics Zone

The 100-ha BLZ, located within the Khalifa Bin Salman Port (KBSP), is operated by Ports and Maritime Affairs at the Ministry of Transportation (MoT). It focuses on third-party logistics, storage and distribution for export and re-export and includes 24-hour Customs clearance and a large number of temperature-controlled warehouses. The BLZ has a bonded area, where companies can reconstitute cargos and prepare them for GCC distribution without paying import duties – until, or unless, the goods are imported into Bahrain.

In May 2013 the BLZ signed a deal with Saudi Arabian developer Bandar Al Khaleej to build warehouses and logistics facilities on the site. Then, in October 2013 logistics firm Schmidt Middle East announced plans to lease a 36,000-sq-metre site to run storage, handling and shipping of bulk goods, such as polyethylene, polypropylene, catalysts and additives for the chemicals and petrochemicals industry. Schmidt Middle East, a wholly owned subsidiary of Germany’s Schmidt Heilbronn, will run its Gulf operations from Bahrain.

Investment Wharf

Located near the KBSP, the BIF was built by real estate development group Al Khaleej Development Company – also known as Tameer – a wholly owned subsidiary of Inovest, which is listed on the Bahrain Bourse. The privately owned $2bn facility covers 1.7m sq metres in the Al Hidd Industrial Development Zone, including industrial, business, logistics, IT, commercial and residential real estate. On part of the site real estate developer First Bahrain has built a warehousing facility called Majaal, which provides space for 20 tenants. The first phase was completed in 2010, with full occupancy reported since September 2011.

A 10-year lease on 75% of the 13,470-sq-metre facility was signed in March 2013 with Abudawood Al Saffar Company – the Bahraini distributor for consumer product companies such as Procter & Gamble and the Campbell’s Soup Company. The company also began building three additional warehousing buildings in July 2012, which were completed in May 2013.

International Airport

BIA provides import, export and movement of cargo between bonded warehouses. Most express courier service goods are handled at two locations – DHL’s own premises and those of Global Logistics Services (GLS). DHL’s terminal receives parcels and performs Customs clearance and compliance duties, while the GLS is home to several international and local express couriers including FedEx, Aramex and TNT. The airport is due to undergo a modernisation programme in the near future, with the programme tender for land use, zoning and concept infrastructure awarded to Aéroports de Paris Ingénierie (ADPI) by the MoT during the Bahrain International Airshow 2014. ADPI was also awarded the design and supervision consultancy tender at the same time.

In August 2014 the MoT invited contractors to pre-qualify to undertake the main construction works, such as the construction of a new passenger terminal, other buildings that will include all general civil engineering works, aircraft parking, car parks, interiors, exteriors and other related works. The expansion will be financed by the Abu Dhabi Fund for Development.

Investment Park

At the end of 2013 local firm Arabian Sugar began refining sugar in Bahrain from raw sugar shipped in from Brazil, which was then packaged and shipped out. The first shipment totalled 5500 tonnes, leaving for Umm Qasr in Iraq in April 2014, while the second shipment reached 12,000 tonnes.

The BD53m ($140.5m) refinery, located at the BIIP, has a capacity of 1800 tonnes per day, or 585,000 tonnes per year, which will increase to 600,000 tonnes by early 2015. The company believes there is more room for expansion in the Middle East, with the region expected to consume some 12m tonnes of sugar in 2014. Arabian Sugar plans to send 40% of its product to Iraq and the remaining 40% to Saudi Arabia.

In February 2014 Hassan Fakhro, then-minister of industry and commerce, announced that 30 new investment projects had been approved for the BIIP, bringing the total number of companies there to 105. Fakhro told local media the total value of investments at BIIP was BD689m ($1.8bn) and that 10,000 jobs would be created once all projects were fully operational. According to Fakhro, 80% of the approved projects involved manufacturing, while the remainder were focused on internationally traded services. Global companies at the BIIP, which covers close to 2.5m sq metres, include Mondelez (Kraft Foods), France’s Alstom, US-based NCR and American Express, Alfred Talke from Germany, Japan’s Kinetsu and Thyrocare Laboratories of India.

Extra Incentives

Although these industrial areas should not be confused with free zones in a country that prides itself on being tax-free in its entirety, there are some additional incentives for companies that are considering locating in the BIIP.

While Bahrain does not currently charge a corporate tax, firms setting up in the BIIP are effectively grandfathered in, should one be introduced in the next 10 years. This is designed to offer international investors additional security. Businesses may also wish to choose industrial areas with easy access to skilled manufacturing or logistics staff and air and seaports.

More Freedom

Whether they are located on industrial parks or operating out of offices in downtown Manama, any company that is not involved in the oil and gas industry can take advantage of Bahrain’s laws that allow for 100% foreign ownership and control. This provides companies with the opportunity to benefit from the FTA with the US, in addition to access to Gulf markets as a GCC company.

The fact that Bahrain chooses to give outside companies unrestricted access to any part of the island, as opposed to concentrating them in free zones, has also had a downward impact on property prices, as business owners are not restricted in their choice of office or factory location. In its November 2012 “Cost of Doing Business” survey, KPMG compared prices in Dubai, Qatar and Bahrain. It concluded, “Looking at overall costs, if a 70:30 ratio split is taken between expatriates and locals, then Dubai International Financial Centre is approximately 25% more expensive and Qatar Financial Centre is approximately 40% more expensive than Bahrain.”