Keep it coming: Encouraging foreign direct investment is chief amongst state goals

“Business-friendly Bahrain” is a well-known brand in the US, Europe and Asia and despite the political unrest international and regional investors have not panicked. Foreign direct investment (FDI) has deep roots in the Kingdom and the government already has an established support network, including the Economic Development Board (EDB), which works to maintain FDI inflows.

SOME TESTING TIMES: “Undoubtedly 2011 was testing,” Vivian Jamal, the director of business development at the EDB, told OBG. “We have a unit which focuses on facilitation and support to businesses which had to handle a lot of requests from firms at the time. But in 2012 we haven’t so far seen anything that has very closely resembled those sorts of business-aid requests we saw earlier.”

Indeed the EDB makes a point of showing that the political crisis appears to have spurred a renewal of investment activity as the Kingdom managed to attract up to $780.9m in FDI by the end of 2011. This is a 400%-plus rise over the $156m recorded in 2010.

BENEFITS FOR ALL: During 2011, Germany’s BASF announced it would build a 16,000-tonne-a-year chemicals plant to be located in the Bahrain International Investment Park (BIIP).

The park is part of the Salman Industrial City (SIC) project, which includes three main parks located in the Al Hidd area: the BIIP, the Bahrain Investment Wharf (BIW) and the Hidd Industrial Area (HIA). The BIIP was developed by the Ministry of Industry & Commerce (MoIC) and covers 7.5m sq metres. At present 31 plants have opened for business, 21 are being built and another 21 are in a design phase.

As part of its agreement, BASF will work with the state labour fund, Tamkeen, to develop a training programme aimed at transferring technical manufacturing knowledge to the local Bahraini workforce. RMA, a German firm which focuses on the oil and gas sector, will also construct a BD6.8m ($17.96m), 6000-sq-metre plant in the BIIP to manufacture pipeline inspection gauges and pipe fittings. The RMA plant is expected to employ up to 250 people and 95% of its output is projected to be exported from the island Kingdom.

Moreover, UTC Fire & Security will build a training centre for fire and security products. Other investments included international law firm DLA Piper and UK-based oil and gas supplier Swinton Technology setting up local offices.

“For 2013 we plan to focus on attracting firms to set up in the BIIP from the aluminium downstream sector, food processing and aerospace manufacturing in particular,” said Jamal.

NEW TARGETS: Over the years the EDB’s strategy has focused on FDI inflows from the financial services and professional services sectors. In the future greater emphasis will now be put on the aluminium, aviation and food processing sectors as well as IT-related high-tech technology firms, especially those as working with the government’s e-initiatives, education and health care, according to Jamal.

“Obviously Aluminium Bahrain has a long history in the Kingdom’s industrial sector, but we haven’t fully developed the potential of aluminium downstream light manufacturing firms,” she told OBG. “Aerospace again is a similar story. We already have the Gulf Aviation Academy and given the wider regional growth in this sector, this is an area we want to develop in terms of FDI into the Kingdom.”

A TWO-PRONGED STRATEGY: As part of the government’s two-year spending drive and growth strategy for the economy the Ministry of Finance has specifically focused on setting up two funds. Set up with seed funding from the ministry, the BD100m ($264m) Food Fund will be directed by the National Bank of Bahrain, and will invest in and promote the food processing sector.

The EDB and the government wants to build on the success of US firm Kraft, which has operated a production facility in the BIIP since 2007. A BD100m ($264m) Aluminium Fund will also be set up to target some of the sector’s downstream companies.

FDI into the country has built up steadily over the last 12 years, peaking at $1.79bn in 2008 before the global financial crisis hit, severely reducing this volume by 85.6% to $257m in 2009, with a further drop to $156m in 2010. Greater efforts by all government departments, including the EDB, raised the inflow to $300m over the course of 2011.

The EDB has had great success in attracting investment in chemical production, plastics manufacturing and food processing from Germany, India and the US, but in other sectors such as retail and tourism it has proved more challenging to attract firms in the current political climate.

SETTING THE GOALS: A meaningful transfer of knowledge in order to develop Bahraini skills over the long term is the primary goal of the Kingdom’s FDI policy. Much of the focus in the past has been on attracting investment from US and European firms, with many German companies emerging as significant investors. Now the EDB is targeting investors from Asia – in particular in the countries of Japan, China, South Korea and Singapore.

The EDB is keen to attract investment that not only creates jobs but is also going to be sustainable over the long term. Simply having an international company setting up a tax-free office and importing what labour they require is not enough.

“The EDB interacts closely with the government labour fund Tamkeen to work with the incoming investors on what exactly their labour requirements are and try to find out how the country can accommodate them,” said Jamal. “We aim to be company specific and to come up with tailor-made solutions in the form of apprenticeships either run by the investor or jointly with Tamkeen. Training grants are also offered by the government. That’s the main difference in FDI strategy between Bahrain and other Gulf states at the moment.” The Food Fund and the Aluminium Fund are signs of a more focused approach led by the Ministry of Finance alongside the EDB.

“Building on Kraft’s success, we want to build critical mass and we have sought firms focused on dried food production, aquaculture and dairy manufacturing,” Jamal said to OBG.

OIL & GAS DEVELOPMENTS: In the oil and gas sector large upstream investment projects led by Tatweer Petroleum in the Bahrain Field and the Khuff gas reservoir have attracted several global and regional firms seeking oilfield services contracts.

The increase in activity in this sector includes ongoing exploration for deep gas onshore by US-based Occidental as well as an offshore hunt for new oil and gas deposits that is being jointly conducted by Occidental and the Thailand-based company PTT Exploration & Production.

Singapore-based MTQ, which provides equipment repair for oilfield services firms, will build a $20m, 40,000-sq-metre plant in the BIIP. RMA is also building a manufacturing plant for pipeline inspection gauges. Both firms are using Bahrain as a base of operations with a view to exploring opportunities that may exist elsewhere in the wider GCC region.

LOOKING TOWARDS THE FUTURE: Over the years, the Kingdom has had little difficulty in attracting FDI, although the political protests over 2011 have proved challenging. Importantly no large-scale investors in the BIIP or elsewhere have pulled out as a result of the political disturbances the country has experienced in 2011 and 2012.

International firms view the country as an attractive location for their plants and operations, with a number of useful benefits for companies locating there. A more concentrated focus on food processing and downstream aluminium businesses appears likely once the Ministry of Finance has set up its Food and Aluminium Funds and their impact has begun to be felt. This, alongside other government efforts, should have a definite impact on growth, and allow the state to further economic diversification.