HE Dr Hassan Fakhro, Advisor to the King for Economic Affairs: Interview

Interview: Dr Hassan Fakhro

What does the recent World Trade Organisation (WTO) agreement to simplify and harmonise global trade procedures mean for the GCC and Bahrain?

DR HASSAN FAKHRO: Economic forecasts indicate that the impact of the WTO’s trade facilitation agreement to speed up and streamline customs procedures will significantly boost the global economy. Some maintain that it is worth up to $1trn per year, with the capacity to generate up to 21m jobs across the developed and developing world. The implementation of this agreement by the 160 WTO countries would enable Bahrain to gain better access to WTO member markets, as well as other markets where Bahrain has duty free or preferential tariff treatments. Moreover, Bahrain is the epicentre of the GCC, which encompasses a $1trn regional market, with potential growth of $2trn by 2020 – or more than $4trn if we include the Middle East and North Africa. Together with our business-friendly commercial environment and prudential financial regulations, in addition to well-established financial and other competitive services sectors, Bahrain is the ideal hub for regional and international trade and investment.

What regional competitive advantages do Bahrain’s small and medium-sized enterprises (SME) have in the manufacturing and industrial sectors?

DR FAKHRO: First and foremost is our human resource advantage over our regional peers. Bahrain is home to a large pool of skilled and professional workers. Our emphasis is on creating new enterprises in sectors that are knowledge-driven to take advantage of our talented human resources and encourage these enterprises to access international markets.

The free trade agreement (FTA) with the US puts us at an advantage over other countries in the region in accessing technology and the US market. We already have a well-established ICT sector in Bahrain and we will encourage growth of Bahraini SMEs rendering internationally traded industrial services such as industrial design, industrial programming, laboratory services and maintenance support to maintain an edge over our peers. Our policy of permitting 100% ownership by foreign investors in the manufacturing sector also gives us an edge in attracting foreign direct investment in this sector. The low costs combined with high-quality infrastructure facilities at Bahrain International Investment Park are another important advantage.

Lastly, our location in close proximity to Saudi Arabia and at the heart of the GCC’s trillion-dollar market makes Bahrain the ideal base for meeting the Gulf’s growing appetite for manufactured goods where SMEs can be dominant players. The 2013 Index of Economic Freedom, published by the Heritage Foundation and the Wall Street Journal, ranked Bahrain the 12th most open economy. Such a ranking cannot be rivalled by any other country in the region.

Given the GCC’s export-focused economies, what real benefits do you see for the region from the proposed GCC-EU FTA, given the comparatively insignificant non-energy exports to the EU?

DR FAKHRO: The EU is a major player in global trading, economic and financial fields. With 500m inhabitants, the EU handles the largest share of international trade and investments. As a group, the GCC has increased the volume of trade with the whole world about tenfold, from $138bn in 1984 to approximately $1.3trn in 2012. It is therefore most fitting for both economic groupings to negotiate and reach an FTA. Such an agreement will not be confined to freer trade in goods and services, but will comprise several areas including investments, manufacturing, technologies, intellectual property rights, SMEs and technical cooperation.

In terms of trade composition, most GCC countries are undergoing rigorous transformations and have launched economic diversification processes to mitigate the reliance on one economic sector. In this regard, the oil sector’s contribution to GDP in 2012 was only 19%, while other sectors such as financial services and industry contributed 17% and 15%, respectively.