Incentives provided by Bahrain's special economic zones draw a range of tenants

In 2010, King Hamad bin Isa Al Khalifa inaugurated the Salman Industrial City designed to attract foreign direct investment into Bahrain. Four years later, the city includes three separate industrial areas and a logistics centre, and has succeeded in attracting dozens of new businesses to the country. Located near the community of Al Hidd, its three main parts consist of the Bahrain International Investment Park (BIIP), the Bahrain Investment Wharf (BIW) and the Al Hidd Industrial Zone. Built with room for 200 companies and 34,000 employees, when full occupancy is reached it will have contributed up to $8bn in direct investment to Bahrain.

Of the 10 areas Bahrain has designated as industrial zones in this way, the Salman Industrial City in particular is designed to take unique advantage of the country’s infrastructure. It is only five km from Bahrain International Airport, and an interchange completed in 2013 now allows swifter access to the King Fahd Causeway with minimal traffic interruptions. It is also near the Al Hidd Power Station; the Arab Shipbuilding and Repair Yard Company, Bahrain’s dry dock facility; and the dockside of the Khalifa Bin Salman Port, which was finished in 2009.

Regulatory Structure

The management of these industrial zones falls under the purview of the Ministry of Industry and Commerce. Although in some respects the entire nation can be considered an industrial zone – the tax structure is low and a number of regulations are designed to attract investment – in the zones the terms are even more favourable. There is no corporate income tax (new businesses are guaranteed this for 10 years), and no personal income tax, capital gains tax or withholding tax. There are no restrictions on repatriation of capital, whether profits or dividends, and 100% foreign ownership is allowed.

Special incentives for manufacturing include a range of rebates that can be used for raw materials or production equipment, and exemption from any recruitment restrictions for the first five years. “In some sectors there are Bahrainisation quotas, and the exact level varies by sector,” Vivian Jamal, executive director of business development at Bahrain’s Economic Development Board, a semi-private autonomous agency, told OBG. “However, these quotas are designed not to be onerous and in many cases businesses exceed them easily – indeed, we have adapted and amended the law to ensure it does not hamper businesses investing in the kingdom.”

BIIP 

One industrial zone that has garnered much investor interest in recent years is the BIIP, a business park of 247 ha. What sets this zone apart from the others is that its mandate explicitly focuses on exports and quality value-added projects. Launched in 2005, it offers tenants 50-year leases with competitive rates on utilities – electricity costs $0.04 per KWh and water $1.05 per cu metre.

As of December 2014, the BIIP was home to 63 operational companies employing more than 4500 people, according to Ministry of Industry and Commerce. After 30 new projects were approved in 2013, the number of companies with commitments in the park reached 111, totalling $2bn in investment, of which 80% comes from foreign firms. Once it is fully developed, the industrial site is expected to generate an additional 5500 jobs.

Major tenants at the BIIP include Mondel e z, JBF India, Saudi Arabia’s Saleh & Abdulaziz Abahsain and Singapore’s MTQ Corporation. The largest of these by employment is Mondel e z at 250, whose facility received an award from the Ministry of Labour for having among the highest health and safety standards of all industrial facilities in the kingdom. Although clients looking to build their own facilities are welcome at the BIIP, the management remains selective: since 2005 there have been more than 630 applications, 22% have been approved. As of mid-2014, only 20% of space at the BIIP was available, with rental rates at $1.33 per sq metre a year. “BIIP is down to the last 20% of real estate available for development,” Gerry Sharkey, the park’s project director, told OBG. “While there is still some 300,000 sq metres of space available, the sites larger than 25,000 sq metres are currently at a premium. This shows the park’s continuous strength and speaks to both the interest in BIIP as a business platform and to the growth of Bahrain’s industrial sector.”

Six German companies also operate in the BIIP, including Siemens and BASF. The latter in many ways reflects the sort of tenant the zones are designed to attract. Since BASF’s chemical plant opened in 2012, it has worked to ensure that 70% of the employees are Bahraini nationals, investing in employing the nation’s engineering students and furthering their training, either on-site or in Germany. It currently produces 16,000 tonnes of antioxidant blends for export to GCC manufacturers.

While BASF has chosen to build its own facilities, BIIP also offers pre-built ones. Another tenant that decided to custom build is MRS Fashions, whose plant of 8454 sq metres has an annual capacity of 3.6m items on eight sewing lines. With a total investment of $20m, the company expects the new facility to boost their turnover to $40m in 2014/15. While importing raw materials from China, Pakistan and Thailand, MRS’s primary export target is the US. For companies not wishing to develop their own greenfield facilities, the Baytik Industrial Oasis within BIIP offers 53,000 sq metres of pre-built units for rent, with a size range of 2000-9600 sq metres.

Currently, some 80% of the business activities in the park focus on manufacturing and industry. Yet the BIIP’s vision is also to become a centre for trade services. The remaining 20% of its space is dedicated to the International Services Programme, which has managed to attract French power conglomerate Alstom, as well as American Express.

BIW 

Another major zone at the Salman Industrial City is the BIW. Not only is the wharf one of the largest development projects in Bahrain – when completed it will involve investment of more than $2bn – it is the only one that is wholly privately owned and operated. The BIW is also unique in Bahrain for its inclusion of industrial, commercial, logistics, hotel and worker accommodation. It covers an area of 1.7m sq metres, of which some 900,000 sq metres is designated specifically for pre-serviced plots of land, with integrated utilities and IT infrastructure for industrial use. The wharf also includes a services park, a logistics and supply chain park, and a business park with conference facilities.

Another feature is its “labour town”, an on-site housing area for workers and middle management. The first phase of the $75m project was completed in 2009 and a second is planned as demand grows. The current 12 buildings have a capacity to house 7000 residents, and as of April 2014 occupancy was at 50-60%. The site had nearly reached full occupancy in 2013, but the completion of the nearby Mina Salman interchange led to a drop in occupancy. Another reason for this is that companies often house their workers in Manama, where accommodation can be found for BD15-20 ($39.75-53.00) a month per person, compared to the BIW’s BD27-30 ($71.55-79.50). Nevertheless, the town’s location is a competitive option for projects in the Mina Salman area, due to savings on transport.

Warehousing

More warehousing is needed to serve the special economic zones. “There is clearly a need for more warehousing capacity in the country,” Sharkey told OBG. “We often hear from tenant companies that there is not enough of such space in the kingdom, and we would like to see more competition in this area and in the supply chain generally.” One key player in warehouse development in the industrial city is Majaal, a wholly owned subsidiary of Kuwait’s First Bahrain Real Estate. Having originally built a series of warehouses targeted at smaller enterprises, Majaal’s involvement in the BIW deepened significantly in November 2013 when Kuwait’s Al Mazaya Holdings hired it to develop and eventually oversee the leasing of a $20m industrial facility. The company is currently conducting feasibility studies related to the project, which when completed will offer another 15,500 sq metres of industrial space for rent. With 28 tenants currently, the project’s three phases when finished will total $45m.

New Possibilities

The success of the Salman Industrial City has led Bahrain to explore similar possibilities for its long-term future. In June 2012 the country announced plans to build a $3bn Economic Industrial City on 95 sq km of reclaimed land. With special zones designated as industrial, commercial, residential and recreational, the city would provide nearly a quarter of a million jobs, the bulk of which, given Bahrain’s small population, will likely be expatriates. Though still in the early planning stages, the project will be funded through a public-private partnership and would be designed to reach full commercial occupancy by 2040, boosting GDP by 20%.