Bahrain's key industries boosted by flourishing trade relationships

Bahrain is one of the most diversified economies in the GCC region, due in large part to a well-established manufacturing industry. The kingdom’s biggest industrial segment by far is aluminium production, and its importance is set to grow further with the launch in 2019 of a new pot line at national aluminium producer Aluminium Bahrain (Alba), which will increase the firm’s capacity by nearly half.

A range of other manufacturing segments are also well established, including refining and petrochemicals, and recent years have seen growing foreign investment in the development of other industrial segments such as food and pharmaceuticals.

Oversight & Policy

The kingdom’s industrial sector is primarily overseen by the Ministry of Industry, Commerce and Tourism (MICT). The most fundamental pieces of legislation covering industrial activity are the Common Industrial Law of the GCC, and the Law for Establishing and Regulating Industrial Zones. The ministry’s strategy for the sector is based around both further developing and diversifying existing major industries such as aluminium and petrochemicals, as well as the establishment of further high-value-added basic industrial segments, with the aim of raising the contribution of manufacturing to the economy.

Contirbution & Performance

Manufacturing accounted for 14.5% of national GDP in 2017, according to figures from the Bahrain Economic Development Board (EDB). This made it the third-largest sector of the economy after oil and gas and financial services. A major share of industrial GDP is made up by the activities of Alba; the company’s CEO in May 2018 stated that the firm accounted for around 12% of national economic output.

Sector GDP grew by 1% in real terms in 2017, down from 1.3% the previous year and below the overall national GDP growth rate for that year of 3.9%. However, momentum picked up in 2018, according to figures from the Information and eGovernment Authority, standing at 4.2% and 4.5% in the first and second quarters of the year, respectively. This was ahead of overall inflation-adjusted economic growth of -1.2% and 2.4% for the two quarters. Looking ahead, the authorities are hoping to further raise the sector’s contribution to the economy: in May 2018 the minister of industry, commerce and tourism, Zayed bin Rashid Alzayani, announced that he hoped manufacturing would account for more than 20% of GDP by around 2020.

The expansion of Alba through the construction of a sixth potline is expected to represent a major step towards achieving this. The contribution of the firm to GDP is expected to rise from 12% to 15% when the potline comes on-stream at the beginning of 2019, with capacity set to expand by approximately 50% to 1.5m tonnes per annum (tpa).

Established Industries 

By far the largest manufacturing industry in Bahrain in terms of the value of output is aluminium production, which is carried out by majority-state-owned aluminium smelter Alba. Several downstream aluminium operations also exist, using Alba’s output as feedstock.

The largest player in the chemicals and petrochemicals industry is Gulf Petrochemical Industries Company (GPIC). The company is a joint venture between Bahrain’s state-owned National Oil and Gas Authority, Saudi Arabian petrochemicals producer Saudi Basic Industries Corporation and Kuwait’s Petrochemical Industries Company, each of which owns a third of its equity. GPIC uses locally produced natural gas as feedstock to produce ammonia and methanol, with production capacity of 1.2m tpa for each, and urea, with 1.7m tpa.

The authorities are currently implementing a variety of plans aimed at freeing up locally produced natural gas – by, for example, seeking to slow electricity consumption growth through subsidy reductions and renewable energy projects, in order to make more gas available for industrial purposes, which could allow for more petrochemical projects. The recent discovery of major new oil and gas deposits (see Energy chapter) also offers hope for more petrochemical feedstock. Total chemical exports were worth $588m in 2016, or 4.9% of the national total, led by $142m worth of nitrogenous fertiliser exports. Other heavy industrial players include Bahrain Steel, a subsidiary of Bahrain-headquartered holding company Foulath. The company is the only major producer of iron ore pellets in the region, with a production capacity of 11m tpa.

Emerging Industries

The food and beverages segment is emerging as one of the most promising industries in the country, bolstered by investment from major international players. The most notable recent example of this was Mondelez International’s inauguration in April 2017 of a 25,000-sq-metre biscuit-manufacturing facility located in a flagship industrial park, Bahrain International Investment Park (BIIP). The facility, which was built at a cost of $90m and has created 150 jobs, has the capacity to produce 45,000 tpa of biscuits, a figure that can be upgraded to 90,000 tpa. Mondelez already operated a cheese and powdered beverages factory in BIIP, launched in 2008 at a cost of $75m, and has designated Bahrain as its sixth global supply centre, focusing on Middle Eastern and African markets.

“The food industry needs a mix of big and medium-sized players to function, and it is promising that we have that both in BIIP and in Bahrain more generally, which is allowing a real food-manufacturing ecosystem to develop,” Bader Alsaad, director at the Industrial Areas Operations Directorate, told OBG.

Another emerging industry is industrial component fabrication – a segment that was entered into in mid-2018 by ASRY, the local repair facility for commercial ships, naval vessels and rigs, through the launch of a new fabrication and engineering division at the company. “Fabrication and engineering are already part of ASRY’s core competencies, and we are now deploying that expertise as its own independent revenue stream,” Andrew Shaw, the firm’s CEO, told OBG. The company intends to initially focus on the domestic industrial market before looking to other countries in the region, such as Saudi Arabia and Kuwait, within two to three years.

The production of electric and household goods is another growing segment. Italian heating systems producer Ariston Thermo inaugurated a water heater production plant at BIIP in July 2018, which will have an annual capacity of 50,000 units. The plant is the company’s first manufacturing facility in the GCC. Furthermore, the pharmaceuticals and biomedical segment is also among the most promising industrial segments. “Some existing pharmaceutical companies have already established in BIIP, and present opportunities to build this sector further,” Alsaad told OBG. “Food companies are already well established in the park and, as with pharmaceutical firms, they require very strict standards and regulations, so it makes sense to have both.”

Textiles and apparel production is another notable local industry, worth approximately $585m and accounting for some 4.9% of exports in 2016. Major players in the segment include WestPointHome, which operates four manufacturing units, employing a total of 1750 people and generating sales revenue of nearly $200m. In February 2018 the company announced plans to invest between $2m and $3m to expand its local facilities.

Exports

According to data from the World Trade Organisation, Bahraini exports of manufactured products amounted to a total value of $4.2bn in 2017, or 24.6% of total merchandise exports. This was up from $3.8bn the previous year, though it was down on 2013-15 figures. According to Information and eGovernment Authority data, the top-three non-hydrocarbons exports by product in 2017 were agglomerated iron ores and concentrates, with an export value of BD324.7m ($860.4m); aluminium wire at BD266.5m ($706.1m); and unwrought aluminium alloys at BD152.3m ($403.5m).

In 2016 metals were the second-largest overall export by broad commodity grouping, after mineral products, according to figures from the Observatory of Economic Complexity, accounting for 23% of total exports. Metals exports were led by raw aluminium, representing 6.5% of total exports by value. Other major industrial exports include machines, which were worth $710m in 2016, or 5.9% of total exports; chemical products ($588m, 4.9%); and transport-related products ($359m, 3%).

International Trade Markets

Unsurprisingly, given its location next to Bahrain and its status as the largest economy in the region, Saudi Arabia was Bahrain’s largest export partner in 2016, with sales totalling $2.27bn, including non-industrial goods. Most of Bahrain’s exports to the country are industrial goods, notably including $664m of metals, $471m of machines and $265m of textiles. Alsaad told OBG that the plans to build a second causeway linking the two kingdoms (see Transport chapter) would ultimately be positive for industrial exporters in Bahrain. “Infrastructure is already one of key selling points, and while the existing causeway is currently working quite well after some congestion problems a few years ago, a second causeway will make Bahrain even more attractive from the point of view of exporters,” he said. In addition to lanes for motor vehicles, the causeway will have a railway line linking Bahrain to the planned Gulf railway network, offering freight as well as passenger services, which will further add to local industry’s options for exporting regionally.

The UAE is Bahrain’s second-largest export destination, with sales of $1.21bn. Exports to the federation were led by mineral products, in particular refined petroleum, while metals came in second, with sales of $177m. Bahrain’s third-largest export market is Japan, overwhelmingly dominated by hydrocarbons. Metals accounted for the largest share of sales to the US, its fourth-largest market, with a share of 51.6%, followed by textiles with 20%.

Employment

There were 69,131 people employed in the Bahraini manufacturing sector as of June 2018, according to data from the kingdom’s Labour Market Regulatory Authority (LMRA). The figure equates to 11.5% of total employment in the kingdom, making it the third-largest employer by sector, after construction and trading activities. According to the LMRA, 55,131 workers in the sector were foreign nationals, and 11,519 were Bahrainis. Major industrial employers include Alba, with 2700 staff as of 2017, 84% of whom were Bahraini nationals.

Foreign Direct Investment

The EDB attracted approximately $142m of foreign investment in the manufacturing sector in 2017 across 14 companies, in turn creating 563 jobs. This was more than three times the $40.8m that was attracted the previous year. Investment appeared set to rise even further in 2018, with 24 companies invested in manufacturing and logistics as of the end of June, which was close to the EDB’s target of 26 companies for the year. Dana Abdullah, manager of business development for manufacturing, transport and logistics at the EDB, told OBG that there were also multiple other projects in the pipeline for the year. “The manufacturing and logistics sector concluded the year of 2018 with 32 new company registrations, created 2222 jobs and brought it some $200m in foreign direct investment,” she said.

In the first half of 2018, 42% of the amount invested went into manufacturing projects, 25% into industrial services, and the remainder into distribution and logistics, with investment coming from Saudi Arabia, the UK, the US, Germany and Italy, among others. A variety of factors are helping to drive such increased investment. “Manufacturing has long-term cycles, and some projects that we have been working on for several years are now materialising. Bahrain’s visibility is also growing thanks to marketing campaigns we have been working on and an expansion of our international office network, including new offices in Turkey and Malaysia,” Abdullah told OBG. “On a macro-level, the GCC is also witnessing faster economic growth than in many other regions,” she noted.

As regards attracting further investment into manufacturing over the medium term, the board was focused in particular on fast-moving consumer goods – which Abdullah stated was a particularly attractive segment given the GCC’s status as a consumer-driven market – as well as industrial services, and the supply chain of key local heavy industries such as oil and gas and aluminium. “We are working with engineering, procurement and construction contractors on large projects to try to reach subcontractors and convince them to invest here,” she told OBG. “For example, assisting the set up of a regional service centre of a firm supplying equipment to Alba’s line six expansion project.”

Renewable energy is another priority area for policymakers. “New policies and regulations implemented in recent years are helping to drive development in the sector, and we view it as a new market with great potential,” Abdullah said, noting that a recent tender for 100 MW of renewable energy as well as a net-metering policy implemented in early 2018 should help to attract investment in related manufacturing projects (see Energy chapter). Bahrain is already home to a solar panel manufacturing facility, operated by local firm Solar One, opened in January 2017. The plant is capable of producing 60,000 solar panels a year and is planning to expand this to 90,000 panels in 2019.

As regards investment source markets, Saudi Arabia remains a key target, given its close proximity to Bahrain and the large size of the Saudi domestic market. Saudi firms have chosen to establish manufacturing facilities in Bahrain due to flexible employment conditions, the ease of registration, lower transport and logistics costs, and proximity to Saudi Arabia’s Eastern Province.

“Any Saudi firms based in western areas such as Jeddah that are considering expanding into the east are looking at Bahrain as an option,” Abdallah told OBG. Recent major investments have underscored the country’s attractiveness. “There is a lot of competition in the GCC for investment at the moment, with Saudi Arabia for example having made strenuous efforts to attract foreign direct investment recently,” Alsaad said. “In light of this, the fact that Bahrain has been able to attract investment of such high calibre is a major vote of confidence in the kingdom’s industrial strategy and infrastructure,” he told OBG, citing Mondelez as an example. “It is not easy to attract large-scale investment from a firm such as Mondelez, and the fact that they followed their first plant with a second investment in the kingdom is very promising.”

Industrial Zones

There are eight industrial areas in total in the kingdom, which have a combined surface area of approximately 10m sq metres, with most of these areas being located in the south of the island. The kingdom’s flagship industrial park is BIIP – built on land reclaimed from the sea in the Al Hidd area – which is linked by causeway to the capital Manama to the west and is located adjacent to the kingdom’s Khalifa Bin Salman Port. The park has a surface area of approximately 3m sq metres, around 500,000 sq metres of which was reclaimed from the sea in 2015. It is currently around 80% occupied, suggesting it could soon fill up. Moreover, it has the capacity to expand through further land reclamation if needed to accommodate larger projects. Around 114 companies from 27 countries are based in the facility, which requires that tenants’ projects are export-oriented.

The park offers tenants 25-year lease agreements, with land currently costing $2.56 per sq metre, as well as benefits and incentives including 100% ownership rights, a 10-year guarantee of no corporation tax and duty-free access to the GCC – something most GCC free zones do not allow, as they are oriented towards export out of the region.

Outlook

The inauguration of Alba’s sixth potline is set to substantially bolster the kingdom’s industrial GDP (see analysis). Bahrain’s success in attracting increasing amounts of foreign investment to the manufacturing sector is also set to help diversify as well as increase industrial activity, with segments such as food, electrical goods and pharmaceuticals in particular showing promise. Furthermore, longterm efforts to rationalise gas consumption as well as the new oil and gas discovery could free up more feedstock for the petrochemicals industry, further helping to develop the country’s industrial base.