Bahrain creates digital ecosystem to accelerate innovation

Bahrain was one of the regional pioneers in liberalising its telecommunications sector and was an early adopter in the GCC of a technology-based strategy to diversify its economy. Following the accelerated wave of digitalisation that accompanied the Covid-19 pandemic, Bahrain aims to enhance its digital ecosystem with the launch of the Telecommunications, ICT and Digital Economy Sector Strategy 2022-2026, which forms part of the Economic Recovery Plan to stimulate post-pandemic growth. Five target areas in the strategy include reaching 100% national broadband coverage; boosting national cybersecurity capacity by training 20,000 citizens; adding at least 200 more automated government services; increasing employment in the sector by 35% by 2022/23; and growing the number of ICT start-ups by 20%. This last point, in particular, bodes well for the kingdom’s start-up scene, which has proved to be both productive and adaptive over recent years.

Start-up Ecosystem

The new sector strategy for 2022-26 aims to build on the existing foundation of the start-up ecosystem. More than 34 incubators and business accelerators were collaborating with government entities to support nascent business start-ups in the years leading up to 2022.

According to the “2020 Global Startup Ecosystem Report” by Startup Genome, a US-based global policy advisory and research organisation, Bahrain has emerged as one of the world’s five fastest-growing start-up ecosystems, with some 1000 start-ups. That same report ranked Bahrain first in the MENA region and second globally for Islamic finance regulation, indicating a strong regulatory framework for supporting start-ups in financial technology (fintech). The introduction of a $100m venture capital fund by Bahrain Development Bank in May 2018 to invest in private technology companies in the country and across the region has aided growth. Meanwhile, the central bank launched a Fintech Regulatory Sandbox in June 2017 to boost innovation and help start-ups in this burgeoning segment as they develop, test and scale their solutions in a virtual space.

The kingdom spurred growth in cloud usage through a June 2017 cloud-first policy requiring government agencies to consider cloud-based solutions when undertaking ICT procurement. Tamkeen, the government agency responsible for private sector and labour development, and the Information and eGovernment Authority provided certification training courses specialising in cloud computing on the Amazon Web Services (AWS) system.

Next Stage

Bahrain is an attractive proposition for companies seeking access to the broader Middle East ICT market, which was valued at $160bn in 2020. Regulations permit 100% foreign business ownership in the sector without a local sponsor, and the kingdom has no personal or corporate tax, making it an appealing destination for international ICT companies and skilled talent. In addition, business costs in Bahrain are estimated to be as much as 35% lower than in neighbouring countries, which is especially crucial for cost-conscious start-ups.

The start-up ecosystem benefits from a fertile talent pool within the kingdom. Some 70% of technology industry employees are Bahraini; more than half of those employed in the sector are between the ages of 18 and 24; 90% are fluent in both English and Arabic; and roughly the same percentage hold a bachelor’s degree or a master’s degree.

However, some shortcomings need to be addressed if the segment is to meet the ambitions of the medium-term plan. One issue is how to attract more Bahrainis to work in private ICT firms to enhance dynamism in the field. There are significant wage disparities between the public and private sectors in Bahrain, with government employees earning approximately 70% more than private sector ones. This discrepancy could discourage labour mobility, which could, in turn, act as a constraint on private sector-led technology innovation.

Role of Big Technology

Two of the primary objectives of the 2022-26 strategy are to become a regional innovation centre and attract more large technology companies, both of which have implications for the kingdom’s start-up scene.

In August 2019 AWS launched a regional base in Bahrain, aligning with the country’s cloud-first philosophy. The platform enables start-ups, educational institutions, and government agencies to run applications and service end-users from the company’s data centres in the kingdom. AWS’ arrival has also resulted in partnerships with government institutions to address public sector challenges, assist businesses in migrating to the cloud and raise awareness among individuals about the entrepreneurial opportunities that the cloud provides to scale their businesses.

The data centre market was further strengthened in March 2022 when stc Bahrain, the domestic arm of the Saudi Arabia-headquartered stc Group, announced it would set up the region’s largest technology park – a 55,000-sq-metre site in Al Qurain – in partnership with the Ministry of Transportation and Telecommunications. “The new technology park will provide the foundation for the digitisation of sectors across Bahrain, nurture local talent and host the growing demand for data,” Nezar Banabeela, CEO of stc Bahrain, told local media.

Other significant partnerships with big technology firms have materialised. Tamkeen, Bahrain Polytechnic and Microsoft launched the Artificial Intelligence Academy in October 2019 to develop a broad pool of artificial intelligence (AI) experts with the necessary skills and ethical foundation for the future economy. The government has further encouraged AI by creating an alliance between the Bahrain Economic Development Board and the Centre for the Fourth Industrial Revolution of the World Economic Forum. The framework focuses on the acceleration and implementation of AI in the kingdom.

Meanwhile, China-headquartered technology giant Huawei has been active in Bahrain in recent years, playing a large part in the rollout of 5G technology in the kingdom. The low latency and high speeds produced by 5G are expected to catalyse rapid growth in the digital economy, providing new opportunities for technology start-ups to develop and commercialise attractive products and services. Sweden-headquartered Ericsson, another multinational ICT provider operating in Bahrain’s 5G market, signed a memorandum of understanding with local telecommunications company Batelco in April 2022 to collaborate on next-generation 5G technologies.

Emerging Opportunities

Projects in AI, cloud computing, data analytics and gaming are evolving in tandem with other government-identified strategic segments, such as fintech, robotics, cybersecurity and smart cities. These are not isolated efforts but elements of a coordinated approach designed to generate sustainable economic growth and competitiveness driven by technological innovation. These strategies intend to deliver a competitive advantage in niche segments where Bahrain can capitalise on existing strengths, such as its financial services sector, advanced digital infrastructure and the popularity of emerging segments like gaming.

The broader MENA gaming market holds substantial promise. Valued at $4bn in 2022, its growth is due to a rapidly expanding and affluent younger generation. The country’s cloud-first approach makes it an attractive testbed for companies wishing to develop innovative new services. Supported by a network of terrestrial and submarine fibre-optic cables, general points of presence and data centres that connect Bahrain digitally to more than 50 countries, it has the infrastructure to scale regionally and expand globally.

Efforts to ensure educational programmes keep pace with the developing digital landscape will promote future growth in emerging technology segments. The Cloud Innovation Centre programme at the University of Bahrain (UoB), for example, allows innovators to collaborate with public sector organisations to solve problems using AWS. Lessons learned from this process are publicised to support and encourage future public sector innovation. UoB also offers graduate and postgraduate programmes in cybersecurity and big-data science and analytics, among other areas. At the Telecommunications, ICT and Digital Economy Sector Strategy 2022-26 launch, a Tamkeen representative said the new technology-related concepts would integrate into existing educational curricula and that the number of graduates in relevant digital fields of study should increase.

In the years ahead, Bahrain will provide a strong platform for innovation and start-up growth. It has advanced digital infrastructure, a regulatory regime that has kept pace with technological developments, a fertile talent pool and the political will to capitalise on new opportunities arising from the digital economy.