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While the Kingdom’s established heavy industries continue to play an important role in the economy, the government is seeking to diversify industrial activity into areas such as high-tech manufacturing and the downstream aluminium segment. After aluminium, petrochemicals is the largest industry in Bahrain, with ammonia, methanol and urea all produced locally. While steps are being taken to increase petrochemicals production in the Kingdom, one challenge that remains is ensuring the supply of natural gas at a price that allows Bahrain’s goods to remain competitive in the regional market. But Bahrain has a history of success in diversification, and shifting towards high-tech manufacturing and other new areas will help the industrial base develop further and reduce reliance on heavy industry. In the future, rather than using finite natural resources, these niches will rely on developing the skillsets of the national workforce and also making use of the Kingdom’s geographical position midway between developed markets in the US and Europe and the quickly expanding economies of Asia. This chapter includes an interview with Chris Potter, Chief Executive, Arab Shipbuilding & Repair Yard.

As the first GCC country to discover hydrocarbons, Bahrain is now moving into a new period in its history where more complex techniques are required to extract its oil and natural gas deposits. Given that high oil prices have helped sustain the oil sector’s export earnings and contribution to the economy, the Kingdom has undertaken a renewed effort to increase its crude oil output. The country plans to invest more than $20bn in the energy sector over the next two decades. Some $10bn-15bn is earmarked for upstream exploration and increased production from onshore and offshore fields, while $5.7bn will be used to modernise and upgrade the country’s refinery at Sitra. The Kingdom is also planning a new LNG import terminal, which will give Bahrain the option to secure foreign sources of gas. However, with the output of hydrocarbons steadily falling since the 1970s, greater use of renewable energy in power generation projects is expected in the near future, with a host of solar and wind energy projects already in the pipeline. This chapter includes an interview with Abdul Hussain bin Ali Mirza, Minister of Energy.

The Kingdom’s insurance industry has traditionally been strong, regularly posting double-digit year-on-year growth, mirroring the expansion of the wider financial sector. The global financial crisis and recent political unrest, however, have presented the industry with a number of challenges in recent years. For example, the unrest made the implementation of the planned new mandatory health law difficult. Yet despite the global economic downturn, the insurance sector has been able to achieve consistent growth in consolidated gross premiums and total capital resources. Bahrain’s open and diverse economy, a robust yet flexible regulatory framework, a growing awareness of insurance concepts and a significant pipeline of infrastructure development work form the basis of the market’s potential. The industry certainly enjoys a number of opportunities. Life business, in particular, is widely seen as an area with significant growth potential: a growing awareness of the benefits of long-term insurance and an increasingly sophisticated consumer base underlie a growing demand for sophisticated savings schemes.

A history of clear regulation and prudent oversight has served the Islamic financial services sector well in the challenging years since the onset of the global economic downturn. It also accounts for the sense of optimism within the sector, despite the challenges that are facing the broader global finance industry. In 2011 the opening of the Bahrain Financial Exchange added new depth to the country’s capital markets and brought with it an Islamic platform, the Bait Al Bursa, which has broken new ground with its sharia-compliant instruments and represents the latest in a long series of sharia-compliant innovations to emerge from Manama. As of April 2012, some 27 Islamic banks had been licensed by the Central Bank of Bahrain to operate in the Kingdom. The presence of such a large number of industry bodies which exert an influence far beyond the borders of Bahrain is one of the reasons why the country will remain a key player in the global Islamic financial service industry. This chapter includes interviews with Mohammed Ebrahim Mohammed, CEO, Bahrain Islamic Bank; and Mohammed Bucheerei, CEO and Member of the Board at Ithmaar Bank.

With new regulations, the continued implementation of development strategies and the historic opening of the nation’s second exchange holding the interest of market participants, Bahrain’s capital markets have been receiving significant attention from investors. However, a number of challenges have presented themselves. The European debt crisis, local and regional unrest, and the lingering effects of the global economic slowdown have combined to create a difficult environment for exchanges across the Gulf. The market capitalisation of the Bahrain Bourse (BHB) peaked in 2007 at $10.19bn but has since lost value due to political and economic difficulties, ending 2011 at $6.25bn. However, the sector is widely expected to enter a period of expansion, with new products and innovations planned for both of Bahrain’s exchanges in the coming year. These include the introduction of a delivery-versus-payment (DvP) system, whereby delivery of securities is carried out simultaneously with payment. Further regulatory reforms in the pipeline are aimed at creating a more attractive investment environment. This chapter includes an interview with Fouad Rashid, Director, Bahrain Bourse.

Famously one of the most diverse in the region, the Bahraini banking sector is composed of local, regional and international firms that have flourished in a liberal but well-regarded regulatory environment. The past year has been a challenging one for the industry, particularly given the unrest in the early months, yet most licensed lenders in Bahrain entered 2012 on the back of robust financial results. Key sector indicators remained positive in 2011: assets grew 2.6%, lending increased 14.9% and deposit growth registered a 10.1% rise year-on-year. There are certainly challenges ahead, most notably for Bahrain’s wholesale banks whose traditional reliance on funding from European banks has resulted in a potential vulnerability. However, thanks to a government policy of fiscal expansion, the short term presents the prospect of a wealth of new business opportunities. This chapter includes an interview with Abdulkarim Ahmed Bucheery, Chairman, Bahrain Association of Banks, as well as a dialogue feature with Mazin Manna, CEO, Citibank and Patrick Gallagher, CEO, HSBC.