The party’s over. We’ve officially run out of oil money. But while the majority of the country’s people are preparing for what might seem like imminent doom, one man would argue that this is our much-needed wake up call. This month, BIG had the pleasure of interviewing Bahrain’s Minister of Industry, Commerce and Tourism, H.E. Zayed bin Rashid Al Zayani, who gives us an insight into what the future holds for Bahrain’s economy.
Your Excellency first of all, please enlighten us about your economic outlook for Bahrain in 2017?
As we have seen in 2017 so far, we continue to face the challenge of dealing with low oil prices. The way I see it, the year will also be affected by global uncertainty regarding the Trump administration in the US, an unclear situation in the UK after Brexit, and further elections taking place in Europe. On the home front we face a fiscal challenge in balancing the budget, as 80% of our government’s revenue is oil-based. On the bright side, we don’t face an economic challenge. The latest figures have shown that Bahrain’s economy is growing at a rate of approximately 4% annually, which is a good number to work with. Even after the lifting of subsidies in 2016, inflation has not gone above 2.7%, meaning that economic growth is still ahead of the inflation curve. Furthermore, 2017 will start seeing cash flows of GCC development funds pouring into the economy as well as the expansion of ALBA refinery upgrade and start of construction on LPG terminal. Overall, we anticipate $32 Billion worth of projects in the next 4 years, a number equal to our annual GDP.
On that note, which sectors is the government investing in to diversify Bahrain’s interests away from oil in 2017?
One area of focus is to encourage local manufacturing in order to promote creation of employment, creation of added value, and creation of export value. We’re also putting a lot of effort into developing Bahrain’s tourism sector and have started promotional campaigns in a number of countries around the world. Furthermore, Gulf Air’s new fleet coming in 2018, along with new destinations in North America and South East Asia, are sure to contribute to our initiative. In addition, the Government is committed to developing our SME sector further to encourage entrepreneurship and business start-ups.
What are some of the key areas of interest for most foreign investors you have come across? What kind of businesses do they look forward to investing in Bahrain?
So far, we’ve seen interest from quite a few industrial manufacturers, as well as a few companies in the service sector, and consulting. We’re currently pushing for foreign investment in five main sectors of our economy: financial services, ICT, logistics, manufacturing and tourism.
What, in your opinion, makes Bahrain an ideal location for foreign investment?
For starters, Bahrain’s geographical location is a huge advantage for us. We also have a huge amount of local talent, which I think is one advantage we are underselling. Bahrain also boasts one of the most liberal labour laws for expatriates in the GCC. We have liberalised the vast majority of the country’s business activities to foreign investors – only 2% of our business activities are today restricted to Bahrainis. A lot of positive developments are currently taking place in Bahrain; we just have to learn how to capitalise on these opportunities. Our FTA agreements open up markets like US, Singapore, EFTA (Switzerland, Norway, Liechtenstein and Luxemburg) as well as the greater Arab world FTA.
What would you say is the biggest obstacle for foreign investment in Bahrain? And how can we approach that challenge?
I think we could do with better coordination within government. There’s still duplication, there’s still contradiction in some places. We have to work on unifying the pace within government – you have some departments that are efficient and quick and some that are lagging and unfortunately in a cycle like this, you get governed by the slowest.
There has been a significant increase in fees and levies imposed on certain business and commercial activities over the past few years. Can we expect more to come in 2017?
The bulk of the work regarding implementation of fees and levies on commercial activities is done, but there may be some fine-tuning yet to come. A lot of these fees were actually overdue in my opinion. When imposing these levies, we did take into consideration the needs of individual business owners so as not to overburden them, and to maintain national competitiveness to the private sector.
The general consensus among business owners is that these fees and levies should not have been enforced all together, but rather spread out over a period of time, or gradually increased. Do you think this would have been a better option?
No, because we were confident that the market could absorb these increases. Let’s look at industrial land as an example. Two years ago, we increased the rates from 500 fils to one dinar per square metre per annum. With the average plot size being 5000 metres, even after this price increase, the total cost of land only comes to BD 5000 per year, which is peanuts. Those who got affected most were those who were using industrial land for commercial uses or for private use, which was not the intended use for the land in the first place. The government was doing those people a favour. During the same period, the number of industrial licenses issued has gone up, investment in industry has gone up. We saw a rise of more than 200% in issuance of new CRs, with BD288 million of fresh capital has been injected into companies, and the economy is growing at approximately four percent per annum. These statistics prove that the market can absorb, and is ready for these changes.
What input can you give us regarding the introduction of VAT in GCC?
VAT is supposed to come into effect GCC-wide in January 2018. There will be a 5% applicable to certain goods and services initially, although there is still some uncertainty as to which goods will be taxed.
With regards to our Free Trade Agreement with the USA, do you think we have made full use of it? If not, how can we do this more fruitfully?
In the 10 years that we have had the Free Trade Agreement, we have more than doubled our exports to the USA. However, a huge portion of those exports were textiles, which are no longer covered as part of the agreement. At the same time, the USA has more than tripled their exports to Bahrain. Logic says we should sell to them more, since they are the bigger market. So have we used the Free Trade Agreement to its full potential? No. How can we? The private sector has to take initiative. The government has paved the way; they’ve opened the door. Entrepreneurs need to realise that the government is not their partner. Government has led the way, but it’s up to the private sector to capitalise on the opportunity.
Is there any chance of reviving the part of the agreement that concerns textiles?
Hopefully. We won’t really know until the dust settles with the Trump administration. The previous administration was totally ears shut; they didn’t want to do anything about it. With the TPP (Trans-Pacific Partnership) on its way out, we are hopeful that we may have a chance to re-open negotiations.
SMEs are a big part of any economy. Can you tell us what the Ministry is doing to vitalise the SME sector?
We’re working with the EDB (Economic Development Board) and BDB (Bahrain Development Bank) to develop a whole ecosystem for SMEs that includes financing, export credits, bankruptcy laws, and mentoring. We’re currently working on the development of an export development centre with the BDB. This export development centre will have four core functions: one will be advisory; one will be mentoring; one is export, credit and finance; the last one is capacity building – how to build a business plan, how to build a feasibility study, etc. We’re also working on a bankruptcy law to provide SMEs with a proper safety net. Lastly, we’re trying to revitalise our stock exchange, Bahrain Bourse. We want to create a proper trading floor, increase the number and variety of companies listed. This will give hope for entrepreneurs to one day turn their SME into a major corporation. But most importantly, we aim to change the mindset of people from that of job seekers to job creators. People need to muster up the will to take a challenge, to risk it – and we have to make sure that whatever risk they take is calculated and manageable. Through the cooperation of the other government departments, we hope to come up with a package by the end of the year to cover all these aspects.
How do you plan to instil this mindset in the younger generation of aspiring entrepreneurs?
We have to make them aware of their decisions and take away the notion that the government is responsible for them. The government will pave the way, but they need to be responsible for their actions. When young entrepreneurs are successful they’ll brag about their accomplishments, but if they lose money, they expect the government to bail them out. That doesn’t work. Compare this mentality with that of our forefathers 100 years ago, who travelled to India, Yemen, Lebanon and East Africa to do business. There were no cell phones, no airplanes, no proper banking system, and they didn’t speak the language. And yet, through sheer force of will, they survived! As a society, we’ve simply become too complacent in this modern age. We have everything in the palms of our hands, but seem to lack the drive to achieve our ambitions. Lastly, we need to work harder to change our society’s perception of failure. In the USA for example, society is open to failure – they simply get up and start all over again. In this part of the world, there is a fear of failure because people fear being cast out by the rest of society. People need to understand that failure is simply a lesson on the road to success.
What is your vision for the Ministry in 2017?
We want to be more service-oriented and geared towards serving our clients more effectively. We want to be a step ahead – proactive, not reactive. The Ministry will have a major role to play in reshaping the landscape of the economy of Bahrain in the years to come. 2015 and 2016 were foundation years for us. We changed a number of laws and procedures, and now we’ve got to put things into action.
In your opinion, what makes an entrepreneur successful?
There are many factors involved. You need to have self-belief, ambition, and you need to be honest – don’t take shortcuts. Cutting corners might pay off in the short term, but is never worth it in the end.
From businessingulf.co.