Bahrain and Privatisation:
A Growing Alliance?
by Sophie Smith
Earlier this year, in March 2021, Bahrain hosted a global event, the Bahrain Metro Market Consultation, to seek out private enterprises interested in establishing a public private partnership (PPP) for the development of its metro system. It is the latest development in Bahrain’s privatisation efforts as the government has continuously emphasised the creation of a business-friendly environment to attract investors to the country. Such efforts have been recognised by the World Bank, which currently ranks Bahrain as the second best country in the Middle East and North Africa, after the UAE, for the ease of doing business. Indeed, the relatively small island offers zero taxation for private companies, free movement of capital and 100% foreign ownership of businesses in the majority of sectors with an average of 30% lower operating costs than its neighbours. This comes as part of the effort to diversify and develop the economy in line with the country’s Vision 2030.
A Drive to Privatise
With smaller oil reserves when compared to Saudi Arabia, Kuwait and the UAE, the drive behind privatisation came early on in Bahrain. Already in 2000, the government created the Bahrain Economic Development Board (EDB), an investment promotion group, to foster a more attractive environment for investment by focusing on the sectors where Bahrain shows a comparative advantage: financial services, manufacturing, ICT, logistics, transport, tourism, real estate, healthcare and education. This was later complemented by Legislative Decree No. (41) of 2002 with Respect to Privatization, which sets out the parameters of the privatisation process. In particular, this privatisation programme – which falls under the supervision of the EDB and the Ministry of Finance and National Economy – concentrates on tourism, communications, transportation, electricity and water, the ports and airport service, oil and gas, postal service. In the same year, the government also adopted Legislative Decree No. (36) of 2002 with respect to Regulating Government Tenders and Procurements, creating a Tender Board to establish effective procurement practices and systems to facilitate private sector growth.
These measures form the basis of privatisation initiatives in Bahrain, supporting privatisation projects in several sectors. For example, in 2003, the government first privatised public transport when the Cars Transport Corporation, a Bahraini-UAE enterprise, signed a concession agreement to operate Bahrain’s buses. A new private joint venture of the Bahrain-based Ahmed Mansour Al Aali Group and the United Kingdom-based National Express Group, the Bahrain Public Transport Company, took over the bus network in 2015 for ten years. The power and water sector is also being privatised through PPP. For example, the Al Hidd Power and Water Station was sold in 2006 for $738 million (USD), and the Al Dur Power and Water Station, which provides one-third of Bahrain’s power and water production, was also privatised in 2008. Agreements have equally been struck in the wastewater sector, such as the $328 million (USD) Muharraq STP and Sewage Conveyance PPP project. In real estate, too, the government has been signing PPP agreements; in 2012, the Housing Ministry penned its first PPP agreement to develop housing units in Salman Town and Lowzi. And, more recently, in 2019, the Ministry launched the Developing Government Lands Program, which entails the construction of 15,000 housing units over a 10-year period by the private sector. Similar investments are equally seen in infrastructure, including the commercial port, Khalifa bin Salman, operated by the APM Terminals Bahrain, a joint venture of the Yusuf bin Ahmed Kanoo Group and the majority holder, the A.P. Møller–Mærsk Group, a Denmark-based global logistics company and terminal operator, who has invested $62 million (USD) into the port. Moreover, the multinational private enterprises, the Netherlands-based KPMG, UK-based CMS and US-based Aecom, began work on the $3.5 billion (USD) King Hamad Causeway, the second crossing to link Saudi Arabia and Bahrain, after an agreement was signed with the two governments, in 2019.
This privatisation drive falls in line with Bahrain’s economic development goals as part of its Economic Vision 2030. By facilitating the private sector to drive economic growth independently, the government intends to realise such ambitions. In this regard, the private sector is designed to stimulate economic growth by: 1. enhancing productivity to achieve the ambition of being on par with global productivity leaders by 2030 and 2. by increasing the skill set of the population and offering quality, high-wage employment opportunities in high-value added sectors to ensure that every Bahraini household has at least twice as much disposable income in real terms by 2030. Moreover, privatisation will support Bahrain’s ambitions to diversify its economy beyond the oil sector towards high-potential, export-oriented sectors, such as tourism, manufacturing and business services. Indeed, here the private sector can aid Bahrain’s expansion into knowledge-based sectors by stimulating entrepreneurship and innovation, all of which will open new global markets to Bahrain and increase its regional and international competitiveness. Building on this, the drive behind privatisation is designed to help achieve the government’s aims of creating new and improved infrastructure, as well as offering a higher quality of services at large, in the country, while downsizing the public sector and freeing up a sizeable portion of government funds.
Thus, privatisation will contribute to Bahrain’s long-term plans for economic development and diversification as its reliance on oil revenues declines. This becomes particularly relevant amidst the COVID-19 pandemic, which, together with the global oil price collapse in 2020, has led to a fall in the economic growth rate to a decades low of -5.4% as unemployment levels rose to 4.1% in 2020.  Such a hit to the economy has challenged government efforts to generate revenue and reduce spending. Indeed, the government introduced a 4.3 billion Bahraini Dinars (BHD, estimated €9.5 billion EUR) stimulus package in April 2020, combined with business subsidies, as the budget deficit increased from -9% of GDP in 2019 to -18.31% of GDP in 2020. In this sense, the impetus behind continued privatisation efforts is likely to gain increasing traction as Bahrain attempts to recover from the pandemic.
18 May 2021
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