Real GDP Growth Composition
Bahrain’s economy had a very strong year in 2017 with growth exceeding expectations and edging above its 2016 rate as a result of a strong performance from the non-oil private sector. During the first three quarters of the year, the economy expanded by an annualised pace of 3.6% in real terms. This was ahead of the 3.2% recorded for 2016 as a whole and the fastest real growth rate in the GCC.
Non-oil Private Sector Leads the Way
Growth in the Kingdom was led by the non-oil private sector, which expanded by just under 5% YoY during the first nine months of 2017. This was significantly above the 4.0% pace seen in 2016 and went against the regional trend at a time when economic activity has been depressed by fiscal consolidation, subdued oil prices, and the OPEC-led production cuts. The oil sector remained more or less flat during the year with a 1.4% annualised real contraction during the first three quarters of 2017. Moreover, with government spending growing at a historically subdued pace, growth was led by the non-oil private sector, thereby supporting further diversification of the Bahraini economy.
Infrastructure Implementation, a Key Driver of Growth
The remarkable resilience of the Bahraini economy was due to a number of factors. In particular it was a result of the implementation of a US$ 32 billion infrastructure investment pipeline, proactive regulatory reform in key areas, and more targeted investment promotion efforts to boost foreign direct investment.
A number of landmark investment projects are already underway, including the US$ 3 billion Alba Line 6 expansion, which will create the world’s largest single-site smelter, the US$ 1.1 billion airport expansion, and a new LNG terminal, which is being built in the north of the country.
The government also implemented a number of regulatory reforms to enhance Bahrain’s standing as an investor-friendly unified jurisdiction. The number of sectors in which 100% foreign ownership is permitted has been extended, while company registration has been simplified and accelerated with a new electronic platform and the lifting of minimum capital restrictions. There have also been targeted efforts to boost innovation in strategically significant sectors. For instance, the Central Bank of Bahrain approved new crowdfunding regulations and have announced the region’s first on-shore regulatory sandbox for FinTech. The Bahraini government also announced a Cloud-First policy – requiring government bodies to move their data to the cloud – a first for the region.
Robust Confidence Underpins Optimism for 2018
Consumer confidence has remained robust, as has business confidence with most companies continuing to expect improvement in their operating conditions throughout the year. Companies have also benefited from a benign liquidity environment and a rebound in bank lending.
Employment Benefits from Resilient Growth
New job creation in the Kingdom remained brisk, largely thanks to the build-up of the infrastructure investment pipeline. Bahrain’s key competitive advantage of an educated, economically active national workforce is being further enhanced by targeted efforts on the part of Tamkeen (the National Labour Fund), which supports the upskilling of existing employees but also encourages entrepreneurship.