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Enhancing partnership between Mamlakat al Bahrayn and Turkey
Mehmet Öğütçü, Paris ogutcudunya@yahoo.co.uk
A four-day mission to Bahrain has been an eye-opening experience and helped me learn how little we know about this small island, known as The Pearl of the Arabian Gulf, and its potential as a magnet for investment, finance and trade.
Bahrain, meaning "Two Seas", refers to the islands which contain the two sources of water - sweet water springs and salty water in the surrounding seas. A visit to the National Museum reminds you that Bahrain has a history of more than 5,000 years of civilization as the site of immortal Dilmun, religious centre to Sumerians, Babylonians and Assyrians. Subsequent visitors included Greeks from the time of Alexander the Great, Portuguese, Omani, Ottoman and British.
Though modest in population, land area and resources, Bahrain has achieved considerable social and economic status over the past decade. In 2004, Bahrain was ranked 28th on the World Economic Forum’s 104-country Global Competitiveness Index and the second highest Arab country. This article aims at contributing to the Turkish-Bahraini friendship by shedding some light on what Bahrain is up to in this region, its strengths and challenges, and explore the possibilities of enhanced partnership between Turkey and Bahrain both bilaterally and in the context of the broader MENA strategy.
A shining star for MENA region Situated strategically in the middle south of the Persian Gulf, home to the U.S. Navy’s 5th Fleet patrolling the lanes of shipping in the oil-rich region, and having introduced bold economic and political reforms, Bahrain is set to become a shining star in the Middle East and North Africa (MENA) world. Although considered to be a “poor” state in the Gulf Co-operation Council, with average per capita GDP of around $19,000, Bahrain offers one great advantage over its wealthier neighbours: well educated and entrepreneurial human resource. Bahrain is also witnessing a boom that is the envy of the five other Gulf Co-operation Council countries - Saudi Arabia, Kuwait, Qatar, the United Arab Emirates and Oman. Indeed it wants to become the Singapore of the Gulf and Middle East region - its financial, banking and trading centre. A small island with a total area of 620 km², Bahrain does not share a land boundary with another country but does have a 161 km coastline. It is linked to Saudi Arabia through the King Fahd Causeway and will be joined in a few years to Qatar via the Qatar-Bahrain Friendship Bridge, currently in planning, as the longest fixed link in the world.
The al-Khalifah family, members of the Sunni Bani Utbah tribe, has been leading Bahrain since 1783. Bahrain was virtually a British protectorate until 1971. Hamad bin Isa Al Khalifa, who was installed in 1999 as the new Amir and the King three years ago, has pushed economic and political reforms and has worked to improve relations with the Shi'a community, which constitute 70 percent of the island’s population. Bahrain’s relations with Iran have been strained since November 1957 when the Iranian parliament unilaterally decreed Bahrain as the Fourteenth Province of Iran and the 1981 discovery of a planned Iran-sponsored coup in Bahrain. However, with the decline of Iraq as a regional powerbroker, Bahrain has begun taking steps to improve relations with Iran and increase regional harmony.
What Bahrain has achieved in bold and courageous steps appear to defy the regional gloomy trend. Reforms are gaining momentum as the democratic impulse becomes consolidated in the country. A cabinet reshuffle last January led to a second female Minister being appointed; the Shura council and King are pushing for a programme to educate Bahrainis on constitutional issues. A new law on freedom of expression is being drafted. Bahrain is known for its openness compared to the rest of the Gulf countries. At weekends, young men from the more conservative neighboring states stream in by air or via the causeway from Saudi Arabia. They come to Bahrain to escape Saudi laws banning alcohol and the mixing of the sexes. But from what I gather many locals do not welcome the visitors' behaviour as they often cruise Manama's malls, pursue young Bahraini women and cause fatal traffic accidents. Increasingly diversified and open economy
Bahrain has become a primary option for international business looking to establish operations in the Middle East. The undisputed financial center of the Arabian Gulf region, and fast becoming the region's knowledge-based services hub, Bahrain's progressive outlook and international perspective are reflected in social and economic diversity.
Being the first country in the Gulf to exploit oil in the early 1930s, Bahrain was also the first to actively develop non-oil industries through a strategy of sustainable development. It produces around 45,000 barrels of oil per day, boosted by an additional 160,000 barrels per day produced by Saudi Arabia for refining and re-export via Bahrain. It also receives a large portion of the net output and revenues from Saudi Arabia's Abu Saafa offshore oilfield. Petroleum production and refining account for about 60% of export receipts, 60% of government revenues, and 30% of GDP. But its petroleum wealth has never reached the levels of production enjoyed by Kuwait, Qatar or Saudi Arabia.
Other industries include Aluminum Bahrain, which operates an aluminum smelter--the largest in the world (outside the east European countries) with an annual production of about 525,000 metric tons --and related factories, such as the Aluminum Extrusion Company and the Persian Gulf Aluminum Rolling Mill. Other plants include the Arab Iron and Steel Company's iron ore pelletizing plant (4 million tons annually) and a shipbuilding and repair yard. Textile industry is in the process of being upgraded to compete internationally under the co-operation programme with an Italian group. Bahrain has been growing as a regional financial hub since the 1980s. Walking in the downtown business center of Manama, one can see the glowing signs of leading international financial and commercial institutions, including Salomon Smith Barney, HSBC, Coca-Cola, IBM, UPS Citicorp, American Express, Nomura Investment Banking, Arab Banking Corporation, Gulf International Bank, DHL, Investcorp and Ericsson. They all chose Bahrain as their regional base – a clear testament to the country’s liberalized and transparent economy and cosmopolitan living environment. Despite many mergers and takeovers in the global insurance and banking sectors, and despite strong competition from regional rival Dubai, Bahrain remains the region’s leading financial services center and its reputation for sound regulation is well recognized. In September 2004 Bahrain signed a Free Trade Agreement (FTA) with the United States - the first such agreement undertaken by a Gulf state. Having an FTA with the US means that Bahrain meets high standards. The agreement is unlikely to attract large investments such as major factories or industries because Bahrain lacks cheap labour. But the Kingdom expects to attract more service-oriented companies. The FTA could have some adverse effects on other countries such as Saudi Arabia, Brazil and France doing extensive trade with Bahrain. There could be a negative effect onto Saudi Arabia's business in particular because it now enjoys very low costs and restrictions in doing business with Bahrain, but with the introduction of US business in the country with no taxation, Saudi businesses will certainly face more competition. In my meetings at the Economic Development Board of Bahrain, I was told that the leadership subscribes to the appeal of a “beauty contest” in attracting foreign investment rather than generous fiscal, financial or regulatory incentives. Bahrain has a highly favorable tax environment, with no taxes on personal or corporate income, and no withholding or VAT. Raw materials, imported semi-finished commodities, imports required for development projects, machinery for manufacturing, and goods imported for re-export are all exempt from duties in Bahrain. International investors and companies are guaranteed 100% ownership of their interests in many sectors.
The Crown Prince and his vision of Bahrain
Excitement over political and economic reform, reconciliation with Qatar and new spending on public projects mean that Bahrain is awash with optimism. But it remains to be seen how healthy is the underlying economy, and how committed is the government to deep-rooted political and economic reforms. Unemployment, especially among the young, and the depletion of oil and underground water resources are major long-term economic problems. No doubt, the 36-year old Crown Prince Sheikh Salman bin Hamad Al Khalifa is the principal driving force in the country for the reforms. He leads the Economic Development Board of Bahrain, which has recently been empowered with greater authority for advancing the reforms. Well educated, charismatic and devoted to a strong future vision for Bahrain, the Crown Prince wants to transform this 705,000-strong nation into a major regional center of excellence and knowledge. He spelled out three basic principles which would shape the future of the island nation: the supremacy of law, a free economy to suit the needs of the times in keeping with global changes, and respect for the opinion and rights of citizens and the leadership. He also emphasized the need for transparency and free competition. Untapped opportunities for Turkish and Bahraini businesses
Turkey’s relations with Bahrain should be viewed in the broader context of its evolving role and interests in the “Greater Middle East” geography. There are certain assets that make Turkey a major power to reckon with in any development concerning this region:
The continuing progress Bahrain has made in its reforms is setting an example to other Arab countries. On the whole, Bahrainis are in a far better position in terms of education and job opportunities than their contemporaries in the MENA world. The country’s GDP size is around $12 billion to which the largest contribution comes from services.
During my visit to Manama last May it was also gratifying to see a booming and powerful Turkish presence. A community of about 700 Turks in Bahrain contributes to this country’s offshore banking (12 Turkish banks, with total assets representing almost 10 percent of the Bahraini offshore banking), universities, restaurants (managed by those who came from Antakya and Hatay), retail trading, hotels and engineering. Greek Cypriots, it seems, dominate the construction sector.
The bilateral trade volume is far from being impressive: according to the Bahraini customs statistics, $53 million at the end of 2004 with exports of 43 million (mainly iron-steel) and imports of 10 million (aluminum). The potential for expanding trade, investment and construction business as well as political/security dialogue is immense and remain largely untapped.
The recent official visit by Foreign Minister Abdullah Gul to Bahrain has opened up new avenues for enhanced partnership between Turkey and Mamlakat al Bahrayn, and put the bilateral ties on a firmer basis generating a range of “win-win” proposals for both nations to benefit.
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