The traditional regional base of choice for many banks, Bahrain is facing tough competition from other Gulf Cooperation Council (GCC) members. In public, Manama maintains it welcomes the rivalry, with officials arguing that the island state’s long experience of regulation and ability to weather crises will stand it in good stead.
“Competition? I am a great believer in the free market, and competition is healthy,” Bahrain Monetary Agency (BMA) governor Rasheed Al-Maraj tells Emerging Markets: “When it comes to financial services we look back at our track record over the decades. It’s been tried and tested and is respected; all this puts Bahrain in an advantageous position.”
Investcorp chief operating officer Gary Long quotes no less than “four international ratings agencies,[for whom] the BMA is the most respected regulator in the Gulf.” Feeling secure in such an environment, Investcorp – operational in Manama for the past 24 years – “is very happy to have regional headquarters in Bahrain.”
The arguments of Bahrain’s most enthusiastic advocates often come back to regulation. Ernst & Young transaction advisory services director Yaser Alsharifi says that “my colleagues across the region are finding some resistance from regulatory authorities because everything is so new... they are still finding their feet.” This was not the case in Bahrain where the BMA, long-advised by the Bank of England, is now a deeply rooted institution.
Manama’s position as Islamic banking capital of the Middle East remains unchallenged, with the recent announcements of another four new large Islamic banks to be based in Manama, backed by wealthy Gulf investors.
But some other sectors are not doing so well. Officials know they must do more if Manama is to hold its own as a focus for equities investment.
new focus on equities
Senior officials who talked to Emerging Markets accepted that equities was one area where Bahrain had failed to maintain its regional financial sector leadership – as was underlined when prominent Saudi investor Prince Alwaleed Bin Talal decided that the regional listing of his Kingdom Holding Company would debut on the new Dubai International Financial Exchange.
Reviews of the Bahrain Stock Exchange (BSE) started last year in an attempt to understand what must be done to make the BSE more attractive. “Part of the recent interest in Dubai is due to the liquidity of the stock-market – it’s a very active market. We need to do something about it and will release findings... in June,” Al-Maraj tells Emerging Markets.
In part due to the BSE’s lacklustre performance, Bahrain was not as badly burnt by the recent stock market crashes as other GCC markets; the BSE index fell by only 4% in March, when other regional markets were tumbling. Al-Maraj comments: “It’s easy to point fingers after the event. Everyone was aware that the way the stock markets were going was not sustainable – we cannot defy the law of gravity forever. So, it’s a wake-up call, but not the end of the world.”
The governor concluded: “In the Gulf, we have the problem that when things are going well everyone will praise the free market, but when it’s bad they blame the government – they cannot have it both ways.”
promoting bahrain
Investment is now going into infrastructure and PR to help sell Bahrain as the regional destination of choice, headed by the Bahrain Financial Harbour (BFH) scheme – now being vigorously promoted by estate agent Knight Frank, as well as its core promoter Gulf Finance House, led by the ambitious Jennahi family. The BFH is making real construction progress, for its first units to open in 2008, and a specialized insurance centre – intended to boost Bahrain’s role in that fast-growing sector – to be completed later. The total $1.3 billion BFH scheme, incorporating offices, hotels, residential space and leisure facilities, is scheduled to be finished by 2009.
The authorities hope the BFH will show they can match anything their regional rivals can produce.
Sceptics say Manama jumped on the BFH bandwagon rather late. “By 2009, Dubai will be even further ahead and the Qatar Financial Centre will be an established entity,” comments one regional banker.