Bahrain gained independence from British protection on December 16th 1971. The vision of the government was to lay a solid foundation for the national economy that would remain stable despite unpredictable international economical fluctuations and to develop and improve the economy to bring benefits to the Bahraini citizens and raise their living standards. To date the government has remained on this path of progress and the country’s economical stability can be attributed to foresight and strategic planning.
By the mid 1970s Bahrain was the first Gulf State to introduce a reliable telephone and telex service leading the way to new data communication. Net earning from oil had risen from $68million in 1972 to an estimated $528milliom in 1977. Public investment spending rose from $19million to $357 million during the same period. Most of the funds were spent on electricity, water, power, sewage, and expansion of the Mina Salman Port, airport, roads, public housing, schools and health centres.
The first commercial bank, a bank of the British owned Eastern Bank started operations in 1921, the British Bank of the Middle East set-up an office in 1941 and in 1957 the first wholly Bahraini owned private bank the National Bank of Bahrain commenced activity. The Bahraini dinar had already replaced the Indian rupee by 1965 and with the internally convertible currency; banks began to find the country a more attractive location. By 1974 fourteen commercial banks were operating out of Bahrain and the Bahrain Monetary Agency (BMA) became the legal entity possessing the same power as a central bank.
Direct dialing to London started in 1977 ahead of most other regional countries and a second earth station was opened in 1980. UK’s Cable and Wireless (C&W) had a part of these developments spending approximately $95million of its investment between 1978-1982 on international communications.
When civil war broke out in Beirut on April 3rd 1975, many financial establishments moved out of Lebanon. Citi Bank was one of the first to relocate its operation to Bahrain by investing $2billion of assets. The Chairman of BMA – Prime Minister Shaikh Khalifa bin Salman Alkhalifa saw this is as an opportunity and promulgated regulations for Offshore Banking Units (OBUs). Within the first year 26 OBUs were established and by 1980 75 OBUs with assets in excess of $62billion were operating out of Bahrain. This was a new era of Banking in Bahrain.
International financial institutes saw Bahrain as an ideal location to set-up operation given that the country had a diversified economy, strategic location, low cost of doing business and transparent regulatory systems. The Government was rapidly moving forward with the modernization of infrastructure, transport, education, health and housing. In addition to this, foreign investors were delighted at the availability of educated Bahraini men and women to recruit and train.
Under the BMA, banks were charged a training levy equal to 1% of the total wage bill of every important banking institution in Bahrain. Within two years 107 local banking institutes were paying the training levy and sending male and female students for training. Director of the centre Gerald Kansas was seconded from the US Citibank to offer practical courses orientated to the needs of bankers and trainees. Assistant Director Devel Livesey was pleasantly surprised “teaching is totally in English. At the beginning we wondered if this would be a big problem but, as it turns out, very few have asked to be taught in Arabic, as the commercial language of banking is English”. Between September 1981 and July 1982, 680 men and women passed through the centre and the target for the 1982/83 academic year was 1,300.
In 1985 the Prime Minister endorsed Islamic Banking in Bahrain, thus further propelling Bahrain as a fast growing financial capital with the freest economy in the Middle East. At that time Kuwait and Qatar did not permit set-up of foreign banks and the UAE’s DIFC was barely established. The total banking assets of Islamic Banks and institutions in Bahrain increased from $1.9billion in 2000, to $25.4 billion in August 2012. The BMA had focused on regulations to streamline and control banking services in Bahrain and the growth in this sector has been phenomenal.
With the completion of the Saudi Causeway in 1987, the country saw a new wave of development through investment and tourism. Prior to the completion of the bridge the Prime Minster said “we are developing, we are not standing still. This is part of our development. When Bahrain is joined at the mainland so cars can travel from here to Saudi Arabia and Europe – this is progress”.
The Bahrain Government was the first to welcome Kuwaitis during the invasion in 1990. This in turn brought an influx of investment opportunities and the economy continued to go from strength to strength. FTA agreements increased international trading and the economy was booming with multinational businesses and financial institutes setting up operations in Bahrain.
As we enter 2014 the national budget which is increasing year on year has been approved. Investment in infrastructure and the recommencement of projects is seeing a growth in the local market. In July 2013 Fitch Ratings announcement report said “GDP per capita and broader human development and business environment indicators are close to the ‘A’ median. The strong regulatory framework and local skill base, combined with low costs, are key supports to the financial sector”. A China based company; Dagong Global Rating Company independently rated Bahrain and the USA at A- in December 2013. The rating was based on political stability, public spend and economic diversification amongst other criteria.
The economy is growing steadily with no overheating of the market. Banking profit has grown by an average of 6.5% with the local banks expecting to show 10% growth. The balance sheet stands at $300 billion – third in the Middle East – not bad for a small country with limited resources.
The financial sector contributes 27% of Bahrain’s GDP making it one of the key drivers of growth and the largest single employer in the country. The country has some of the highest qualified and experienced employees at all levels in the financial sector, in the world with Bahrainis representing 80% the workforce.
The stability of the Bahrain economy is largely due to the vision of the head of the government – Shaikh Khalifa bin Salman AlKhalifa. The country is moving forward with the people firmly behind the leaders who are focused on security and growth for the benefit of the people. The economic strength speaks for itself –almost three years into disruption and it is business as usual in Bahrain.
For skeptics, the global recession in 2009 -2011 is the reason behind closures and consolidation of international financial institutes not just in Bahrain but worldwide. International media and enemies of the state’s futile attempts to destroy the economy have failed and it is time for them to move on and accept defeat at the hands of the majority.