Investment opportunities in Bahrain (Part 1)

With its strategic location, welcoming business environment and cutting-edge digital initiatives, Bahrain is becoming an attractive destination for those looking to establish successful businesses in the Gulf and beyond.

State-owned enterprises (SOEs) are the main engines of growth, but Bahrain is seeking to increase the private sector’s contribution to the economy to move away from hydrocarbon dependence and promote long-term economic growth. While Bahrain’s economy has traditionally been driven by oil and gas, the sector now accounts for less than 20% of the country’s GDP. Mumtalakat, Bahrain’s sovereign wealth fund, is diversified across a variety of business sectors, including technology, real estate, tourism, financial services, food and agriculture, and manufacturing. Many of these SOEs operate as private enterprises and compete with foreign and domestic businesses in their sectors.

The Government of Bahrain (GOB) has focused on attracting foreign direct investment (FDI) in the manufacturing, logistics, infrastructure, information and communications technology (ICT), financial services, tourism, health, and education sectors.

The government’s long-term development plan focuses on five pillars:

1. Creating quality jobs for citizens;
2. Streamlining commercial processes to attract US$2.5 billion in annual FDI by 2025;
3. Launching US$30 billion in major strategic projects;
4. Developing strategic priority sectors;
5. Achieving fiscal sustainability and economic stability, including by expanding the Fiscal Balance Programme Bahrain.

The government has also developed detailed development strategies for the industrial, tourism, financial, oil and gas, telecommunications and logistics sectors, and identified 22 landmark infrastructure projects, including the creation of five new island cities, that will drive growth and shape the economic recovery plan.

Bahrain Vision 2030 outlines measures to protect the environment, reduce carbon emissions, minimise pollution and promote sustainable energy. Approved by the Bahrain Cabinet and overseen by the Bahrain Ministry of Energy and Water, the National Energy Efficiency Action Plan (NEEAP) and the National Renewable Energy Action Plan (NREAP) set national energy efficiency and renewable energy targets for 2025 at 6% and 5% respectively, with the NREAP target increasing to 10% by 2035. On 19 February 2024, the Crown Prince/Prime Minister launched the consultative process on Bahrain Vision 2050.

To strengthen Bahrain’s position as a regional startup hub and improve its investment ecosystem, the Bahraini government launched Bahrain FinTech Bay in 2018; passed new laws to support businesses; and created several funds to encourage investment in startups, including the $100 million Al Waha Fund of Funds and the Hope Fund to support startup growth. Since 2017, the Central Bank of Bahrain (CBB) has operated a fintech regulatory sandbox that allows startups to test new cryptocurrency and blockchain technologies and assess regulatory compliance.

Why Bahrain

Located at the crossroads of the Gulf, Bahrain boasts a strategic geographic advantage. This is further enhanced by ongoing infrastructure projects that provide fast, efficient and convenient access to the US$2 trillion economy. As a result, Bahrain provides unrivalled market access not only to its own dynamic economy, but to every market in the Gulf region and beyond.

Bahrain’s advantages in terms of attracting foreign direct investment include:

• a predominantly English-speaking, educated and skilled population;
• a tradition of cultural openness based on trade and the country’s strategic location in the northern Gulf with good communications with Saudi Arabia and easy access to other Gulf markets;
• operating costs among the most competitive in the region;
• the most attractive tax regime in the Gulf;
• a robust track record in financial services regulation;
• an excellent quality of life;
• a relatively (in a regional context) diversified economy an economy with oil, manufacturing (including aluminum and petrochemicals), and financial sectors;
• financial and other support from larger regional states, especially Saudi Arabia.

Digital technologies

The Kingdom of Bahrain is committed to being a pioneer in the use of advanced digital technologies to strengthen its economy. This commitment is demonstrated by various pioneering projects:

• Commercial Registration Portal (Sijilat)

The Sijilat system serves as an integrated electronic gateway designed to create a secure investment environment that attracts both local and international investors. It simplifies the establishment of commercial projects and compliance with various commercial activities. With the recent launch of Sijilat 3.0, the system now offers an improved, user-friendly interface, making the processes even easier. Sijilat 3.0 aims to enhance the quality of government services for the commercial sector, strengthen the investment environment and improve the overall user experience.

• Al-Tajer App

The first of its kind in the region, the all-in-one Al-Tajer app allows business owners to conduct important transactions with multiple ministries and authorities in a single transaction. The app offers services such as payment processing, order tracking and search functions, as well as information services. Specifically, it provides a unified payment option that allows businesses to conduct all their government transactions with various entities in one go, including renewal of commercial registrations (CRs), work permits.

The Al-Tajir app provides a variety of services, facilitating the needs of business owners through a single platform. This includes obtaining CRs related to the Ministry of Industry and Trade, subscribing to social security from the Social Security Organization, accessing monthly invoices from the Labor Market Regulatory Authority (LMRA), and paying bills. Additionally, the app offers tender and auction data, as well as business support services through Tamkeen.

• Benayat System (Building Permit Portal)

Benayat is an integrated online platform for issuing building permits in Bahrain. It is a national project that brings together more than ten organizations to simplify the issuance of building permits through a single app. Benayat is linked to GIS data to provide an interactive map that displays building regulations and an indicator of the availability of infrastructure services for each property. It is integrated with all relevant authorities involved in construction permits, reducing the steps required to connect to building utilities and transforming the role of the government from a service provider to a regulator.

Investment Law

As a member of the Gulf Cooperation Council (GCC), Bahrain has agreed to apply GCC standards and regulations where they exist and not to create any domestic regulations that conflict with established GCC standards and regulations. In some cases, the Bahraini government applies international standards where domestic or GCC standards have not been developed.

Bahrain is a member of the World Trade Organization (WTO) and notifies all draft technical regulations to the WTO Technical Barriers to Trade Committee. Bahrain ratified the Trade Facilitation Agreement (TFA) in September 2016 through Law No. 17 of 2016.

The Government of Bahrain allows foreign and domestic private entities to establish and own commercial enterprises and engage in all forms of profit-making activities. Only minimal restrictions are imposed on foreign control, ownership and establishment of businesses. The Ministry of Industry and Commerce (MoIC) maintains a list of activities that are restricted to Bahraini ownership.

Competition and Antitrust Law

The Government of Bahrain issued Competition Law No. 31 in July 2018 to prevent the formation of monopolies or anti-competitive practices. This law makes it easier for new businesses to enter existing markets and compete with large players.

The Consumer Protection Authority of the Ministry of Trade and Industry is responsible for enforcing the law that governs price controls and punishing violators.

Trust Act

The Trust Act provides a legal basis for the creation of a trust and its obligations, and allows for the creation of trusts for charitable and non-charitable purposes, as well as “purpose trusts”. It is a limited liability law that supports greater activity in the financial services sector and offers opportunities for expansion.

Protected Cell Company (PCC) Act

This law introduces PCCs to collective investment vehicles, private equity vehicles, securitizations and insurance captives. It strengthens investors’ rights to separate their private assets from the company managing their chosen fund and reduces transaction costs by allowing investors to establish and close cells more efficiently.

Investment Limited Partnership Law

Bahrain became the first GCC country to implement the Investment Limited Partnership Law nationwide, offering investors new financing structures that make it easier to raise capital and establish financial investment funds.

International Conventions

Bahrain has made use of a variety of international and regional conventions to enhance its commercial arbitration framework. The country is a party to the UNCITRAL Model Law on International Commercial Arbitration, the New York Convention, the International Centre for Settlement of Investment Disputes (ICSID), and the GCC Convention on the Enforcement of Judgments, among others. These conventions and international agreements have laid the foundation for the GCC Arbitration Centre and the Bahrain Chamber of Dispute Settlement (BCDR). Bahrain’s constitution provides that international conventions and treaties have the force of law.

Real Estate

The Bahraini government provides security of ownership for land and home owners. Most land has clear title. Land ownership is heavily concentrated among members of the royal family. Certain areas may be off-limits to Bahraini investors as well as expatriates. Foreign firms and GCC nationals are allowed to purchase land in certain areas of Bahrain. Non-GCC nationals may also purchase high-rise commercial and residential properties in certain areas. Foreign investors can purchase real estate for business purposes in various business areas, including but not limited to manufacturing, tourism, banking and financial services, education and training, design and advertising.

Foreign investors can own commercial real estate in the following geographic areas:

• Ahmed Al Fateh (Juffair) Area
• Hura Area
• Bu Ghazal Area
• Seef Area
• Northern Manama, including the Diplomatic Zone, where major international corporations are located

Foreign investors can own residential real estate in the following tourist areas:

• Durrat Al Bahrain
• Riffa Views
• Islands Amwaj
• Bahrain Financial Haven
• Bahrain Gulf
• Reef Island
• Diyar Al Muharraq

Most new development projects in Bahrain allow expatriates and international investors to own houses, buildings, retail outlets or apartments outright.

Legally acquired properties cannot be reverted to other owners, even if they are unoccupied.

Investment Incentives

To encourage foreign investment in targeted sectors and investment zones in Bahrain, the government provides industrial land at reduced rental rates; customs duty exemption for industrial and manufacturing projects, including import of raw materials, machinery and spare parts for businesses, and a five-year exemption from the “Bahrainization” restriction on recruitment.

Bahrain EDB, Bahrain Logistics Zone (BLZ), Bahrain Development Bank (BDB), Bahrain International Investment Park (BIIP), US Trade Zone (USTZ) and Tamkeen Labour Development Fund offer incentives to encourage foreign direct investment. Some examples of incentives include assistance in registering and starting a business, import duty exemption on raw materials and machinery, and duty-free access to other GCC markets for products manufactured in Bahrain.

Foreign Trade Zones/Free Ports/Trade Facilitation

Khalifa bin Salman Port, Bahrain's main commercial seaport, provides a free transit zone for duty-free import of equipment and machinery. The Bahraini government has developed two main industrial zones, one north of Sitra and one in Hiddah. The Hiddah location, known as BIIP, is adjacent to a logistics zone known as BLZ. Foreign companies have the same investment opportunities in these zones as Bahraini companies.

• Bahrain International Investment Park (BIIP)

Bahrain International Investment Park (BIIP) was established in 2005 by the Ministry of Industry, Commerce and Tourism as the country’s flagship industrial park. Home to 114 multinational and local manufacturing and service companies and employing over 5,200 people, BIIP has been a key driver of Bahrain’s economy since its inception. Approximately 80% of investment in BIIP comes from international companies. Both foreign direct investment and export-oriented domestic projects thrive in the industrial park.

The MoIC manages BIIP, a 2.5 million square metre tax-free trading zone located minutes from Bahrain’s main port of Khalifa bin Salman. BIIP is best suited for manufacturing and service companies interested in exporting from Bahrain, and also offers manufacturing companies the opportunity to ship their products duty-free to the GCC. The park has space for potential investors, including some vacant land for new construction and some warehouse space for lease.

BIIP offers several incentives to international companies, including competitive land lease rates; Competitive utility costs, 100% foreign ownership, duty-free access to the GCC, a 5% exemption from customs duties on raw materials, plant equipment and spare parts imported for production, and grants for the training and employment of Bahrainis.

BIIP provides businesses with a guaranteed ten-year corporate tax exemption and a zero income tax rate from the date of setting up business in the industrial park.

• Bahrain Logistics Zone (BLZ)

Located adjacent to BIIP, the Bahrain Logistics Zone (BLZ) is strategically located to facilitate the movement of goods.

Regulated and managed by the Department of Ports and Maritime Affairs of the Ministry of Transport and Telecommunications, BLZ offers local and international companies a base in a bonded area for exporting products and services to the markets of the northern Persian Gulf and the GCC. The park accommodates logistics companies engaged in:

• Third party logistics (3PL) and freight forwarding services.
• General and specialized warehousing and distribution activities for re-export purposes.
• Value-added logistics services such as component assembly, packaging and filling, labeling, testing and repair, mixing, weighing and filling, and other light manufacturing activities.

BLZ offers a range of incentives to international companies, including competitive land lease rates, 100% foreign ownership, and competitive utility rates for water, sewerage, electricity, and telecommunications.

The 1999 Act requires investors in industrial or industry-related zones to commence the project within one year from the date of acquisition of land, and development must comply with the specifications, conditions, and drawings submitted with the application. No changes are allowed without the approval of the MoIC.

In February 2022, the MoIC launched the USTZ to attract foreign companies to build, own and operate turnkey industrial manufacturing, logistics and distribution facilities in a single commercial zone that will facilitate easier access to the wider GCC market. MoIC expects the USTZ to include many of the same land lease discounts, customs exemptions and other incentives as the BIIP and BLZ.

• Bahrain Investment Wharf

Located just minutes from BIIP in the Al Hidd Industrial Zone, Bahrain Investment Wharf is a self-contained, mixed-use development.

• Khalifa bin Salman Port

BIIP businesses can take advantage of its close proximity to Khalifa bin Salman Port, a major transhipment hub for the North Gulf region.

• Bahrain International Airport

Bahrain International Airport, less than 20 minutes from BIIP, connects businesses to the entire region and serves as a regional hub for DHL.

• King Fahd Causeway

Saudi Arabia is just an hour's drive from BIIP via the King Fahd Causeway, the fastest route to the region's largest market.