MANAMA, 11 January 2008 — Bahrain has successfully diversified its economic base as part of a strategic initiative that goes back in early 70’s which over the years has transformed Bahrain as one of the most liberal economies in the region, Central Bank of Bahrain Governor Rasheed M. Al-Maraj said yesterday.
Addressing the strategic forum on bilateral trade and investment opportunities in banking and finance being held in London, he said as an example of economic restructuring taking place in the region, “I would like to review briefly Bahrain’s experience in economic reform and liberalization over the last 30 years and the benefits we have derived.”
“A key objective of Bahrain since the 70s was to work on diversifying the economy and reducing dependence on oil, and since then, Bahrain adopted a number of significant initiatives to develop the financial sector which has made Bahrain the center of choice for many international and regional financial institutions.”
“These early initiatives proved successful by increasing the contribution of the financial sector to the economy and introducing competition to the local financial institutions. The financial sector provided additional benefits by way of training of large numbers of nationals and improving the quality and choice of services available to the public,” he said.
The bank governor further said the arrival of foreign institutions also encouraged innovation in banking and prompted the authorities to continually improve the quality of banking regulations and supervision.
He said the open-door policy attracted many leading regional financial institutions such as ABC, GIB, Investcorp and AUB to set up in Bahrain from the early 1980s onwards. Bahrain also played a pivotal role in developing the banking regulations and supervisory legislation to facilitate the growth of Islamic banking since the mid-1990s.
“This environment has helped in attracting a lot of interest from regional and international institutions to set up Islamic banks and Takaful companies. There are over 30 institutions in Bahrain specializing in Islamic finance.”
Similarly, the government of Bahrain undertook initiatives in other sectors focusing on trade liberalization and less restriction to foreign investment.
“Such initiatives, which hold at their core the objective of an open economic policy, reiterate the fact that Bahrain and other countries in the region depend on additional integration with the global economy for their economic success and must take further measures to facilitate the flow of capital and trade into the region,” Al-Maraj pointed out.
Talking about the region, the governor said: “A large number of public and private investment projects currently under way have collectively achieved unprecedented record levels of growth, furthering the region’s attractiveness to international investors.”
He said keeping in view the economic boom, it seems almost a fruitless exercise to embark on a discussion about the benefits of economic liberalization in the Gulf region in 2008. “Why would we want to talk about the continuing need for economic liberalization when economic growth in recent years has exceeded all expectations?” he asked.
“Some might even say that we don’t need any more liberalization. We are doing quite well enough thanks to oil. Frankly, I would have to disagree. Even in boom times, the key challenge to GCC governments is to maintain the momentum of economic activities thereby creating additional job opportunities. This means encouraging economic diversity, and increasing the private sector’s role in the economy.”
He added that “with increased diversity and a larger private sector, there will be less dependence on oil income as a catalyst for growth in the future. The way to achieve a more efficient and competitive private sector is not by protectionism but to increase competition and open up the domestic economies further.”