The logistics opportunity in Bahrain

The Gulf Cooperation Council (GCC) can claim a millennia-long, proud history as a trade hub thanks to its location at the crossroads between Europe, Asia, and Africa. It played a critical role in the evolving trading system that connected east and west — especially during the height of the ancient Silk Road routes. 

Today is no different and the Arabian Peninsula is making unprecedented efforts to capitalize on its unique location. More trade, travel, and investment now passes through the GCC than ever before and the region enjoys an international reputation as a trading hub. The great Asian powers, led by China, increasingly see closer economic ties with the Middle East as a key strategic priority as highlighted, for instance, by the “One Belt, One Road” initiative.

In today’s globalized, interconnected world, trade facilitation is an economic activity of unprecedented critical importance. Most value chains stretch over several geographies; most products are assembled from components produced by different companies, often in a number of different countries. Supermarket shelves today have products representing more countries than most international events. It is therefore critically important that products can be transported quickly, reliably, and at a manageable cost. Our collective success in doing so, thereby establishing today’s global economy of complex, interwoven relationships, has in turn served as one of the most powerful drivers of economic growth and development in human history.

Saudi Arabia is rapidly emerging as a major player in the global economy and with a gross domestic product (GDP) of SR2.4 trillion ($640 million), it one of the largest markets in the Middle East. Thanks to Saudi Arabia’s Vision 2030 plan, which is driving economic reform and diversification across the Kingdom, industries such as financial services and manufacturing are beginning to grow, reducing dependence on oil. If this economic expansion is to continue, the right network of infrastructure needs to be in place and Saudi Arabia’s huge investment in the construction of ports, railways, roads and airports will support its future growth and give it the tools it needs to develop as a global logistics hub that capitalizes on the GCC’s strategic central location.

Bahrain can play an important complementary role in this regard, as it has done so often in the past. Bahrain as a country is exceptionally well positioned to support Saudi Arabia to play a pivotal role in this interconnected global economy, offering more options and added value even as Saudi Arabia continues to expand its own infrastructure base. Thanks to centuries of serving as a regional trading center, openness is integral to Bahrain’s culture and way of doing business; as a small economy, Bahrain’s ability to grow is critically linked to its ability to reach beyond its shores.

Partly thanks to its size and partly because of strategic infrastructure investments, Bahrain can boast a natural logistics cluster where all the different modes of transportation are geographically proximate and hence offer easy transferability. Bahrain has a state-of-the-art international seaport, the Khalifa bin Salman Port, which is surrounded by a diverse, dynamic manufacturing and logistics cluster. The Bahrain International Airport is just 10 minutes away and offers unparalleled connectivity across the Middle East region as well as beyond. It is currently being expanded and modernized thanks to $1.1 billion program. Any destination within the GCC can be reached in no more than two days by air cargo.

Furthermore, Bahrain has convenient overland access to and from the Eastern Province of Saudi Arabia, the industrial heartland of the Kingdom. This connection is due to be further expanded through the planned addition of the King Hamad Causeway alongside the existing King Fahd Causeway. This important traffic artery has already allowed up to a third of Bahrain’s non-oil exports to be shipped to Saudi Arabia in recent years. The new causeway will, among other things, serve as the platform for the GCC railway that will connect Bahrain with a region-wide rail network as well as with a planned light rail system as part of Bahrain Urban Transit project. Transfer times are unparalleled: Saudi Arabia can be reached within 30 minutes overland while 75 percent of the Saudi market is attainable overland in less than 24 hours.

As Saudi Arabia’s economy expands, Bahrain’s thriving logistics industry and excellent connections with KSA can benefit this growth, creating a win-win for the broader regional economy. Numerous free trade agreements including one with the US, a mature regulatory system and a motivated, bilingual population have helped attract industry giants such as UPS, Schmidt, DHL, Aramex and Agility to set up offices in Bahrain and in some cases, base their regional operations from here.

Several large international manufacturers already use Bahrain as their base to serve the Saudi market. Mondelez, the world’s second largest food and beverage company, has an existing state-of-the-art facility in Bahrain and is building a second $90 million factory which will cater to rising demand for consumer goods driven by Saudi Arabia’s rapidly expanding customer base.

Logistics represents a natural growth opportunity for Saudi Arabia and Bahrain, both regionally and globally. Intra-GCC trade has expanded sevenfold since 2002 — from $15 billion to $121 billion in 2014 — and this positive trend is likely to continue, becoming a key growth driver for the regional economy. Targeted infrastructure development and regional economic integration are rightly recognized as some of the most powerful drivers of prosperity globally where similar success stories abound. Bahrain and Saudi Arabia must work together in partnership to capitalize on their location at the heart of the world and develop into the global logistics hub they have the potential to be.

• Dr. Jarmo Kotilaine is chief economic adviser at Bahrain Economic Development Board (EDB).