GCC Business Outlook: Bahrain and Oman

With the slogan, 'The centre of the Gulf, not the centre of attention', Bahrain is trying to lure firms and investments into any Gulf state.

Home to over 350 banks, Bahrain has always been the GCC's banking hub, but lost global attention due to rivals coming up in recent years, such as the neighbouring Qatar Financial Centre (QFC), or the Dubai International Financial Centre (DIFC).

The QFC has attracted over 100, mostly global, banks and financial intermediaries, while the DIFC has 250 DFSA regulated firms that are signatories to the UAE's single financial free zone (as at time of publication).

Manama's iconic Bahrain Financial Harbour, by contrast to the DIFC, is not a free zone but fully integrated into the country's legal environment. While the Kingdom of Bahrain, whose total population of 727,000 people makes it the smallest GCC country, competes with Dubai to become the Middle Eastern centre of Islamic Finance, Muscat forbids Shariah-compliant banking by law.

Financial history

Bahrain founded the first monetary regulator in the region in 1971, and it has a tradition as a financial hub. The annual Formula 1 Grand Prix, which has run since 2004 in the capital Manama, has been the only flag to the world in recent years.

For Bahrain, the 'island of the 1,000 smiles', being small is not only beautiful but is also an advantage in order to attract business. 'Proximity is a key advantage of Bahrain', says Douglas Hansen-Luke, CEO of Dutch asset manager Robeco Middle East. 'We are based at the World Trade Centre and we can reach all the ministries in less than 10 minutes.'

The Bahrain World Trade Centre is partially powered by three wind turbines linking the twin towers. It has become the symbol for a carbon-rich region that needs to diversify its energy sources.

In 2007, Qatar, for example, emitted - on a per capita basis -three times more CO2 than the US. A propos Qatar: the 40km Qatar -Bahrain friendship-bridge will be open to traffic from 2013.

Oman aims to reduce oil dominance

Oman (3.4m people) is heavily dependent on oil and gas and does not offer the choice of a free zone to businesses from abroad.

Bahrain and Oman are the only two non-Opec states in the GCC. The Sultanate of Oman took a severe hit in the first four months of 2009 due to a 51% drop in oil revenues. According to the IMF, the government needs a price level of $77 per barrel in order to maintain a balanced budget.

For businesses, however, the south-eastern state is a harbour of political stability. Initiatives to spur real estate and tourism such as real estate project The Wave, or new ferry services to Omani islands in the Indian Ocean are aimed at reducing the contribution of the oil sector to its gross domestic product to 9% by 2020 from 41.5% in 2007. Diversification always means a growing number of chances in the service, banking and trade sector.

Growth rates

Bahrain aims to catch up with Dubai's advances and remains the most business friendly environment in the Gulf.

The Kingdom has also repeated its desire to participate in a GCC Monetary Union, which will put some uncertainty in its future cost regime. Oman will keep its Riyal is likely to continue to grow less aggressively but also in a less volatile manner than the other GCC states.