help to spare it, as may its
tried-and-tested regulatory
framework.
Its long-term future,
though, may be affected
not only by the fortunes of
its finance industry – which
accounts for about 27% of
its economy – but by other
issues, including the fraught
politics of the region. There
are also domestic concerns,
including a rapidly-growing
indigenous workforce that
some say will need more
jobs than its economy looks
likely to be able to provide,
and growing competition
for its financial business
from its neighbours in the
UAE and Qatar.
l Reputation counts
For now, Bahrain is hoping
its heritage as the Middle
East’s longest-established
financial centre will help it
to ride out the short-term
knock-on effects of the
recession engulfing much
of the developed world.
Indications are that it may
have reason to be hopeful.
In October, when Middle
East stock markets lost an
estimated $250bn, the
(admittedly tiny) Bahrain
Stock Exchange managed
to achieve a 2.7% gain. This
came as Dubai’s main
exchange sank by 28.7%,
Oman’s tumbled by 26.9%,
and Saudi Arabia’s – the
region’s largest – ended the
month 25.8% lower.
In its regular third-quarter
analysis of the Gulf
Cooperation Council (GCC)
region, Lipper notes that
among what it called “these
bad results” – including a
near 25% plunge by the
Dubai and Qatari stock
exchanges in the third
quarter – the Bahraini stock
market’s decline of 13.8%,
and 2.8% on a year-to-date
basis, made it the “least
impacted”.
l Beating the dip
Meanwhile, assets under
the management of Bahrain’s
fund houses have
also bucked downward
trends elsewhere. At the
end of June, AUM totalled
about $20.14bn, more than
double the $9.4bn under
management at the same
point in 2007.
Assets held by Islamic
funds in particular grew by
about 40% to $1.4bn during
the same 12-month period,
while funds launched
under a new exempt
Collective Investment
Undertakings scheme intro-
number of bahraini funds by asset class
700
600
500
400
300
200
100
0
Bond
Source: Lipper
duced in 2007 to cater for
professional investors has
grown to $4bn from nothing
in less than two years.
Abdul Rahman Al Baker,
executive director of financial
institutions at the
Central Bank of Bahrain
(CBB) highlights that the
World Bank is forecasting
growth in the range of 6%
in the Middle East next
year, even as it predicts flat
to negative growth in many
developed nations.
l Regional flavour
Bahrain natives and longtime
residents say the
country’s steady if unspectacular
growth in recent
years has been overshad-
Equity
Mixed
assets
owed by a relentless media
focus on Dubai.
“Bahrain has lost some
ground to Dubai and Qatar,
but it can still lay claim to
a couple of things that I
think are important,” says
Dubai-based Hani Kablawi,
managing director and
head of Middle East and
Africa at BNY Mellon.
“One is Islamic finance
and the other, since the
passing of the Collective
Investment Schemes law, is
funds. Although both Saudi
Arabia and Kuwait have
more funds under management,
Bahrain has more
funds by number than any-
Money
market
Other avg
where else in the region,
and that is certainly something
to build on.”
l Roots
Bahrain’s history as a
regional financial centre
dates back to the ’70s,
when a civil war in Lebanon
drove that country’s institutions
abroad. At this point
it had been an independent
emirate for only a few
years, the British having
withdrawn from the territory
in 1971. The first
Bahrain-domiciled fund
was launched in 1984.
In recent years the island
has made a priority of
reforming its legislative and
regulatory environment to
DEcEmbER 2008 [www.international-adviser.com] INTERNATIONAL ADVISER
Real
estate
profiles
retain existing companies
and encourage new ones.
As the $4bn in AUM in the
exempt Collective
Investment Undertakings
category mentioned by Al
Baker shows, this sharpening-up
strategy appears to
get results.
Another set of regulations
introduced in 2006,
aimed at encouraging
financial advisory firms to
set up in Bahrain, has
resulted in the number of
licensed advisers more
than doubling, to 54 from
25, in the year to the end
of September.
Also in 2006, Bahrain
became the first Gulf country
to enact a trust law,
which, as International
Adviser reported last
month, inspired Jersey law
firm Ogier to form a new
joint venture specialising in
trusts with a Bahraini
accounting and advisory
firm, Keypoint Consulting.
Firas Mallah, head of
Middle East for Dexia Asset
Management, says Dexia
chose to establish its base
in Bahrain two years ago
for a number of reasons,
including the simplicity of
having “one major regulator
[the CBB] handling
everything”.
Quality of life issues
and the fact employees
tend to stay in their jobs
longer in Bahrain, are other
factors, adds Mallah, since
“our business is a business
of people”. But as Dexia
ponders whether and
where to open a second
Gulf office, Mallah suggests
that there “will not be
any major winners or
losers” in the rivalry
between Dubai, Qatar,
Bahrain, Abu Dhabi and
Beirut. Instead, he says,
each centre will develop its
own speciality, “becoming
more aligned with one sort
of industry or another”.
KEy PoInts
Bahrain appears to be riding
out the downturn better than
rivals such as Dubai.
Financial businesses praise
its responsive, efficient and
respected regulatory climate.
It has the most funds in the
region by number but not size
– both Saudi Arabu and Kuwait
have more in funds under
management. But it is a larger
offshore domicile.
Key advantages include
its proximity to mega-rich,
conservative Saudi Arabia,
for which it is both
a playground and an
offshore financial centre.
27
To view a Ceros magazine you need to have JavaScript enabled in your browser and have the flash player 8 or higher installed. To install the latest flash player, click the icon above, install the flash plugin and then click here to refresh this page.