[X] Things you need to know about Bahrain
Bahrain or Bahrein, there might be several ways to spell it, that still doesn’t change the fact that you might have never heard of this place before…
As a VC analyst at Blacksmith I get to scrutinize several hundred deals per year with a focus on the European and GCC market. Until a recent trip to Bahrain I hadn’t pinpointed it as a particular place of interest.
I was wrong. Here’s why.
1. Ties with Saudi Arabia
It’s closeness with Saudi Arabia makes it a great backdoor to the biggest and most blooming market in the region. Bahrain maintains a close relationship with Saudi Arabia (which was eager to help stifle the uprising back in 2011). Since 1986 the two countries are connected by a series of bridges which allows a close commerical relationship and … offers a gateway for Saudis to come and enjoy entertainments during the week-end.
Everyone in the region has its eyes set on the Kingdom of Saudi Arabia. It has the highest GDP and it is an untouched market in many ways (entertainment, culture, tourism, infrastructure). These cultural and societal revolutions are backed by MBS who shared his “2030 Vision” to the world.
These recent evolutions have not fallen on deaf ears as equity funds and other investors are pouring money in. The Tadawul (Saudi stock market) outperformed many other indexes with a 24.33% one year return.
Despite a great market potential, KSA remains a tricky one to conquer. One obvious reason is local laws. Let’s overlook the alcohol ban for a minute. There are far more important issues for startups in the region. For example, a local entrepreneur explained me how strict and non corporate-friendly labor laws can be in there. Even for a french guy (we love stupid labor laws) some of those simply seemed absurd. It’s nearly impossible to fire Saudi nationals, there are quotas for them etc. KSA is ranked 92nd in World Bank’s Ease of doing business ranking. That’s after Bosnia, Zambia and Botswana… That’s why many startups prefer to postpone incorporating there as long as possible and operate in KSA from neighboring countries.
2. They saw it coming
Unlike other MENA countries, Bahrain’s oil and gas resources are much more limited than its Persian Gulf neighbors.
Instead of indulging in self-pity, they have carried out successful diversification initiatives in banking and finance. Adapting to its limited natural resources, Bahrain has been a pioneer in Islamic Banking since the 80’s and guess which is the biggest market for Islamic Finance ? KSA of course. Considering that the penetration rate for Sharia compliant Islamic banking has grew from 31% in 2008 to 45% in 2017, that was a pretty smart bet. Bahrain is now a leader in the global Islamic finance industry hosting the likes of Deloitte and Thomson Reuters which decided to establish their centers for Islamic Finance in Manama (capital city of Bahrain).
Fun Fact : As the kingdom lost interest in the oil economy it just discovered its largest oil field since 1932… Good Karma I guess ? Let’s just hope they keep their focus on tech and startups
Bahrain is now capitalizing on its strong financial and banking expertise as it leads the Fintech revolution in the region. A few months ago, they launched the first FinTech incubator in the region. To be honest, it was far from being crowded when they showed us the place back in March. But i’m confident in their ability to build and nurture a powerful ecosystem.
3. Government support
We luckily landed in Bahrain right during the Startup Bahrain week which allowed me to deep dive into the local ecosystem. The catalyst of this ecosystem is Bahrain’s Economic Development Board. This government agency, whose board director is the crown prince himself (which says a lot about the startup focus of the kingdom), aims to attract startups, talents and investors to Bahrain. Those guys have pretty strong arguments.
First, the country allows 100% foreign ownership. Which may seem obvious to us Westerners, but is a pain in the ass for many foreign entrepreneurs in the Middle East region. I guess it’s given some thoughts to Dubai which has decided to drop its medieval shared ownership law in the coming years. Maybe China officials read this post and decide to do the same (you better clap this post Mr.Xi).
That’s not all, operational costs are 40% less than other close countries (e.g Qatar) and incorporating is twice as fast. Labor cost are also considerably lower since the government, in order to attract talents, is heavily subsidizing wages for Bahraini nationals. Up to 70% for fresh graduates down to 25% of the total salary for experienced employees for 3 years.
Moreover, the government will hold your hand during the whole process.
All these characteristics, in addition to a good quality of life for expats, make Bahrain rather attractive for entrepreneurs in the region. Like so, Flat6Labs the leading accelerator in the region, chose to set up a new office there, in addition to its presence in strong locations such as Cairo, Beirut or Abu Dhabi.
4. People
The country has managed to attract and retain a talented workforce (I’d love to know the ratio of PhD per square meter in Manama). They have particularly skilled people in the financial services, which favors their current focus on financial technology startups. Moreover, after exchanging with startups, accelerators, investors and government agencies it was pleasant to feel their reactivity, quality that sometimes lacks in the region.
However, Bahrain is yet to catch up to its neighbors like Dubai.
Despite favourables laws and regulations towards entrepreneurship, an ideal location and a talented workforce, others countries like UAE (Dubai) are currently leading the startup ecosystem. Careem wasn’t created in Bahrain, Souq neither. Wamda’s offices are not in Manama but in Dubai. The list goes on and on… However, It’s worth pointing out that Amazon is opening its first Middle East datacenter in Bahrain, maybe the beginning of a turnaround ?
