As Bahrain seeks to diversify its economy by embracing ICT initiatives, Senior Associate Gareth Mills talks about the measures underway to promote the country as a regional tech hub.

The government policy is clearly to promote Bahrain as a regional tech hub and to provide a workforce capable of supporting these goals as part of a wider effort aimed at economic diversification.

The recent predictions by Goldman Sachs that the global oil price is unlikely to rise above USDD60 per barrel in 2017 has continued to have an impact among the still hydrocarbon-dependent GCC economies. Bahrain has historically been viewed as perhaps being more susceptible to regional economic pressures than some of its GCC neighbours, as highlighted by the unwelcome 2016 downgrades by ratings agencies.

In response, a two-pronged approach is observable in Bahrain as attempts are made to simultaneously increase government revenues (partly through reducing costs), and to stimulate growth and accelerate economic diversification (thereby reducing dependency on hydrocarbon income).

One of the stated aims of this government-sponsored diversification programme is to position Bahrain as a regional tech hub, fostering private sector entrepreneurship in the technology sector.

A number of recent pronouncements from various government entities have shown that Bahrain is determined to keep pace with regional competitors (such as the UAE, which established the Smart Dubai Office in late 2015) and harness the potential for economic development that technological advancements can offer on both a national and regional level.

These pronouncements have shown that there exist real opportunities for global ICT providers to benefit from partnerships with private enterprise in Bahrain, although it is noticeable that future regulations to be produced by the relevant bodies will need to be observed closely by those looking to benefit from the Bahrain Government’s drive to attract overseas investment and support in the technology field.

The Central Bank of Bahrain and the future of Fintech

One of the most obvious areas of interest to the Bahrain Government, given its active and competitive banking sector, has been the adoption of Fintech as a tool for stimulating growth in the financial sector. Government policy in relation to Fintech was underlined at the World Islamic Banking Conference (WIBC) held in Bahrain in December 2016 where the importance of Fintech was highlighted by senior Central Bank of Bahrain (“CBB”) officials, especially with regards to the development of Islamic Finance institutions licensed in Bahrain.

Khaled Hamad, Executive Director Banking Supervision at the CBB announced at the WIBC that the “Central Bank of Bahrain is considering introducing regulations on Fintech. We invite technology companies to set up their offices in Bahrain and use it as a base to serve the entire GCC and Middle East region.”

In support of Khaled Hamed’s invitation, speaking to Forbes magazine in December 2016, David Parker, Executive Director for Financial Services and Business Development at the Bahrain Economic Development Board (EDB), stated that the EDB was taking an active role in Bahrain to try and link banks with entrepreneurs and start-ups involved in Fintech initiatives.

The precise nature/ content of the proposed new CBB regulations are unclear at the present time but every indication from the pronouncements of the CBB and EDB is that the preference, in so far as is practical, is to follow the example of regulators such as the Bank of England in creating a competitive environment that favours lighter regulation and encourages new investment. As in other jurisdictions, it appears likely that legal issues surrounding data protection, cyber-security and intellectual property (relating to data ownership) will need to be considered, if not addressed, by the regulator.

There is no indication at this time whether the CBB will move towards adopting initiatives such as the BOE’s “Fintech Accelerator” programme, although given the encouragement provided to technology companies to approach Bahrain Government entities directly, it seems reasonable to assume that a similar adoption of such technology at the regulator level may also be a real possibility.

The Fourth National Telecommunications Plan and Bahrain as an ICT Hub

One of the keys to supporting an active and diverse technology-based economy is, of course, an effective and technologically advanced communications sector. In this regard Bahrain is very well placed. In August 2016 the Kingdom achieved a global ranking of 11th place in the Telecommunications sub-index of the 2016 edition of the e-Government Development Index (EGDI), published by the United Nations (an improvement of 15 places from the 2014 indices). The ranking evidenced the successful efforts of the Bahraini government to promote and encourage investment and technological advancement in the telecommunications sector in Bahrain for the benefits of its citizens and the business community.

Key to those ongoing efforts has been the Council of Ministers Resolution number 29 of 2016 promulgating the Fourth National Telecommunications Plan of the Kingdom of Bahrain (NTP4).

The policy objectives of NTP4 include, amongst others, are “promoting Bahrain as an ICT and business hub in the region and supporting the continued diversification and strengthening of the private sector in the Kingdom’s economy…”

NTP4 emphasises that part of the Government’s policy in this area is the need for Bahraini human capital to be at the forefront of the diversification of the economy and part of the Policy Objective VII is that government will work to “foster development of human capital in the telecommunications sector… to develop the sector further.” In this regard Bahrain is again already well placed; the Bahrain telecommunications sector already employs some 3200 individuals, with Bahrainis representing 68% of that figure.

Whilst there has been little by way of recent regulation with the stated aim of recognising Government Policy in this area, in October 2016 the Telecommunications Regulatory Authority of the Kingdom of Bahrain (TRA) issued a detailed position paper on Internet and Online Applications (the “Position Paper”) “aimed at further safeguarding the interests of consumers to ensure unfettered access to lawful content and applications on the internet.”

The Position Paper makes it clear that “this position is aimed to support the growth in the telecom sector and position Bahrain as a regional ICT hub.” The Position Paper itself lacks the weight of full regulation, but is useful in indicating the areas the TRA plan to focus on in the future with regards to technical developments such as OTT services and the knock-on effects to the communications sector. The TRA has traditionally played an active role in shaping the Kingdom’s ICT landscape, and whilst there is no explicit indication within the Position Paper that regulation in this area is likely at this time, it is noticeable that issues such as the availability of spectrum, International Connectivity and the development of cyber-security and data protection protocols have been referred to either directly in NTP4, or obliquely in recent press releases issued by the TRA.

Bahrain already has a relatively advanced ICT infrastructure, a comparatively mature and liberal ICT regulatory framework, and one of the highest mobile and broadband penetration rates in the world, offering an ideal testing ground for new technologies and ideas. Rather like the current position adopted by the CBB however, it seems reasonable to assume that the TRA will be reviewing the existing framework and potential need for new and/or amended regulation in light of both government policy and the increasing ubiquity of new technologies.

Tamkeen and the development of human capital

The importance of Bahrain human capital in encouraging, supporting and promoting a diverse economy that takes advantage of technological advancements is being recognised by the Bahrain legislature, not just in NTP4, but through the activities of Tamkeen.

Tamkeen aims to promote entrepreneurial culture as a viable career option, especially amongst Bahraini youth. A recent Ernst &Young survey found that 70% of young Bahrainis were interested in the idea of starting their own business – twice as much as anywhere else in the Gulf.

Through one Tamkeen initiative, in collaboration with the EDB, C5 Accelerate (a London and Bahrain-based technology investment joint venture) and Amazon Web Services, Bahrain is now home to a US$100 million venture tech business "incubator" fund managed by C5. Although based in Bahrain, the fund is open to entrepreneurs from across the MENA region.

In common with much of the GCC, Bahrain has a young population with a keen interest in, and knowledge of, technology, creating a strong platform for tech investment and the efforts of government to provide a local workforce that can ensure the success of the Government’s vision in this area.

Conclusion

The Bahrain Government’s stated drive towards a diverse economy offers international tech investors (both start-ups and established players) opportunities to partner with Bahrain corporate entities to offer tech services across a range of sectors. The government policy is clearly to promote Bahrain as a regional tech hub and to provide a workforce capable of supporting these goals as part of a wider effort aimed at economic diversification. The apparent availability of investment from Government to help encourage such partnerships should additionally act as a significant attraction to such partnerships.

In order to encourage and regulate these new industries, however, the Bahrain regulators (in particular the CBB and the TRA) will need to provide further guidance. It is strongly recommended that any entrants to the Bahrain market speak both with local partners and on-the-ground legal representatives to ensure that they are cognisant of the latest regulatory positions, and the type of investment to support collaborations that may be available.

This article was first published in February 2017 in Issue 60 of the Oath Magazine.