Bahrain is poised to become a major hub for technology, innovation and finance through its bold regulatory reforms and by attracting global talent, according to a new report prepared by the Milken Institute, an independent economic think tank based in Santa Monica, California, the US.

The report, ‘Bahrain and the Fourth Industrial Revolution’, is authored by the institute’s research director Claude Lopez together with research analysts Joseph Bendix and Cesar Servin.

It said recent policy changes to increase transparency, protect investors, align with international standards and modernise access to Bahrain’s capital markets have yielded measurable results.

“Bahrain has developed a business-friendly environment, regulatory framework, and support system that make the kingdom an attractive destination for global companies, investors and entrepreneurs,” said Lopez.

“With its skilled population, low cost of living and continued investment in technology infrastructure, Bahrain is positioned to continue to achieve positive outcomes.”

It stated that the 2015-2018 Government Action Plan concluded with visible initiatives, among them being the launch of fintech hub, opening of more sectors to 100 per cent foreign ownership and the implementation of laws on competition and bankruptcy – all positioning Bahrain as an attractive destination for global companies and entrepreneurs.

“Foreign direct investment in Bahrain has increased from 0.2pc of GDP (gross domestic product) in 2015 to 4pc in 2018 with major non-oil related global investors such as Amazon, Ariston Thermo (an Italian manufacturing company), Mondeléz International (an American multinational confectionery, food and beverage holding company) and Wonder News Technology (a Chinese company) having chosen Bahrain as their regional base,” said the report.

It pointed out that since its launch in 2018 the Bahrain FinTech Bay has attracted 30 companies, out of a target of 50 to 60. “Bahrain’s ambition goes beyond fintech, as it wants to become a technology and innovation hub,” stated the report.

“Hence, it continues to develop its infrastructure in technology to enable developments using Fourth Industrial Revolution-relevant technology such as artificial intelligence, 3D printing and the Internet of Things.”

The analysis showed that currently three Bahraini firms are listed among the top 100 startups by Forbes Middle East. These are OneGCC, an online recruitment platform; Skiplino, a multilingual cloud-based queue management system; and CTM360, a cybersecurity company.

In addition, the kingdom also had the largest share of female founders in the Middle East and North Africa, according to the 2019 Global Startup Ecosystem Report. “Bahrain’s liberalisation and ability to meet international standards are a work in progress, with further major regulatory reforms forthcoming,” said the report.

“The next significant areas are health insurance and real estate, following new laws on these sectors.”

The recent emphasis on startups and technology has also paid off especially with the creation of $100 million Al Waha funds, said the report. In addition, grants provided by Tamkeen and support from incubators such as Tenmou and Angivest Ventures and services by Space 340 and Corporate Hub 9 have led to tangible results.

“Some major corporations have made Bahrain their regional base. Additionally, more startups are moving there. Venture capital to support them is also on the rise.

“Overall, Bahrain’s financial sector is becoming more diversified, especially when it comes to the type of investors.”

Based on their analysis, the authors identify several challenges, including the need for startups to grow into larger firms that will create more jobs, access to highly trained labour and assistance for existing firms transitioning to the new digital economy.

“Bahrain’s strong emphasis on startups and technology comes with challenges that need to be addressed to ensure the resilience of the new economic model.”

The report offered several recommendations, including assisting micro-firms to grow and generate jobs, facilitate access to international talent and ensure that private sector wages are competitive.

Another challenge highlighted was the high transition cost of an existing firm with the ongoing digitalisation of the economy especially smaller firms operating in a traditional environment that can threaten their survival.

“Most of the existing Bahraini firms are small and may find the transition to a digital economy with its new requirements challenging,” the report said.

“Depending on the industry, consolidation via merger and acquisition may be the solution, as seen in the financial services, but for other industries, there may be a social benefit in keeping smaller businesses open.”

Meanwhile, the institute is holding its 2020 Middle East and Africa Summit on February 11 and 12 in Abu Dhabi. The event will bring together a curated group of interdisciplinary thought leaders and decision-makers to discuss, develop and deploy solutions to some of the world’s most pressing challenges.