Analysis Finance Bahrain adds ‘smart factories’ to strategy to lift private sector By Andy Sambidge August 28, 2023 Reuters/Hamad I Mohammed Workers at a factory in Manama. Bahrain's government hopes its smart factories programme will support private sector businesses Part of move to digitalisation Bahrain aims to increase non-oil activity GDP growth slowed in first quarter Bahrain plans to develop 300 “smart factories” by 2026 as it seeks to boost private sector activity and tackle its sluggish growth rate. The iFactories initiative aims to support the manufacturing sector’s move to digitalisation, reduce dependence on unskilled work and strengthen national industries, said Abdulla bin Adel Fakhro, the kingdom’s industry and commerce minister, as he unveiled the programme on Sunday. Year-on-year GDP growth in Bahrain slowed to 2 percent in the first quarter of this year, from 4.1 percent in Q4 2022. Full-year GDP growth was 4.9 percent in 2022, its fastest rate in a decade. The “disappointing” Q1 figure, released in July, has prompted analysts to cut full-year growth forecasts for Bahrain. BMI, formerly Fitch, has revised down its growth expectation from 2.8 percent to 2.4 percent. Bahrain office rents fall as oversupply issues grow Bahrain named best country in Middle East for expats Oil and gas rebooted to reduce Bahrain’s debt and CO2 A pronounced contraction in the oil sector and weaker growth in the non-oil sector were behind the sluggish performance in the first quarter, according to BMI. It predicts an improvement over the rest of the year, as oil production recovers and inflation eases. Crude oil production declined by 7.1 percent in Q1, averaging 176,600 barrels per day (bpd). BMI’s oil and gas analysts expect Bahrain’s oil production to average 184,280 bpd in 2023, which means output will be higher in coming quarters. Non-oil activity is expected to remain the main driver of growth for the kingdom. Tourism activity has been strong, supported by the Bahrain Formula One Grand Prix in March. “We believe that the rapid fall in inflation along with the end of monetary tightening by July will gradually add tailwinds to consumption and lending activity, keeping growth in the non-oil economy around the Q1 level,” said BMI. “These factors will support growth in financial services and the trade sectors while robust tourism activity will keep driving growth in the transportation and hotels and restaurant sectors.” BMI is forecasting a growth rate of 2.7 percent for Bahrain in 2024, with exports rising to its main trading partners, such as Saudi Arabia and the UAE, as their own economies grow. The International Monetary Fund has also projected medium-term growth of 2.7 percent, adding that fiscal consolidation should continue beyond 2024 with “ambitious and growth-friendly reforms” to reduce reliance on oil revenue and put debt on a downward path. Bahrain was the only GCC member to post a budget deficit last year, as other nations benefited from an oil price windfall. Recovery plan The government in Manama launched an economic recovery plan in 2021 and has since unveiled a number of other programmes that aim to drive growth. The iFactories initiative is led by the industry ministry and Tamkeen, an agency set up to support the private sector in the country. Maha Mufeez, Tamkeen’s CEO, said the smart factories programme would support the aim of making the private sector the main driver of Bahrain’s growth. In June Manama handed out its first golden licences, providing incentives and streamlined services to foreign and local businesses with large investment projects in the kingdom. Foreign direct investment in Bahrain increased by $1.95 billion in 2022, according to the United Nations Conference of Trade and Development. Khalid Humaidan, chief executive of Bahrain Economic Development Board, said in July that the figures reflected a “robust level of investor confidence in Bahrain’s value proposition”.