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Open door to foreign investors.

KEEN TO ATTRACT foreign investment and joint venture partners, especially from the West and Japan, Bahrain has introduced new investment incentives which are revolutionary by Gulf standards. They are aimed mainly at encouraging private investment and to nurture a spirit of commercial partnership. They are also designed to boost export-oriented industrial development and the diversification which is needed for Bahrain to maintain and increase its growth rate during the 1990s.

Perhaps most important, according to Abdullah Mansoor, director of commerce and company affairs at the Bahraini Ministry of Commerce and Agriculture, there has been "a basic change of attitude, of philosophy. What we are doing is to make our laws and policies more transparent, so that no-one is confused. At the same time we are cutting red tape and following a more pro-active policy of encouraging inward investment. We no longer simply allow foreign investment in Bahrain. We want and encourage this investment, which forms a basic part of our strategy for future economic well-being."

With this in mind the government last year set up a national marketing organisation, the Bahrain Marketing and Promotions Office (BMPO), and the Bahrain Development Bank (BDB) which provides concessionary and long-term financial support for priority industrial sectors including small and medium scale establishments.

At the forefront of the country's foreign investment drive is the 1993 Government Incentive Programme which came into force this year and is designed specifically to encourage further industrial development and thus provide new jobs, boost exports and foster competitiveness in the market place. It is also intended to attract new industries with an emphasis on ground-breaking activities. The programme includes labour and energy incentives, and reimbursement on land rentals. It also provides support export credits and guarantees against non-payment.

According to BMPO's marketing executive, Ghanim al Dosari, the programme complements recent government industrial and commercial legislation aimed at cutting down bureaucracy. In the recent past, a wholly-owned foreign company operating in the Gulf would have been unthinkable. Now Bahrain, whose oil resources are dwindling, is not only allowing 100% foreign ownership of companies but has also removed the requirement of local sponsorship of such companies. This means that foreigners allowed to incorporate a company no longer require a Bahraini as a nominee. A fast-track company registration system allows for registration within seven days.

Under the new Company Law, 100% foreign ownership, which had previously been restricted to exempt off-shore companies, has been extended to onshore companies, provided that the activities are either industrial or the company is establishing its regional base in Bahrain for the distribution of its manufactured goods or services. Along with the removal of sponsorship requirements for 100% foreign-owned companies, the Ministry of Commerce and Agriculture has also done away with the same requirement for branches and representatives offices in cases where these are established as regional operation centres.

The government has also changed the Commercial Agency Law. In the past this has been the cause of some friction with foreign companies which found themselves locked into contracts with non-performing agents which they could not easily terminate. Mansoor explains that foreign firms and their local agents are only protected by the Agency Law if the agency agreement is registered under the law. This was designed to protect both parties, but has been subject to some misconceptions. For instance, it was never a requirement of the law that an exporter to Bahrain must appoint a sole agent for his product. It simply provided protection for those that did appoint a single agent.

"We have changed all of that," says Mansoor. "We can still offer you full protection if you register a sole agent for your product. But equally we will automatically cancel such agreements at their expiry if they have not been renewed by the mutual consent of both parties. In addition, the law now provides for a system of arbitration, so that in a case of dispute, lengthy legal cases can be avoided."

Other favourable aspects of Bahrain's investment climate include a well-developed communications, transport, banking and industrial infrastructure; cheap energy; a literate and skilled manpower which speaks English; a strategic geographical position and aviation hub in the region; and membership of the Gulf Cooperation Council (GCC), which means that any joint ventures in which Bahrainis own 51% can have duty-free access to the other GCC states for their 40% value-added exports.

Armed with what Bahrainis believe is arguably the best foreign investment incentive package in the Gulf, officials have been touring European capitals to convince investors to set up joint ventures and other projects on the island.

The government is targeting investment in existing industries and in new industries. The latter comprise pioneering, downstream and horizontal expansion industries. Horizontal expansion industries are those that plan to produce already existing products using the same technological know-how. Downstream industries consist of the aluminium and chemical-based industries. Pioneering industries include new activities that do not duplicate existing activities and are not aluminium or chemical-based. These could be in the food processing, telecommunications, consumer hardware, and tourism and hotel management sectors. The country is also seeking joint venture partners for a proposed $600m iron and steel complex. There are also several joint venture project proposals in the downstream aluminium engineering, petrochemicals and plastics, pharmaceutical and food sectors.
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Title Annotation:Special Report; Bahrain
Author:Parker, Mushtak
Publication:The Middle East
Date:May 1, 1993
Previous Article:Bahrain diversifies into the 1990s.
Next Article:Resilience and diversification.

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