Bahrain and the Fourth Industrial Revolution

Abstract

The launch of the Bahrain FinTech Bay in 2018 was a significant step for Bahrain toward becoming a technology and innovation hub. It continues to develop its infrastructure to enable the developments using Fourth Industrial Revolution-relevant technology while updating the corporate governance framework in an attempt to curtail investor uncertainty and exposure in the region.

Bahrain differentiates itself from its larger neighbors by highlighting its well-trained population and low cost of living and running a business. This report shows that these factors, combined with an innovative regulatory environment, attract a more diversified pool of foreign investors, especially venture capital and other alternative financial investors in sectors such as information and technology or tourism.

However, the recent emphasis on startups and technology brings challenges that could threaten the resilience of the new Bahraini economic model. First, most of the firms created have fewer than 10 employees, while Bahrain needs more medium-sized companies to reach its economic goals. Second, the size of Bahrain’s labor market will not be able to accommodate the increasing demand for highly skilled workers. Third, the transition to a digitalized economy and its new requirements can be costly for existing firms, especially the smaller ones, which are the majority.

Moving forward, these challenges could be alleviated by:

- Helping micro firms grow.

- Removing the remaining obstacles in hiring foreign workers in sectors where the qualified local labor supply is weak.

- Ensuring that wages in the private sector are competitive.

- Educating smaller firms on existing services that can help them transition to the digitalization of the economy.

Finally, Bahrain’s ambition to become a technology, innovation, and talent hub could play a significant role in the region if the Gulf Cooperation Council (GCC) countries were to strengthen their economic coordination.

Keywords: Bahrain, Capital Flows, Reforms, Competitiveness, Technology

JEL Classification: F0, F1, F3, F6, H5