Transforming From The Land Of Oil Into A Global Startup Hub, Can Bahrain Be A New Destination For Indian Startups?

To someone who has never been to Bahrain, it hardly triggers any special response. One would faintly remember it as one of the six GCC countries (Gulf Cooperation Council), comprising the Kingdom of Saudi Arabia, Kuwait, Oman, Qatar and the United Arab Emirates (UAE), owing its economic status to oil reserves. Yet when I had a chance to visit the Kingdom of Bahrain in September on the invitation of the Startup Bahrain – The Economic Development Board Of Bahrain (EDB), little would I have imagined that all my notions were about to change. That in fact, this tiny little country, which enjoys a reputation as the “Gateway to the Gulf”, is leaving no stone unturned to become the next startup hub in the Gulf region, opening its gates for the foreign incumbents including the Indian startups.

Till now, the kingdom of Bahrain was largely the choice of entrepreneurs and startups from UAE and other nearby regions. However, the local government is now working along ‘2030 Economic Vision’ which includes policies dedicated to the ‘capturing emerging [economic] opportunities.’ Quite similar to India, which is now on the stage of becoming the third largest global startup hub, over the past five to six years, the Bahrain startup ecosystem has grown into a cluster of angel investors, accelerator programs, universities and government initiatives which includes startups like Baqala, Paytabs, Skiplino, and accelerators like Rowad, Brinc, and C5. Not only it’s opening up the country’s networking channels, or partnering with global leaders such as Amazon Web Services, but also gearing towards being the ‘home to startups’ worldwide.

 

Two years back, in December 2015, Khalid Al Rumaihi, CEO of the Bahrain Economic Development Board (EDB) in a media statement has mentioned that Bahrain wants to create an environment that would allow any entrepreneur, be it Palestinian or Egyptian or Moroccan to build a startup in the country. In his words, if they have an idea Bahrain want to create an ecosystem composed of several [investment] firms that they can come and pitch their idea to. Again, this was the same time when Indian Prime Minister Narendra Modi came up with his motto, ‘Startup India, Standup India’ and a plethora of startup-friendly policies. Two years later, both the Bahrain and the Indian startup dream is now on its path to getting fulfilled.

Fulfilling The Bahrain Dream: Becoming Home To Global Startups

Bahrain has came a long way from being just a oil driven gulf country. Now less than a quarter of Bahrain’s total GDP is generated from the hydrocarbons industry. Most of the family money is invested into real estate and manufacturing. At the same time, it is also diverting itself to categories such as Fintech, Telecommunication, Transport, Tourism and more.

Infact the government’s impetus is currently on attracting investments, businesses and startups in five key areas – financial services and fintech, manufacturing (not oil based but light manufacturing), logistics (as it goes hand in hand with manufacturing), ICT (Information and Communication Technologies) and tourism. In addition, infrastructure investment is at the top of the government’s priority list and a $32 Bn pipeline of projects across a range of sectors is either under construction or scheduled for development.

The country with a population of roughly around 1.4 million has almost a 50% expat population (as per the EDB), which are served by over 160 banks. Interestingly, Bahrain was also voted as the best nation for expats to live in an InterNations survey. The annual study by InterNations, now in its fourth year, polled 12,500 respondents from 166 nationalities. This rank is an indication of the good quality of life in Bahrain, which is a critical factor businesses look at when evaluating a place for setting up a business.

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In my three day visit to the capital city of Manama, I met startups from the Gulf region that had chosen to make Bahrain as a launchpad because of its favourable business environment.

One such startup is grocery startup Baqala found by Amjad Puliyali, who lived in Dubai for 10 years and yet chose Bahrain as the starting point for his entrepreneurial journey. Amjad, who studied from Calicut in India and has also worked with Vizury in Bengaluru, was drawn to Bahrain by the ease of doing business, told us, “I could not afford setting up in Dubai even though I have lived there for a decade. And then I met EDB in Bahrain, and the paperwork was done in no time. We hardly faced any hassle in moving to Bahrain or in settling here. And given that the customer experience is the same in Arab economy, it made sense to launch in Bahrain and then make a play for the bigger Middle East markets.”

Majorly whoever I met, all of them concurred on the following:

• Bahrain has minimal restrictions on foreign investment and ownership in the region ( allowing foreign ownership in 98%  businesses)
• It has one of the lowest operating costs and taxation systems in the region.
• Bahrain provides best market access to the economies of the Gulf Cooperation Council (GCC), a market which is valued at approximately $1.5 Tn, and expected to reach $2 Tn by 2020.
• With around 95% Internet penetration and over 120%  mobile penetration, it provides an ideal testing round for technology startups.
• Bahrain has 0% corporate and capital tax, and only 5% VAT is levied all across GCC.

However, currently, Bahrain is home to some 60 -70 startups only. One can count the few VC funds and accelerators present in the region on one’s fingers. However as cloud and fintech take over traditional banking systems the world over, Bahrain realises that it can no longer depend on its strong banking system or its nascent startup ecosystem to take it to the next level of growth. Hence, the government’s increasing thrust on supporting its upcoming startup ecosystem and making it a favourable destination for cloud and fintech startups.

This is one stage where India has still a long way to go. Of the 1.2 Bn population, with only 450 Mn Internet users and a smartphone user base of around 300 Mn, Indian tech startups betting on the existing infrastructure of the country are bound to look to the foreign lands. However, with the Bahrain ecosystem aiming to boost the startups at the early stage and help them scale ahead, Bahrain opportunity is not like someone could miss while living in the world of millennials.

So how Bahrain is fulfilling its vision of becoming home to the global startups? Let’s find out.

Nurturing Bahrain’s Fintech Ecosystem: The Regulatory Sandbox For Global Fintech Startups

One of the first major steps the government of Bahrain took was rolling out a key policy initiative for fintech startups – the regulatory sandbox. Similar to the Indian fintech ecosystem which went under massive disruption this year with the rollout of initiatives like UPI, demonetisation, and GST, the Bahrain fintech landscape also saw an upbeat in 2017. In June this year, the Central Bank of Bahrain (CBB) announced new regulations to create a regulatory sandbox that will allow startups and fintech firms to test and experiment their banking ideas and solutions.

Basically, the framework provides a virtual space for companies to test their technology-based innovative solutions and is open to existing CBB licensees and other local and foreign firms. The testing duration is stipulated at nine months, with a maximum extension of three months. In order to be eligible, solutions need to demonstrate innovation, customer benefit, technical testing, and an intention to be deployed in Bahrain after the sandbox period ends.

In fact, last month two startups have also made it to the sandbox. These include Tramonex, a London-based forex cash management solution for businesses and NOW Money, the Dubai-based account and remittance service for low-income workers in the GCC.

Additionally, the EDB also announced a partnership with fintech incubator and ecosystem builder Singapore Fintech Consortium and asset management and advisory firm Trucial Investment Partners. The association aims to develop a Fintech (financial technology) ecosystem and regulatory framework for Bahrain.

Improving The Ease Of Doing Business Index: Both On Infrastructure And Pricing Front

H.E. Khalid Al Rumaihi, Chief Executive of the EDB told us about measures being taken by the Bahrain government to improve the ease of doing business in the country and making it more startup friendly.

Khalid pointed out that in August this year, Bahrain put in place the crowdfunding regulations for debt and equity. Another initiative in the process is launching a Fund of funds (FoF) worth $100 Mn that would invest in Venture Capital funds with an office in Bahrain. The Bahrain Government would contribute a third of the capital of this FoF which it intends to complete by the end of this year.

Further, the World Bank ranks Bahrain as 66th in the world on their ease of doing business index or second among the Middle East region. Which, indeed, is much better than India. In October 2016, the World Bank had placed India at 130 globally out of 189 countries in ease of doing business in the country. At the recent G20 summit, the Indian PM also said that “he wants India to be ranked in the top 50 nations in terms of ease of doing business.” And so far, the Indian government has not left any stone unturned to fulfil its vision.

The other initiatives taken by Bahrain government to encourage the entrepreneurship ecosystem in the country are:

• Online business registration now takes just 2 minutes.
• The minimum capital requirement can be reduced from BHD 20,000($53,000) to as low as  BHD 50 ($132) in some cases.
• Govt. intends to update its bankruptcy laws to allow restructuring.
• Almost 98% of its businesses are either partially or fully open to foreign ownership. Only 2% of the business activities are limited to nationals.

As Khalid stated, “We don’t create zones that give special ownership rules. Instead, our whole country is such a zone. We have adapted our laws to remove restrictions on ownership where we think it makes sense to attract investment.” He points out that it is this strategy what has led to the cost of doing business in Bahrain to be 40% cheaper than Dubai and about 35% cheaper than Doha, something that India needs to implement soon with the flourishing and vibrant global startup ecosystem in the country.

Leveraging AWS For Becoming A Startup Hub

Bahrain is just not stopping at favourable regulations alone to attract investment and startups. In order to position itself as a major technology hub, it has managed to draw secure cloud services platform Amazon Web Services (AWS) in the region. Recently, AWS in presence of Teresa Carlson, Vice President of worldwide public sector announced plans to open an infrastructure region in Bahrain by early 2019.

For Amazon Web Services, the investment in Bahrain is yet another step of its growing commitment in the Middle East. Earlier this year, In January 2017, AWS opened offices to serve its rapidly growing customer base with a presence in Dubai, UAE and Manama, Bahrain. The Bahrain office will be the second AWS office in the region after Dubai.

With Amazon Data Center, Bahrain is looking forward to the tremendous amount of jobs and as Teresa highlighted,“When we go into a location, we absolutely drive the economy.” The AWS centre is also expected to give a stimulus to many startups in the Bahrain region. Currently, working with C5 Accelerator, Amazon Web Services has supported 27 startups through the accelerator program under its AWS Activate program.

The entry of AWS in Bahrain was much welcomed by accelerators and startups that I met during the course of the trip.  One of them was Hadyah Fathalla, who heads C5 Accelerator’s operations in Bahrain, and works with AWS to provide cloud credits.

Hadyah told us, “C5’s initial mandate was investing in cybersecurity. But more recently it has moved into transformative and innovative technology and this was largely influenced by the strong relations with AWS. So we are working with AWS to build a global cluster of cloud innovation accelerators. One of them is Cloud 10 Scalerator, which we launched in Bahrain last year.”

Hadyah believes that as 90% of startups are born in the cloud, the entry of one of the biggest cloud services platform will give a further push to the startup and technology ecosystem in Bahrain. As this requires major upskilling of talent, Bahrain is also ramping up its focus on education. Hence the EDB’s plan to get Udacity to Bahrain for upskilling talent, as well as encourage it through the AWS certification programme. Already, some 1600 people have signed for the AWS programme.

Bahrain: A Way To Go For The Indian Startups

Both the Bahrain and Indian startup and technology ecosystems have started to nurture and opening their arms to the world around the same time. Since 2006, the organisations such as Private enterprise-focused Tamkeen, the UNIDO Investment and Technology Promotion Office and angel investor network such as Tenmou have worked together in Bahrain to capitalise on the infrastructure of the country and provide a breeding ground for the upcoming startups.

The scenario is not much different from India. Here the startup ecosystem is driven by NPCI, DIPP, and several investor groups such as IAN, TLabs and more. In fact, India now ranks third globally with 140 startup incubators and accelerators, after China and the US.

However, as pointed out earlier, India still lacks a robust infrastructure, a pain point for many Indian tech startups. Bahrain is thus an opportunity for many of the Indian startups who despite the increased ease of doing business, a startup supporting environment and plethora of government policies, could not startup in India.

With all these efforts, the Kingdom of Bahrain hopes that though it is late to the startup party yet not late enough to catch up. John Kilmartin, Executive Director, ICT, EDB who is well aware of India’s NASSCOM’s efforts to create 10,000 startups in India by 2023, told us, “Even if we reach 200 startups by 2020, we will still have a higher number of per capita startup as compared to India.”

For a country that has always remained virtually in the shadow of its bigger neighbours, it is not difficult to be impressed by the sheer magnitude of its efforts to be the next startup hub. Contrast that with India, with its thousands of startups which are vying for the attention of no doubt a bigger population but with a lesser per capita income, a comparatively lesser Internet penetration (at around 31%), somewhat complex tax structure (when one thinks of GST), poor infrastructure, and a startup ecosystem that’s marred with competition from both global and domestic players be it payments or ecommerce.

Given the somewhat complex geopolitical nature of the GCC region, global players have shied away from the region and are only slowly making their way here. This leaves a huge area of opportunity for Indian and other global startups to establish their presence before the giants roll in and then become active targets for either acquisition or collaboration. The entry of AWS is here is indeed a sign that the region is now slowly coming under the radar of global players.

My short visit to Bahrain was thus an eye opener in all respects. Not only did I realise that this tiny country built on a cluster of over 30 islands is one of the most liberal GCC countries. But also that how it could be the next big thing for global financial and cloud startups alike in its role as the gateway to the enormous Gulf markets, which have been mostly ignored by bigger players due to their complex geo political problems.

The writer was in Bahrain on a sponsored trip by the Economic Development Board of Bahrain.

[This article is part of Inc42’s series on Bahrain where we will be covering the Bahrain startup ecosystem in detail. Stay tuned for the next article.]