Despite its small size, the Gulf island of Bahrain is proving a force to be reckoned with in the startup world.

The tiny nation – the smallest in the GCC – is punching well above its weight with its plethora of small to medium-sized enterprises (SME) support initiatives, well-educated workforce and innovative regulations.

Testament to the island’s SME might is its inclusion in the 2019 Global Startup Ecosystem Report (GSER) as a top 10 place to start a business globally.

The GSER report also grants Bahrain a special mention for having the largest share of female founders – 18 per cent of its startups are founded by women, topping Silicon Valley (16 per cent) and London (15 per cent).

Perhaps less surprising is that the report highlights Bahrain as one of the top 10 ecosystems to watch for financial technology (fintech) in Europe and the Middle East. Bahrain has long been known for its pioneering financial sector and is currently home to around 400 domestic, regional and international financial institutions.

As a legacy of its thriving financial industries, the island is now one of the most diversified economies in the region, with the hydrocarbons sector representing less than a fifth of the kingdom’s annual gross domestic product (GDP).

‘Cloud-first’ and open regulation

The Bahrain government implemented a “cloud first” policy in 2018 to encourage government entities and businesses to use cloud services for technology solutions. This unified approach has been gradually bolstered by innovative and open regulations.

Bahrain ranks first globally in Islamic finance regulation in the Global Islamic Finance Report for its standards on open banking and crowdfunding. More recently, the kingdom’s central bank issued regulations around data protection, open banking, crypto-assets, and robo-advisory. 

“Dubai is undoubtedly the [Middle East and North Africa’s] Mena’s startup and technology hub, and the Uber-Careem deal was a watershed moment that solidified its role as an emerging global technology leader,” says Wes Schwalje, chief operating officer (COO) at Tahseen Consulting. “ But the deal is pushing Arab countries, such as Bahrain, to get more serious about entrepreneurship ecosystem development and the enabling polices that support startups to complete in legacy industries.”

The arrival of AWS

In what could be viewed as the ultimate endorsement of the kingdom’s tech ecosystem, US tech giant Amazon has chosen Bahrain to launch its first Amazon Web Services (AWS) data centre in the Middle East, which will go live this year.

AWS has predicted that 10,000 data solutions architects will be needed across the region within the next five years. The government has confirmed that 2,500 Bahraini nationals have already signed up for AWS training programmes.

Commenting on the AWS deal, Schwalje says Bahrain is well placed to take on its bigger rivals and the kingdom should not be ‘underestimated’.

“Since data is so critical to many of the technologies driving the Fourth Industrial Revolution, Bahrain has sought to distinguish itself is by adopting one of the Mena’s first personal data protection laws,” says Schwalje. “This type of forward-looking regulatory competition related to technology and startup policies is one way Bahrain can potentially stand out.

“In the case of AWS, Bahrain saw an opportunity for regulatory competition which it leveraged to entice Amazon to open its first data centre in the region. If data is the new oil, then Bahrain is repeating the historical role it played as the first GCC country to discover oil with this move.”

Schwalje also said that recent findings from the Global Entrepreneurship Monitor suggest that there are significant opportunities for Bahrain to draw startups away from other competing regional hubs through regulatory competition surrounding the business-enabling environment, access to finance, and incentives to support research and development (R&D) intensive startups.

The battle is on

As the regional battle for startup and SME hearts and wallets heat ups, the Bahraini government has reduced capital startup requirements from $50,000 to $100 for some businesses and introduced a regulation-exempt ‘sandbox’ for fintech startups.

The local startup ecosystem is also supported by myriad government initiatives, such as its labour programme, Tamkeen­ – which offers startup companies access to subsidised local talent – and SME incubation and funding schemes, like the ROWAD seed programme from Bahrain Development Bank (BDB).

Crucially, the government-backed BDB boosted the nation’s SME drive in 2018 when it successfully closed its $100 million Al Waha Venture Capital Fund of Funds (Al Waha FoF), which aims to invest in promising regional tech startups.The FoF has already allocated 50 per cent of its capital to five tech funds across the region. 

Fuelling fintech

In February 2018, the kingdom established Bahrain Fintech Bay (BFB) which bills itself as a one-stop-shop for fledgling fintech companies. A private-public partnership between EDB and Singapore-based FinTech Consortium, BFB provides a physical co-working space for local fintech companies, supported by startup incubation and corporate initiatives.

According to Khalid Saad, chief executive officer (CEO) at BFB, the organisation already has 43 firms on its books, mainly from the GCC and Europe. Saad, for one, is delighted that AWS has chosen Bahrain as its first Middle Eastern base.

“AWS has moved in to a floor below us and their data centre will open soon. I think having a name like Amazon opening in Bahrain sends a big message that we have made major strides in developing a tech and entrepreneurial eco system,” he says. “It really helps to position Bahrain as a data jurisdiction in the region, even globally – if we play our cards right.”

Saad says that the availability and proximity of AWS cloud services will be a boon for local startups and fintechs.

“The increase in data speed and access to data is going to be significant – this will help some of the companies that have put their data outside to bring it back to Bahrain. AWS has recognised our cloud-first policy,” says Saad.

The BFB CEO highlights Bahrain’s ‘collaborative approach’ as the main strength that allows the kingdom to pack a punch on the global startup stage.

“Now we just need to stay focused and continue accelerating the pace of development. I think we are in good shape,” he says.

Not just fintech

Bahrain’s tech-ready infrastructure and attitude have positioned the kingdom as more than just a fintech hub, suggests Tahseen Consulting’s Schwalje.

“Fintech was an initial focus of Bahrain due to its historical legacy as the region’s financial services centre,” he says. “In some ways its strategy as a first-mover in regional fintech is reminiscent of its historic move to establish the first Islamic bank in 1979.”

However, Schwalje notes that there are a number of promising regional tech sectors where no clear leader has emerged, including renewable and clean energy, travel and transport, smart mobility, additive manufacturing, education technology, health-tech and agricultural technology.

“There are emerging fields, such as artificial intelligence, quantum computing, and extended reality, with broad applications that offer opportunities for Arab countries to carve out competitive niches,” says Schwalje.

Bahrain has managed to foster an environment that supports SMEs, with the added advantages of a lower cost of living, a well-educated population and a desire to invest in startups. But its biggest setback is its size – the small population makes for a small market.

“This means that in order to scale up, startups very quickly need to consider regional and international expansion,” says Schwalje.

Given its proximity to Saudi Arabia, one competitive niche that Bahrain is starting to carve out is access to the region’s most lucrative market.

It would be a big mistake to underestimate Bahrain – it is a small country that packs a big punch with a history of innovation at its core,” says Schwalje.