This article has been published in The Gulf, March Edition, 2014 Here
“Attention must be paid on increasing trust between capital and investment opportunities in Bahrain”
In the past decade, citizens in Bahrain have witnessed how exposed the kingdom’s economic growth and development is to global trends. This is globalisation – we cannot reverse it, but we can ride the wave and enjoy the benefits that come from it.
However, to better understand what Bahrain should be doing to see growth, and to maximise the opportunities that exist, we need to first dig deeper at the foundations of prosperity. Our success or failure is largely dependent on how we absorb ‘development’ recommendations from the west, yet there is no one road towards success.
There are two schools of thought in international political economics. One claims every country acts and reacts similarly, and another that each acts and reacts differently to some extent. What do they mean, and more importantly, which of the two is correct?
Based on various understandings and beliefs, political economists in the west try to grasp why different regions of the world act differently. Some would say because they’re not like us, and others would argue because they’re different. It sounds the same, but the policies and recommendations coming out of the west are rather conflicting.
Those on the receiving end witness damaging political economic policies aimed at developing and improving their social environments, especially when such policies are products of international loan-giving organisations such as the International Monetary Fund (IMF). Nations in need of financing projects have to give in to ‘recommended’ and potentially non-beneficial policies.
Efforts to make the rest of the developing world adapt more western-like policies include variables like currency value, monetary regulations, interest rates, social services, retirement age and plans, and other (in my view) secondary factors. On the contrary, saying that non-western countries are different is the first acknowledgment that perhaps development is not where it should be, because factors that ignite growth [in the developing world] are not like those in the west.
Looking at Bahrain, we can call upon a number of advanced economies to consider the elements we need to spur growth and witness stable development. From the two different schools of thought, which is right and which is not? Surprisingly, we find both methodologies are right – the world is dynamic, and so is growth. At different levels of development, different considerations will rise and fall in significance, it is not a flat formula.
Relating to the current stagnant growth situation in Bahrain, relative to the potential growth the nation would have been witnessing had the events of 2008 and 2011 not occurred, it could be destructive and counter intuitive to introduce reform initiatives that do not account for significant ‘soft factors’. What do I mean by ‘soft factors’, and how important are they?
Economics is a strictly rational discipline. Under the rational school of economic thought, it is assumed that decision makers will always strive for the optimal decision – this means that if you have limited resources, say $10,000, and need to buy a car, you will buy the best car this cash will get you.
In reality, however, humans are by nature not rational creatures. Decisions are largely a factor of our rationale as well as our emotional state. Thus, we would go for colour of car, make of car, and sometime inefficient cars that would make us happy.
Thus, my prescription to Bahrain’s state of economic growth is for policy makers to understand we are not yet at the west’s development level. However important the economic factors there are, here we need to place a considerable amount of attention on increasing trust between capital and investment opportunities. This means, for example, the government needs to step onto the front line and invest in stalled, physically visible projects – projects in real estate are the most obvious, because this is a leading sector in our nation.
For Bahrain to ride the globalisation wave, it needs to anticipate trends and proactively provide a niche for local and foreign investments. This requires brave political decisions to invest in our tomorrow by allocating enough of today’s funds to install trust in the investor community. Bahrain cannot afford to emulate the west, initially; it needs to be at the forefront of investment.
Dr Saqer al Khalifa was a political and econmic advisor at Bahrain’s defence ministry. He blogs at saqeralkhalifa.com