US embassy cable - 05MANAMA182

C O N F I D E N T I A L SECTION 01 OF 02 MANAMA 000182 
 
SIPDIS 
 
STATE FOR NEA/ARPI BERNS 
COMMERCE FOR ITA/MAC/ONE LOUSTAUNAU AND HOFFMAN 
 
E.O. 12958: DECL: 02/07/2015 
TAGS: ECON, EFIN, ECPS, PGOV, BA 
SUBJECT: BATELCO CHAIRMAN ON FINANCIAL SECTOR, 
TELECOMMUNICATIONS, AND REFORM 
 
Classified By: AMBASSADOR WILLIAM T. MONROE 
REASONS 1.4 (B) AND (D). 
 
1.  (C)  Summary.  Long-time senior banker in Bahrain, Hassan 
Juma, told the Ambassador that Bahrain will face challenges 
and regional competition in its efforts to maintain its 
position as a regional financial hub, but that it has an 
important advantage in its strong financial regulatory 
system.  Juma was recently named Chairman of local 
telecommunications company Batelco, and recognizes that 
Batelco must diversify and upgrade its services, especially 
as the telecommunications sector continues to liberalize.  He 
spoke optimistically about political and economic reform in 
the region, saying that, while there will be "teething 
problems," people are finally willing to admit they have 
problems and recognize the need for change and reform.  End 
Summary. 
 
2. (SBU) Hassan Juma, CEO of the National Bank of Bahrain for 
the last 20 years, was recently appointed Chairman of 
Bahrain's leading telecommunications company Batelco (he has 
served on the Batelco board for several years).  The 
Ambassador, in a February 6 conversation, sought Juma's views 
on prospects in the two key sectors of banking and telecom. 
 
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Financial Sector 
---------------- 
 
3.  (C) Juma said the demise of Beirut as a banking center in 
the 1970s' and the influx of Gulf petrodollars contributed to 
Bahrain's development as a financial hub some 30 years ago. 
Companies came to the Gulf chasing contracts, and their banks 
followed.   Bahrain built a strong financial regulatory 
system, developed its own niche in Islamic banking, and did 
not face any real regional competition.  However, Bahrain's 
challenge in maintaining its position as a regional financial 
hub in the coming years will be more daunting.  Dubai has its 
own aspirations, and has a track record of success when it 
sets goals.  Even Qatar is looking at developing its 
financial sector, and has much greater financial resources 
than Bahrain.  Juma was nonetheless reasonably optimistic 
that Bahrain could hold its own.  Bahrain's greatest 
advantage is its strong regulatory system, something that 
cannot be built overnight by its competitors.  So far, Dubai 
appears to be focusing on fund management, an area that 
Bahrain has not concentrated on. 
 
4. (C) More broadly, Juma was critical of Gulf countries for 
their failure to diversify their economies.  Although Bahrain 
has not been blessed with the energy resources of its 
neighbors, it too has not managed its economy well.  It has 
been left with white elephant projects that have become 
burdensome on the economy and a welfare system that is no 
longer affordable.  He said 80 percent of Bahrain's budget 
goes to recurring expenses such as salaries and social 
security, an amount that is much too high. 
 
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Telecommunications 
------------------- 
 
5. (SBU) Juma said Batelco must review its commercial 
operations as Bahrain's telecommunications sector opens up 
and new players enter the market.  (In December, the 
Telecommunications Regulatory Authority announced it would 
award 36 new licenses, including eight ISPs (internet service 
providers), five VSATs (very small aperture terminals), 15 
VASs (value-added services), and five ISLs (international 
telecommunication services licenses).  Juma does not expect 
much competition or interest in the fixed-line market as 
Batelco has been operating at a loss and the economics are 
not encouraging for a competitor entering such a small 
market.  Although the mobile phone market is expanding, the 
two service providers currently present, Batelco and 
MTC-Vodaphone, have sufficient capacity to handle demand.  A 
third provider would have a tough challenge entering the 
market.  However, he stated there is room for growth among 
Internet Service Providers. (Note: Internet service is 
currently slow, something Juma -- and the press -- attributes 
to the severing of a main marine cable by a barge.) 
 
6. (SBU) Juma said that because Bahrain is small, Batelco has 
had to look abroad for growth. Its current ventures abroad 
(partnering in Saudi Arabia, Jordan, Egypt, and Kuwait) have 
had mixed results, according to Juma. 
 
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Change and Reform 
----------------- 
 
7. (C)  Despite the challenges ahead Juma said he is 
optimistic about Bahrain's future.  Juma stated that 
throughout the region people have generally come to believe 
there is a need for change and reform.  He said in the past 
the biggest difficulty to overcome was getting individuals 
and governments to admit they had problems.  Now, he said, 
people are beginning to talk about them.  Juma said Bahrain 
and the region will experience "teething problems," as change 
is always difficult.  However, he noted Bahrain has 
established a participatory parliament which will help 
alleviate some of the "short-term pain." 
MONROE