Pearl of the Persian Gulf
Driven by a strong financial sector and public-private partnerships, the Gulf’s smallest nation is bouncing back from a difficult three years. Melanie Mingas finds out why Bahrain is back in business
For a 33-isle archipelago with fewer than one million residents, Bahrain is deceivingly robust. After averaging a GDP real growth rate of 8.4% in 2007, growth plummeted to 3.1% in 2009. According to local media reports at the time, the country was “thrown into crisis”, with the construction industry directly affected.
Project costs spiralled, real estate activity slowed and liquidity and confidence dried up, with the Central Bank reporting a 30% decline in construction permits.
Yet, buoyed by a strong financial sector, Bahrain defied the odds, announcing economic growth of 4.3% in 2010; with the construction industry alone expanding 5% on 2009 levels. Projects worth $1.628 billion are now scheduled to begin by 2012.
“The pace of the construction sector depends on the level of the economic feasibility of projects that, in turn, depends on the low prices for land acquisition and real estate which is still considerably high,” Dr Essam Fakhro, chairman of Bahrain Chamber of Commerce and Industry (BCCI) tells The Big Project.
“It also depends on increased funding and development of projects funded by public-private partnership (PPP), especially the construction of apartments and housing units for citizens who are earning a limited income,” he adds.
A growing number of international companies are choosing Bahrain as the gateway to the trillion-dollar Gulf market”
There is little doubt economic strength is returning. The World Bank classifies Bahrain as a high-income country and, according to the 2010 Economic Freedom in the Arab World Report, it has the highest economic freedom of 22 Arab nations.
“Bahrain’s steady, sustainable economic growth and stability is supported by our long-term commitment to economic diversification and the continued strengthening of the private sector.
“A growing number of international companies are choosing Bahrain as the gateway to the trillion-dollar Gulf market,” said Sheikh Mohammed, CEO of Bahrain’s Economic Development Board.
After oil, aluminium exports and finance, the construction industry is one of the most lucrative and it is forecast to grow at an annual rate of 7% until 2013.
Bouncing back
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Strength in numbers
703,000
The current population of Bahrain
[/facts]
In an effort to minimise the impact of the global financial crisis, the government has, and continues to take, a number of steps to protect the Kingdom, including increasing the volume of tenders and initiating a number of PPP-funded projects.
The Ministry of Commerce even intervened to prevent a 30% rise in the price of cement early in the New Year, a move welcomed by contractors.
“Immediately following the downturn, the government and various concerned parties took the initiative to develop and enhance precautionary measures to face the repercussions of the crisis on the financial, economic and service sectors,” Dr Fakhro comments.
Despite the measures, Fakhro says some construction companies were forced to “reduce the value of contracts for work in an attempt to attract investors”, a tactic he says is testament to the low number of investors and entrepreneurs investing in Bahrain’s construction projects.
“With regards to the construction sector and its related industries, measures have been taken by the government in relation to the exposure of banks, infrastructure and housing projects, and the volume of tenders,” he adds.
A report by Ventures Middle East states the construction industry is an “integral part” of the economy and it receives due attention in the country’s future plan; Vision 2030.
Vision 2030 encompasses strategies for the economy, government and society, aiming to collaborate with the “legislative body, civil society and private sector” to realise the need to “transform” the economy, according to recent official documents.
In addition to these abstract concepts, it comprises three “guiding principles”; sustainability, competitiveness and fairness. Broken down, it commits the government to expansion and diversification with growth primarily fuelled by PPPs.
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Workforce
352,000
Bahrain’s native labour force
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A paper published in late 2010 by Markets and Research indicated the plan would potentially have a “high impact” on the country’s construction industry and wider economy.
Vision 2030 concludes that nurturing growth and investment from the private sector, particularly in the construction industry, is the most effective way to address a reportedly “oversized public sector”.
To attract investment, the country is now focused on “high-quality public services, cutting-edge infrastructure and an appealing living environment”.
“If a person has created a good contact list they can get lots of work in both the private as well as the government sectors,” says Robbie Ferguson, CEO for Bahrain-based Karimeh Construction.
“The government sector is harder to crack as they seem to favour local companies even if they have failed to complete previous contracts on time or budget,” he adds.
Infrastructure
Collaboration between the public and private sectors will also help reduce the government’s stake in infrastructure spending, according to reports released late 2010.
Part of Vision 2030, a contract was awarded last month to Ahmed Mansoor Al A’Ali for a $13.5 million, four-lane road connecting Muharraq to Manama. Upon completion (due in August 2011) the road will provide a detour to allow completion of the King Faisal Highway.
Additionally, the Friendship Bridge project, linking Bahrain with Qatar, is said to be on track after lengthy delays, following the announcement Qatar will host the 2022 World Cup.
Another element of Vision 2030 is a $3.45 billion upgrade to expand Bahrain’s sewerage system nationwide and establish a rainwater drainage network.
Like its GCC neighbours, Bahrain’s airport is also undergoing massive expansions; passenger capacity will reach 15 million per year; aircraft stands will increase from 46 to 64 and the number of bridges and check-in desks will double.
Residential construction accounts for 51% of the entire construction sector, but 39% of the native population are on waiting lists for affordable housing“
Speaking when the contracts were signed in 2009, deputy Prime Minister and transportation minister Shaikh Ali bin Khalifa Al Khalifa said: “The expansion will cater to the increase in passenger and aircraft traffic up to the year 2015, with passenger figures expected to grow rapidly and reach around 12 to 15 million per annum by that time.”
“The project is expected to take 49 months to complete with an expected design period of 15 months, a construction period of 24 months and a period set aside for tendering in between,” he added. Further expansions are scheduled with capacity expected to reach 45 million passengers by 2030.
Under construction
While it has been said the opportunities in Bahrain are less lucrative than those of other GCC markets, the government announced plans in late 2010 to fast track a number of housing, health, education and economy related projects.
[facts]
FACTS
Of 22 Arab nations, Bahrain has the greatest economic freedom
Of 57 leading economies, Bahrain is the most liberalised financial sector
100% foreign ownership of companies is permitted in more than
95% of business activities
0% corporate taxation; the most competitive tax environment in the world according to the World Economic Forum (WEF )
Of 57 leading economies Bahrain has the most liberalised financial sector (WEF )
Bahrain is the only GCC country to impose income tax
[/facts]
For the moment, it’s all eyes on Manama, described by the tourism authority as a “city of minarets and skyscrapers”.
A $2.6 billion private investment residential project, which will redevelop the old market district, with a flagship 28-storey commercial and retail tower at its centre, will regenerate Manama’s central market, hotels and recreation spaces. Other projects include Bahrain Bay, featuring the country’s first Four Seasons Hotel, and the $6 billion (BD2.2b) Durrat Al Bahrain project — a mixed-use 20km2 city.
There are also a number of community developments such as Riffa Views, Amwaj Islands, Diyar Al Muharraq, Raffles City and Villamar which all offer a range of residential properties and tourism and leisure facilities.
With a ready-made community on the doorstep, these new mini-cities are a magnet for retail developments; constituting more than half the total projected value of projects in the sector between 2010 and 2015.
Aiming to create the same modern cityscape as its GCC neighbours, the design zeitgeist fuses traditional Arabic influences and modern flair, says Atkins Middle East’s resident director in Bahrain Rob Ruse.
“The traditional vernacular of Bahrain’s architecture is very much influencing modern design. The key tenet is the concern with sustainability and reducing the carbon footprints of developments in a cost-effective manner.
“In fact, traditional Arabic architecture is at the vanguard of this movement because historically, local buildings are exemplars in implementing passive design processes such as shading and wind movement,” he explains.
Atkins designed the Bahrain World Trade Centre (BWTC), the first building in the world to integrate wind turbines into the building’s structure. They are capable of meeting up to 15% of the building’s energy needs.
“The concept design of the towers was inspired by traditional Arabian ‘wind towers’, which enable the very shape of the buildings to harness the prevailing onshore breeze from the Gulf, providing a renewable source of energy for the project.”
Real growth
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Economics
3.5%
Bahrain’s inflation rate
[/facts]
In January 2006, the United Nations Economic and Social Commission for Western Asia, named Bahrain the fastest-growing economy of the Arab world. Despite the impact of the recession, the country still has strong trade links and a number of real estate projects under construction or recently completed. Yet these developments fail to address the fact that despite residential construction accounting for 51% of the entire construction sector, 39% of the native population are on waiting lists for affordable housing.
The Ministry of Housing recently initiated a programme to build 4500 units to meet the supply-demand gap, enabling more middle and low-income Bahraini families to move into affordable homes.
Each unit would have to house 10 people to meet the demand; yet the government hopes to cut the average waiting time for subsidised housing to five years by 2014.
Previously, low rents have stalled the market and prevented investment in such schemes, presenting opportunity for PPP collaborations; also expected to strengthen the 2030 vision.
A burgeoning tourism industry is also sustaining development, with leisure and business visitors from across the GCC, particularly Saudi Arabia, regularly visiting Bahrain for its scenic landscapes, liberal culture and Formula 1 race track.
Aware of the potential, the government is aiming to re-brand the country for the European tourism market, with projections the sector could account for 6.5% of GDP by 2020. Plans to establish resorts for new visitors will offer lucrative opportunities for private-sector contractors, developers and designers.
According to the national Chamber of Commerce and Industry, investment opportunities include infrastructure and housing projects; industry, services and tourism development, commercial developments and towers, and the 2022 World Cup in neighbouring Qatar.
[facts]
3.9%
Sector Growth
The current unemployment rate in the country
[/facts]
“The ‘Friendship Bridge’ between Bahrain and Qatar will be constructed by 2015, worth $8 billion, which constitutes a great opportunity for economic growth,” says Dr Fakhro.
“These opportunities have been showcased at the many construction events that have been held in the region and around the world, including investment conferences and exhibitions,” he added.
Ironically, as firms from around the world look to tap this understated, yet lucrative, market, Bahraini firms are looking to Saudi Arabia’s Eastern Province and Qatar to “showcase” their construction expertise, according to the BCCI.
Filling the gap, foreign investment accounts for around one third of total private business investment in Bahrain and prospects for foreign companies, particularly SMEs looking to tap a new market are strong.
“Starting a business here is fairly easy if you know the process. Expect the usual Middle East bureaucracy to take many times longer than in a western nation, but there are people here who can help,” advised Ferguson.
“The general feeling is that it is much easier to start a company in your home country and then come here and open an agency office, although tax implications mean the advantages can be lost,” he adds.
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