Bahrain - Economic Overview and Infrastructure Projects August 2016
UAE | Libya | Bulgaria | USA www.whisperingbell.com Bahrain Infrastructure Report - August 2016
Table of Contents BAHRAIN’S CURRENT ECONOMIC SITUATION ...... 3 BAHRAIN ECONOMIC OUTLOOK ...... 3 A LARGE INFRASTRUCTURE PROJECTS PIPELINE UNDERWAY ...... 4
KEY INFRASTRUCTURE PROJECTS IN BAHRAIN: ...... 5 TOP BAHRAIN PROJECTS ...... 8
KEY INFRASTRUCTURE PROJECTS IN EASTERN SAUDI: ...... 8 ABOUT WHISPERING BELL ...... 10
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Bahrain Infrastructure Report - August 2016
Bahrain’s Current Economic Situation
- Despite being highly vulnerable to disturbances in Saudi Arabia’s market, Bahrain’s economy is much more diversified than Saudi Arabia’s, and has a relatively solid and resilient financial sector.
- Bahrain’s economy has continued to demonstrate significant resilience throughout the period of depressed oil prices. Inevitably, the pace of growth was somewhat hampered over the past year amid the collapse of global oil prices and the ongoing political instability along with increased pressure on government spending, driving GDP growth down to 2.9% in 2015 from 4.5% in 2014. Yet, the non-oil growth stood at 3.9% reflecting the strength of structural growth drivers in the economy, particularly with a sustained momentum of diversification and a large infrastructure pipeline.
- The non-oil economy has been at the forefront of economic growth in Bahrain ever since the second half of 2014, while the oil sector either marginally contributed to the growth or even lagged behind (as in 2015).
- According to Bahrain Economic Development Board (EDB), future growth will be driven by a high level of continuity in the non-oil economy, and the commitment of regional governments and investors to long-term projects. The non-hydrocarbon sector is expected to remain around 3.4% in 2016 and 3% in 2017, underpinned by construction, manufacturing, tourism and social and personal services.
Bahrain Economic Outlook Bahrain Economic Outlook
2014 2015 2016 2017 2018 Real GDP growth (%) 4.5% 2.9% 2.9% 2.5% 2.2% Non-hydrocarbons sector 4.9% 3.9% 3.4% 3.0% 2.6% Hydrocarbons sector 3.0% -0.9% 2.0% 0.5% 0.5% Nominal GDP growth (%) 2.9% -4.8% 4.8% 7.6% 5.6% Inflation (CPI %) 2.8% 1.8% 3.8% 2.0% 2.0% Current account (% GDP) 4.5% -0.2% -2.7% 0.0% 1.2% Fiscal balance (% GDP) -3.6% -12.5% -13.0% -10.5% -8.9% Source: Bahrain Economic Development Board
- Economic growth will also be driven by the Vision 2030 economic development plan, which includes extensive infrastructure developments and aims to diversify and expand the economy under the EDB’s national economic strategy.
- Bahrain developments is heavily reliant on GCC funding, particularly from Saudi Arabia which has an economy that is 20 times the size of Bahrain’s. Following the 2011 uprising, Saudi Arabia and three other Arab states worried about Bahrain’s stability pledged USD 10bn to the country. Bahrain’s reliance on external funding is expected to continue
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Bahrain Infrastructure Report - August 2016
given its political importance, its relatively small sovereign wealth holdings, and its large deficit, and significant debt.
- The country is endowed with an open business environment and skilled workforce that have attracted international investors looking to penetrate the fast-growing GCC market. According to a UNCTAD World Investment Report, total foreign direct investment into Bahrain in 2014 amounted to USD 1bn, and inward FDI stocks reached USD 18.8bn, remaining the highest in the GCC and well above the global average, which emphasizes Bahrain’s position as one of the region’s most welcoming economies. Bahrain has one of the lowest operating costs in the region, and a solid investment regulatory framework. According to the Heritage Foundation’s 2014 Index of Economic Freedom, Bahrain is the freest economy in the region, and this helped boost growth and contributed to the success of foreign investors business story in country.
- To accelerate growth, Bahrain recently introduced a flexible visa policy that allows nationals from almost 100 countries to obtain an online visa either ahead of travel or on arrival. In addition to 36 countries now eligible for e-visa applications, residents from a further 60 countries will also now be able to apply for a visa on arrival.
A large Infrastructure projects pipeline underway
- Amid declining revenues from the energy sector, Bahrain is pushing ahead with new projects to stimulate growth. MEED Projects in mid-June estimated the overall project pipeline in Bahrain at USD 72.7bn, 4.7% higher than last year’s. Of this, a large pipeline of "strategically significant" priority infrastructure projects carried out by the government, the GCC Development Fund, and the private sector was estimated at around USD 32 billion.
- The construction industry in Bahrain will largely benefit from the GCC’s USD 10bn Gulf Development Programme which will support the country’s ambitious infrastructure build-up and investment plan. Around USD 6bn of the GCC fund has already been allocated to date and about USD 3.7bn has been tendered. The housing sector secured 35% of the funds while other major beneficiaries included electricity and water projects (22%), airport expansion (14%) and roads (12%).
- The construction industry in Bahrain has long been characterized by relative openness and ease of access, with the kingdom remaining in fourth place out of 185 countries on the World Bank’s 2014 “Ease of Doing Business” survey’s “dealing with construction permits” category. According to the survey, private contractors seeking construction permits in Bahrain face 11 procedures taking an average of 60 days to complete compared to the OECD average of 11.9 procedures and 149.5 days.
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Bahrain Infrastructure Report - August 2016
Key Infrastructure Projects in Bahrain:
In the section below, we list some of the most recently updated and largest Infrastructure projects in Bahrain.
- Transport infrastructure: Bahrain has been particularly focusing on connections with neighbouring Saudi Arabia. Air transport infrastructure, which has lagged behind other countries in the region, is significantly attracting investments.
o Bahrain International Airport Expansion Project: Perhaps the most significant of these is the expansion and modernisation of Bahrain International Airport (BIA). The USD 1.1bn expansion project is designed to increase the capacity of the facility by more than 50% from 9 million to 14 million passengers a year. The terminal project was awarded to a consortium of Arabtec Construction and Turkey’s TAV earlier this year. Pending packages include maintenance, repair and operation hangar, ICT systems, and the air traffic control center building. The first phase of the project is to be completed by mid-2019, at which point much of the current terminal building will be demolished to make way for the second phase which is due to be finished by the end of the 2020. The GCC Fund is expected to cover some 70% of the overall project cost.
o Building Bahrain’s second airport: The government has also announced plans to build the country's second airport on a purpose-built island off the north coast.
- Another major focus of activity is housing: The government push to provide affordable housing has seen a host of new projects and is expected to underpin growth over the medium term. Bahrain is pursuing an ambitious program of developing 40,000 housing units within a decade. The Ministry is seeking to develop new PPPs and has launched a Social Housing Financing Scheme supporting home purchases by nationals.
o The state-owned Eskan Bank is looking to establish joint ventures with international developers for the purpose of developing 15,000-16,000 housing units. Potential partners have been approached in the GCC, Turkey, China, and South Korea. Under the planned joint ventures, the government would allocate land to build equity in the projects, while the developers along with financial service providers would fund the construction. The JVs are due to develop government land in Ramli and Al Madina al Shamaliya (Northern Town) as well as to redevelop more mature areas in Umm al Hassam, and Isa Town.
o Diyar al Muharraq expects its USD 3bn Marassi al Bahrain development to have its first residents within two years. The project is being developed by Eagle Hills Diyar, a joint venture between UAE-based Eagle Hills. The first phase of the project is projected to cost USD 1.2bn and will include 480 seafront apartments, a shopping complex, and luxury hotels built by The Address Hotels and Resorts.
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Bahrain Infrastructure Report - August 2016
o Construction work on the USD 650mn Villamar project at the Bahrain Financial Harbour in central Manama is due for completion by 2017, along with a USD150mn Harbour Row project.
o Diyar al Muharraq also announced the launch of the second phase of its Al Bareh seafront development. Al Bareh is composed of three main product types: seafront residential plots dedicated for high-end villas, residential plots within walking distance to waterfront parks, and residential investment plots overlooking the main road designated for the construction of multi- storey buildings. Al Bareh plots are being offered for sale on a freehold basis to all nationalities
o Kuwait Finance House and Mabanee Real Estate Company in February signed a memorandum of understanding which funds the USD 94mn Avenues-Bahrain project over a one-year period. The new shopping complex, located in Bahrain Bay, is expected to open in the first quarter of 2017
o Gulf Finance House has begun the site preparation work at the Harbour Row Development. The USD 150mn mixed-use landmark project located within the Bahrain Financial Harbour area is expected to compromise of luxury residential units as well as commercial promenade.
o Water Garden City project by Albilad Real Estate Development: the USD 6.6bn project calls for construction of Water Garden City in Seef District, Manama and will spread on 2.2 million square meters. The city will include residential units, a beach park, a marina, schools, commercial spaces, retail outlets, and leisure facilities. Construction started in 2010 and is due for completion by 2020.
o Marsa Al Seef by Global Banking Corporation (GBCORP) is a waterfront project enriched located on Bahrain’s northern coats and covers an area of approximately 26mn square feet. The project is due for completion by 2018.
- Power Sector infrastructure: Power upgrades also rank high on the infrastructure priority list. In January 2014, the government announced plans to spend USD 2.2bn to enhance power facilities.
o In May, The Electricity and Water Authority (EWA) launched a USD 750mn (BHD280mn) power grid development project, which includes building and linking of three electricity transmission lines in Hidd, Um al Hassam, and Riffa. The project is expected to be completed by the end of 2017.
o EWA has also received consultancy bids for the Al-Dur 2 independent water and power project which is expected to include a 1,500 W gas-fired power generation facility, and is scheduled to come online by 2019. Construction work is due to start in 2017.
o In 2013 the kingdom also announced plans to add 5 MW of power via renewable energy projects, including the proposed USD 500m waste-to-energy plant, with
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Bahrain Infrastructure Report - August 2016
France’s Constructions Industrielles de la Méditerranée acting as consultant and contractor for the project.
- Transportation: Several important projects are moving forward in the transportation sector:
o A feasibility study has been announced for a planned national light rail scheme.
o Engineering consultancy work is due to start on the Bahrain Northern Link Road (BNLR) which will be made up of series of roads and a causeway along the northern coast of the main island. The road will connect to the Saudi causeway. The main highway will be roughly 22.5 km long and should significantly ease congestion in central Manama.
- Some hydrocarbons and Aluminum projects are currently planned or under way:
o The government awarded a contract to newly formed joint venture Bahrain LNG to build a floating liquefied natural gas (LNG) terminal. The Bahraini government has a 30% stake in the public-private partnership of Bahrain LNG through Nogaholding, which manages government investment in the oil and gas sector. The remaining 70% will be owned by a consortium comprising Bermuda's Teekay LNG Partners (30%), South Korea's Samsung (20%) and Kuwait's Gulf Investment Corporation (20%). The terminal, to be owned and operated under a 20-year agreement starting July 2018, would meet Bahrain's rising demand for gas, which grew on average by more than 2.5% a year from 2011 to 2014, according to the EIU.
o The Bahrain Petroleum Company (Bapco)’s Sitra refinery modernization program is gathering momentum following the appointment of a project management contractor in December 2015. The refinery last year reached an above capacity output level of 267,854 b/d and the modernization program seeks to increase capacity from 267,000 to 360,000 b/d while modifying the output mix. Bapco has invited companies to submit bids for the engineering, procurement, o and construction contract which is expected to have a total value of USD 5bn. The project is expected to be fully complete by the end of 2020. Bapco in May also announced the creation of the Bahrain Gasoline Blending joint venture with UK- based Greenergy. The objective is to establish a regional gasoline blending hub.
o Bahrain National Gas Company (Banagas) is planning to raise a loan of at least USD 400mn to expand its gas processing facilities
o The expansion of the aluminium smelter at state-owned firm Alba: Aluminium Bahrain is currently syndicating a USD750mn seven-year commercial loan for its sixth pot line project. The overall project value is expected to be USD 3.5bn, of which around 70% due to be financed through different debt structures. The main engineering, procurement, and construction management contract has been awarded and bidders shortlisted for the construction of a 1,300 MW captive power plant project. The project, once complete, will boost Alba’s capacity by 540,000 tn/year to 1.5mn tn/year.
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Bahrain Infrastructure Report - August 2016
Top Bahrain Projects Top Bahrain Projects Project Name Project Value (USD mn) Completion Albilad - Water Garden City 6,600 2020 BAPCO - Sitra Refinery Upgrade and Expansion 5,000 2020 Alba - Aluminium Smelter Line 6 3,500 2019 Eagle Hills Diyar - Marassi al Bahrain development 3,000 2017 CBCORP Bahrain - Marsa Al Seef 2,500 2018 Arabtec Construction and TAV - Bahrain Airport Modernization 1,100 2020 Bahrain EWA - Power Grid development project 750 2017 GPIC - Manama Ammonia and Urea Plant 700 2019 NOGA - LNG Import Terminal 651 2018 Gulf Holding Company - Villamar Residential Complex 650 2017
Key Infrastructure Projects in Eastern Saudi:
Saudi Arabia has allocated USD 43.8bn for transport, telecommunications, water, agriculture and other related infrastructure. The country's construction sector contributes around 8% of Saudi’s total GDP, making it the largest construction market in the Middle East. Around 67% of construction investment is direct from the government, with large-scale projects in the sector for the coming years set to reach USD 800bn.
- The power and water utility company for Jubail and Yanbu, Marafiq, has embarked on the implementation of a series of mega projects at an estimated cost of SAR 10bn (USD 2.7bn). In Jubail, Marafiq will build a water desalination plant based on reverse osmosis system (ROS) costing USD 229mn for SADARA Chemical Co., a JV between Saudi Aramco and US-based Dow Chemical, at Jubail Project 2. Marafiq also has embarked on the implementation of other projects in Jubail, including a ROS-based desalination plant (at a cost of USD 100mn), expansion of a water pump station (USD 32mn), construction of a new water pump station at Matarafiyya area (USD 27mn), a rent-to-own housing program (USD 113mn), and the company’s HQ project (USD 38mn).
- The Saudi Arabian Basic Industrial Corporation (SABIC) is reportedly implementing new projects at the cost of USD 6.2bn, including an industrial rubber project for Al-Jubail Petrochemical Company, Kemya (USD 3.2bn), a port berth project for petrochemical products (USD 351mn), a styrene butadiene acryl project for Arabian Petrochemical Company Petrochemya (USD 607mn), an expansion project at the Saudi Arabian Fertilizer Company, Safco (USD 540mn), another project for the National Methanol Company, Ibn Sina (USD 513mn), and SABIC staff housing project at Jalmouda District (USD 945mn).
- Jubail II project (at an estimated cost of USD 80bn) is a 22-year industrial project that is getting a massive expansion and will include the construction of 100 industrial plants, 800,000 cubic meter desalination plant, an oil refinery producing at least 350,000 barrels per
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Bahrain Infrastructure Report - August 2016
day, as well as railways, roads and highways. The entire project is slated to be finished in 2024.
- Saudi Landbridge (USD 7bn): The Red Sea to the Gulf rail line is an integral part of the GCC’s connected rail network. Italferr has been awarded a USD 37mn contract by the Saudi Railways Company (SAR) to design the Landbridge – a 950km line between Riyadh and Jeddah, and a second 115km line between Dammam and Jubail. Transit times for freight between Jeddah and Dammam will be reduced to 18 hours, compared with the current sea voyage of 5-7 days, with capacity for 8m tons of freight a year.
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Bahrain Infrastructure Report - August 2016
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Whispering Bell MEA DMCC, PO Box 487151, Dubai, United Arab Emirates. Tel: +9714 448 6690 www.whisperingbell.com