usterity measures in the GCC have already taken effect and Bahrain has been among the countries hit by low oil prices. Social unrest continues in the face of ever growing budget cuts, and this combined with an unstable political climate has dampened investor confidence in the country. The IMF and World Bank has estimated that GDP growth will slow down to 1.8% in 2017 from the 2% growth last 2016.
However, at the GCC Financial Summit in Manama last month, at which CEOs of key national agencies including the Bahrain Economic Development Board (EDB), Central Bank of Bahrain (CBB) and Bahrain Bourse spoke, little of this bleak background picture was sketched.
CBB governor Rasheed Mohammed Al Maraj forecasts 2017 non-oil GDP growth to be 3.5 percent – a drop from his projected 3.6 percent for 2016, the official figures for which have not been finalized, and a decline from the EDB’s own third quarter figure. Despite that he believes that this shows “encouraging resilience” for Bahrain saying “The country has managed to adapt to new economic realities”. Forward-looking indicators of business confidence (including employment and business optimism) suggest that activity, while somewhat subdued, remains in a firmly expansionary mode. The political will behind a major economic paradigm shift in the GCC has become increasingly evident as exemplified by the Saudi Vision 2030, and the National Transformation Program (Bahrain Economic Quarterly, 2016). Countries around the GCC are continuing their efforts to rationalize public finances.
In addition, the region is envisaging an unprecendented pipeline of infrastructure investments. Historically, lower oil prices have tended to translate into slower project implementation as well as suspension, but that is not the case now. EDB’s Chief Economic Adviser, Dr. Jarmo Kortilaine says that the government has identified five non-oil industries expected to drive Bahrain’s future growth, and that is where it will prioritize investment promotion efforts. These five areas are financial services, industrial and manufacturing, logistics, tourism and information communications technology (ICT).
Financial services is an established sector in Bahrain with a ready pool of highly-skilled people “and it makes sense to build on your strengths”, Kortilaine said. “In some ways, Bahraini banks were better positioned for this [global] economic downturn than some of their regional peers because their loan-to-deposit ratios were lower and there was a fair bit of spare liquidity in the system, which, now that growth has strengthened and confidence has increased, has been progressively mobilized.
While all main segments of the economy made positive contributions to growth, the role of the non-oil private sector remained dominant. 2015 economic data highlights the continued momentum of economic diversification including infrastructure development. CBRE Middle East Director of Research and Consultancy James Lynn said “Growing demand for product from an expanding resident population at 3.3 percent per annum and an inbound tourist market of circa 15 million in 2016 have combined to reignite real estate development across multiple sectors”.
Real estate schemes set for completion in 2017 include the Wyndham Grand hotel in Bahrain Bay, The Avenues retail cluster at Bahrain Bay Corniche, Bahrain Financial Harbour and Bahrain World Trade Centre. In the mixed-use segment, the Bahrain Marina scheme is due for completion by 2020, while the 6-metre square foot Investment Gateway at Hidd by Manara Development has just completed the first phase, bringing to market a new slice of logistics and light industrial real estate. The second phase is scheduled for completion in 2018.
Because of a busy event calendar in 2016 that included the Bahrain Gaming Experience, Bahrain International Air Show (total number of orders reached USD9bn, more than triple the 2014 figure), Bahrain International Garden Show, Bahrain Food Festival, Bahrain International Book Fair, Autumn Fair; and various other exhibitions that took place in the Bahrain International Exhibition; tourism has benefited from record visitor numbers. As per the EDB, total number of arrivals to Bahrain increased by 8% with around 14.5 mn visitors. In recognition of the strength of the tourism sector in the country, Bahrain has been named the “Capital of Gulf Tourism” by GCC ministers highlighting this sector’s growth in Bahrain.
A report by Oxford Business Group (OBG) last month highlighted Bahrain’s appeal for foreign investors, noting that it has continued to rise up the World Bank’s international ranking for ease of doing business despite competition from GCC peers. Bahrain ranked 63rd in 2016, up from 66th in 2015 and beaten in the GCC only by the UAE, which ranked 26th.
“While Bahrain has had to cut public spending and reduce subsidies to accommodate a widening fiscal deficit, the country’s strengths, which include an educated workforce and established regulatory framework, make it an attractive draw for investors. The kingdom’s longer term prospects look bright,” OBG CEO Andrew Jeffreys said.