CONSTRUCTION: Spending is the way out of the slump

24 November 1995

IT has not been a year that contractors in Bahrain care to recall. A continuing squeeze on government spending and a fall in demand from the private sector have left them with little option but to focus on the modest opportunities arising from the expansion of local industries. And the outlook for 1996 is little better. Unless a major infrastructure project materialises, company managers fear a further reduction in activity and even greater competition.

With so few new government projects on offer contractors have turned to the private sector and quasi-public bodies to fill their order books. For those active at the lower end of the building market, demand has been holding up with villa and multi-storey office schemes ranging in value from BD500,000 million-1 million. Further up the scale, there is much less on offer. 'In the BD 1 million-3 million bracket, there is not much around,' says one local contractor. 'OK, there are a number of medium- sized buildings going up, but many are being owner-built and are making slow progress, with one storey being added, say, once every six months.'

The banks and local industry have offered some relief in these stagnant market conditions. The local Mannai Engineering Company has started work on a BD 2.4 million contract to build a 12-storey office block for Albaraka Islamic Investment Bank, while Cyprus' GP Zachariades (Overseas) won a BD 4.5 million order in October for a 17-storey headquarters for Bahrain Islamic Bank.

The Aluminium Bahrain (Alba) smelter at Sitra has also been busy. Both the local/UK Jalal Costain and the local Ahmed Mansour al-A'ali have packages of work on Alba's $130 million expansion project. The two contractors are also chasing subcontract work from Japan's Mitsubishi Heavy Industries (MHI), which is the lump sum turnkey contractor on an expansion scheme at Gulf Petrochemical Industries Company (GPIC).

Such awards have been gratefully received but have done little to compensate for the shrinkage in public sector activity. This autumn, leading contractors have had to console themselves with just one major tender from the government. This is for the phase four expansion of Bahrain International Airport, which is expected to cost up to BD 4.5 million to implement.

There is little expectation that conditions will improve much in the near future. Contractors are well aware that the government has a long list of infrastructure projects - ranging from boosting power and desalination capacity to upgrading its communications - waiting for the green light. They are also aware that until such schemes are activated, the whole economy is likely to suffer. 'The only way to stimulate private sector activity is to show some movement on the public sector side,' argues one industry executive. 'The best way to do that is to sanction a major building project, as so many local companies are involved in the sector.'

Another consequence would be the creation of much-needed employment for nationals. Bahrain is one of the few Gulf states where nationals play a substantial role in the building sector, notably in the supply and erection of structural steel. The government is pushing for further Bahrainisation and will favour the highest possible level of local content when awarding contracts.

The stumbling block is finance, or the lack of it. Despite higher non- oil revenues this year, brought about by the rebound in aluminium prices, the government is still strapped for cash and has little scope for investing in major capital projects. As a result, contractors are pinning their hopes on new grants and soft loans from other Gulf states which could go into public projects. Abu Dhabi is viewed as a particularly promising source. In the first sign that funds may be on their way, the UAE's Minister of State for Foreign Affairs Sheikh Hamdan Bin Zayed al-Nahyan announced in late October that the Abu Dhabi Development Fund was to extend loan financing for several local projects.

If funds do start to flow, the ambitious scheme to develop a new port complex at Hidd could be the first beneficiary. The port plan includes the creation of a new industrial zone. Costed at $220 million- 340 million, the scheme is central to government plans for attracting new investments and shipping into the area. Consultants submitted their bids in June.

The Hidd scheme will unlock other opportunities too. Arab Shipbuilding & Repair Yard (ASRY) is planning an $87 million expansion of its floating repair facilities which is directly linked to the port development, as the dredged sand will be used to reclaim land for the ASRY scheme. There is even some talk of building the next generation of power stations in the area. Says one international power executive, 'There is no doubt that Bahrain will require by the end of the century a new power station of 400-500 MW. And with the apparent demise of the British Gas proposal, new options will have to be surveyed. Hidd would make a natural location, given the planned port and industrial developments at the site.'

After this latest ride on the roller coaster of the business cycle Bahrain's contracting companies hope that the industry has hit the bottom and that an upturn is just around the corner. 'The truth is that we will know in the next couple of months whether 1996 is going to be a better year or not,' says one construction manager. 'It will really depend on our neighbours.'

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