As protesters clashed with security forces in Bahrain and Oman in February 2011, neighbouring GCC states offered financial support to help quell the demonstrators’ fury. Manama and Muscat were each promised $10bn in aid over the next decade to improve the social and economic conditions of their people.

There is still uncertainty over how the political situation is going to pan out

Mike Williams, CBRE

“The GCC fund has been set up to tackle infrastructure development and youth employment creation. It is of vital importance for these two countries, as they are a lot less wealthy than the rest of the GCC,” says Nael Shehadeh, associate researcher at the Geneva-based Gulf Research Centre.

Oman’s nominal gross domestic product (GDP) was estimated at $66.8bn in 2011, while its GDP per capita stands at about $21,421. Bahrain’s GDP was expected to total $26.4bn last year with per capita income of $23,466. These figures pale in comparison to Saudi Arabia’s estimated GDP of $560bn and Qatar’s expected GDP per capita of $109,881 in 2011.

Social housing

One year on, and, although the political protests have largely subsided, the two countries still have urgent social and economic problems that need addressing. In addition to high levels of unemployment, a major cause of discontent is the lack of social housing and infrastructure. With both governments pledging to spend heavily on infrastructure projects in the coming years, the region’s contractors will be hoping that the planned spending translates into real projects.

Bahrain witnessed the largest protests in 2011, with an estimated 40 people killed during the unrest. The acute shortage of adequate housing was a main source of tension.

One of the key challenges for the government is to reduce the housing deficit for lower income Bahrainis, something it has struggled with in recent years. With an estimated 50,000 people on the Housing Ministry’s list for social housing, the government has turned to the private sector to help it deliver what is required.

On 2 January, Bahrain’s Housing Ministry signed agreements with local developer Naseej Properties for the $550m initial phase of the region’s first public-private partnership (PPP) housing scheme. Of the 4,100 homes planned for development under the first phase, 3,100 will be distributed by the government to low-income citizens requiring social housing.

“The government has been trying on its own to construct housing units in the past few years, but the backlog and fresh demand is so great that the government hasn’t been able to meet that demand,” says Mohamed Khalil Alsayed, chief executive officer of Ithmaar Development Company, and member of the board of the Naseej PPP steering Committee.

Although the award of the contract for the first phase of PPP housing scheme is a step forward, Bahrain needs to build a great many more homes before its housing crisis can be alleviated.

“The housing list is growing by 2,000 or 3,000 people a year. So even by the time the first phase of the PPP gets built, the list will have gone up by another eight or nine thousand,” says Mike Williams, senior director of research and consultancy in Bahrain for UK-based property consultant CBRE.

Those involved with the PPP scheme are confident that successful delivery of the first phase will enable the state to push ahead more efficiently with subsequent phases. During the National Dialogue process launched to address the protesters’ concerns, the government set out plans to spend $6.6bn on building 50,000 social housing units over the next three years.

“The first one is a prototype and it has taken a relatively long time to close it. But both the government and private sector now have experience and the other PPP schemes will not take as long to finalise,” says Alsayed.

Transport schemes

The government is also keen to move ahead with key infrastructure projects that are intended to stimulate the economy. One of the proposed schemes is the expansion of the existing passenger terminal at Bahrain International airport. The project will raise the capacity of the terminal from 9 million to 15 million passengers a year and is expected to be completed in 2015.

In May 2011, Manama increased its proposed budget expenditure for 2011 and 2012 to BD6.2bn ($16.4bn), a 15 per cent increase from the BD5.3bn originally planned.

Despite progress with government schemes, there is no imminent sign of a pick-up in Bahrain’s private sector construction projects.

The political unrest has resulted in many projects being stalled or cancelled, as investors and developers have found planning and decision-making challenging. According to regional projects tracker, MEED Projects, an estimated $9.8bn-worth of private real estate schemes were cancelled or put on hold in 2011.

“There is still uncertainty over how the political situation is going to pan out. There is still no negotiation between the leading opposition parties and the government,” says Williams.

“The biggest problem with the uncertainty is that it has affected investment. People that were prepared to … invest in Bahrain, may think again.”

Violence has continued to flare in 2012, and until the situation stabilises, uncertainty in the projects market will remain.

The protests in Oman were more muted than in other states affected by the Arab uprisings, but it was the first time that the 40-year rule of Sultan Qaboos bin Said al-Said had been challenged. In response to the demonstrations, Sultan Qaboos pledged to spend an additional OR981m ($2.54bn) in 2011 and introduce a series of changes to create job opportunities and improve living standards for Oman’s poorest citizens.

The political unrest also caused the government to reaffirm its commitment to the spending set out in its eighth five-year development plan for 2011-15. Muscat’s planned investment of $30bn over the next five years is one of the highest ratios of spending compared with GDP in the region. The bulk of the increased expenditure is aimed at developing social infrastructure.

Under the development plan, OR5.9bn and OR2.5bn has been allocated to the education and healthcare sectors respectively. Healthcare expenditure includes the provision of nine new hospitals, four polyclinics and various health centres in the sultanate. The largest single planned healthcare project is the OR140m Muscat referral hospital.

The government is planning to build more than 100 schools in an attempt to raise education standards.

The sultanate is also pushing ahead with several new transport schemes. In 2011, transport projects accounted for 66 per cent of the $2.4bn-worth of construction and infrastructure contracts awarded.

Spending in the sector is scheduled to rise over the next four years as the current five-year plan allocates $15bn for the development of roads, airports and ports. The transport schemes are crucial to plans to revive Oman’s tourism industry, a key sector in its economy.

The sultanate is also investing in accommodation for tourists, with Oman Tourism Development Company (Omran) awarding construction deals for two hotels in 2011 worth $70m. UK-based property consultant Cluttons expects 5,000-6,000 hotel rooms to be built
in Muscat over the next five years, an increase of 21 per cent.

Muscat is also planning to build an estimated $1bn exhibition and conference centre. On 9 January, Omran received bids for the infrastructure and utilities package, the first construction contract to be tendered on the project.

With oil prices remaining above $100 a barrel for most of 2011 and a current production rate of close to 1 million barrels a day, Oman is expected to report a budget surplus for last year, according to Khatija Haque, chief economist at Dubai-based lender Emirates NBD. Together with the proposed GCC fund, Muscat should have no issues funding its plans.

The problem that the sultanate has had in recent years is delivering planned schemes. “The market is very slow,” says one contractor based in Muscat. “The government says it is moving ahead with infrastructure projects, but progress with them has been slow. It will be interesting to see where the GCC money goes and who will be in charge of spending it.”

GCC fund

Despite almost a year having passed since the GCC announced it would be providing aid to Bahrain and Oman, none of the $20bn appears to have been received by either state.

“As far as we know, none of the aid to Bahrain and Oman has filtered through yet. As it is a development fund of $20bn, there are extensive preparations required before disbursements can follow,” says Shehadeh.

“The commitments have been made and if either of these countries have problems on the financing side, we assume that the fund will be made available,” says Haque.

The GCC aid, combined with increased budget expenditure, should provide a platform for Bahrain and Oman to push ahead with necessary reforms and improve housing and infrastructure for their people.

However, it is not just the economic resources available that are important. It is vital that the governments are able to divert the money to where it is needed most.

For the GCC aid to be effective, Manama must focus on internal political tensions. For its part, Muscat must ensure government departments deliver what is planned. If they are able to do so, the projects markets of the GCC’s smaller economies should see increased activity in the year ahead.