Private sector hesitant to invest in Bahrain

27 September 2011

The political unrest in Bahrain in early 2011 continues to affect the country’s projects market, with the private sector struggling to shake off the negative impact

Key fact

More than $5bn of private real-estate developments have been put on hold since the unrest began in early 2011

Source: MEED Projects

More than seven months after a youth-led protest movement calling for social and economic reforms erupted in Bahrain, the unrest continues to have a negative effect on the country’s projects market. Since the beginning of March, the total value of projects planned or under way in Bahrain has plummeted by 65 per cent, falling from $80.6bn on 1 March to $52.6n in early September.

The private sector has been hardest hit, with investors hesitant to put money into an uncertain market.

Confidence slips in Manama market

“Decision-making became difficult and investors lost confidence in the market,’’ says one consultant based in Manama.

The business-friendly image that Bahrain had sought to sell to foreign investors in recent years was lost as firms started to withdraw staff and look to more stable locations such as the UAE.

According to data from regional projects tracker MEED projects, more than $5bn of private real-estate developments have been put on hold since the unrest began in the first quarter of the year. The $800m Nomas Towers development was one of the biggest private schemes to go on hold.

Selected Bahrain projects cancelled/put on hold in 2011
 ClientEstimated value (BDm) Status
Al-Nurana mixed-use developmentManara Development Company1,000On hold
Nomas TowersNomas Enterprises800On hold
Equestrian and Horse Racing ClubFinance and National Economy Ministry700Cancelled
Energy TowerAl-Moyad Holding378On hold
Al-Areen Desert Spa & Resort: Al-Waha ResortEnsha Real Estate100On Hold
Suq Al-Arabia ResortPrivate developer185On hold
Al-Seef TowerIthmaar Development Company100Cancelled
Difaaf residential developmentReef Venture Holding200On hold
Source: MEED Projects

Although many private schemes have stalled, the construction sector has not come to a complete standstill. The government is continuing to push ahead with infrastructure projects and because of the protests, it is under increasing pressure to deliver affordable housing for its people.

Those in the construction sector are hopeful that the government is getting to grips with the political situation.

“We believe the government is going to shortly announce the outcome of the national dialogue and the elections are on the 24 of September. These events should hopefully bring stability and allow essential projects to move forward,’’ says an international consultant based in Bahrain.

The success of the government in delivering fair elections and implementing political reforms will be critical in providing a lifeline to Bahrain’s projects market.

In response to the political unrest, Manama has pledged to implement reforms to improve economic and social conditions for local people and reduce discontent with the ruling hierarchy.

Building new homes is a key element of the proposed reforms, with the government promising to build 50,000 new social housing units over the next five years to meet rising demand. A lack of adequate social housing has been one of the key complaints of the country’s majority Shia population.

Decision-making became difficult [in Bahrain] and investors lost confidence in the market

Manama-based consultant

The government has outlined plans to spend BD2.5bn ($6.6bn) on building affordable homes. In addition, the GCC has pledged to provide Bahrain with $10bn in aid over the next 10 years to help the government promote stability. The proposal to build new housing will create opportunities for the kingdom’s contractors and developers.

Public-private-partnership housing in Bahrain

Despite delays earlier in the year due to the demonstrations and reshuffles at the Housing Ministry, the government says it will push ahead with plans for the first public-private partnership (PPP) housing scheme in the region.

In April, Bahrain’s Housing Ministry selected the local Naseej Properties as the preferred bidder for the first phase of the PPP housing programme. Naseej is still in negotiations with the government and is confident of Manama’s ability to execute the pioneering scheme.

The market in Bahrain is slow … Feedback from current and potential clients is that 2012 has a more positive outlook

Mohammed al-Rais, Hill International

“This particular PPP is 4,000-plus housing units, and with a demand of 50,000 units, the government has said there will be a roll out of PPPs over the coming years,’’ says Christopher Sims, chief executive officer at Naseej. “The ministry is already working on plans for the second phase of the PPP housing programme.’’

Naseej is also looking at other areas of demand in the kingdom.

“In addition to affordable housing, there is demand in warehouse and logistics areas, also for healthcare facilities and schools.

There is still demand for retail space in key locations. We are exploring all of these possibilities at the moment. Right now we have got about 20 projects in various stages of feasibility analysis,’’ says Sims. In addition to low-cost housing schemes, Bahrain is currently undertaking some large-scale transport infrastructure projects.

One of the main infrastructure projects currently under way in Bahrain plans to expand the existing terminal at Bahrain International airport, which will increase the capacity from the current 4 million to 13.5 million people.

Bahrain’s airport expansion

In June, Bahrain Airport Company awarded Beirut-based Dar al-Handasah the design contract for the expansion of the existing terminal, and progress on the project appears to be moving forward swiftly.

“The design and tender documents for the main works will be completed by the first quarter of 2012,’’ says Mohammed al-Rais, senior vice-president and managing director for the Middle East at the US’ Hill International, which is providing project management services on the scheme.

“The tender documents will be issued to prequalified firms in the first quarter of 2012 and the main construction work is planned to start in the third quarter.”

The expansion of the existing terminal is expected to be completed by 2015.

Bahrain Airport Company is also planning to build two new terminals to expand the airport’s capacity to an eventual 30 million people. Despite suffering a slowdown due to changes in design and the political unrest, the scheme is still moving ahead.

“The start date for detailed design is still to be finalised,’’ says Al-Rais.

Nonetheless, Hill International is bullish about the prospects for Bahrain in the coming years.

“The market in Bahrain is slow at the moment. However, feedback from current and potential clients is that 2012 has a more positive outlook,’’ says Al-Rais.

“The factors for growth are the government’s commitment to spending – primarily on infrastructure and housing. The private sector is looking for this direction and will begin to make more financial commitments of its own by following the lead of the government.

“Hill International is actively looking at involvement in a variety of projects in Bahrain at present, including the social housing PPP schemes, other government works and commercial, mixed-use and residential schemes for major developers.’’

There has also been movement with Bahrain’s plans to build a rapid transit rail network in the past nine months. In July, the Public Works Ministry received prequalification documents from consultants for a contract to carry out a detailed feasibility study on the first phase of the planned $7.9bn network.

The ministry prequalified consultants for the contract in April last year, but earlier this year relaunched the prequalification process in order to expand the pre-selected consultants by adopting international competitive bidding standards.

The first phase of the scheme will involve the construction of an 11-kilometre light-rail transit (LRT) line that will run from the airport to the capital Manama, then on to Isa Town Gate interchange to end at the proposed Qatar-Bahrain Causeway. The first phase will also involve the construction of a 13km tramway that will connect Juffair with the Seef district.

Despite progress with air and rail schemes, there has been no development of the planned Qatar-Bahrain Causeway. The estimated $4bn causeway is scheduled to link the west coast of Qatar to the east coast of Bahrain and was a key element of Qatar’s infrastructure plans for hosting football’s World Cup in 2022.

In June 2010, the consortium selected to build the bridge demobilised site staff and there has been no new information from the Bahraini or Qatari governments on when work will begin on the project.

In addition to improving transport infrastructure, there is also a need in Bahrain for investment in social infrastructure projects, such as hospitals and schools. The award of a BD1.3m contract to Singapore’s Meinhardt Consultants in April to design and supervise the construction of a new faculty of engineering for Bahrain University shows that there are still opportunities in the social infrastructure sector.

Manama has also retendered contracts for the first phase on the revived @Bahrain real-estate development, which will be developed adjacent to the country’s Grand Prix circuit. In July, companies have submitted bids for the lead consultancy services.

Regaining reputation as financial hub

If Bahrain is able to achieve political stability, it can work on regaining its reputation as a financial and logistics hub and restart the construction schemes that have been delayed.

In recent years, Bahrain has worked to build up an impressive banking and finance sector, and is one of the world’s leading Islamic banking centres. Geographically, Bahrain is well located to operate as a key player in the region’s transport and logistics sectors.

With Saudi Arabia currently embarking on a construction programme of unprecedented scale, neighbouring Bahrain is perfectly placed to benefit.

However, the country’s reputation as a place to do business has been damaged by the Arab uprisings and the government’s brutal crackdown on protesters. To regain the support of many disaffected Bahrainis and the private sector, the government will need to deliver on its pledges to improve social economic conditions and implement further political reforms.

Unless Manama is able to solve its political issues, Bahrain’s projects market will continue to shrink.

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