Higher oil prices pave Bahrain’s recovery path

According to a recent Oxford Business Group (OBG) report titled: Bahrain 2022, and shared with Economy Middle East, labor and regulatory reforms are underway in Bahrain, as part of an ambitious program that aims to attract $30bn in investment in the tourism, transport, health, education, construction, and real estate sectors.

Recovery path

Bahrain’s GDP had already expanded by 2.2% in 2021 to $33.4bn, from $32.9bn in 2020, when following the February 2022 invasion of Ukraine by Russia, oil prices pushed past the $100 per barrel, from the $70 range in 2021, the report said. 

Prior to Russia’s invasion of Ukraine in February 2022, The Ministry of Finance and National Economy (MFNE) had forecasted oil and gas revenues would reach $4.1bn in 2022, based on an oil price of $50 per barrel. 

However, with oil prices hitting around $115 in early May 2022, government revenue could increase as much as 140% over the year, and an average price of $106 per barrel could be sufficient to balance Bahrain’s budget. Bahrain aims to balance its budget by 2024. 

According to OBG, the trend towards recovery was expected to continue into 2022, with forecasted real GDP growth of 4.1%.  

The non-hydrocarbons sector was estimated to have grown by 2.8% in 2021, compared to a contraction of 0.3% in the hydrocarbons sector. Both are expected to grow in 2022, by 5% and 0.3%, respectively. 

At the same time, the new Fiscal Balance Program (FBP) included a provision for increasing value-added tax (VAT) from 5% to 10%, starting on January 1, 2022.

Fastest growing segments

During Q1 of 2022, the hospitality sector was the fastest-growing segment, expanding by 26.6% year-on-year (YoY) in real terms – followed by transport and communications at 15.8%, said the report. 

Manufacturing ranked third, with 5.3% YoY growth, followed by real estate and business activities (4.7%), financial services (3.1%), and construction (3%). 

However, in that quarter, financial services were the largest contributor to GDP, at 17.4%.

Real estate and construction performance

According to the most recent quarterly economic report released by the Ministry of Finance and National Economy, the real estate and business activities sector grew by 4.8% YoY over the final three months of 2021, while the construction sector was up 3.1% over the same period. As of the end of 2021 construction activities contributed 7.5% of real GDP, while real estate and business activities accounted for 5.4%.

The Survey and Land Registration Bureau (SLRB) reported that real estate transactions reached a value of $2.8bn in 2021, a 46% increase from $1.9bn in 2020.  

In addition, in Q1of 2021 the government awarded around $1.6bn worth of contracts, which included significant projects in the oil, aviation, and engineering sectors.

Major real estate plans and active projects

The public expenditure budget for the period January 1, 2021, to December 31, 2022, includes a provision of $1.6bn for construction projects, with infrastructure, housing, health, education, sport, culture, and utilities among the segments set to receive public investment. 

As well, Bahrain announced a major infrastructure development drive, which includes a plan to expand Bahrain’s land mass by as much as 60%, alongside ongoing and recently announced upgrades to the industrial base.

Bahrain announced that five new cities – Fasht Al Jarim, Hawar Islands, Fasht Al Adhm, the Gulf of Bahrain, and Suhaila Island will be constructed on reclaimed land.

Two dedicated tourist areas will also be constructed. The 1.3m-sq-meter Bilaj Al Zayer tourist city involves the development of an expanse of prime real estate along the southwest coast of Bahrain Island, five kilometers south of Bahrain International Circuit. The project is being overseen by Edamah and is estimated to require an investment of $330 mn and offer returns of 10%, according to the report.

The first of its five phases comprises the construction of two luxury hotels, which are due to begin in the second quarter of 2022 and are slated for completion in 2024. 

The South City project, meanwhile, is to be developed on Bahrain Island’s southeast coast, with Edamah overseeing the project.

Construction based on public-private partnerships

Public Private Partnerships (PPPs) include the King Hamad Causeway – a $3.5bn road and railway bridge connecting Bahrain and Saudi Arabia – and a 109-km metro project, which will traverse and connect Bahrain’s main islands and enhance connectivity between primary transport hubs, residential districts, schools, and commercial and industrial zones, according to OBG.

The first metro phase will consist of around 26 km of track, 20 stations, and two interchanges, and is expected to carry up to 200,000 passengers per day in its early years of operation. 

Finally, in February 2022 Bahrain launched a new 10-year Golden Residency Visa, which should benefit the construction and real estate sectors. Highly skilled professionals, owners of Bahraini homes with a minimum value of $530,500, persons receiving a pension of $10,600 and foreign nationals already living in Bahrain earning a minimum of $5,300 per month are eligible to apply.

Bahrain’s real estate sector is open to 100% foreign business ownership, making the visa attractive for foreigners looking to invest in property.  

Property purchases resulting from the new visa provision are forecast to reach $1bn in the first year, driven by increased demand for high-end residential properties.