Economic Update

25 Feb, 2018

Bahrain has moved forward with plans to improve national infrastructure as part of its economic development strategy, announcing a series of tenders relating to the upgrade and expansion of the country’s airport.

In late January Bahrain Airport Company (BAC) issued concessions for works related to airport security at Bahrain International Airport (BIA), including construction of a new perimeter fence and the installation of improved CCTV and lighting.

At the same time, the Ministry of Works launched a tender for the first stage of improvements to road access to BIA’s new terminal, with work scheduled for completion next December.

In addition to security and access, BAC also issued concessions to run pharmacy, convenience store, and food and beverage outlets in the airport in early January. Chosen companies will design, outfit, finance, develop, operate, maintain and manage the stores.

The recent concessions form part of the $1.1bn Airport Modernisation Programme (AMP), which aims to develop a 220-sq-metre passenger terminal and overhaul existing facilities by 2020. Once completed, BIA will have capacity to handle around 14m passengers per year, up from 8m at present, increasing the country’s regional and global connectivity.

Transport and tourism at centre of infrastructure upgrades

The AMP falls under a broader $32bn infrastructure programme currently under way in the kingdom, which places transport and logistics – along with tourism – at the heart of plans to diversify the economy away from hydrocarbons revenue.

In addition to the BIA upgrades, Bahrain is assessing plans to construct a second causeway to link it to with neighbour and regional powerhouse Saudi Arabia. The proposed 25-km connection, which is expected to cost around $4bn-5bn and be undertaken as a public-private partnership, would include a four-lane road and railway, easing congestion on existing transport connections and improving logistics between the two countries.

Other projects in the pipeline include construction of a light rail system and a series of road upgrades designed to improve traffic flows around the kingdom.

These investments are vital to supporting growth in the tourism sector, which is a key pillar of the economy, accounting for 6.3% of GDP. The number of international visitors to the kingdom increased by 2.4% in 2017 to reach 15.3m. Of this, 12.7m people entered the country via the existing King Fahd Causeway linking Bahrain with Saudi Arabia, highlighting the importance of improving and expanding connections between the two countries.

A series of new four- and five-star hotel developments are to be built in the near term, with an additional 4000 rooms to be added to existing supply by 2020. This, along with the development of shopping and entertainment developments such as Mall of Dilmunia and Marassi Galleria should expand the country’s tourism offering and stimulate further growth in the sector.

Foreign direct investment key to stimulating growth

These projects are in line with Bahrain’s Economic Vision 2030, the country’s strategic plan to grow and diversify the economy by investing in infrastructure development and training in targeted sectors.

Since the release of plan in 2008, Bahrain’s GDP has grown from $25.7bn to $33.9bn in 2017, while GDP per capita based on purchasing power parity has expanded from $40,800 to $51,800, according to the IMF.

Given the fall in hydrocarbons revenue in recent years, attracting private investment and, in particular, foreign direct investment (FDI) is a key element of the strategy. While inflows have experienced some volatility in recent times, most notably in 2015, FDI rebounded to reach $695m by the end of October last year, more than double 2016’s full-year total of $280m.

The increase comes amid efforts to attract foreign capital into the country.

In June of last year the Central Bank of Bahrain created a so-called financial technology (fintech) sandbox – a secure, virtual space to test software or coding – to enable the private sector to take advantage of emerging opportunities in the area.

The initiatives saw Dubai’s NOW Money and Tramonex, the London-based foreign exchange cash-management business, become the first two firms to be granted access to the sandbox.

These developments were followed by the announcement in September that global cloud computing giant Amazon Web Services (AWS) would construct its Middle Eastern cloud technology data centre in the kingdom.

The development dovetails with improved ICT upgrades and efforts to digitise all government and ministry operations as part of the Cloud First strategy, which along with the AWS base, are expected to provide new employment opportunities to Bahrainis, support the growth of local tech start-ups and improve the country’s ability to attract skilled expertise from around the world.