Richard ThompsonEditorial Director
MEED
Outlook 2017Bahrain British Business ForumManama
30 March 2017
8,613 articles
734 on Bahrain
3,343 News
4,426 Tenders
705 analysis
46 sectors
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Bahrain prepares to tender Al-Dur 2 IWPP – 29 Mar
Bahrain plans multibillion dollar coast strip – 27 Mar
Bahrain receives bids for sewage plant – 19 March
GFH in merger talks with Shuaa – 15 March
Bahrain light rail tender expected in H1 - 27 Feb
Firms bid for Bahrain airport packages – 26 Feb
Bahrain receives bids for island project – 26 Feb
Construction buoyed by developments – 15 Feb
Local group appointed for housing project – 30 Jan
Recent MEED headlines
Source: meed.com
Kingdom of Bahrain
GDP: $33.9bn
Population: 1.3 million
2017 GDP growth: 1.8%
Inflation: 2.5%
GDP/capita: $25.2
Govt debt: 82%
The region’s pioneer
1933: First Gulf Arab state to discover and produce oil
1960s: First to embark on economic diversification
1970s: Established as regional financial hub
1980s: Manufacturing hub around Alba smelter
1990s: Tourism around ecology, autosport and history
2000s: Real estate boom around financial sector
2005: Liberal political reform and social inclusion
Lasting achievements
Diversified economy
World scale aluminium
Regional logistics hub
Centre for finance
International investment
Brand Bahrain
Oil21%
Other20%
Financial Corporations
16%
Manufacturing
Government services
Transport & communications
Real estate & business Trade
5%4%
7%
13%
Bahrain GDP by sector, 2015Source: Bahrain Central Bank
14%
Bahrain’s journey since 2011
7-10%/year average GDP
annual growth, peaking
2000-2010
2011,
growth
hit by
political
protests
2011-2017,
growth below
6%/year 20162.1%
20171.8%
Crude hit 30-year low before recovering
Surplus becomes deficit
Capital spending under review
Restructuring in government and business
Liquidity squeezed by fall in govt deposits and debt
Banks increase provisioning for non-performing loans
Economy hit as rents, spending and travel falls
Payment delays created cash flow crisis
Aleppo, Yemen and Syrian refugee crisis
Rise of nationalism in US and Europe
2016: A challenging year
GCC growth hit 7-year low in 2016
0
20
40
60
80
100
120
0
1
2
3
4
5
6
7
8
9
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MENA GCC Ave oil price ($/barrel)
Real GDP
growth
(%)
Oil price
($/barrel)June 2014
Oil prices
crash from
$114/barrel
peak
Jan 2016
Oil prices
hit 30-year
low of
$26/barrel
2016: Growth slides as
governments cut spending
2015: Governments use
reserves to maintain spending
Source: IMF, World Bank, BP, MEED
GCC project activity slumps
$61bn fall in value of project activity as completions outpaced awards
$166bn of contracts completed in 2016 while only $105bn awarded
Source: www.meed.com; MEED Projects
GCC contract awards 2015/16 ($m)
0
10,000
20,000
30,000
40,000
50,000
60,000
Bahrain Kuwait Oman Qatar SaudiArabia
UAE
2015
2016
Source: MEED Projects
34% fall in value of GCC contract awards to $117bn from $177bn
Bahrain was the only market to grow in 2016
Source: MEED Projects
GCC contract awards by sector, 2015/16 ($m)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
2015 2016
Projects market growth has stalled
Gulf up 1.1% YoY to $3.3tn
GCC flat at 0.0% to $2.6tn
Iran up 16.3% to $312bn
Kuwait up 3.8% to $256bn
Saudi Arabia up 1.9% to $1tn
UAE up 0.6% YoY to $856bn
Oman down -0.6% to $173bn
Iraq down -1.9% to $360bn
Bahrain down -4.4% to $69.7bn
Qatar down -9.9% to $256bn
Value of all projects planned or underway in the Gulf ($bn)
The new normal
Oil expected to remain in $50-$60 range for medium term
IMF forecasting Brent average of $50.1/barrel in 2017
Rising gradually to $57.5 by 2021
Source: ft.com
$50/barrel
The impact of low oil
Bahrain Kuwait Oman Qatar Saudi Arabia UAE
$50/barrel
Bahrain fiscal breakeven oil price in 2016 was $92/ barrel, Opec
reference basket price was $39.5/barrel
Mena exporters lost $360bn in oil revenues in 2015, down 23% and16% in 2016
Fiscal breakeven point ($ a barrel)
GCC Bahrain Kuwait Oman Qatar Saudi Arabia UAE
The growing fiscal black holeGCC fiscal deficit in 2016 was about 12.8% of GDP
2016-2019, Bahrain, Oman, Kuwait and Saudi Arabia average annual fiscal deficit of 10%
GCC must finance a total budget deficit of $765bn between 2015-21
Riyadh needs to raise an estimated $389bn by the end of 2021
Source: S&P; MEED
Balancing the books
Fiscal consolidation – cut spending, restructuring, job cuts, efficiency
Diversify non-oil revenues – taxation, fees, private sector
Structural reforms – privatisation, SMEs
Energy reform – subsidy cuts, diversify, IPP/IWPP
PPP – Energy, water, housing, transport
Diversifying funding – new sources, ECAs, IPO
Source: www.meed.com
Diversification has allowed economy to be resilient
Government infrastructure investments a key driver
Supported by GCC partners – Riyadh, UAE, Kuwait
Supported by proximity to Saudi Arabia
Fall in oil has squeezed government finances
Government spending being cut
Where is Bahrain today
Source: www.meed.com
Manama’s investment drive
EDB reforms facilitating investment and stimulate SME sector
40 new companies invested $281m in 2016, compared to
$142m from 22 companies in 2015
New hotels as part of tourism drive to be 5.1% of GDP by
2024 up from 4.1% by getting Saudis to stay longer and
diversify visitors
Construction sector grew of 7.2% in 2016 due to retail and
hospitality developments across the country
EDB says total value of projects that broke ground doubled in
2016 and the value of tendered projects rose by 21% to
$4.3bn
Source: www.meed.com
Source: www.meed.com
Project ClientValue
($m)
Aluminium Smelter Expansion: Phase 6 Alba 2,500
Bahrain International Airport Upgrade: Terminal Expansion BAC 1,100
Alba Power Station 5 Alba 800
Bahrain Gas Plant (BGP 3) Banagas 355
400 kV Transmission Network: Substations Package MEW 177
East Hidd Housing Project : Infrastructure Package I MoH 161
Bahrain Financial Harbour: Harbour Row GFH 150
400 kV Transmission Network: Cables Works for Phase 2B MEW 107
Alba Power Station - Power Distribution Package Alba 100
Field Pipelines and Sitra Storage Expansion Project BNGEC 99
Island 10, 11 & 12 : Infrastructure Package MoH 95
Catamaran Complex at Seef Alyal R E 84
Deerat Al Oyoun : (404 Villas) Diyar al Muharraq 80
Infrastructure & Maintenance Works MoH 80
East Hidd Housing Project : 740 Villas MoH 75
Top Bahrain projects awarded 2016
Growth to slow to 1.8% in 2017 due to austerity
Challenge is to maintain 3.9% non-oil growth
$32bn pipeline of schemes in next 5 years with
estimated $30bn on infrastructure and industrial
sector spending over the next 10 years
Funding secured from GCC Development Fund but
future growth threatened by spending cuts
Construction has weathered the storms, says CBRE
Sector grew of 7.2% in 2016 due to ongoing retail and
hospitality developments across the country
Future growth threatened amid reduced spending
Bahrain Outlook
Source: www.meed.com
• Aldur II IPP to be tendered in May
• $3.5bn development of northern cities housing
• $5bn Sitra refinery expansion
• Second causeway
• Bilaj al-Jazayer beach strip development
• 25km Bahrain light rail BOT tendered H1 2017
• WWTP/STP expansion programme
• Several major real estate master developments
• Bahrain International Airport expansion
• Hotel and retail sector
Future projects
Source: www.meed.com
Source: MEED Projects
Value of Bahrain future projects by sector ($m)
Chemical$4,000
11%
Construction$11,517m
33%
Gas$600m
2%Industrial $206m 1%
Oil$4,220m
12%
Power$4,203
12%
Transport, $9,518m
27%
Water$650m
2%
$30,690m of projects announced but not yet awarded
Outlook
2017 will be another challenging year but market improving
Higher oil prices will ease pressure on government finances
Fiscal consolidation and reform policies will shape agenda
Consolidation will hit private and non-oil sector activity
Project spending likely to be around 2016 levels but could fall below
Financing will be a primary challenge as market conditions harden
Reform and fiscal consolidation will get progressively harder
Source: www.meed.com
Outlook
Source: IMF
Real GDPgrowth (%)
Average 2009-2013
2016 2017
GCC 1.7 2.3
MENA 3.1 2.9
Bahrain 3.6 2.1 1.8
Kuwait 1.9 2.5 2.6
Oman 4.8 1.8 2.6
Qatar 10.9 2.6 3.4
Saudi Arabia 4.1 1.3 2.0
UAE 2.6 2.3 2.5
Egypt 3.2 3.8 4.0
Iran 0.8 4.5 4.1
Iraq 7.8 10.3 0.5
Weakest MENA growth since the 2009 due to
tightening fiscal policy
Saudi Arabia will continue to be slow but
momentum will pick up on Vision 2030 reforms
Kuwait growth will remain weak despite strong
balance sheet
Qatar will be sluggish as fiscal policy becomes
more restrictive and credit growth eases
Bahrain and Oman will underperform due to
austerity
Egypt will is expected to endure a painful 2017
following the effective devaluation of the pound
Inflation is expected to rise, and monetary and
fiscal policy will be tightened further.
Source: MEED Projects
2017 Outlook for GCC Contract Awards ($m)
0
10,000
20,000
30,000
40,000
50,000
60,000
Bahrain Kuwait Oman Qatar Saudi Arabia UAE
Best case Worst case
2017 best case = $151bn
2017 worst case = $112bn
Other disruptive influences
Energy reform
PPP
New finance
Climate change & COP 21
Efficiency and optimisation
Digitalisation & IoT
Cybersecurity
Defence & securit
Refugees
The Taxman cometh
VAT
GCC to introduce 5% value added tax (VAT) from the start 2018. Impact unclear until
national legislation in place but operational challenges should be expected:
• Collecting and remitting VAT will have set-up and compliance costs
• Cash flow under pressure from paying VAT on purchases before reclaiming
• Pressure to absorb cost in highly competitive, low margin sectors
• Renegotiating contracts could pose additional challenges
• Risk of errors in tax collecting and accounting could see companies liable
• Costs of staff training update or replacement of IT infrastructure
• VAT and government cutbacks could reduce disposable incomes
Companies involved in supplying goods and services between countries
or free zones likely to face additional complexities as agreements vary
Source: www.meed.com