Non-oil sector set to drive expansion of the economy in Bahrain

The Economic Development Board (EDB) today released the latest Economic Quarterly report, which forecasts significant non-oil sector growth for 2014, aided by growing demand in the private sector. While real GDP growth reached 5.3% last year, the rate of growth of the non-oil economy is expected to accelerate from 3.0% in 2013 to roughly 4.4% this year.
The robust growth in 2013 was mainly due to normalisation in the hydrocarbons sectors where maintenance in the offshore Abu Saa’fa field had affected growth in 2012. The oil sector is expected to remain mostly flat this year as production is anticipated to continue at full capacity, both offshore and from the onshore Bahrain field. Oil sector growth is expected to be around 0.1% this year and overall real GDP growth around 3.5%.
The pattern of growth in the Kingdom looks likely to shift significantly in 2014. The relative stability of the hydrocarbons sector will be contrasted with significant acceleration of growth in the non-oil sector thanks to the initiation of a number of infrastructure projects. Increased activity in the construction sector will in turn stimulate other sectors, including manufacturing, finance, and retail. Sound growth in private sector activity should also boost consumer and investor confidence and encourage bank lending.
H.E. Kamal bin Ahmed, Minister of Transportation and Acting Chief Executive of the EDB commented: "The investment in core infrastructure will not only drive growth in 2014, but also have much longer term economic and social benefits for Bahrain. Whilst growth from the oil sector will remain flat, there are also several significant projects underway. Overall the outlook is positive, both for this year and moving forward."
The initial focus of project spending will primarily be on housing, a priority area for the government. To date, an estimated USD 3.4bn worth of projects for housing, utilities, and education have been allocated over the coming three-year period. Housing is expected to account for roughly half of the total expenditure, with plans for over 5,000 housing units expected to be completed within the same time period. These housing units are part of an ongoing plan by the Ministry of Housing to build over 15,000 housing units between 2014 and 2017, with a target of 40,000 housing units over the next ten years. The other main priority area is energy supply, as power demand in the Kingdom has almost doubled over recent years, from 1,540 MW in 2003 to 2,967 MW in 2012. Current capacity stands at 4,000 MW and it is expected that two 400-kW transmission stations will be tendered soon.
Efforts are also underway to further improve Bahrain’s connectivity with the rest of the region. The project of modernizing and expanding the Bahrain International Airport, which should increase the airport’s capacity from 9mn to 13.5mn passengers, is expected to start towards the end of this year. The King Fahad Causeway Authority (KFCA) is reportedly planning to complete the Saudi-Bahrain rail study by September 2014. The project, which is expected to be completed within 7 to 10 years, is part of a larger GCC rail network anticipated to cost over fifteen billion dollars.
Several visits took place during the first half of 2014 to strengthen ties between Bahrain and significant economies where there is considerable potential for expanded commercial and investment relations, including Russia, Kazakhstan, Tajikistan, Pakistan, and India. The EDB has also organised a series of delegation visits from China and other target markets, in order to familiarize foreign investors with the Kingdom, and highlight the potential investment opportunities available to companies looking to expand into the fast-growing GCC market, which is currently worth over $1.5 trillion, and expected to reach $2 trillion by 2020.