24/11/2014 14:59 AST
Infrastructure projects worth an estimated $22 billion, which are expected to be rolled out in Bahrain before 2020, will boost the kingdom’s industrial sector via improved transport links and massive facilities, a report said.
However, falling oil revenue may impact funding availability for some capital works, potentially cooling long-term prospects in the sector, added the latest Economic News Update release by Oxford Business Group, a global publishing, research and consultancy firm.
Many of these projects, such as the $2.5 billion expansion of production capacity at Aluminium Bahrain (Alba) with the opening of a sixth production line and upgrades to the processing facilities of the Bahrain Petroleum Company (Bapco), are linked to the industrial expansion programme, the report said.
But long-term investment plans may be dampened by falling oil prices. A November report issued by ratings agency, Standard & Poor’s (S&P), said any prolonged decline in oil prices will likely slow the economies of the GCC members, in particular hurting infrastructure projects.
“The lower oil price could slow economic growth for the GCC and weaken the operating environment for the corporate and infrastructure sector,” said S&P.
Plans to build a second causeway linking the Kingdom with Saudi Arabia have been welcomed by the industrial and manufacturing sector. Bahrain’s strategic location in the Arabian Gulf is an important advantage for the industrial sector; goods can be moved both within and exported from the Kingdom rapidly, OBG said in its Economic News Update.
In addition, the harbour area and industrial zones are all within 35 km of Saudi Arabia via the existing King Fahd Causeway.
However, congestion and delays have been a recurrent problem for cross-border trade, increasing the need for the proposed $5 billion project, which include a main line rail link and a second road connection.
According to a GCC Investment Outlook 2014 report, the strengthened logistics connections will bolster regional economic integration.
“Projects, such as the regional high-speed rail link and a new causeway between Bahrain and Saudi Arabia announced in September, are expected to enhance the flow of goods and labour,” the report said.
Currently, manufacturing contributes 16.7 per cent to GDP in Bahrain with this figure set to rise to 20 per cent within a decade, according to the Bahrain Economic Development Board (EDB).
After a slow start to the year, the sector posted an expansion of 4.4 per cent year-on-year in the second quarter, up from 0.8 per cent in the first quarter, according to EDB data.
Signs of growth are also emerging from real estate and an increase in demand for warehouse space in most of the main industrial estates, the OBG report quoted real estate consultancy Cluttons as saying in its recent outlook report for Bahrain
There will be a slow but gradual rise in rental rates for industrial property fuelled by growing demand, according to the head of Cluttons Bahrain, Harry Goodson-Wickes. “With the Kingdom set to receive $10 billion over the next 10 years through infrastructure projects and the GCC development fund, the industrial sector is expected to expand as infrastructure projects get fast-tracked,” he said.
Government and regulatory support is also boosting the sector. Investment Gateway - Bahrain, a development between the Sheikh Khalifa Bin Salman Port and the airport, will gain from government investment in the King Fahd Causeway for example, said the OBG report.
“The government has been progressive by creating a special investment area that allows for freehold ownership for foreigners,” Hasan Al Bastaki, managing director of real estate development company, Manara Developments, told OBG.
“Allowing investors to own industrial land, something hard to find anywhere in the GCC, will jump-start the revival of Bahraini industry.”
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