Real growth in Bahrain’s construction industry is on track to average 3.6 per cent up to 2018, buoyed by government investment in infrastructure and social housing, a report said.

This is an improved outlook on a year ago, according to the research firm BMI, a part of Fitch Group, reported the Gulf Daily News, our sister publication.

The Bahrain government has planned infrastructure projects worth $4.4 billion in the coming years, financed out of a $10-billion 10-year fund pledged by the GCC for the country in 2011.

Housing construction has been allocated $2.2 billion from 2015-17, while the remaining half will be channelled towards water and power sectors.

In light of subdued private sector activity, investment will remain primarily government-driven and is likely to focus predominantly around a number of large-scale industrial projects, including the $4.8-billion expansion and modernisation of state-run Bapco refinery; a new $2.2-billion production line at Alba; a $1.2-billion expansion by Gulf Petrochemical Industries Company; and plans to expand Bahrain International Airport.

Technical studies are also now under way for the $5-billion second causeway between Saudi Arabia and Bahrain.

While the slump in oil prices presents a challenge to Bahrain’s growth outlook, with the government under pressure to cut spending over the coming years, BMI analysts expect development funds from the GCC to support construction activity, while strong consumption in Saudi Arabia will feed into Bahrain’s tourism sector.

The firm forecasts Bahrain’s real economic growth to be 3.4 per cent this year and 3.3 per cent next year.

Consumer price inflation in Bahrain is seen remaining stable and primarily driven by the country’s tight housing market over the course of the year.

“We expect interest rates to stay unchanged until the second half, when the CBB (Central Bank of Bahrain) will be forced to impose a 50 basis points increase to keep up with the US Federal Reserve,” BMI analysts say.

According to the report, Bahrain demonstrates few risks with regards to its utilities provision and costs, boasting the third-best availability of electricity, fuel, telecommunications and water in the world.

Similarly, it boasts one of the lightest regulatory systems globally with regards to labour costs and taxation. These factors dramatically reduce overheads and costs for businesses.

Bahrain’s trade outlook is largely positive, despite the recent slump in oil prices.

This is due to large wealth reserves to offset short-term losses, as well as increased economic diversification away from the oil sector in recent years.

On top of this, strong financial development and an extremely favourable taxation policy has done much to turn the kingdom into a financial and economic powerhouse of the Gulf. As a small wealthy state, Bahrain suffers from few logistical risks.

“The country is highly connected by an extensive road network, and the large coastline of the small island means that its shipping capabilities are high,” says the report.

“Bahrain boasts low fuel and electricity costs due to subsidisation, while also offering comprehensive telecommunications coverage and diversity across the island.

Although the population size of 1.4 million limits the kingdom’s labour pool sizes, this risk is tempered by high life expectancy and strong urbanisation, says BMI. – TradeArabia News Service