Bahraini.TV

Bahrain: Strength in Diversity

by mahmood on 07/01/10 at 4:40 pm

Bahrain appears to have finished 2009 in better shape than many could have foreseen at the beginning of the year, and will be looking to 2010 with a confidence garnered from the solid performance of the country’s economy under pressure. There had been fears that Bahrain would be hard hit by the global crisis, especially as one of the key components of its economy is the financial sector, but as 2009 drew to a close it became apparent that the country is far more resilient than some had thought.

Year-end predictions are for a contraction of GDP of less than 1%, with some projections putting the decline at just 0.1%, prompting analysts to expect moderate growth to kick in for 2010. With the global economy having slumped into recession in 2009, Bahrain’s performance is a positive achievement, testimony to the long-term policy of diversifying and broadening the base of the economy.

That policy has seen a strong push towards establishing Bahrain as the region’s premier banking centre, with more than 400 conventional and Islamic financial service providers operating out of the Kingdom in 2009. While almost all of these institutions have been affected by the crises, the broad spread of investments and the highly regulated nature of the financial system in Bahrain have mitigated the impact.

Most recently, concerns over the debt levels of Dubai World prompted Rasheed Al Maraj, the governor of the Central Bank of Bahrain (CBB), to issue a statement that, while all the banks on the island had some exposure to the Dubai-based corporation, this added up to less than 0.1% of their combined assets.

Of slightly more concern was the exposure to Saad Group and Ahmad Hamad Algosaibi & Bros (AHAB) of Saudi Arabia, both of which defaulted on loans mid-year. In July the CBB was forced to take control of two local lenders linked to the Saudi-based companies, The International Banking Corporation (TIBC) and the Awal Bank, after they announced they were having difficulties in meeting obligations. Many local banks reported lower-than-expected earnings in the third quarter, but analysts expected most to bounce back in the last months of the year and to move forward in 2010.

Though there has been some slowdown in the real estate and construction sectors, the latter in particular will be encouraged by news in late November that the parliament had approved a supplementary budget proposal by the government, allowing the state to provide additional funding for existing projects, in particular infrastructure work. Not only did the parliament vote to approve the $880m requested, but it allocated an extra $66m and lifted the government’s loan ceiling, allowing it to borrow another $2.6bn if required.

In the same month, officials confirmed that work would begin early in the new year on an infrastructure project that would change the face of Bahrain’s economy, the long anticipated 40-km causeway linking the Kingdom with Qatar. While Bahrain already has one connection with the mainland, a causeway running to Saudi Arabia, the $2.7bn link with Qatar will not only have a four-lane roadway but also a double rail line, an addition to the plan that delayed the start date for construction from 2009. The broad-gauge line will serve as the final piece in the network to establish Bahrain as a logistics hub in the region, allowing fast movement of cargo to and from its deepwater ports.

These maritime facilities include the new Khalifa bin Salman Port, officially opened in December having commenced operations in April. The port, built at a cost of $362m, has the capacity to handle 1.1m containers a year, and also has a terminal to cater to passenger ships, helping to serve Bahrain’s growing tourism trade.

There is also potential growth coming from a traditional though unexpected sector of the economy. Hydrocarbons still play a leading role in the economy, despite dwindling reserves, contributing some 25% to GDP, in large part through refining and processing activities, with much of the raw feedstock having to be imported.

In late May, Abdulhussain Mirza, Bahrain’s oil and gas affairs minister and chairman of the National Oil and Gas Authority, announced a $20bn plan to bolster the energy sector, including a $5bn upgrade of the main refinery. Under the programme, set to run for 20 years, additional fields will be developed, existing fields modernised and advanced extraction technology used to increase output from the current 35,000 barrels per day (bpd) to some 100,000 bpd within seven years. This would be 50% higher than Bahrain’s previous production peak, achieved in the early 1970s, and could see the country reposition itself as an oil exporter.

Having ridden out the worst of the global financial crisis and seen its economic mainstays – the financial sector and the hydrocarbons industry – remain solid throughout the downturn, Bahrain will enter 2010 with confidence.