Consolidating recovery: A unique heritage and growing MICE segment boost diversification

In many ways, Bahrain has traditionally been something of a trailblazer in the region. It was the first country in the Gulf to discover oil, and, given the relatively small size of its reserves, was the first to establish a tourism industry as a means to diversify its economy. In the 1970s and 1980s, Bahrain positioned itself as the conference, shopping and leisure destination for the whole of the Gulf. Although other such centres have now emerged in the region, as other countries seek to emulate Bahrain’s initial success, tourism nevertheless continues to be significant for the economy of the island, both in terms of absolute numbers and its contribution to GDP.

While the tourism sector was hard hit by the unrest of 2011, which caused many would-be visitors to stay away and prompted the cancellation of a number of tourist events – most notably that year’s Grand Prix Formula One race – tourist numbers in 2012 appear to have stabilised somewhat, and 2013 looks set to see a modest recovery.

NUMBERS: According to the most recent figures from the World Travel and Tourism Council (WTTC) for 2012, tourism contributed BD538.3m ($1.42bn), or some 5%, of GDP in 2012. Taking indirect effects into account, tourism was worth around BD1.35bn ($3.55bn), or 12.5% of GDP, as of 2012. The value of the sector was forecast to grow 6.9% during 2013 to reach BD572m ($1.51bn). The tourist trade employed some 32,000 people directly, or 5.2% of total employment, while its indirect contribution was estimated at 12.5% of total employment, or 77,000 jobs, as per WTTC figures. Moreover, WTTC projections forecast that the direct contribution of tourism to GDP will rise by 4.4% per annum to BD875.8m ($2.3bn) by 2023, while its total contribution is set to go from BD1.35bn ($3.55bn) to BD1.44bn ($3.8bn) over the same period.

Although a precise breakdown of visitor numbers was not available at the time of writing, figures from the Central Informatics Organisation, Bahrain’s statistics bureau, show that in 2011 the country handled around 1.5m visitor nights, of which just under a third were in five-star hotels. A precise breakdown of tourist arrivals by nationality was not available at the time of writing, although traditionally Saudis and nationals of other Gulf countries have been the single biggest group. According to a recent report by Alpen Capital, a regional investment bank, the value of the tourism market in the GCC is set to grow from $19.2bn in 2011 to $28.3bn in 2016, a compound annual growth rate of 8.1%.

REGULATORY ENVIRONMENT: The Bahrain Tourism Directorate (BTD), which comes under the Ministry of Culture (MoC), is responsible for promoting the country as a tourist destination, licensing and inspecting hotels and other tourism-oriented businesses (such as tour guides), and drawing up the sector strategy. The Economic Development Board, which is in charge of implementing Vision 2030, the country’s comprehensive development strategy, focuses on raising Bahrain’s profile internationally, but as a business centre rather than a tourist destination.

Vision 2030 envisages a significant role for the tourism industry in Bahrain’s economic development, both as a provider of jobs as well as a contributor to the creation of an open environment that helps to attract investment and skilled personnel.

In the wake of the events of 2011, the country imposed stricter entry restrictions on certain nationalities, suspending flights to Iran, Iraq and Lebanon, and requiring advance visas from citizens of countries whose governments mandated the same for Bahraini nationals. As a result, tourist numbers from these countries were low. This policy stands in contrast to previous arrangements whereby citizens of most developed countries were able to obtain a visa on arrival at the airport. As of January 2013, citizens of the US, most European countries as well as nationals from Japan and Hong Kong, were still able to obtain tourist visas at the airport. GCC nationals, a key segment of the market, continue to be able to enter the country by producing their identity card.

SEGMENTS & SEASONS: In general, high season for tourism in Bahrain corresponds to the cooler time of year, roughly October to mid-December, and mid-January to April, when the weather is at its most pleasant. However, there are a number of peaks and troughs throughout the year, with many visitors coming for the Grand Prix Formula One race in April, and GCC nationals often travelling for the Islamic holidays of Eid Al Adha, Eid Al Fitr and Ashura, which tend to be largely family-oriented.

Given that Bahrain is linked to Saudi Arabia by the 25-km King Fahd Causeway, the kingdom tends to attract a lot of weekend visitors from the Dhahran-Khobar-Dammam area in Saudi Arabia’s Eastern Province, which is home to that country’s oil industry and has a population of around 4m people, many of whom come to Bahrain at the weekend. This weekend trade tends to be quite regular throughout the year, and encompasses both expatriates working in the oil industry and Saudi nationals. Family tourism is also a significant contributor to the sector.

Tourists are well received as a result of the island’s historical role as a trading centre in the region. Though the kingdom is now seeking to further draw upon its cultural and historical heritage.

HOTELS: According to the latest figures from the CIO, as of the end of 2012 there were some 102 hotels in Bahrain, with a total of 9578 rooms. Of these, 11 were five-star establishments and 39 were four-star properties, with capacity of 2345 and 4668 rooms respectively. Long established five-star hotels on the island include the Sheraton, Ritz-Carlton and the Gulf Hotel. In recent years, the number of hotels has been rising, as projects conceived at the height of the mid-2000s economic boom reach completion and open to the public.

Hotels under construction at the time of publication include the 166-room Ramee Grand due to open in August 2013, a 271-room Four Seasons hotel set for 2014, as well as a 407-room Rotana and a 376-room Marriott hotel, both estimated to open in 2015.

To date, there has been a lack of hotels in the three-star category or under – those of a respectable standard but with less frills and offering lower rates. This is starting to change, however, with the opening of a 274-bed Holiday Inn Express in Manama’s central Exhibition Road district in August 2012, and a 304-bed Ibis hotel due to open in 2014.

Serviced apartments are a popular option among family-oriented Gulf tourists with a concern for privacy, and as of 2011, Bahrain counted 286,000 rooms available in complexes of such apartments and registered an occupancy rate of 37.5%, according to provisional CIO figures. Industry officials told OBG that current occupancy rates tend to vary between the high 30s and the low 40s, depending on the time of year and the nature of the establishment. This holds true for both the hotels and the apartment segment. There is no real youth hostel or bed and breakfast sector in Bahrain, and while lower grade hotels can be found in many parts of Manama, the BTD is gradually cracking down on such places in an effort to improve standards. Rates across all types of tourist accommodation are roughly in line with the regional average.

FORMULA ONE: Of all the initiatives that have changed the face of Bahrain over the past decade, perhaps the most significant has been Bahrain International Circuit (BIC), the country’s motorsports arena, which opened in 2004 and hosts the Grand Prix Formula One race each year, usually early in the Formula One season, around April.

Bahrain was in fact the first country in the Middle East to host a Formula One race. The total direct economic impact of the Grand Prix since its inception stands at around $1.3bn. The racetrack at the BIC stretches some 5 km, and the BIC also features an obstacle track and a drag racing strip that received National Hot Rod Association approval in 2011.

Separate from the Grand Prix, the BIC, which is owned by Mumtalakat, the investment arm for the kingdom’s strategic assets outside of the oil and gas sector, runs a full series of events that span the entire year. Typical activities at the track include karting (it hosted the World Karting Championships in November 2012, for example), drag racing, motorbike racing as well as a variety of corporate entertainment events, conferences and even weddings. Tourists can visit the circuit, and even try their hand at racing around the track.

Sheikh Salman bin Isa Al Khalifa, CEO of BIC, told OBG, “Since its inception in 2004, the Grand Prix has helped open doors to a whole new world of opportunities in each of the kingdom’s sectors and industries, providing a major boost that has further aided the country's overall development.”

The BIC forms a cornerstone of the island’s branding and economic development. Indeed, it has arguably helped put Bahrain, a small island country, on the map, with the exposure gained through the race incalculable in terms of an increased profile and brand awareness.

Another notable sporting event in the country – albeit one that garners less exposure at the international level – is the Gulf Cup of Nations, which Bahrain hosted in January 2013. This is a football tournament between the GCC countries, Yemen and Iraq that is held on a biennial basis. The day of the cup final saw Bahrain International Airport record its highest ever passenger numbers for a single day – around 20,000 people.

MICE: In contrast to seasonal events, the meetings, incentives, conferences and exhibitions (MICE) sector provides a far more steady revenue stream for the Bahraini economy. According to WTTC figures, the MICE segment accounts for around 15% of the industry worldwide, while in Bahrain, expenditure on business travel (as opposed to the leisure segment) was BD118m ($310.5m) in 2012, some 12% of total expenditure. This figure is expected to reach BD128.3m ($337.6m) in 2013 representing a rise of 8.7%. This total is forecast to move up 3.7% per annum to BD184.6m ($485.75m) by 2023.

The single-biggest MICE venue in the country is the Bahrain Exhibition and Conference Authority’s (BECA) complex at Sanabis, in the north of the island just off the main highway to Saudi Arabia and nearby to a number of hotels and shopping centres in the vicinity. BECA, which opened in 1991 under the auspices of the Ministry of Industry and Commerce (MoIC), offers approximately 16,000 sq metres of column-free exhibition space and meeting rooms, including two exhibition halls with a combined area of some 14,000 sq metres, a 1400-sq-metre convention centre divided into four rooms and a number of private meeting rooms.

Among the largest events held regularly at BECA are: the Jewellery Arabia fair, which takes place every October and attracts around 45,000 visitors from across the Gulf, as well as the Indian subcontinent and the Levant; the Middle East Oil and Gas Show, which showcases a variety of products and services aimed at the energy industry; and the Autumn Fair, a nine-day shopping festival which regularly brings in around 200,000 people. The centre at present employs 75 full-time staff.

BECA has recovered from the dip in activity in 2011, seeing a 19% rise in space rented, from 1.6 sq metres in 2011 to 1.9 sq metres in 2012, whereas the number of exhibitors rose from 1868 in 2011 to 2500 in 2012. Also, over the first half of 2012 the number of countries represented at BECA was 52, compared to 27 in the same period in 2011.

Other large MICE centres in Bahrain include the BIC and a number of the higher-end hotels, including the Sheraton and Ritz-Carlton, both of which feature meeting rooms and ballrooms, and the Gulf Convention Centre, attached to the Gulf Hotel, which features 4780 sq metres of space and 29 halls and meeting rooms. Unlike these, BECA is focused primarily on commercial events, rather than catering to both the commercial and leisure segments.

Since 2011, the number of international MICE events and attendees have been below the levels seen a few years ago, but the country continues to attract regional MICE customers, many of whom find the lower prices for space and, to an extent, hotel rooms attractive. The relative ease of getting visas has traditionally also been a draw for companies based in Saudi Arabia, where visa regulations are much more onerous, and many of which consequently prefer to hold events in Bahrain where international attendees can arrive without too much prior notice and paperwork.

EXPO CITY: Despite the disruption of 2011, the overall trend is towards growth in the MICE industry in the region. As such, the authorities in Bahrain are keen to ensure that a large proportion of this business continues to come to the island. While BECA is just over 20 years old, the facilities on offer in many other Gulf cities are much newer and more modern, thanks to the high economic and population growth witnessed across the region over the past decade.

The current BECA site is hemmed in by other developments and offers little room for expansion. Therefore, the MoIC plans to open a new exhibition and conference centre, currently branded as expo@bahrain, or simply as Expo City, to be built at Sakhir on the west coast of the island, near the BIC. The new Expo City will increase the space available by almost a factor of 10, with 145,000 sq metres and greater inbuilt flexibility, giving the capacity to handle over 5000 delegates and up to 30,000 visitors a day passing through its doors.

Additionally, there are plans to construct a number of luxury international hotels and high-end restaurants at the site, creating a self-contained complex that will be able to accommodate the entertainment needs of attendees after meeting hours.

Although the project was originally due to open in 2013, at the time of writing the MoIC was in discussions about how to secure private sector financing for the development.

CHALLENGES: In the near term, however, a greater challenge for the Bahraini tourism industry – both the MICE and leisure segments – is the continuing difficulties faced by Gulf Air, the national carrier.

Originally formed by a consortium of Gulf states, with its headquarters in Bahrain, the airline played a major part in the development of Bahrain’s tourism industry in the 1970s. To a degree, this made Bahrain a victim of its own success in that Gulf Air’s major shareholders gradually withdrew their stakes to establish domestic carriers of their own, with a view to emulating the kingdom’s strategy of using its airline to bring in tourists. This ultimately left Gulf Air with the expense of maintaining a network designed for a bigger catchment area while also facing significant new competition.

Since the late 2000s, losses have forced the airline to undertake an extensive restructuring programme, with the number of routes cut from 120 to 40, mostly short-distance flights within the Middle East and North Africa region. There is concern that decreasing air connectivity will lead to a reduction in tourist traffic coming to the country, as business and leisure travellers opt for places that are easier to reach. However, the Bahrain Airport Company is actively courting other airlines in order to provide more connection options. This appears to be paying dividends; in 2012, Bahrain International Airport offered connections to over 50 destinations.

Another notable issue for the industry is that it tends to attract a significant amount of weekend traffic, but not so many long-stay travellers, particularly leisure travellers. While weekenders are certainly welcome (and currently provide a much-needed steady revenue stream), such trade is less lucrative than longer-stay visitors who arrive and spend a week or two on the island.

Many tourism officials OBG spoke to said that part of the reason for short-term stays is because the kingdom does not have the broad range of tourist attractions found in some other Gulf destinations, most notably Dubai and, to a lesser degree, Abu Dhabi.

However, Bahrain does nevertheless attract a large portion of family visitors, many of whom enjoy the less congested and slower pace of life on the island, and it may be that by targeting this niche the kingdom can differentiate its tourist offering.

HERITAGE: One area where the kingdom is not lacking is in historical interest; archaeological remains indicate that civilisation on the island dates back approximately 6000 years. Indeed, Bahrain, under the name of Dilmun, is mentioned in the Epic of Manama, continues to provide a lively trade in items such as gold, spices and fabrics, and is currently undergoing a restoration programme, due for completion by the middle of 2013, to make the area more attractive for both tourists and shoppers alike.

Bahrain is home to two forts built by the Portuguese, Arad Fort and Bahrain Fort, the latter a UNESCO World Heritage Site. In the vicinity of Saar are the Dilmun burial mounds, a necropolis area that dates back an estimated 6000 years. Manama features two museums, the Bahrain National Museum, and the Beit Al Quran, which showcases a selection of Qurans and the art of Islamic calligraphy.

In terms of contemporary culture, Manama is home to the only walkable cultural quarter in any Gulf capital, the pedestrianised Adliya district, which brings together a number of art galleries, restaurants and nightspots. Indeed, the local arts scene in Bahrain continues to develop; galleries and arts spaces that have sprung up over the past few years include Al Riwaq, Al Bareh and the La Fontaine Centre for Contemporary Art. The Spring of Culture is a series of concerts, poetry recitals, theatre and other cultural offerings that takes place every March, and aims to attract both Bahrain residents as well as international visitors to the island. The line-up for 2013 included Charles Aznavour, classical quartet Il Divo and the Iraqi singer Kadhim Al Saher.

Manama was selected as the Arab Capital of Culture for 2012 under a UNESCO programme. Additionally, the city has been designated the Capital of Arab Tourism 2013 and plans to hold several events to mark this festival that are designed to attract tourists from across the Gulf and wider region.

CRUISE SHIPS: One area where this focus on culture and heritage has been paying off is the cruise ship segment (see analysis). Bahrain received a record number of cruise ship arrivals in the 2011-12 season, some 40,000 people, and expects to welcome 70,000 cruise tourists during the 2012-13 season. Part of the attraction for stopping at the kingdom is the wide selection of easily accessible cultural and historical sites available, which makes for a contrast to some other cruise stopping points in the Gulf.

OUTLOOK: Bahrain’s tourism sector remained flat during the course of 2012, but looks set to see a modest upturn in 2013, particularly as the economic recovery brings in more business travellers and the country continues to host big-name sporting events.

A rising hotel capacity over the next few years looks likely to increase competition, and thereby raise standards, as wells as offer a broader range of accommodation across more price bands. This, in turn, should help Bahrain to retain its edge as regional competition intensifies, particularly for the MICE segment. Although over the short term the industry is likely to focus on weekend traffic and one-off events, the kingdom appears to be slowly adopting a strategy of targeting more specific niches, in order to differentiate its brand from other destinations in the Gulf and to develop more long-stay business.