Development plans promote infrastructure and home building in Bahrain's construction sector

Government moves to enact an ambitious infrastructure investment plan backed by financial assistance from the GCC’s $10bn Gulf Development Programme should support steady expansion of construction activity in Bahrain over the next few years, following a period of slower growth. The push to provide affordable housing has seen a host of new projects launched and is expected to drive the sector over the medium term, with the government concurrently launching major infrastructure projects that will underpin growth and support new housing units across the kingdom.

At the same time, private contractors have benefitted from transport construction and expansion projects, with rail and road links set to aid development under the auspices of the Economic Vision 2030 plan. In October 2014, Kamal bin Ahmed, the minister of transport and acting CEO of the Bahrain Economic Development Board (EDB), announced that the government has plans to invest a total of $22bn in infrastructure over the next four years. Although material costs have traditionally been higher in Bahrain than elsewhere in the GCC, increased cement production in Saudi Arabia has helped to mitigate this to a degree, allowing private sector contractors to boost profit margins and opening the sector to further development.

The Public Sector

Much of the kingdom’s construction activity is being driven by public sector spending. The three main government actors in this regard are the Ministry of Housing (MoH), which is tasked with providing housing for all eligible Bahraini citizens; the Ministry of Works, Municipalities and Urban Planning (MoW), which oversees infrastructure upgrades in the roads, power, sewage and water treatment segments; and the Ministry of Transportation (MoT), which oversees rail and airport projects. The MoT’s Ports and Maritime Affairs Directorate regulates the ports and maritime industry. The Materials Engineering Directorate of the MoW is the primary government body responsible for monitoring sand, iron, steel and cement usage.

Private Sector Players

Major local private sector players include Nass Contracting, Al Wardi Construction & Engineering, Bahrain Motors Company, Cebarco Bahrain, Kazerooni Contracting, Mohamed Jalal & Sons, Kooheji Contractors and United Arab Construction Company. The Social Insurance Organisation reported that construction comprised 20.2% of employment in 2011, employing a total of 130,793 people, over 90% of whom were expatriate labourers.

The sector was hit hard by the global financial crisis of 2008-09, with the EDB reporting that the number of new construction permits fell by some 37% between 2008 and 2011, while permits for renovations and additions declined 17%, and reclamation permits shrank from 36 in 2008 to four in 2011.

Research firm Timetric reported low growth in the years following the crisis, with the industry increasing in value by a compound annual growth rate of 1.68% between 2009 and 2013, while the EDB said that following 2.7% growth in 2010, the industry contracted by 7.9% in 2011, expanded by 4.1% in 2012 and then rose by 2.7% in 2013. According to the Central Informatics Organisation, construction comprised 6.3% of total GDP in the third quarter of 2013, up from 4% in 2000, although a slight dip from 7% in 2012. However, with the overheated boom years of 2003 to 2008 now well behind it, the kingdom has seen a gradual return to stable growth, with the cost of building remaining low following previous industry contraction.

“One advantage is that right now we are enjoying 10-year-old build costs, so I am building at the same price today as I would have in 2004 and 2005,” Tony Connor, managing director of Pentacon Management, told OBG. The sector has also received a significant boost via the government’s spending plan for the first instalment of the Gulf Development Programme fund, a $10bn facility allocated by several GCC states to finance projects in Bahrain. Under the plan, the kingdom will invest in new construction, including housing projects and infrastructure works, with the government announcing in January 2014 that it has already spent $4.4bn of the fund on development projects.

Industry growth will also be driven by the Vision 2030 economic development plan, which seeks to expand and diversify the economy, achieving stable development under the EDB’s national economic strategy, and involving extensive infrastructure upgrades. Bahrain’s construction industry has long been characterised by relative openness and ease of access, with the kingdom remaining in fourth place out of 185 countries on the World Bank’s 2014 “Ease of Doing Business” survey’s “dealing with construction permits” category. The survey found that private contractors seeking construction permits in Bahrain face 11 procedures taking an average of 60 days to complete compared to the OECD average of 11.9 procedures and 149.5 days.

“The kingdom has well-organised, clear and transparent business procedures, a strong legal system, and a sound and well-capitalised banking sector that supports the overall economy. These factors have helped the government to stabilise the economic recession and fuel the recovery,” Stefanos G Zachariades, managing director of construction company G.P. Zachariades Group, told OBG. “Over the last six months we have seen a noticeable increase in the number of government and private projects being tendered and we expect this trend to continue.” The group is working on one such recently awarded tender, the contract for the new Oncology Centre at the King Hamad University Hospital. Work on the 26,000-sq-metre facility, which will follow UK NHS standards and design guidance, has started in late 2014 with a completion period of 30 months. Timetric anticipates the coming years will see a return to stable growth, projecting the industry will expand by 8.59% annually until 2018, driven largely by new government spending on social housing and infrastructure, with the industry expected to reach a total value of BD3.4bn ($8.8bn) in 2018.

Residential

Provision of affordable housing is one of the government’s top priorities, and several major housing projects have moved forward in recent years. In its 2013/14 draft budget, the government proposed allocating 10.6% of total capital expenditure, or BD114.8m ($304.22m), towards social projects, including housing, health care and educational projects. House building receives BD580m ($1.54bn) in the budget, with a programme to construct 16,000 new houses.

Public housing makes up a significant proportion of the development pipeline, with 8717 social housing units currently under construction (see analysis). The EDB reported that roughly 49% of the spending envisaged under the umbrella of the Gulf Development Programme is due to be allocated to the construction of 2548 housing units in 2013, 1443 in 2016 and 5241 in 2017.

The government has also moved to expand new housing projects into under-served outlying governorates. The Bar Al Dur and Al Jazayer developments in the Southern Governorate, for example, will add 3910 social housing units, while the Northern Governorate currently has 966 units in the pipeline. Ambitious state spending on residential development is expected to drive overall industry growth well into the future, and a number of private contractors have already benefitted from public spending that aims to reduce the kingdom’s growing housing backlog (see analysis).

Labour Accommodation

Labour accommodation has also faced shortfalls. There are some 3000 registered labour camps in the country, housing around 140,000 workers. Provision of low-cost housing for this segment remains a challenge, although companies’ cost-cutting measures continue to have a negative impact on occupancy and expansion. In recent years, labour housing has shifted from residential properties in central Manama towards purpose-built labour camps. Notable among these is a $75m labour town located in Bahrain Investment Wharf (BIW) and operated by Circo Properties and Facilities Management. Phase one of the project comprised 12 buildings with a capacity for 7000 labourers and aimed to ease existing constraints on the labour accommodation market. However, in April 2014, Circo announced that work on the project’s second phase had stopped due to low occupancy, which stood between 50% and 60%. Circo’s BIW labour town costs between BD27 ($71.55) and BD30 ($79.50) per head, compared to average accommodation rates for labourers of BD15 to BD20 ($39.75-53).

Infrastructure

In its March 2014 quarterly update, the EDB announced $4.43bn in planned infrastructure developments within the kingdom, including a number of major water, power and sewage projects. These three sub-segments have benefitted from high government spending; out of the MoW’s estimated $131.9m of construction and sewage project spend in 2013, a project improving efficiency of the dual biological treatment process in the Tubli Waste Water Treatment Plant took the largest chunk of funding, with $23.2m allocated. The Tubli upgrade’s fourth phase, worth an estimated $130m, is expected to wrap up in 2017, with P2M Middle East appointed as consultants. Other recent sewage and water projects include the $150m Muharraq Sewage Treatment Plant and the $100m North Town Treated Effluent Network and Sewage Treatment Plant project, scheduled for completion in 2015.

Power upgrades also rank high on the infrastructure priority list, and in January 2014 the government announced plans to spend BD835.5m ($2.2bn) to enhance power facilities. The Electricity and Water Authority (EWA) had already unveiled plans in 2013 to build three new power plants in Hidd, Umm Al Hassam and Riffa at a total estimated cost of BD280m ($742.5m).

In 2013 the kingdom also announced plans to add 5 MW of power via renewable energy projects, including the proposed $500m waste-to-energy plant, with France’s Constructions Industrielles de la Méditerranée acting as consultant and contractor for the project. In the September 2014 quarterly update, the EDB expanded on its previous quarter’s announcement and specified projects set to begin. Aluminium Bahrain was approved for an estimated $2.5bn project to build a sixth production line that is expected to be operational by 2018. Construction on the first phase of the BD18m ($47.7m) East Hidd housing project was also announced in the same report, among other developments.

Transport

Transport networks are also set for a significant overhaul in the coming years. Perhaps the most significant of these is the expansion and modernisation of Bahrain International Airport (BIA). Following approval in October 2013 Aéroports de Paris Ingérierie (ADPI) was awarded a BD13m ($34.45m) contract to design and supervise construction of a new passenger terminal, which is expected to increase capacity from 9m passengers to about 13.5m passengers annually. Construction of the 150,000-sq-metre terminal is expected to begin in 2015 and is scheduled to be completed in 2018. In addition, ADPI will devise a plan for the development of the airport over the next 20 years, with the project estimated to cost $980m. In January 2014 the MoT announced it had awarded Hill International an $18m management contract to oversee its ongoing airport modernisation programme. The work taking place at BIA is designed to ensure its relevance until a new airport can be built on reclaimed land to the north of the present facility.

Roads

Bahrain’s road network is of critical economic importance. The King Fahd Causeway, which links the kingdom to Saudi Arabia, brings millions of visitors to Bahrain and handled 19.7m travellers in 2013. However, commuters frequently complain of severe congestion and waiting times at the border, particularly for trucks transporting bulk goods, can be long, with delays having a negative impact on material delivery within the construction industry as well. “Most materials coming in to Bahrain are travelling by road, so any issues having to do with transport networks or Customs clearing have a direct impact on what’s happening in the construction industry, and vice-versa,” Harry Goodson-Wickes, head of Bahrain for Cluttons, told OBG. “Issues with the causeway and the lack of a system to process things in a timely manner are ongoing. Some days you will get a truck across in a few days, other times it is a few weeks, so it is always a challenge,” he added.

In April 2014 Saudi Arabia’s King Fahd Causeway Authority announced it will soon start work on a $533.23m expansion, a five-year project that will include reclamation works to build two islands on either side of the bridge that will act as holding facilities for processing travellers. The upgrades are expected to enable the causeway to handle 100m passengers annually.

Recent road tenders will also see Bahrain’s domestic highway network improve. In mid-2014 the MoW announced it had awarded a BD2.99m ($7.92m) tender for the first phase of the Muharraq Ring Road project, which is being carried out by Sayyed Kadhim Sayyed Mohsin Al Dirazi and Eastern Trading and Contracting Establishment. The 40-week project will include expansion of the dry dock highway from the Galali interchange to Diyyar Muharraq, in addition to expansion of surrounding roads, excavation, lighting and signage.

Perhaps one of the largest planned road projects in the kingdom involves construction of an additional causeway linking Bahrain to Qatar. The Qatar-Bahrain Causeway was first approved in 2005, but has faced a string of delays and work remains stalled. Frequent design changes are said to be a contributing factor in this, including amendments to incorporate two new railway tracks next to the bridge. The project has reportedly been redesigned 12 times since planning began, and in November 2013 the Bahrain-Qatar Causeway Authority announced it would once again seek a consultancy company to redesign the project. The causeway is now anticipated to be completed shortly before the 2022 FIFA World Cup in Qatar. RAIL: In addition to road and airport upgrades, Bahrain’s long-term transport construction plans include a national railway, which will be part of the 2200-km GCC railway, a BD9.5bn ($25.2bn) project linking Kuwait City, Dammam in Saudi Arabia, Manama in Bahrain, Doha in Qatar, Abu Dhabi and Al Ain in the UAE, and Sohar in Oman. Construction was meant to commence in 2014 and finish by 2018; however, while Saudi Arabia and the UAE have begun construction of their own railway tracks, the MoT announced in January 2014 that the kingdom’s portion of the project is running behind schedule. Given that the Qatar causeway is planned to include part of the 2200-km GCC railway, and is not expected to be finished until 2022, it is unlikely Bahrain will meet the 2018 railway deadline.

According to reports in the local media in January 2015, at least three train stations linked up to the GCC rail network will be built in Bahrain, at Khalifa Bin Salman Port, BIA and Amwaj Islands. Abdulhakim Al Shemmeri, the chairman of the transport committee of the Bahrain Chamber of Commerce and Industry, told local media the three stations would be linked up to the broader GCC network via the King Fahd Causeway and the proposed Bahrain-Qatar Causeway.

Tourism & Hospitality

With neighbouring Saudi Arabia offering a major tourism source market, especially after changing its workweek to Sunday-Thursday, contractors in Bahrain have also benefitted from significant investment in new hospitality and tourism developments, with several multimillion-dollar schemes expected to break ground in the near future. The World Trade Organisation reported that the number of hotels in Bahrain grew by 32.5% between 2001 and 2012, while hotel apartments have increased by 142% since 2003. There are 11 planned hotel projects in the pipeline at present, adding hundreds of jobs to the construction sector. Notable among these are developments at Bahrain Bay, including the twisting United Tower, which is home to the Wyndham Grand Hotel. A construction contract for the development’s Four Seasons hotel was awarded to Belgium’s Six Construct, and work has been moving steadily forward, with Bahrain Bay management reporting in March 2014 that the two main hotel towers had reached full height. Work is expected to finish by 2015, while the JW Marriott, also located at Bahrain Bay, is scheduled to open in 2016.

Outside of standalone hotels, a sizeable tourism development in Muharraq could also offer lucrative opportunities for contractors. In April 2014 councillors in Bahrain gave the go-ahead for a $145.1m tourist resort located opposite Muharraq’s Arad Fort. The project will include a hotel, villas and retail space, and will be developed by Bareeq Al Retaj Real Estate Services.

Retail

Retail developments are also slated to boost construction activities in the kingdom. In May 2014 developers at the $3.2bn Diyar Al Muharraq mixed-use project awarded a contract for construction of the Dragon City retail development to Nass Contracting. Located in the south-west corner of Diyar Al Muharraq, Dragon City will stretch over 115,000 sq metres, offering 51,000 sq metres of retail space as well as 5000 sq metres of warehouse space, 6000 sq metres of restaurants and a 1500-vehicle parking lot. Nass will spend 14 months on the project’s first phase, with the mall slated to open in June 2015.

An even more ambitious project, tentatively known as Diyar Mall and located in the south-east of Diyar Al Muharraq, is expected to be announced shortly. The largest mall in Bahrain, City Centre, offers 130,000 sq metres of retail space. Diyar Mall by comparison will be home to 200,000 sq metres, divided equally between retail outlets and recreational facilities.

Industrial

Industrial construction is also poised to see strong growth, on the back of new transportation, logistics, warehousing and manufacturing builds. Bahrain-based real estate firm Manara Developments, for example, is currently in the process of tendering several sizeable contracts for work on the mixed-use industrial development Investment Gateway Bahrain (IGB).

Muharraq’s first dedicated light industrial and commercial mixed-use project, IGB has seen considerable success, with a number of companies including Ebrahim Khalil Kanoo, Yousif Khalil Al Moayyed and Sons, Montreal Motors, Trafco Group, UCO Marine Constructing, and Maza using the 600,000-sq-metre development as an operating base. Infrastructure design contracts for the development were awarded to UK-based URS, with Manara Developments moving in April 2014 to issue tenders for consultancy and design services for a 66-KV sub-station. Further tenders were issued in May 2014 for an internal transport network, sewage system, electrical wiring and a communications network. Work is set to be completed in late 2016.

Materials

Material costs remain a challenge, as local contractors already face some of the highest prices in the GCC. Bahrain is dependent on the UAE and Saudi Arabia for supplies of industrial sand and cement, and it has faced challenges in sourcing these and other materials over the past decade, although the global financial crisis has helped reduce price volatility to an extent. “We had a cement crisis in 2007 and 2008, which pushed up the price of cement, and we’ve also seen rebar prices jump quite significantly, from BD300 ($795) to BD800 ($2120) per tonne,” Connor told OBG. “However, costs have come down over the past five years after peaking in 2008, due to two factors: one was the cost of the commodity and the other was the availability of contractors.” Bahrain imported roughly 75% of its cement from Saudi Arabia in 2011. Sector market researcher CW Group reported in 2013 that Saudi Arabia’s domestic cement demand is expected to increase by 9.4% annually to reach over 80m tonnes by 2017. This has kick-started new production activities in the country, with contractors reporting that the price of cement in Saudi Arabia had dropped by 40% in late 2013. This has had a positive impact in Bahrain, where prices reportedly fell from $4.80 to$3.67 per 50-kg bag.

While Bahrain’s United Steel Company had been working to expand output by adding a rebar mill with capacity of 600,000 tonnes by 2015, boosting its overall capacity to 1.2m tonnes, the $400m project was shelved due to financial issues.

“The building materials market has become saturated, with companies fighting over just a few, mainly government, contracts,” Mona Y Almoayyed, managing director of Y K Almoayyed & Sons, told OBG. “At this stage we are beginning to see expansion abroad to nearby markets like Qatar, Dubai and Oman.”

Outlook

While Bahrain’s construction sector did not emerge from the global financial crisis unscathed, the funding injection from the GCC will have a profoundly positive impact on future activities, especially within the social and affordable housing segment. New tourism, transport and infrastructure projects will support this growth and offer substantial opportunities to private sector players. Contractors that had struggled to manage rising material costs are finding relief as Saudi Arabia ups its cement production, and although some major projects continue to face delays, the long-term prognosis for the sector remains broadly positive.