Revealed: The $32bn blueprint reshaping Bahrain

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Photo: Dr Jarmo Kotilaine, chief economist at the Bahrain Economic Development Board

Bahrain is in the midst of a large-scale transformation. Several years into a modernisation programme – underpinned by $32bn of planned infrastructure projects and a large industrial hinterland that stretches well beyond the King Fahd Causeway – the island kingdom is already starting to see real economic benefits.

This huge slab of investment, an overwhelming proportion of which is not only earmarked but being spent on projects now well underway, consists of $10bn of government funding, $7.5bn under the GCC Development Fund, and $15bn worth of investment in the private sector.

It is being focused on six key verticals, all designed to accelerate the kingdom’s move away from energy production: tourism and hospitality, retail, real estate, finance (especially fintech), infrastructure and oil and gas services. If there is a theme that envelops these diverse sectors it is, in the view of Dr Jarmo Kotilaine, chief economist at the Bahrain Economic Development Board, “efficiency- and value-driven modernisation”, particularly in the industries that have supported Bahrain’s economy for the better part of two generations such as finance, energy and logistics.

The innovation now being introduced to the banking sector is one such example. Investments are now pouring into fintech as well as various kinds of ancillary and mid-office activities in financial services, perhaps best embodied by the impending launch of Bahrain FinTech Bay – a joint venture between the EDB and FinTech Consortium – in Q1 2018.

Oil and gas, the backbone of the economy for many years, is also undergoing necessary transformation as the drop in the price of oil and reduction in resources have seen the country’s national oil company Bapco (Bahrain Petroleum Company) diversify into other sectors. “On current projections, it’s not going to increase its production several fold, so I think the opportunity really is increasingly in the downstream area, and of course that’s an area where Bahrain also was a pioneer,” Kotilaine says.

“There is still opportunity in capacity expansion and also for different types of trading activities because of our location and regional connectivity. I think it’s very much echoing a broader strategic thrust that we’re seeing in the GCC – a sort of greater value chain capture through related activities. So for instance, that will mean certain types of petrochemicals or further refinement of the oil distillate.”

One of the more conspicuous recipients of the $32bn investment tranche is Bahrain International Airport, which is now undergoing a $1.1bn modernisation programme in order to raise its annual passenger capacity from 9 million to 14 million by 2020. The move will enable Bahrain to come full circle and return to its original regional status as a specialist in logistics and transportation services.

“There was a time when this was the pioneering hub for many of these activities, and then over time we started to see more competition as other countries started investing,” says Kotilaine.

What is interesting is that the fundamental geographic and economic realities that allowed Bahrain to lead the way in the 1930s haven’t changed; the Bahraini logistics infrastructure can serve as an entry point into the broader regional market, and above all the Saudi market. From a logistics perspective, Bahrain has a significant hinterland.”

The links with Saudi’s Eastern Province, whose population is about five times the resident population of Bahrain, are only deepening, not least due to the construction of a second causeway to connect the two countries. “There has also been quite a bit of regulatory overhaul,” says Kotilaine, “and the integration of the different modes of transportation, the streamlining and increasing efficiency in the transit trade between Bahrain and Saudi Arabia is beginning to bear fruit.”

So while huge real estate developments such as Bahrain Bay, the promise of 15 new hotels by 2020, the new retail spaces of Avenues Mall, Marassi Galleria and Dilmunia Mall are changing the landscape, it seems the same old values will be the ones propelling the country forward.

“We have a broad diversification agenda and Bahrain is very much a regional leader with less than 20 percent of the GDP now coming from oil and gas extraction,” says Kotilaine of the development. “But we’re also seeing tremendous dynamism within some of these old, established sectors, where tech-based innovation and entrepreneurship are the drivers of change.”


Accounting for $13bn of the allocated funds, this is one sector that is enjoying genuinely exponential growth. In the first nine months of 2017, the total number of tourists visiting Bahrain increased by 12.8 percent and monthly visitors are now comparable to the island’s population. Attracting mainly visitors from the GCC, especially Saudi Arabia, the sector as a whole is worth 6.3 percent of GDP.

The money is being spent on developing projects to create more physical infrastructure whether it’s hospitality or retail, as well as filling out the events calendar. “If you put in place a hospitality cluster for what is predominantly a regional clientele, then you obviously leverage it also for the benefit of visitors from other places,” says Kotilaine of the potential to expand the country’s reach for new visitors.

By 2020, that infrastructure will not only include a remodelled and expanded airport and a new causeway to Saudi Arabia that will run parallel to the existing King Fahd highway, but also 15 new four- and five-star hotels, adding 4,000 more rooms to the country’s existing hotel space. Brands as prestigious as Four Seasons, JW Marriott, One & Only and two Vida properties are arriving, while The Diplomat Radisson Blu Hotel is set to reveal a major renovation of the 246-room hotel in Q1 2018.

With the kingdom’s hospitality sector growing by 3 percent in 2017, and an ever-expanding MICE repertoire, the expectation is that the demand is there to meet the supply. The Bahrain Tourism and Exhibition Authority (BTEA), for instance, has a number of success to its name in promoting Bahrain as a major MICE destination, including the Gulf Construction EXPO.

Real Estate

Bahrain’s property development sector is also benefitting from the investment. In the last five years, the kingdom entered a number of public-private partnerships to deliver major housing projects, with as many as 4,000 new housing units being handed over in the last two years alone. Furthermore, the aggregate value of real estate deals in the first quarter of 2017 rose 8.1 percent from the corresponding period in 2016, reaching a staggering $770m.

One of the reasons is significant regulatory reform, according to Ali Murtaza, director of Real Estate Development at the Bahrain Economic Development Board (EDB). Most notable is a new law that addresses the issue of regularising infrastructure development for new areas.

A new regulatory authority, the Real Estate Regulatory Authority (RERA), was set up to license real estate agents, resolve disputes, monitor deals and oversee progress of projects. The Central Bank of Bahrain (CBB) also recently approved the establishment of the first real estate investment trust in the country.

Despite challenges in the region, including low oil prices and global economic slowdown, Bahrain’s property market continues to grow thanks to supportive infrastructure, with the island investing $2.4bn out of the total $32bn investment on housing projects.

Moreover, it introduced the Stalled Projects Law in 2014 to allow the government to relaunch delayed property projects. It is headed by a judicial and expert committee that has allegedly resurrected nearly all projects paused during the 2008 global financial crisis.

According to a report by real estate consultancy CBRE, development in Bahrain has increased due to public-private infrastructure investments, as well as a growing population, with current demand standing at around 55,000 units, Murtaza says, with the number expected to grow by 5,000 units a year. Projects in the pipeline or under development include Diyar Al Muharraq, spread over 12 sq km off the coast of Muharraq, with the capacity to accommodate over 100,000 people. The Ministry of Housing also revealed its new programme Mazaya, which allows citizens to buy residential units directly from the private sector, without having to stay on the ministry’s waiting list.