The glittering twin towers of the Bahrain Financial Harbour look down upon Bahrain’s capital from their prestigious position on the edge of the commercial centre of the city.
Built on reclaimed land and opened in 2007, the tower was part of efforts to expand on Bahrain’s credentials as a regional financial centre. Manama needed to work fast to catch up with nearby Dubai, which after the completion of the Dubai International Financial Centre (DIFC) in 2004, was rapidly emerging as the region’s banking hub.
At the end of 2014, occupancy at DIFC was more than 97 percent and the centre continues to expand. Cafes and restaurants in the area are buzzing with activity. By comparison, the BFH seems mostly empty.
A mall between the two towers mostly consists of boarded up storefronts, broken up by the occasional coffee shop. The project was partly a victim of timing – it opened shortly before the regional real estate bubble burst in 2008 – and also of the political uprising that began in early 2011.
Until then the mall was full, says one man who works in the tower and wanted to remain anonymous. Thousands of protesters demonstrating against the rule of the Al-Khalifa family brought the capital to a halt for a few days in early 2011 by erecting crude barricades on the King Faisal Highway, which is also the main entry point for the BFH. After that tenants slowly began leaving, says the man who works in the tower. The BFH did not respond to requests for comment and does not provide occupancy levels. Real estate consultant CBRE has suggested occupancy at BFH could be as low as 25 percent.
In the three years after security forces quashed the protest movement, the broader economy has managed a more convincing recovery. Growth fell to 1.9 percent in 2011, according to the Bahrain Economic Development Board (EDB), the country’s investment promotion body. Growth has rebounded to 3.4 percent in 2012 and is forecast to have been 4.8 percent in 2013. This year, the EDB says growth will be about 3.7 percent, although this is higher than estimates by private economists.
The economic contribution of the oil sector shrank in 2012 as production at the Abu Saafah field declined due to maintenance. Production returned to normal levels in 2013. This year, an increase in growth is expected to come from the government’s infrastructure spending plans.
“We have seen two years now of fairly good recovery,” says Jarmo Kotilaine, chief economist at the EDB. “In 2012, there was a rebound in the non-oil economy, and in 2013, there was a normalisation in the oil sector. This year, growth will revert to being driven by the non-oil sector.”
Over the next few years, a total of $10-15 billion will spent on infrastructure investments, according to Mazin Manna, Bahrain chief executive officer of Citigroup. This includes projects by Bahrain Petroleum Company (Bapco), Aluminium Bahrain (Alba), and Gulf Petrochemical Industries Company (GPIC). “Investments of this size will provide a significant boost to the economy over the next few years,” Manna says.
Higher levels of government spending are being driven by an aid package from Saudi Arabia, the UAE and Kuwait. Deputy Prime Minister Sheikh Khalid bin Abdullah al-Khalifa said in January that Bahrain will invest $4.4bn of funds provided as part of the GCC aid package announced in the wake of the 2011 protests on new development projects.
The GCC aid was recognition that Bahrain’s finances are not as rosy as its neighbours. Although still producing oil, its reserves are dwindling and will run out in about 20 years according to Raza Agha, Middle East and North Africa economist at Russian bank VTB Capital. Combined with high government spending, Manama’s fiscal position is precarious. The IMF estimates that the oil price needs to average about $117 a barrel in 2014 to prevent the budget going into deficit.
Until the 2011 protests, the government, urged on by Crown Prince Salman bin Hamad al-Khalifa, was pursuing a liberalising agenda to tackle some of these challenges. Through the EDB, the Crown Prince was promoting foreign investment in the country, boosting the role of the private sector, removing restrictions on the labour market while investing more in programmes to improve the skills of Bahrainis and boost employment. He was also proposing political concessions in response to accusations that the country’s Shia majority population was being discriminated against.
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