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Bahrain Infrastructure Report 2013 - New Market Report

New Construction market report from Business Monitor International: "Bahrain Infrastructure Report 2013"


Boston, MA -- (SBWIRE) -- 04/29/2013 -- We expect Bahrain's political crisis to rumble on over the coming months as a fundamental resolution continues to prove elusive. While the risk of ongoing public protests remains elevated we believe the government's firm grip on power should see its ability to form, pass and implement its own policy programme remain intact. Nevertheless it is our view that elevated risk aversion will continue to undermine growth within Bahrain's construction sector and keep a lid on foreign investment. Indeed, we expect gross fixed capital formation, and by extension the construction industry, to underperform the wider economy over the medium term as public spending constraints, inhibitive project financing conditions and a depressed tourism sector contribute to lacklustre growth. Having expanded by an estimated 3.9% in 2012, we are forecasting the construction sector to grow by a still relatively modest 4.0% in 2013 - well below the levels seen between 2001 and 2008.

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Key developments in the sector:

- Although signals are relatively mixed at this stage, we expect fixed investment to lag over the coming quarters. On one hand, the latest data from the UN showing the value and number of Greenfield projects ticking higher in 2011 is an encouraging sign, particularly given the sharp drop seen in almost every other economy across the Middle East and North Africa in 2011. That said, data from the central bank shows a marked decline in the number of new construction permits issued in the latter stages of the year, which fell to their lowest level in our time series dating back to Q306. With reports from local real estate firms indicating that the market remains in a soft patch and unlikely to recover (particularly with the onset of Ramadan in July 2012), it remains to be seen if the sector will be able to provide much support to the wider economy over the coming quarters.
- The temporary loss of confidence in Bahrain as a stable location for offshore financial services has had a negative impact on the Kingdom's previously favourable reputation as an attractive environment for project financing. Credit growth in the economy continues to slow and funding from clients deposits is the lowest in the region. Indeed, we believe that commercial loans for multi-year construction projects will remain difficult to secure over the coming quarters, as ongoing political uncertainty and foreign capital outflows keep borrowing costs elevated. Moreover, with the kingdom's banking sector already heavily exposed to the construction and real estate sector - accounting for 30% of total banking loans - there may be reluctance to increase this exposure to long-term projects, while current levels of uncertainty persist.

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