Our comprehensive assessment of Bahrain's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Bahrain, as well as the latest industry developments that could impact Bahrain's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Bahrain before your competitors.

Country Risk

Bahrain Country Risk

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Core Views

  • We forecast the Bahraini economy to grow by 3.4% in real terms in 2014, down from 5.3% in 2013, owing to the normalisation of oil production. Headline growth will remain relatively robust in the years ahead - reaching 3.8% in both 2015 and 2016 - and will be largely driven by the non-hydrocarbon sector. However, a return to pre-crisis rates of real GDP growth above 7% remains off the cards in the near term.

  • In light of record oil revenues and the weakness of private investment, we expect public spending to outperform over the coming quarters, which should support activity in the non-hydrocarbon economy. Efforts to address the shortage of affordable housing will see government CAPEX accelerate.

  • Bahrain's reputation as a stable and welcoming location to do business in the Gulf has suffered as a result of the volatile political...

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Bahrain Operational Risk Coverage (8)

Bahrain Operational Risk

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The key risks to businesses entering Bahrain are the potential for disruption due to domestic unrest or region-wide conflict, the lack of a large domestic pool of skilled labour (necessitating the costly importation of skilled foreign workers), an overreliance on roads and gas with little in the way of alternative transportation or utilities options, and limited liquidity in the financial markets. However there are numerous benefits available for those investors who do enter the country, such as the lack of personal and corporate taxation, low levels of crime, very low labour costs, and a liberal approach to foreign investment. Due to the predominantly low risks facing incoming businesses, we have awarded Bahrain an overall score of 58.2 out of 100 in our Operational Risk Index. This leaves it in 5 th place regionally out of the 18 MENA states covered, and 52 st position globally out of 170 countries.

The greatest risk...

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Bahrain Operational Risk

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We have given Bahrain a score of 61.6 out of 100 in our Trade and Investment Risk Index. This places the Kingdom in third position in the Middle East and North Africa (MENA) region, out of the 18 countries covered - behind only the UAE and Qatar. Globally, Bahrain comes in above Barbados and Macedonia, but falls below Italy and Japan. Despite the constraints imposed by its small population (totalling only 1.2mn, including expatriate workers), Bahrain offers attractive opportunities to foreign investors.

Bahrain performs relatively well in terms of Economic Openness, for which it scores 51.7 out of 100 and comes in seventh position regionally. The government has a liberal approach to foreign investment, and is home to a large financial services sector. Developing the service economy has been a top priority for the government - given Bahrain's relatively small oil reserves - and the financial services sector has emerged as a major driver of...

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Bahrain Crime & Security

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Bahrain is generally a safe place for foreign business travellers, expatriate workers, and tourists, but the country's image of stability has been shaken by the political upheaval that began in February 2011. Anti-government protests are now a frequent occurrence, and while these are not targeted at foreigners, they could serve as a deterrent to investment. Meanwhile, there is also a risk that foreign visitors could fall victim to a terrorist attack, even if they are not the intended target. Certainly, the political unrest has been highly disruptive to business activity, given that protests have taken place in the heart of the capital Manama, which is a very compact city. Overall, we score Bahrain 48.7 out of 100 for its Crime & Security risk, placing the country sixth in the Middle East and North Africa (MENA) region.

Moreover, given the vast gap between the wishes of the Sunni elite and the demands of the Shi'a majority, who want...

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Bahrain Labour Market

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With a sizeable labour force, comprised predominantly of cheap expatriate workers, good life expectancy and strong urbanisation on the one hand, and low labour costs and regulations on the other, Bahrain's labour market offers limited risks to investors. What risks there are stem from the limitations of the education infrastructure, with a low number of higher education graduates hampering the overall size of the skilled labour pool. We have given Bahrain an overall Labour Market Risk score of 58.7 out of 100. This puts the country in third place across the Middle East and North Africa (MENA) region, behind only Israel and Qatar and ahead of most of its peers in the Gulf Cooperation Council (GCC). At the global level, Bahrain is in 44th position - just behind Malaysia, but ahead of countries including Hungary, Turkey and Mexico.

This high score owes a lot to Bahrain's strong performance in our Availability of Labour rankings, where the...

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Bahrain Logistics

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Bahrain boasts a developed logistics network, which caters not only for domestic demand, but is increasingly playing a role in its neighbour Saudi Arabia's supply chain. It is therefore a regional outperformer in BMI's Logistics Risk Index scoring 63.7 out of 100 and ranking in third position behind the UAE and Israel. However the major risk to the country's supply chains is its reliance on one area. This is an issue in the transport sector - with the Kingdom reliant on road to meet its logistics demand, and in the utilities sector - with Bahrain's power sector dominated by one fuel, gas. The heavy dependence on one mode of transport or one fuel type heightens risk, as should this area be disrupted operations would be negatively impacted as there are no diversification options.

Bahrain's strong export and import growth has resulted its top score of 70.4 out of 100 for Market Size And Utilities, which places it third...

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Bahrain Industry Coverage (16)

Autos

Bahrain Autos

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New car sales have seen impressive growth in Bahrain year-to-date, rising by a reported 22% over H114, to 31,608 units. Given the positive start to 2014, we have decided to make an upwards revision to our 2014 sales forecast. BMI is now forecasting 14.5% growth in 2014, up from the previous forecast of just above 7%. This will take full-year new vehicle sales to around 63,298 units.

BMI's positive view on the near-term outlook for the Bahraini economy underpins our upbeat stance. Our Country Risk team is currently targeting 3.4% real GDP growth for 2014, rising to 3.8% in 2015 and 2016. In particular, we feel that Bahrain's economic growth will remain driven by the non-hydrocarbon sector heading into 2015, with supportive fiscal policies and progress on government-backed infrastructure projects helping to balance still-restrained business activity.

The country's...

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Commercial Banking

Bahrain Commercial Banking

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...
Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Bahrain Consumer Electronics

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BMI View:   Bahrain's consumer electronics market is one of the smallest in the region, reflecting the size of the population. Consequently devices are largely distributed via regional hubs, as it is not cost effective for global vendors to have a local presence. However, despite its small size there are considerable opportunities in Bahrain due to high per capita incomes and the propensity of the local population to purchase consumer electronics equipment. Smartphones and tablets are currently the fastest-growing device categories in the market, although big-ticket items such as LED and 3D TV sets also contribute to the market's expected expansion. While there are many positive aspects to Bahrain's market, it should be noted that continuing civil unrest and an unstable political outlook pose potential downside risks to our forecasts for the sector's growth.

Headline...

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Food & Drink

Bahrain Food & Drink

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BMI View:   We hold a positive outlook on food consumption growth in Bahrain in 2014 and through our forecast period to 2018. We believe that food consumption growth in local currency terms will come in at 6.4% in 2014, boosted by the mass grocery retail sector, which will achieve sales growth of 8.0% this year. The macroeconomic picture looks similarly promising, though we note that potential headwinds exist. Our Country Risk team forecasts real GDP growth of 3.4% in 2014, before rising to 3.8% in 2015. Though strong growth, this represents a slight downturn on 2013, when real GDP growth came in at 5.3%. Furthermore, employment growth has slowed in recent months, along with wage growth.

Headline Industry Data (local currency)

  • Food consumption (local currency) growth for 2014: +6.4%; compound annual growth rate (...

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Freight Transport

Bahrain Freight Transport

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Bahrain continues to invest heavily into making itself a key logisitics centre in the Gulf. The primary port, the Khalifa Bin Salman Port (KBSP) is to have its channel deepened, and the Bahrain International Airport is to be expanded. We question whether the small island state can compete with the investment that has already been put into making Dubai a logistics hub for the region; however, Bahrain has succeeded in attracting new logistics companies to its territory over the past 12 months, and we forecast healthy growth across its freight modes over our medium-term forecast period.

Headline Industry Data

  • Growth at the port of Khalifa bin Salman (KBSP) in terms of total tonnage throughput is forecast at 6.0% in 2014, with average annual growth forecast at 5.5% between 2014 and 2018.

  • Growth in Bahrain International Airport tonnage handling forecast at...

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Information Technology

Bahrain Information Technology

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BMI View: Youthful population dynamics, government ICT initiatives and expanding financial hub status have been the major drivers of growth in Bahrain's IT market. However, escalating political instability in the kingdom dampened the growth of Bahrain's IT market during 2012 and 2013. Nevertheless, BMI believes high oil prices and the government's continued emphasis on developing Bahrain's ICT sector should support growth in the IT market over the short term. BMI therefore forecasts the total size of the of Bahrain's IT market to grow by 3.2% to US$358mn in 2014, up from an estimated US$347mn in 2013.

Headline Expenditure Projections

  • Computer Hardware Sales: Estimated...

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Infrastructure

Bahrain Infrastructure

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BMI View : With no end in sight to Bahrain's protracted political crisis we see little chance of a meaningful construction industry recovery materialising over the near term. Persistent political uncertainty will likely see private sector investment into new projects remain weak and continue to undermine industry growth. Public spending and multilateral funding will offer some crucial support, but this will be insufficient to offset another disappointing year - BMI forecasts industry growth of negative 0.7% in 2014.

Key developments in the sector:

  • There has been a worrying uptick in violent incidents through the latter half of 2013 (most recently the death of a policeman in a bomb explosion on September 18 2013) and the government has made little headway in reaching an agreement with the...

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Insurance

Bahrain Insurance

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BMI View :   The Bahrain insurance market will continue to see strong growth in the coming years in line with our outlook for economic growth to remain steady. The growth in premiums will be lead by the non-life segment, which will benefit from the country's compulsory health insurance law. However, we see profitability for non-life insurers remain under pressure due to the intense competition within the fragmented segment.

After growing 6.6% in 2014, we forecast growth in gross premiums to pickup to 7.0% in 2015. This increase will be on the back of stronger growth in both the life and non-life segments as economic growth accelerates. The takaful sector represented around 22% of total gross premiums in 2013 and according to the regulator has seen impressive growth over the past decade. Going forward, we expect the...

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Metals

Bahrain Metals

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BMI View: Bahrain will become a major aluminium exporter in the coming years as Aluminium Bahrain expands output significantly. Consumption growth will increase given substantial investment plans but still be unable to keep pace with output.

We expect Bahrain to become a major exporter of aluminium in the Gulf region over the coming years. Aluminium Bahrain's significant expansion plans will push output to 1.4mnt in 2018, from 900kt in 2013. Consumption growth will push significantly higher as the government and private sector embark of an infrastructure building programme. Overall, however, we expect Bahrain's surplus of aluminium to grow from 410kt in 2013 to 725kt in 2018. We expect this excess capacity to be exporter to Saudi Arabia and the United Arab Emirates, both of which will experience a deficit in aluminium...

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Oil & Gas

Bahrain Oil & Gas

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BMI View: Despite limited success in boosting oil and gas production from the Bahrain field, the key development for the country will be the refining capacity expansion at the Kingdom's centrepiece Sitra refinery. However, delays to the expansion will result in a continuation of fuel export declines and widening fiscal deficit until 2020. This marks a two year delay to our previous forecast which saw increasing fuel exports from 2018. Other plans envisage the construction of a liquefied natural gas (LNG) receiving terminal, although this is still a long way from realisation.

Headline Forecasts (Bahrain 2012-2018)
  2012 ...

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Pharmaceuticals & Healthcare

Bahrain Pharmaceuticals & Healthcare

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BMI View:   Bahrain ' s pharmaceutical market ou tlook over the medium- and long- term remain bullish despite recent price cuts made to a v ariety of medicines across the country ,   contributing to only moderate growth in the short term. Longer term, t he country ' s ageing population, increasing chronic diseases bu rden and robust economic growth will drive medicine demand; h owever, further medicine price cuts, lower-than-expected oil prices in coming years and failure to find a lasting solution to the political crisis present challenges that will...

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Real Estate

Bahrain Real Estate

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BMI View: Bahrain ' s commercial real estate sector is witnessing stagnant growth as a dip in economic output, political instability and an overhanging supply of commercial space com bine to keep rental rates down. T he country has a number of large-scale commercial projects under development, including the flagship Bahrain Bay project.

A dip in economic growth over 2014 saw rental rates stagnate across much of Bahrain's commercial real estate landscape. Falling oil revenues, a contributor to overall GDP, fell as a result of declining crude prices globally, while other sectors, such as manufacturing failed to pick up the slack by showing only moderate growth.

In the office sector the market continued to feel the lingering effects of the global financial crisis, with high vacancy...

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Retail

Bahrain Retail

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BMI View:   Spending on non-essential items such as luxury clothing and jewellery is forecast to increase strongly over the next few years, fuelled by Bahrain's increasingly sophisticated urban population. Another key contributor to the forecast strong performance of the retail market is the high level of Saudi tourist traffic flowing into Bahrain over the weekends. These factors will result in a strong rise in household spending across all retail subsectors, with the growth prospects for food & non-alcoholic drinks and recreation & culture being particularly strong. Spending on personal care, communications, clothing & footwear and furnishing & home is also projected to increase significantly between 2014 and 2018. However, we expect housing & utilities expenditure to remain by far the highest throughout our forecast period.

The Bahrain retail...

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Shipping

Bahrain Shipping

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Bahrain's main maritime facility, the Khalifa bin Salman port, is set to continue posting solid growth figures in 2014, especially in terms of container throughput. Volumes at the facility are rising as a result of the massive hike in demand at Saudi Arabian ports.

Our outlook for the facility is a reflection of our forecasts for the Bahraini shipping industry as a whole. The country's domestic consumer demand outlook bodes well for its ports sector over the medium term. The port of Mina Salman should see tonnage volumes rise as well, on the back of demand from an extensive housebuilding programme under way in Bahrain.

Headline Industry Data

  • Growth in KBSP total tonnage throughput is forecast at 14.7% in 2014, with average annual growth of 11.8% between 2014 and 2018.

  • Growth in KBSP container throughput is forecast at 7.6% in...

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Telecommunications

Bahrain Telecommunications

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BMI View : Bahrain's telecoms market is rapidly moving towards high-value wireless and wireline data services, supported by the launch of 4G LTE network services and 100Mbps fibre broadband services in 20 13 an d early 2014 . As well as encouraging continued take-up of 3G and 4G, telecoms operators are increas ing their focus on improving subscriber mixes and bolstering their converged and value - added services portfolios in order to offset declining voice revenues and the impact...

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Water

Bahrain Water

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BMI View: Bahrain's water sector is continuing its gradual program of reform and is increasingly open to foreign direct investment. However, we would emp h asise that this process is tentative. The country's water infrastructure remains   in need of extensive expansion and modernisation, and this is likely to remain a priority for the Bahrain authorities.

With water extraction expected to increase throughout our five-year forecast period to 2018 and mains water consumption also expected to increase, Bahrain will need to respond to ensure it can keep up with rising...

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