Bahrain rising

Lee Jamieson discovers that it takes more than an economic downturn to dent Bahrain’s spirits

Bahrain is undergoing the largest transformation in its history. This tiny, historic country has become one of the most vibrant business centres in the Middle East and is home to some of the Gulf’s largest financial institutions. With internationally competitive fiscal policies, Bahrain is attracting large sums of foreign direct investment.

The result is the creation of a thriving and transparent open market ranked 16th in the world by the Index of Economic Freedom.

More importantly, Bahrain’s success is built upon strategic and measured investment creating a stable, well diversified economy — a policy that has created a safe haven for hospitality investors and developers.

Safe Haven

Bahrain’s greatest asset for foreign hospitality investors is its comparative stability in the present economic climate. Although Bahrain’s success was built on oil before its independence in 1971, its business interests have since diversified into other areas. Therefore, the country has remained stable in the face of fluctuating oil prices, while other oil-reliant economies have been dealing with turbulence.

This stability is the result of a long-term government strategy and in 2008, the travel and tourism sector (along with five others) was identified as a vehicle for foreign direct investment to further diversify the national income.

This has created the “perfect storm” for hospitality investors and developers. “Bahrain is attractive because its economy is more diversified than its GCC neighbours,” explains Accor Hospitality Middle East managing director Christophe Landais. “By diversifying away from oil, Bahrain has managed to resist the global economic downturn and the impact of dramatically decreasing oil prices.

“The IMF is predicting a 3% growth in GDP for 2009, which is impressive when compared to -0.2% in the UAE and -0.9% in the Kingdom of Saudi Arabia.”

In this respect, Bahrain is currently one of the safest places for hospitality investors to direct their capital. And there’s more good news.

The stable, transparent commercial practices of Bahrain have created year-round business activity — which has a positive return on investment impact for hoteliers.

“Bahrain’s thriving business community is doing business all year round, reducing seasonality for operators,” says Marriott Hotels International area director of sales and marketing in the Middle East, Jeff Strachan.

“The result is fewer peaks and troughs. It’s great for our business to have stable, year-round occupancy.”

When Bahrain’s economic and operational stability is coupled with its beneficial fiscal policy, it becomes highly attractive to foreign hotel developers, owners and operators.

For example, Bahrain imposes no restriction on foreign ownership and no corporation tax. “Some people are talking about the potential introduction of VAT at GCC levels, but this is currently not the case,” said Landais, “and should not be for at least three to four years.”

A New Chapter

Bahrain’s thirst for new developments and foreign investment is set to open a new chapter for the country’s hospitality industry.

The Bahrain of today will be unrecognisable by 2013 when many of the flagship development programmes are due to complete.

However, the speed of Bahrain’s growth could also become a stumbling block for its fast-growing hospitality industry.

Developers, owners and operators should be mindful that the sharp growth in the service industries will be primarily supported by the local population which is little more than one million. “It will be a challenge to encourage Bahraini nationals to join the hospitality workforce,” says Landais.

“The tourism and education officials need to make a continuous effort to attract young graduates to the industry.

“It’s important because these locals have their roots in Bahrain and will be able to share the beauty of their country with visitors.”

Accor, like most companies expanding their operations into the country, supports the various government initiatives aimed at nurturing young talent for Bahrain’s hospitality industry and working to represent hospitality as a credible career option for Bahraini nationals. These innovations are currently being led by training organisations like the Bahrain Institute for Hospitality and Retail and the Bahrain Training Institute.

Bahrain’s government is working hard to support and foster a mature hospitality industry with a clear strategic direction.

In November, it was announced that Bahrain is to commission a new tourism body tasked with overseeing the country’s tourism strategy and centralising the decision-making process. Although the Bahrain Tourism Authority (BTA) has ministerial approval, it is still awaiting a formal approval from parliament which is expected within the next four months.

The BTA aims to work in partnership with the private sector to create a fair and transparent business environment for hospitality operators wanting to enter Bahrain. For example, the BTA is working with the World Trade Organisation to create a new hotel classification system with international parity.

This new certification system will be implemented over the next three years alongside a supporting staff training programme.

New Destinations

With such a thriving business community, Bahrain has emerged as a major MICE destination and most hotels have positioned their products accordingly.

To secure visitors, Bahrain is currently developing Expo@Bahrain, the second largest convention centre in the GCC.

Located next to the world famous Formula 1 track, Expo@Bahrain is sure to get maximum exposure when it opens in 2013.

With new developments springing up across the country, many of the major operators have new properties in the pipeline.

As expected in the current economic climate, construction has slowed, but most projects remain on target with few delays.

In 2011, a Four Seasons Hotel will become the flagship property on Bahrain Bay, a US $2.5 billion mixed-use development on the north eastern coast of Manama. Overall, the development has performed well during the economic slowdown, despite unexpected breaks in construction during 2009.

The new Four Seasons property was redesigned accordingly during this period and was significantly scaled back from an 85-storey building to 65 storeys. It is expected that construction will resume mid-way through 2010 and that the property is still on course to complete in 2011 as planned.

According to Bahrain Bay CEO Bob Vincent, all third party developers are still on board and construction for many projects is due to restart this year.

Elsewhere, Marriott is opening its second project in Bahrain — a Renaissance Hotel on Amwaj Islands.

The 30 million square feet that comprise this group of man-made islands hosts leisure resorts, commercial districts and residential neighbourhoods. In addition, Amwaj Islands is supplying waterfront properties, which are in short supply in Bahrain.

Economic woes aside, Marriott has found that the development process for new properties in Bahrain is well supported. “Construction of our Renaissance Amwaj Island Hotel is proceeding well,” comments Strachan. “In fact, when we recently opened our Marriott Executive Apartments in Manama, we found that Bahrain has a very progressive system. Everyone has been extremely helpful in the build up to the opening of our properties and our development team will continue to search for additional opportunities moving forwards.”

Rotana, in preparing for its first Bahrain opening in 2011, has also discovered the ease of doing business in the country.

“We’re making our first entry into Bahrain with a five-star property opposite the financial harbour and so far there have been no specific challenges,” explains Rotana area vice president for Qatar, Bahrain and Kuwait Joseph Coubat.

“We have been involved in this project since its very inception and have built a strong relationship with the property developers. This has ensured the quality of the final physical product.”

Strategic support

In true Bahraini style, growth and maturity in the travel and tourism sector will be supported and enabled by strategic infrastructure investments. The ambitious Friendship Bridge is due for completion in 2013 and will provide a direct link between Bahrain and Qatar.

Spanning more than 40 kilometres, the project will become the world’s longest marine bridge and will make Bahrain more accessible to inter-regional visitors.

The Friendship Bridge builds upon the success of the 25 kilometre King Fahd Causeway which connects Bahrain with Saudi Arabia. Since its opening in the 1980s, Bahrain has experienced growth in weekend and short-stay tourists from its neighbouring country.

It is hoped that the Friendship Bridge will foster similar growth from 2013 onwards. In a further effort to increase inbound tourist flows, Bahrain International Airport is also undergoing expansion.

By increasing capacity to 15 million passengers per annum, Bahrain hopes to improve connections to its key feeder markets.

By investing strategically in infrastructure, fostering a robust and transparent business community and opening its economy to foreign investment, Bahrain may have secured the long-term success of its hospitality industry.

“Bahrain has always focused its efforts on the building of foundations ahead of building landmarks,” said Coubat.

“So I think the reasons to invest and do business there are clear. It provides a free, open and transparent environment for business and has a globally competitive, value-creation story which focuses on sustainability, skills and good governance,” he adds.

However, against this backdrop of change, Bahrain still has something to prove to its critics. Can this small, historic country hold its traditions and culture during this unprecedented period of growth? Or will it dilute its greatest asset?

“As Bahrain becomes an increasingly competitive market, hotel developers should be careful,” concludes Landais.

“Although the country presents great opportunities, we have to bear in mind that it only has a population of one million people and that the market is limited.”