(MENAFN - Oxford Business Group) Strong growth predictions and significant state investment in infrastructure, particularly low-cost housing, are boosting confidence in the construction sectors recovery. The recent announcement that a new steel processing plant is to be developed in the Kingdom is a further fillip.
Construction makes up a sizeable portion of the Kingdoms GDP, having contributed an average of around 9.5% over the past three years. The sectors output is divided evenly between residential and non-residential developments, with housing representing 51%, and retail, office space and infrastructure projects making up the remainder.
The global financial crisis saw a slowdown in demand for new property developments, causing oversupply in real estate segments such as upper-end residential properties and commercial space. However, a report by Business Monitor International released in September forecast nearly 7% growth in the sector in 2010 with 80bn worth of infrastructure projects currently underway.
The Bahrain Economic Development Board (EDB) " the state agency tasked with formulating economic policy " and the Central Bank of Bahrain have both predicted that national GDP will expand by a healthy 4% this year, and almost 5% the next. It is expected that the effects of this recovery will gradually be felt in the construction industry.
Meanwhile, the state has stepped in with increased spending on infrastructure projects and low-cost housing developments, the latter in response to a high level of demand. Along with projects to upgrade the Kingdoms road network and improve the power and water grid, the government has revealed plans to build up to 5000 residential units, with tenders to be announced in October.
Bahrain-based construction consultant Vladimir Kapusta told local media this month that while Qatar and Saudi Arabia have their own well developed steel processing facilities, Bahrain is dependent on imports, leaving it exposed to fluctuations in global markets and demand-driven cost increases.
The overall improvement in both the regional and global economy is creating demand for building supplies, in particular steel and cement, placing Bahrain in competion with other countries in the region for materials.
In a bid to meet this domestic demand, a 1.2bn project to build a steel plant was launched earlier this year by United Steel (SULB). The plant is a joint venture between Bahrain-based Gulf United Steel Holding Company (Foulath) and Japan's Yamato Kogyo Company. In March, SULB awarded engineering procurement and construction contracts to two consortiums - one comprising Kobe Steel of Japan and Midrex of the US and the other having SMS Meer and SMS Concast of Germany and Samsung Engineering.
The plant will encompass a 1.5m-tonne-a-year direct reduction iron plant, an 800,000-tonne-a-year melt shop and heavy section rolling mill. Phase one of construction is expected to be complete by late 2011, while commercial operations are due to begin in mid-2012. It is hoped that the facility will become a vital link in the supply chain for Bahrains building industry in the future.
Until the plant comes on-line, Bahrains construction industry will have to contend with competition for supplies from neighbouring countries. However, the boost in capacity it will provide along with the governments commitment to improving infrastructure should see the sector settle into an established cycle of measured growth in coming years.