Bahrain's economy remains on a recovery path heading into 2014, boosted by a normalisation of oil output, continued improvements in non-oil business activity, and steadfast fiscal support from the government. We forecast real GDP growth of 4.3% this year and 3.4% in 2014, up slightly from our previous projections of 3.7% and 3.2%. There is the potential for a robust recovery in private consumption in 2013, helped by strong base effects after growth of only 0.7% in 2012. We forecast an increase of 5.0% in private consumption in 2014, which will have positive implications for food and drink spending.
Headline Industry Data (local currency)
- Food consumption (local currency) growth for 2014: +6.4%; compound annual growth rate (CAGR) to 2018: +4.9%.
- Soft drinks value sales (local currency) growth for 2014: +4.8%; compound annual growth rate (CAGR) to 2018: +3.8%.
- Mass grocery retail sales (local currency) growth for 2014: +8.0%; compound annual growth rate (CAGR) to 2018: +5.9%.
Key Company Trends
Waitrose Exit Poses Questions About Retail Opportunity: In November 2013, upmarket UK food retailer Waitrose announced that it was to leave Bahrain after its local partner Supa Save Bahrain announced plans to exit and look for buyers. Waitrose entered Bahrain in 2010, having first entered Dubai in 2008 as part of a move to bring its premium fresh ingredients concept to the wealthy Persian Gulf region at a time when many of the UK's leading food retailers were focusing more on overseas expansion. Only two Waitrose branded stores were launched in Bahrain, so this is not a major development for the company and, in our opinion, this decision probably poses questions about the level of opportunity in Bahrain for foreign retailers.
Aujan Industries To Expand Across MENA: Aujan Industries, one of the leading drinks manufacturers in both Bahrain and the Gulf region, will buy a majority stake in Lebanon-based National Beverage Company (NBC). Such a move highlights the solid growth that soft drinks sales in Middle East and North Africa (MENA) have and will continue to achieve.
Through its backing from The Coca- Cola Company, Aujan has announced that, through an agreement with Lebanon-based Transmed, it will purchase a majority stake in one of Lebanon's leading drinks manufacturers, NBC. NBC is a leading manufacturer and distributor of Coca-Cola products in the country, along with regional favourites such as the Pampa branded soft drink, while Transmed is a bottling company with operations in the Levant, Middle East and Africa. We forecast solid growth throughout the region, with soft drinks sales in Qatar, Saudi Arabia and the United Arab Emirates each growing by over 30% in local currency terms between 2014 and 2018. Similarly, we forecast soft drinks sales (local currency) to grow by 20% in both Bahrain and Lebanon over the same period.
Promising Soft Drinks Outlook: Bahrain, much like its regional Gulf neighbours, has seen soft drinks sales soar over the past decade. Buoyed by impressive consumer spending power across the Gulf Cooperation Council, core carbonates continue to perform well. However, we believe the non-carbonated segment offers greater long-term growth potential. With bottled water and functional drinks gradually gaining momentum over our forecast period to 2017, diversification beyond core carbonates will likely shape the industry's growth trajectory.
Key Risks To Outlook
A marked drop in oil prices concomitant with a slowdown in growth in Europe, the US and China would pose a significant risk to the country's near-term growth outlook, and likely lead to a marked deterioration in the country's balance of payments and fiscal dynamics. In terms of the latter, Bahrain's breakeven oil price is now close to US$120/bbl, which is by far the highest in the Gulf. Meanwhile, a more pronounced regional crisis stemming from an uptick in tensions between Iran and the West could see risk premiums spike higher, particularly for Bahrain.