Boston, MA -- (SBWIRE) -- 01/24/2014 -- BMI View: Bahrain's water sector is gradually undergoing reform and is increasingly open to foreign direct investment. The process is tentative, with Crown Prince Salman, appointed as deputy prime minister in 2013, hopefully able to promote a conciliatory agenda and push for economic reform. The country's water infrastructure is in need of extensive expansion and modernisation, and this is likely to remain a priority for the Bahrain authorities.

The March 2013 elevation of the reformist-inclined Crown Prince Salman Bin Hamad al-Khalifa, to deputy prime minister, may suggest a shift in favour of the pro-reform elements within the governing apparatus. The incumbent prime minister, Salman's uncle Khalifa bin Salman, on the other hand, is seen as a bulwark of conservatism and has opposed reform historically. The move does not necessarily mean that Salman is becoming more powerful, but with his remit to promote economic and political reform, his elevation may yet represent a positive development for the political and economic framework in Bahrain.

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This could serve to drive the privatisation of the water sector, which has been on the agenda in Bahrain for several years. This privatisation takes place in the context of an improvement of the overall investment climate in Bahrain, with domestic economic conditions gradually showing signs of improvement after little growth in the last two years.

Having said that, we must point out that we expect Bahrain's political impasse to continue unresolved throughout 2014, and see few signs that a breakthrough is possible over the coming quarters. Although we expect business activity to be supported in the near term by elevated public spending and aid from the rest of the Gulf Cooperation Council (GCC), the continued uncertainty of Bahrain's political landscape presents a clear downside risk to the economic outlook.

The water industry in Bahrain is overseen by the Electricity and Water Authority (EWA), established to unify the power and water sector. A key area for development will be expansion of water production through desalination. The majority of water is currently provided by the Hidd IWPP (independent water and power project) and facilities will need to be expanded to meet demand moving forward. With water extraction expected to increase throughout our forecast period to 2017 and mains water consumption also expected to increase, Bahrain will need to take steps to ensure it can keep up with rising demand.

Recent key developments in the sector include:

- In November 2013, it was announced that the Bahrain government is embarking on an ambitious plan to optimise water resources and rationalise consumption. The initiative, led by the Electricity and Water Authority (EWA), aims to save up to 10mn gallons of water annually.

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