Bahrain’s simmering unrest deters foreign investors – Bahrain Freedom Movement

26/09/2011 – 5:34 p | Hits: 25

Bahrain may see a wave of company exits in the coming months as foreign firms mull moving their operations to neighbouring Gulf states amid fears of a fresh eruption of anti-government hostilities.

 Political tensions are also keeping foreign investment on the sidelines in the Gulf’s former financial hub, which saw protests flare earlier this week during parliamentary elections.  

“The reality is what has happened in Bahrain and what continues to occur in Bahrain is having a negative impact on the investment environment in Bahrain,” said Farouk Soussa, chief economist for the Middle East at Citi. “There is very little doubt that perceptions of doing business in Bahrain have deteriorated over the past six months.”

French lenders BNP Paribas and Credit Agricole in August began to move staff out of Bahrain to other Gulf offices, sources said, with the latter likely to relocate its regional headquarters in Dubai.

Soussa said any economic impact felt by the withdrawal of foreign investment from the US ally would likely by compensated for through additional funding from wealthy Gulf states.

The GCC council in March pledged $20bn in financial aid to Bahrain and protest-hit Oman, to be rolled out over 10 years, in a bid to stop the spread of political unrest across the GCC.

 “It’s quite likely that that effect will be compensated for by ongoing support from the GCC and particularly Saudi Arabia,” Farouk said. “My expectation that Bahrain going forward is going to become increasingly dependent on Saudi Arabia for its economic wellbeing.”

Bahrain on Saturday saw a second day of protests following elections held to fill parliamentary seats vacated by its members during a crackdown on protests at the start of the year.

The Gulf state in March imposed martial law and called in troops from its Gulf neighbours in a bid to quell weeks of unrest amid mass pro-reform demonstrations in which more than 30 people have died.

The demonstrations hurt tourism and spurred the central bank to cut its forecasts for economic growth this year by two percentage points to 3 percent.

“The poor H1 economic performance was directly linked to the destabilisation experienced,” said Philippe Dauba-Pantanacce, senior economist for MENA global markets at Standard Chartered Bank. “Although there are no comprehensive numbers on this, a certain amount of companies decided to leave or diminish their operations in Bahrain, fearing that the issues facing the country are more structural in nature and bound to come back.”

Some companies such as real estate consultancy CB Richard Ellis, said the impact of political turmoil had been short lived.

“The impact on our business was very short term and relatively minimal. Business at the moment appears to be flourishing not just for Bahraini clients but predominately for governmental entities,” said Nick Maclean, managing director of CB Richard Ellis, Middle East.