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Mon 26 Sep 2011 01:08 PM

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Bahrain’s simmering unrest deters foreign investors

Bahrain seen needing financial aid from GCC to maintain economic wellbeing - experts

Bahrain’s simmering unrest deters foreign investors
Bahrain Financial Harbour. The Gulf state was a regional financial hub before unrest erupted in February

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.