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Mon 21 Feb 2011 12:08 PM

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Dubai could see biggest economic gain from Bahrain unrest

Banks stand to prosper, Gulf markets have negative early reaction to protests

Dubai could see biggest economic gain from Bahrain unrest
BUSINESS FRIENDLY: Dubai may benefit as investors shy away from Bahrain unrest (Getty Images)

Of the Gulf states, Dubai could see the biggest positive impact from the political crisis in Bahrain, a top analyst has said.

John Sfakianakis, chief economist at Banque Saudi Fransi in Riyadh, told Arabian Business that the emirate’s banking industry – and to a lesser extent, Qatar’s - would see the biggest influx should investment into Bahraini banks take a hit after a week of ongoing protests in the capital, Manama, and fresh bloodshed over the weekend.

In August, Moody’s Investor Services downgraded Bahrain’s credit rating down one notch, to A3, citing worry over deterioration in the royal government’s finances.

Though still investment grade, it gives Bahrain the lowest grade of the Gulf’s six ranked states.

The crisis has already has a negative ripple effect on the rest of the Gulf, Sfakianakis said.

“You can see it in the way stock markets have been behaving.  There is no doubt that what’s happening in Bahrain has an impact, because stock markets would not be behaving in this way. They’d be up or neutral.”

He said regional markets performed as expected Sunday.

“They all went down. Saudi Arabia went down yesterday and down today. So already it is a ripple effect. The extent of the ripple in its neighbours will be dependent on what happens to Bahrain itself in the coming days,” he said.

In the last two days, unrest in Manama has calmed after waves of violence against anti-government protesters on Thursday and Friday. The government – along with US president Barack Obama – has called for peaceful negotiations.

“If you have no news coming out of Bahrain you will stabilise after a one or two-day negative effect,” he said. “But if the bad news continues, the impact will continue to be a negative one.

The ripple effect shows that the region’s states are not isolated. 

“You see that as a reflection in the stock markets,” Sfakianakis said. “They’re very jittery based on both local and international investors divesting.”

Though it has a diverse economy, Bahrain’s government has found itself increasingly more dependent on oil reserves the past few years. In its report, Moody’s said that it took recent political events into consideration, but that its downgrade was also based on unrelated economic matters.

“While acknowledging Bahrain’s high level of GDP per capita and its good progress toward economic diversification, Moody’s believes that the government’s ability to generate revenues from the non-oil sector is hampered by its narrow tax base,” wrote analyst Tristan Cooper.

Arabian Business: why we're going behind a paywall

Hossam 9 years ago

I would like to hear in future UAE and not only Dubai. I always hear news about Abu Dhabi and separate ones about Dubai and I saw how the Union day's celebration was great so it should be real and not just one day celebration . Also as an Egyptian ( living in Dubai ) and an Arab 1st , I hope all ME economies help each other to stand up and not one benefiting from the other , like now Saudi is trying to help Egypt and Im sure Gulf Estates will help Bahrain, Algeria ( rich country ) should give hand to Tunisia and so on .. This is the time to speak loud and act as a union all of us together .


3mr 9 years ago

Lets hope most Arabs think like you and me, and lets hope we'll live to see us all as one.

roko 9 years ago

Possible if you keep US and to a certain extent UK out of it!

Sandpiper 9 years ago

Really Mr Sfakianakis, then how come Dubai credit default swaps rising and DFM falling? The hot money is not coming to Dubai anymore, lack of transparency has seen to that, its in Geneva, London, Frankfurt and New York.