International businesses have restated their commitment to doing business in Bahrain. Jaime Puebla / The National
International businesses have restated their commitment to doing business in Bahrain. Jaime Puebla / The National

Bahrain rebuilds its tarnished financial image in wake of protests



Beyond the halls of the Isa Cultural Center where Bahrain's political leaders have started a national dialogue, business leaders are pondering how to re-establish the kingdom as the Gulf's leading banking hub.

The latest protests that coincided with the opening of talks between pro-government and opposition groups last weekend, was a reminder that rebuilding Bahrain's tarnished image as a place to do business could prove as challenging as the political process taking place over the coming weeks.

"The impact has been very bad," said Jamal Fakhro, the first deputy chairman of the Shura Council, the foreign affairs, defence and national security committee. Mr Fakhro is also the managing partner at the consultancy KPMG in Bahrain.

Despite the huge financial cost of months of protest he said companies were largely staying put. "No single financial institution or business of any size has left Bahrain," he said. "Have they seen their profits drop? Definitely. Have they reduced their staff? Definitely."

Many businesses have nonetheless relocated staff to other Gulf centres this year and now the kingdom wants to ensure that such relocations do not become permanent.

Bahrain will accelerate key projects under its economic vision after the protests, said Sheikh Mohammed bin Essa Al Khalifa, the chief executive of the Economic Development Board.

International businesses had restated their commitment to doing business in Bahrain, he said. The board has responsibility for steering the future of the country's economic diversification.

"The aims and ambitions for Bahrain remain the same, and the private sector would continue to act as the engine for growth," Sheikh Mohammed said. "Furthermore, recent events have illustrated the strength of unity in the GCC, which should bring further economic benefits through closer cooperation in both the public and private sectors."

Economic Vision 2030 was launched in 2008 as a road map for weening the economy off a reliance on dwindling oil reserves and, instead, handing responsibility for driving growth to the private sector. Creating good quality jobs for nationals and at least doubling the disposable income of households are key aims of the plan.

Raising living standards for all sectors of society and developing inclusive growth have appeared increasingly crucial since anti-government protests erupted in February and March. The instability led to more than two-months of martial law, threatening the country's ambitions of becoming a centre for finance and tourism.

Despite the unrest, the economy would be boosted by "active" and "targeted" investments, said Sheikh Mohammed. He gave the example of the German delivery company DHL, which last month signed a contract ensuring Bahrain would remain as its regional headquarters for the next eight years.

Investments also included the recently approved US$16.4 billion (Dh60.23bn) budget for this year and next, which represented a 44 per cent rise in spending, and the Gulf Development Programme, he said. Saudi Arabia, the UAE, Qatar and Kuwait in March set up a fund to provide $10bn each to Bahrain and Oman to help to expand fiscal breathing space in the two countries, both hit by unrest. Equal to a tenth of Bahrain's GDP last year, the scheme will provide an annual surplus of almost $1bn over the next decade.

The Bahrain central bank governor Rasheed Al Maraj said this month the economy would grow by 3 per cent this year. The IMF has forecast growth of 3.1 per cent, the lowest in the GCC, and down from 4.1 per cent last year.

Concerns have been raised about the resilience of the financial sector. Moody's Investors Service in May downgraded Bahrain's sovereign credit rating to "Baa1" from "A3", citing political turmoil and fundamental weaknesses in the banking industry.

Despite the latest political and economic problems, the Standard & Poor's credit analyst Emmanuel Volland said their long-term legacy should not be overstated.

"Standard & Poor's has no serious doubts that Bahrain is going to remain an important financial centre in the GCC. However, we note that it was already under pressure from competition from Qatar and Dubai, which now have a good opportunity to take a more important role in the region," he added.

With additional reporting by Bradley Hope. tarnold@thenational.ae

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