Bahrain battles to save business-friendly face
Erika Solomon, Reuters, March 31, 2011
Harsh economic reality has hit Bahrain’s business psyche after martial law was imposed and popular unrest which has left many dead and many missing in the island kingdom, once known for openness and financial stability.
Self-branded “Business Friendly Bahrain” is fighting to save its reputation as a secure and liberal Gulf financial centre. That’s a tough sell after a fierce army crackdown two weeks ago quashed weeks of pro-democracy protests led by the Shi’ite majority in the tiny Sunni-ruled state.
“We’d never seen armies in the streets. Now you get up in the morning and drive out to see tanks, your car gets inspected by men wearing masks. It’s like a war zone,” said one expatriate Arab banker, who asked not to be named.
One long-term Bahrain investor said eerie background whispers about beatings, disappearances and sectarian tensions have made him uneasy about keeping his financial advisory projects here, already stalled by a month during the protests.
“You have to wonder whether Bahrain is the best place for it, compared to Dubai, for example. I’m sure other people are wondering the same thing. Anybody who hasn’t yet committed to Bahrain would be thinking of Dubai, even Doha,” said the investor who asked not to be named for security reasons.
TALE OF TWO KINGDOMS
A state-backed newspaper headline last week said businesses had “thrived” in the crisis, and the finance minister said the country’s GDP growth would accelerate to 4.5 percent this year, after an estimated 4.0 percent in 2010.
But analysts polled by Reuters in March slashed their growth forecast to 3.4 percent for 2011, down from 4.2 percent expected in December following the unrest.
Authorities imposed martial law in early March and called in forces from Gulf Sunni allies Saudi Arabia and United Arab Emirates to help restore order.
Small businessmen worry it is the aftermath of the crackdown that will hurt them most.
In capital Manama’s central market, vendors pile stacks of fruits and call out the day’s vegetable prices. But they’re missing one thing: customers.
“The crackdown dealt quite a blow. People are afraid to leave home. Two more weeks of this and my business is ruined,” said Marwan, a butcher. The sound of a few men hacking at sides of meat echoes through a chamber of empty butcher stalls.
Wholesale and retail make up over half of Bahrain’s economy. Vendors say business plummeted 50 to 80 percent because hotels and restaurants are empty.
Hotel occupancy rates now hover around 20 percent, said Ahmed Sanad, head of Bahrain’s hotel and restaurant association.
“We hope this ends soon, the government isn’t profiting from this, and certainly we aren’t either,” Sanad said.
Some economists estimate that Bahrain’s $20 billion economy, with an economic output of around $80 million a day, shed a quarter its output of its during the month of unrest.
“That’s like losing $20 million a day … with over 50 days of unrest, that’s $1 billion …. It takes less than two months to turn the GDP figure from positive to negative,” said Jarmo Kotilaine, chief economist at NCB Capital bank.
Local vendors say they live in fear. Not only customers, but some of their workers are staying home — and it is not because they know their bosses have no money to pay them.
“Shi’ites are worried about getting beaten at checkpoints, or worse. The checkpoints are terrifying,” said fruit vendor Mohammed, who asked only to be identified by his first name.
A Shi’ite himself, he said at one checkpoint, masked men smashed an entire carload of fruit he was carrying.
Bahrain, which took over Beirut’s role as Middle East financial centre in the late 1980s when Lebanon collapsed into brutal sectarian civil war, is now teetering on the brink of its own sectarian crisis.
Shi’ites make up at least 60 percent of the population. They have long complained of discrimination when competing for jobs and services. They are demanding better representation and a constitutional monarchy, though radicals calling for an overthrow of the monarchy alarmed the Sunni minority.
Already the recent turmoil has triggered a string of downgrades by rating agencies and sent debt insurance costs for Bahrain, where nearly $10 billion in mutual funds were parked last year, to 20-month highs.
The crisis comes at a fragile moment for Bahrain, a home to $66 billion Islamic finance industry, where financial sector accounts for a quarter of its economy.
With real estate prices down nearly 60 percent from 2008 peaks in nearby Gulf trade and business hub Dubai, wary Bahrain investors may be less hesitant to jump ship, Kotilaine said.
“The international financial services is the segment the government has to be worried about … We are talking about potentially significant structural readjustment of attitudes, expectations and that can potentially challenge the position of Bahrain as a regional financial centre,” he said.
From investor to vendor, all agree that only a political solution negotiated with the opposition can save Bahrain from a downward economic spiral.
“This has to be resolved for business, and it won’t until the government finds a political solution,” said fruit vendor Sayed Noori. “It’s starting to affect us psychologically.”