Bahrain economy lost up to $2bn due to unrest

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Bahrain stand to lose up to $2bn due to the severe political unrest that has hit the state since February, says the head of the country’s chamber of commerce.

The Shi’ites have long complained of government neglect and discrimination. Discontent has been expressed in on-and-off unrest since the mid-1990s. Shi’ites want their rulers to stop granting Sunnis from outside Bahrain citizenship and jobs in the armed forces and security services. They see that as a tactic to change the demographic balance of the nation.

The turmoil began when Shi’ites took to streets demanding democratic reforms from the Sunni rulers. This was the kingdoms worst unrest since 1990. The government called in troops and police from neighbouring Arab countries to crackdown the revolutionaries.

Repercussions

The unrest spread across the Middle East presented a modest revenue loss for the kingdom.

Financial Industry

The financial industry accounts for 25 percent of Bahrain’s GDP and is an important provider of jobs. Assets of Bahraini banks more than tripled between 2002 and 2008, but have since fallen due to the unrest.

The cost of insuring Bahrains debt climbed to its highest level since August 2009 with five-year credit default swaps rising 13 percent in two days to 275 basis points.

With little oil of its own, Bahrain has little spare cash to throw at social problems. And under the US debt crisis, Bahrain’s $3.77 billion in foreign exchange and gold reserves will also be quickly depleted.

Saudi Arabia

Neighbouring Saudi Arabia is Bahrain’s biggest trading partner. They are watching events closely. Bahrain’s stability is important for neighbouring Saudi Arabia, who is also a key supporter of Bahrain’s royal family and where key oilfields are home to Shi’ite minority. Bahrain also hosts a major U.S. naval base.

Business and Tourism

U.S. hotel brand companies have less presence in the kingdom; however, hotels made modest revenue losses. Hotels have received significant cancellations from February and March, including cancellation of short-term events that were planned at the hotel. Occupancy rate has gone down drastically. Starwood chief fiancial executive Vasant Prabhu said that the North Africa region reported around $10-$12 million in revenue for Starwood from 17 hotels.

American Express Co employs locals in their Manama office that runs the companys card business throughout the gulf and MENA region. The offices continue to remain open, but the situation can change any time. If American Express closed its office, they will shift base to different parts of the world, said the spokesman.

Cancellation of sports events

The unrest also forced the cancellation of Formula One Grand Prix, a major sporting event in Bahrain, and British newspapers reported last week that there would be no European Tour golf event in the Gulf state early next year.

“The damages are between $1.5 and $2bn, and I don’t think this amount is exaggerated, but things are getting back to normal,” Esam Fakhro, chairman of the Bahrain chamber of commerce, was quoted as saying by the pan-Arab Asharq Al Awsat newspaper.

Overview

Bahrain’s government has initiated actions that have contributed to a return in confidence and re-assurance among investors.

Standard & Poor’s last month removed Bahrain ratings from credit watch negative, citing an easing of political tensions and expectations that increased public spending would lift economic growth next year.

Analysts polled by Reuters in June also expect the country’s economy to expand by 2.7 percent this year.

Sources: Reuters, WSJ, Arabian Business

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