Lengthy challenge for Bahrain's businesses

Business ground to a halt in Bahrain last month when clashes between the security forces and protesters escalated.

Now, political and economic risk experts say the protests could have a long-term effect on the kingdom's economy.

"With the recent troubles, we will likely see temporary relocations [of staff from Bahrain] turn into permanent ones, with Dubai being the main beneficiary," said Ghanem Nuseibeh, a political risk analyst and founder of Cornerstone Global consultancy.

"Those who have left or are considering a permanent move will need to be convinced that the troubles will not flare-up again," Mr Nuseibeh said, adding it would be "an uphill struggle" in the absence of any long-term solution.

As the Bahraini government scrambles to restore its reputation as a business-friendly and secure financial centre, it has been hard-pressed to prevent the flight of office workers out of Manama.

Staff from international financial institutions including BNP Paribas, HSBC and Norton Rose have left the kingdom as institutions rethink their strategy and either temporarily shut or scale back operations.

They may also find the UAE and Qatar more appealing places to do business in, Mr Nuseibeh said.

The political turmoil in Bahrain also triggered a series of downgrades by ratings agencies and sent debt insurance costs for the country to 20-month highs, in turn harming its borrowing potential and prompting criticism from Bahraini banking executives.

"The decision was hasty," said Rasheed al Maraj, the central bank governor. "The economic fundamentals of Bahrain have not changed and it's unfortunate the ratings agencies have made this decision without going into the details of the economy." Yousif Taqi, the chief executive of Al Salam Bank, claimed the reputation of ratings agencies had been tarnished following the collapse of Lehman Brothers, and the decision to downgrade the country's sovereign debt was "politically motivated".

Calling Bahrain "the baby of the Gulf", he said the backing of Saudi Arabia and other GCC neighbours would ensure the small island kingdom did not fall foul of any economic burden following the unrest. "It will always be looked after," Mr Taqi said.

The backing of Saudi Arabia has subdued speculation over Bahrain's wealth and stability.

Saudi Arabia remains a linchpin in the outlook for global oil markets and for regional economic and political developments. "I would be more concerned if something happened to Saudi Arabia, which had a significant impact on the region," said Mr Taqi.

In 2001 Bahrainis strongly backed proposals put by the emir to turn the country into a constitutional monarchy with an elected parliament and an independent judiciary.

Elections were duly held in 2002 for a 40-member parliament, the Chamber of Deputies. It was the first such poll in almost 30 years.

But taking a cue from protesters in Tunisia and Egypt, crowds took to the streets on February 14 and occupied Pearl Roundabout, the heart of the capital. A nationwide strike was also called by Bahrain's largest trade union, the General Federation.

Their actions culminated in the dismissal of hundreds of public-sector workers from various industries including telecommunications, manufacturing and aviation, who failed to show up for work without prior consent.

Ibrahim Sharif, the head of the opposition party Wa'ad, was an early shareholder in the telecoms operator 2Connect and has been among several anti-government activists arrested in the past few weeks.

2Connect has been entangled in a legal battle with the Telecoms Regulation Authority (TRA) since the regulator made the decision to suspend the operator's services on March 21 because of "unspecified security concerns".

The regulator has since said it would extend the deadline for 2Connect to cease its services by a month, until April 23, to give the company's clients more time to "smoothly transition their services to another operator of choice".

Fahad al Shirawi, the chief executive of 2Connect, has been working with the TRA to reverse the decision and has teamed up with another operator based in Bahrain, Next Generation Network Solutions, to assure "business continuity to all clients". Mr al Shirawi had been in discussions with three other providers that have agreed to take on 2Connect's clients and assets until the matter is resolved.

His main argument has been Bahrain's economy risks losing business from top international companies if the suspension persists. And with Citibank, BNP Paribas, Icap, Bloomberg News and the US government among his clients, it is indicative of the need for the government to appease some of its biggest foreign investors.

A strategy is already being put in place by the central bank and the government to waive fees and offer liquidity to cash-strapped small and medium-sized businesses, traders and banks.

However, many see this as damage limitation, with longer-term effects on the economy yet to be felt.

fhalime@thenational.ae