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Uncertainty Lingers Over Bahrain Economy

Thousands chant anti-government slogans as they march during a funeral procession for Sayed Hameed Mahfoodh, 61, whom relatives allege was killed by police, in the western Shi'ite Muslim village of Saar, Bahrain, April 6, 2011

Fragile stability appears to be returning to Bahrain following anti-government protests that recently brought the Persian Gulf kingdom to a standstill. However, analysts say economic uncertainty is likely to linger on.

The streets of the capital Manama’s business district are bustling once again, less than a month after opposition activists set up barricades in the area and Gulf military forces were brought in to help restore order.

On Sunday, Prime Minister Khalifa bin Salman al-Khalifa announced that life in the country was getting back to normal.

But while many Bahraini residents seem to be carrying on with their day-to-day activities, the general consensus among financial experts is that the nation’s economy will have a much more difficult time shrugging off the effects of civil unrest.

The international rating agency Capital Intelligence lowered Bahrain’s credit ratings on Wednesday, describing the outlook as “negative”.

The nation is also widely expected to see slower growth than was previously predicted.

A British expatriate who works in the capital and wished to remain anonymous, said the economic effects of the unrest are clearly visible.

"There have been a lot of repercussions. I know a lot of people that have lost jobs. I know people that have had pay cuts unfortunately. The economy really suffered from this in such a short period of time and it’s amazing because it’s such a small country that the ripple effect of something like this can hit very, very quickly. But, Bahrain is a very strong country and I think it will get back together again," he said.

Bahrain’s government is also remaining optimistic.

Jamal Fakhro, the vice chairman of the nation’s parliament, the Shura Council, believes the financial impacts of the crisis will be short-term.

"I would say the coming few months will tell us really how quickly we’ll be able to recover, but definitely, I don’t see big issues," said Fakhro.

Bahrain has one of the most diversified economies in the Gulf region, with financial services contributing to about 20 percent of GDP, eclipsing the contribution of the oil sector.

Since Bahrain’s recent troubles began, it has been reported that a number of banks have been discussing the possibility of permanently relocating their operations to nearby Dubai, Abu Dhabi or Doha, but Farkho has played down the speculation.

"Nobody has spoken about shifting their headquarters," he said. "What we have heard, and this is normal, is that certain banks and financial institutions have moved few of their people out of Bahrain. And banks have started to bring back their people and institutions started to have business as normal. But there is absolutely no single financial institution that has announced that they want to withdraw their operations from Bahrain."

While existing companies may be staying put, many experts, like Jane Kinninmont from London-based Chatham House, say drawing new business to Bahrain is bound become much more difficult.

"Unfortunately, the recent events will have damaged Bahrain’s ability to attract new investment and attract new talent to work in the financial services sector given that it does face stiff competition from Dubai, which hasn’t faced anything like the unrest," said Kinninmont.

Anti-government demonstrations began in Bahrain in mid-February, with protesters, mostly the nation’s majority Shi’ite Muslims, demanding more equalities and a more representative government from their Sunni rulers.

Human rights activists say an ensuing crackdown by authorities has left at least 27 people dead, on both sides, with nightly raids in Shi’ite neighborhoods still being reported.

Saudi Arabian troops cross the causeway leading to Bahrain in this still image taken from video, March 14, 2011
Saudi Arabian troops cross the causeway leading to Bahrain in this still image taken from video, March 14, 2011

Bahrain has thanked its Gulf allies for sending in troops to help quell the protests and restore order. But despite a lull in opposition activity, Kinninmont says it is premature for the government to declare the country’s crisis over.

"They would be keen to say that the country is going back to normal and that that’s what the GCC troops are helping them to do, but unfortunately it’s really a case where a lot of discontent is being suppressed, but not being resolved. I think there is a need to restart the process of dialogue with a view to meaningful, political reforms, which are going to require some painful compromises from both sides. I don’t think the current security crackdown is a long-term solution in any way," said Kinninmont.

Last month, Gulf States agreed to provide Bahrain with $10 billion over the next ten years to help with the financial implications of the unrest.

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