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Continuing unrest in Bahrain has prompted an outflow of cash and several international banks are reported to be seriously considering relocating to other countries in the region, whist some, moving out further afield.

 

Although there are no firm figures, sources from within the banking sector have confirmed that there has been a significant outflow of capital to Qatar, the UAE and Europe.

 

The unrest has also led to expatriate workers temporarily moving out of the country, as several countries advised against all but essential travel to Bahrain.

 

Meanwhile, the government started a crackdown against those who do not turn up for work, threatening legal action against them, including employment termination and cuts in salaries.

 

In separate news, the Bahrain government agreed to open the mortgage market to foreign banks by allowing them to own real estate temporarily. Foreign banks will be allowed to own the property mortgaged for the duration of the mortgage, the state-run news agency said, citing a government decree.

 

March 26, 2011

 

Analysis and Forecast: Increasing Risk


 

 

The overall situation in Bahrain may have stabilized temporarily, but the long-term economic effects appear to be long-lasting. The country is now at a serious risk of losing its attractiveness to foreign companies, particularly banks and financial institutions. Although some have relocated staff within the region temporarily, the longer the situation takes to stabilize, the more likely those may start considering permanently relocating to more stable locations, including Dubai and Doha. With the country’s financial district finding it more and more difficult to compete with Dubai and Doha, the unrest will likely leave a permanent dent.

 

It cannot be ascertained as to the exact number of expatriates who have decided to relocate, but with the country being home to over 500,000 expatriates, forming almost half of the population, such relocations will also present further difficulties to the real-estate sector. The recent moves by the central bank will unlikely quell the growing anxiety about the country’s stability.

 

The overall assessment is that the Bahrain economy has suffered a major blow, and notwithstanding the political difficulties the country faces, it is unlikely that Bahrain will regain the position it held before the start of the riots. The Bahrain “Business friendly” image will likely be damaged for a long period, affecting not only the financial sector, but also real-estate and other industries.