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Bahrain now under strong competitive pressure

Bahrain: Monday, May 14 - 2007 @ 15:50

Over the past five years Bahrain has enjoyed something of a renaissance with the oil boom, economic liberalization and a lessening of internal political tensions. But the Kingdom is now facing a series of challenges that threaten its future economic prosperity, and are seemingly driven largely by forces out of its control.

This month Oman announced that it was pulling out of Gulf Air, leaving the loss-making and heavily indebted carrier in the hands of Bahrain alone. It is clearly going to be a challenge to turn a former regional airline into a profitable national carrier, particularly against a background of enormous investment in new aircraft from Dubai, Abu Dhabi, Sharjah and Doha.

Tourism crisis

Problem two is the closure of up to 85 nightclubs and the restriction of alcohol sales to five-star hotels, except in certain designated areas. This backlash against the lower end of the tourism trade from Saudi Arabia will depress tourism arrivals and revenues.

Then there is the most important challenge of all: the multiple assaults on Bahrain’s claim to be the regional financial centre. First, there was the challenge from the Dubai International Financial Centre, now with more than 330 licenses issued and closing on Bahrain’s total. Besides, it is perfectly clear that banks like Standard Chartered, Citibank and HSBC are expanding their operations in Dubai and not Bahrain these days.

Up in Doha the Qatar Financial Centre can also boast an impressive debut, and its members will be handling domestic business that might one time have gone to Bahrain. Then to cap it all, Saudi Arabia has issued more than 50 licenses to foreign financial firms to open up branches in the Kingdom.

Islamic banking challenge

The King Abdullah Economic City, the mega city project promoted by Dubai’s Emaar Properties, is specifically targeting Islamic finance for its financial centre. This is Bahrain’s bread and butter going back to its homeland.

What is most difficult for Bahrain is that these are factors that are completely out of its control. There is no magic button to press to reverse the process, except perhaps a more liberal approach to tourism although even that is tinkering at the margins when the airline faces yet another internal reorganization with Oman leaving as a shareholder.

The Bahrain Financial Harbour, a new complex for financial service companies, is a response to the banking challenge, if a rather modest one by comparison to the infrastructure emerging in Dubai and Doha.

However, Bahrain survived some awkward political crises in the 1990s and still managed to stage its renaissance in the 21st century so predicting the future is always hazardous. It just seems that the forces of market competition are not acting in favour of the Kingdom at this point in time.

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Monday, May 14- 2007 @ 15:50 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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