BEIRUT

Regional

Bahrain fights competition to remain business hub

  • File - Bahraini mourners hold portraits of Hussein Ahmed Sharaf, a Bahraini man who was in hiding having earlier been sentenced to life in prison in absentia, after he died in an explosion at his home two days ago, as they take part in his funeral procession on April 3, 2014, in the village of Al-Akr, south of the capital Manama. AFP PHOTO/MOHAMMED AL-SHAIKH

MANAMA: When Bahrain announced plans last December to cut fuel subsidies, it was a rare step toward economic reform in a region where lavish cradle-to-grave welfare systems are the norm.

The National Oil and Gas Authority said it would gradually raise the domestic selling price for diesel fuel, almost doubling it by 2017. But the plan soon got bogged down in domestic politics.

Some members of parliament boycotted their weekly meeting to protest the price hikes. Prime Minister Sheikh Khalifa bin Salman al-Khalifa visited parliament to say the plan should be reviewed. Six months later, it is not clear if it will go ahead.

The subsidies saga underlines the obstacles facing Bahrain as it seeks to move on from the events of 2011, when the country’s Sunni rulers put tanks on the streets to quell Shiite-led pro-democracy protests.

The tiny Gulf state is now struggling to remain a major regional business center in the face of continuing domestic political unrest and tough competition from wealthier rivals such as Dubai and Qatar.

Growth in its financial industry remains sluggish, while the unrest hinders Bahrain’s efforts to market itself as a logistics and tourism hub. The government wants to reform its finances, freeing up money to spend on developing the economy, but it will risk more dissent if it cuts back generous welfare payments.

“Even though the subsidy plan is for diesel and not gasoline that’s used in cars, it’s not something that will be accepted by the public, and that’s something the government doesn’t want to deal with,” Jamal Fakhroo, deputy chairman of the Shura Council, a consultative body for the government, told Reuters.

“People in the region in general are used to having a government that takes care of them. Now in Bahrain people are not paying their electricity bills because they expect the king to pardon them.”

By some measures, Bahrain’s economy has recovered well since the protests in early 2011.

Gross domestic product grew 5.3 percent in 2013, its fastest since 2008 and comparable to other states in the six-member Gulf Cooperation Council. That was up from 3.4 percent in 2012.

Low-level unrest – police firing tear gas and birdshot at youths burning tires and throwing rocks and Molotov cocktails – continues almost daily in villages outside the capital.

But inside Manama, the skyscrapers of the financial district are undisturbed, while luxury hotels host Saudis who cross the King Fahd Causeway to enjoy Bahrain’s malls, restaurants and more liberal nightlife.

Although some foreign financial firms have moved some staff to Dubai, Bahrain has fought successfully to prevent a mass pull-out of foreign companies. It still extends licenses to over 400 banks and financial institutions, roughly the same number as before the unrest, and continues to attract some new arrivals.

Officials say the past three years have shown Bahrain can compete with Dubai and Qatar, partly by marketing itself as a relatively low-cost alternative with a skilled local workforce as the other centers’ booms make them more expensive.

“We welcome competition – it forces you to improve and raises standards. The faster the GCC economy as a whole grows, the better it is for us,” said Kamal bin Ahmad, transportation minister and head of the Economic Development Board.

Privately, local businessmen say they were cheered by the appointment in March 2013 of Crown Prince Salman bin Hamad al-Khalifa as first deputy prime minister.

The crown prince is seen as business-friendly but lost influence to hard-line members of the ruling Khalifa family after the uprising; now he appears to be reasserting his authority over institutions such as the EDB.

 
A version of this article appeared in the print edition of The Daily Star on June 17, 2014, on page 5.
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Summary

When Bahrain announced plans last December to cut fuel subsidies, it was a rare step toward economic reform in a region where lavish cradle-to-grave welfare systems are the norm.

Growth in its financial industry remains sluggish, while the unrest hinders Bahrain's efforts to market itself as a logistics and tourism hub.

By some measures, Bahrain's economy has recovered well since the protests in early 2011 .

Inside Manama, the skyscrapers of the financial district are undisturbed, while luxury hotels host Saudis who cross the King Fahd Causeway to enjoy Bahrain's malls, restaurants and more liberal nightlife.

Although some foreign financial firms have moved some staff to Dubai, Bahrain has fought successfully to prevent a mass pull-out of foreign companies.


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