World Economy

Bahrain Subsidy Cuts to Hit Industrial, Real Estate

Bahrain Subsidy Cuts to Hit Industrial, Real EstateBahrain Subsidy Cuts to Hit Industrial, Real Estate

Plans by the Bahraini government to remove fuel and utility subsidies are likely to have a long term impact on the country’s industrial and residential property markets, according to real estate consultants, Cluttons.

Last week, the country’s minister for industry and commerce said Bahrain is planning more subsidy cuts and intends to impose charges for government services next year in order to boost revenues hit by slumping oil prices, Arabian Business reported.

Like other Persian Gulf Arab oil-exporting states, Bahrain has for many years subsidized goods and services such as food, fuel, electricity and water, keeping prices ultra-low in an effort to maintain social peace.

But since its oil income began to plunge last year, the government’s budget deficit has widened and the subsidies have become much harder for Bahrain to afford.

Harry Goodson-Wickes, head of Cluttons Bahrain and Saudi Arabia said: “For a country as reliant on hydrocarbon income as Bahrain, the continuing slide in crude prices is driving the need for additional income streams.

“With oil prices hovering at around $40 per barrel, the timing for a removal of the fuel subsidies seems appropriate as it would most likely minimize the impact felt by households. And with the government estimating a 60-70% decline in oil revenues so far this year, there is a clear sense of urgency to diversify revenues.

“In the residential market, the removal of fuel and utility subsidies will of course increase costs for households and in turn threaten to reduce Bahrain’s competitiveness as a destination for expatriate workers. In the long term, this may lead to a decline in rental yields and capital values in the kingdom.”

The price of diesel in the UAE has subsequently fallen by 30-40%, which has a clear upside for the industrial sector, with lower manufacturing and transport costs likely to be passed on to consumers.

Last month, Bahrain more than doubled prices of beef and chicken as it removed meat subsidies; local citizens but not foreigners will receive some compensation in the form of cash handouts. In April, the government raised the price of natural gas sold to industry.