World Economy

Bahrain Losing Appeal for Doing Business

Bahrain Losing Appeal for Doing BusinessBahrain Losing Appeal for Doing Business

On June 14, a court in Bahrain ordered the main opposition party Al Wefaq to be closed and its funds seized, following a request by the justice ministry. The surprise decision is likely to spell further trouble for the Persian Gulf island nation’s economy.

The country, home to the US Fifth Fleet, used to have a thriving business sector. Indeed, until the rise of Dubai, it was considered the pre-eminent financial hub for the region. Today it is a place that international businesses tend to avoid. In a report on the country issued on June 10, ratings agency Standard & Poor’s said there had been a net outflow of foreign direct investment of 6% of GDP last year and the banking system has shrunk by 25% since 2008, Forbes reported.

The economy has been struggling in the low oil price environment that took hold in late 2014 and the country has been repeatedly downgraded by the main ratings agencies over the past couple of years, taking it into junk status. With oil revenues sliding, but with high spending commitments to maintain, the government has had to resort to issuing debt and leaning on its richer Persian Gulf Arab neighbors for support.

Even before the latest clampdown, the outlook was already rather bleak. Earlier this month the World Bank cut its forecast for GDP growth this year to 2.2%, compared to the 2.7% it had predicted in January. The economy is set to slow further in the following years, with the World Bank forecasting growth of 2% in 2017 and 1.9% in 2018.

Further repression, and with it the likelihood of further protests, means the country will become even less appealing as a place to do business.

The country’s current political problems date back to 2011, when the region was in the grip of the Arab Spring protest movement. Pro-democracy activists took to the streets of the Bahrain capital Manama, but were forcefully suppressed with the help of troops from Saudi Arabia and the UAE.