Bahrain tourism sector ravaged with continued brutal crackdowns by regime – investors flee hope of 2012 Grand Prix

Bahrain Economic Outlook
23 November, 2011 – Intelligence Quarterly

POLITICAL STABILITY: The Economist Intelligence Unit expects that Bahrain will experience persistent political unrest in the forecast period. The ruling Al Khalifa family faces a significant threat to its authority, and the response of the king, Hamad bin Isa al-Khalifa, will determine Bahrain’s political landscape over the next five years. There were large protests early in 2011 inspired by events in Egypt, Tunisia and elsewhere in the Arab world, calling for political and social reform. The security services used force to disperse the protesters, resulting in several deaths. Tensions rose further after the arrival of more than 1,000 troops of the Peninsula Shield Force–the combined military force of the Gulf Co-operation Council (GCC)–which many Bahrainis view as a Saudi occupation force sent to crack down on opposition groups. The government will continue to repress violently any mass protests calling for political reform and detain outspoken opposition activists.

ECONOMIC GROWTH: We have lowered our forecast for Bahrain’s real GDP growth this year to 1.8%. The political and social unrest has damaged Bahrain’s service oriented economy, resulting in two quarters of weak year-on-year growth. In the second quarter of 2011, the financial sector grew by 1.7%, while the hotels sector shrank by nearly 30%. GDP growth will average 3.7% a year in 2011-15. Bahrain’s financial sector, the cornerstone of the country’s diversification strategy, will suffer as a result of the recent unrest, which will take a toll on Bahrain’s long-cultivated “business-friendly” image. The services sector will shrink this year, harming the country’s growth prospects. However, we expect hydrocarbons to continue to be a major contributor to growth, and efforts to move hydrocarbons exports up the value chain (through higher-value-added refining, for example) will secure the importance of oil, despite the country’s low reserves. The ongoing political instability will be damaging to the country’s tourism industry, particularly tourism associated with events such as the Formula One Grand Prix, which has been cancelled this year (although it is expected to return next year). The government increased spending on subsidies and housebuilding in 2011, but we expect private financing to supplement public investment later in the forecast period. …more