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State spend trumps dampened private sector

State spend trumps dampened private sector

Private sectors may be wary of the regional unrest, but booming energy industries are expected to offset this, especially with aggressive state spending.

April 5, 2011 4:10 by

As a result, prospects for foreign direct investment in the region “have deteriorated, in the short term even in those countries that have not seen significant levels of protest”, said Simon Williams, chief economist at HSBC Bank in Dubai.

“Foreign capital will be more difficult and more costly to access until the market is persuaded that the long-term order has been restored.”
After the global crisis, foreign direct investment tumbled by over 70 percent in Saudi Arabia and the UAE in 2009, and by 86 percent in Bahrain.

More recent data is not available, but political jitters are delaying a recovery of investment in Bahrain and possibly in other countries.

“I have an investment project that I’m working on which has been delayed by these events for a whole month,” said a long-term investor in Bahrain, who declined to be named. “I have to wonder whether Bahrain is the best place for it, compared to Dubai for example.”

Bahrain, a regional financial centre where the Sunni government used tanks to crack down on mainly Shi’ite-led protesters, has been by far the worst-hit economy. Around 24 people died in a month of unrest which brought in Saudi troops, closed banks and shops and triggered capital flight.

Economic losses reached $1 billion or about 20 percent of quarterly gross domestic product, NCB Capital estimates.

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