Instability hits investment in Bahrain

09 August 2012

The prime minister’s decision to relocate a sewage plant in order to curry favour has left foreign firms wary of investing in Bahrain. Manama should remedy the issue by covering the costs of the move

The unrest in Bahrain shows little sign of being resolved and although demonstrations by the majority Shia population have died down as a result of the summer heat and Ramadan, tensions are still running high.

The Sunni government has attempted some piecemeal reform, but it has failed to satisfy the demands of protesters. Progress towards meaningful talks to restore political stability to the country has ground to a standstill.

In the midst of this environment, Bahrain’s Prime Minister Sheikh Khalifa bin Salman al-Khalifa, a figure despised by much of the Shia youth, is trying to shore up his power base. Muharraq, an area in northeast Bahrain near the airport, is a Sunni heartland and firmly in the prime minister’s camp. When residents started to complain that they did not want a sewage pumping station near their homes, he stepped in to order its relocation.

Doing so has enhanced support for him in the area, but it may not have done much to draw foreign investment into Bahrain. In order to keep attracting international firms to the country, the government needs to ensure that the political environment does not keep encroaching on business.

In the case of the Muharraq pumping station, the Works Ministry had already approved the scheme and gone through the proper environmental procedures. The irony is that the new plant would have used cleaner technology than previous sewage pumping stations, meaning it would be less malodorous than residents feared. By stepping in, Sheikh Khalifa may have bolstered his domestic support, but has damaged Bahrain’s attractiveness to foreign investors.

In order to ensure other potential investors do not get put off by the sudden change in the Muharraq scheme, Manama should agree to cover the costs of the move in a way that will save the developer a long and potentially costly negotiation period. This would show that efforts to boost support at home will not hinder foreign companies.

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