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Foreign Investors Uneasy Amid Bahrain Violence
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Foreign Investors Uneasy Amid Bahrain Violence

Middle East

Foreign Investors Uneasy Amid Bahrain Violence
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Let's check now on one of the Arab nations facing protests. In Bahrain, the Sunni Muslim royal family has cracked down on protesters, most of whom are Shiites. They're demanding political and economic reforms. This tiny kingdom is trying to protect its status as a stable banking and financial hub for the Middle East. But some analysts are wondering if foreign investors are already looking for another place to put their money. NPR'S Peter Kenyon reports from Dubai.

PETER KENYON: Bahrain may live in the shadow of its neighbor, Saudi Arabia, but it has racked up some impressive feats. It was Bahrain that hosted the first Middle East oil find, and long before Dubai emerged as a financial hub, it was Bahrain that attracted financial firms and investors to the region.

It was able to do that in the 1980s because bankers and their capital were looking to flee from the previous financial hub, Lebanon, where a 15-year civil war was destroying the economy. But now Bahrain seems to be on the other end of the stability/investment equation.

(Soundbite of gunfire)

KENYON: Last month, Bahraini protesters took their demonstrations to the most sensitive place they could find Bahrain's main financial center. Days later, Saudi troops came pouring over the causeway into Bahrain, and a fierce crackdown began. Analysts say clearly the protesters had crossed the line. But had the damage already been done?

Writing for the risk assessment website, analyst Dominic O'Neill said yes. Political tension, he wrote, looks likely to end Bahrain's claim to be the gulf's financial center. Raj Madha, an analyst with the Rasmala Investment Bank in Dubai, says even before the unrest erupted, Bahrain had been losing ground to its neighbors Dubai, Doha and Abu Dhabi.

Mr. RAJ MADHA (Rasmala Investment Bank): This more or less accelerates that process. Bahrain had been making somewhat of a comeback during the crisis, but the reality is that that's probably stopped. So I think it's much more of a competition between Dubai and Doha, and Bahrain, at least for the moment, seems to be counted out.

KENYON: Bahraini officials insist this is a temporary setback and that the kingdom will soon return to its reliable, stable self. On a recent visit to the Bahrain financial exchange, the head of the kingdom's central bank said the fundamentals remain in place for continued economic growth.

But Matthew Martin, banking and finance editor for MEED, the Mideast Economic Digest, says he's seen the beginnings of professional flight to Dubai and elsewhere.

Mr. MATTHEW MARTIN (Mideast Economic Digest): Obviously a lot of the banking sector there was staffed with expatriates who have all been very shocked by the events that have taken place over the past month. So a lot of them have left and gone to places like Dubai. Convincing them to come back is going to take quite a long time as well.

KENYON: There are certain advantages Bahrain's Sunni royal family will continue to enjoy as it tries to recover from its failure to peacefully resolve the demands of its Shiite majority.

First and foremost is the close bond with Saudi Arabia. Analysts say those ties help explain why Washington has so far been reluctant to pressure the king, to the dismay of Bahraini protesters. But Matthew Martin says as governments the world over have learned, it's much easier to lose investor confidence than it is to rebuild it

Mr. MARTIN: The Foreign Office of Britain, for instance, at the moment is still advising people against going to Bahrain, and it's advising people who are there to pretty much to stay locked up in their houses. These things are going to have a significant dent on peoples' perceptions of Bahrain, if they're looking for a job in this part of the world.

KENYON: For now, it seems Bahrain is facing one of the worst outcomes of the Arab spring. The protesters are watching their dreams of a better life be throttled by the security forces, and the country's elite is seeing decades of work to attract foreign investment unravel in a matter of weeks.

Peter Kenyon, NPR News, Dubai.

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