Cluttons says plans to remove fuel, utilty subsidies will impact Bahrain as destination for expats Plans by the Bahraini government to remove fuel and utility subsidies are likely to have a long term impact on the kingdom's industrial and residential property markets, according to real estate consultants, Cluttons. Last week, the country's minister for industry and commerce said Bahrain is planning more subsidy cuts and intends to impose charges for government services next year in order to boost revenues hit by slumping oil prices. Like other Gulf oil-exporting states, Bahrain has for many years subsidised goods and services such as food, fuel, electricity and water, keeping prices ultra-low in an effort to maintain social peace. But since its oil income began to plunge last year, the government's budget deficit has widened and the subsidies have become much harder for Bahrain to afford. Harry Goodson-Wickes, head of Cluttons Bahrain and Saudi Arabia said: "For a country as reliant on hydrocarbon income as Bahrain, the continuing slide in crude prices is driving the need for additional income streams. "With oil prices hovering at around $40 per barrel, the timing for a removal of the fuel subsidies seems appropriate as it would most likely minimise the impact felt by households. And with the government estimating a 60-70 percent decline in oil revenues so far this year, there is a clear sense of urgency to diversify revenues. "In the residential market, the removal of fuel and utility subsidies will of course increase costs for households and in turn threaten to reduce Bahrain's competitiveness as a destination for expatriate workers. In the long term, this may lead to a decline in rental yields and capital values in the kingdom." Faisal Durrani, Cluttons' head of research added: "We have already seen the successful implementation of fuel subsidies in the UAE, where energy subsidies formed a sizeable proportion of GDP. It's only a matter of time before other Gulf states follow suit and drop fuel and energy subsidies as they try to rebalance their economies in this era of cheap oil. "The price of diesel in the UAE has subsequently fallen by 30-40 percent, which has a clear upside for the industrial sector, with lower manufacturing and transport costs likely to be passed on to consumers. "In the long run, cheaper production costs helps with competitiveness and drives demand, which filters through in the form of stronger demand from industrial occupiers. And for Bahrain, which is an unchallenged logistics hub in the central gulf, cheaper diesel prices could help give the sector a shot in the arm and put it on the road to being a key economic driver. This is something the government of Bahrain has being trying to unlock for some time." Last month, Bahrain more than doubled prices of beef and chicken as it removed meat subsidies; local citizens but not foreigners will receive some compensation in the form of cash handouts. In April, the government raised the price of natural gas sold to industry.
To boost revenues hit by the oil price collapse, the Bahrani government is to introduce more subsidy cuts, including to fuel and utilities, and impose charges for government services. The move comes as a surprise because it was not expected that the oil-rich country would be forced into such drastic measures. However, other Gulf states will seek to introduce similar revenue-generating measures, and as the UAE’s main logistics hub, cheaper diesel prices could increase Bahrain’s competitiveness and drive demand.