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07 November 2016

Implications of Brexit for Bahraini Investors and Businesses

The referendum on the UK leaving the EU on 23 June 2016 was one of the most controversial and hotly debated processes in British political history. We see two major implications for Bahraini businesses and investors with operations or interests in the UK. Firstly, the fluctuating value of the British pound and how this impacts inbound investment; and secondly, the impact on Bahraini (and GCC) trade agreements.

There has been heightened political and economic uncertainty, both in the run-up to and following the “Brexit” vote, and this has led to volatility in the global financial markets. As an example, the British pound was the weakest performer among the major currencies between January and June 2016. What does this mean for Bahraini businesses and investors?

Bahraini investments into the UK, unlike those into other EU countries, are not usually made with the motive of accessing European markets, but with the motive of accessing “Brand Britain”.

The weakening of Sterling relative to other currencies makes Bahraini investments into the UK much more attractive, offering exceptional opportunities to purchase UK assets cheaply. A further depreciation in the value of Sterling could see a significant increase in the volume of investment into the UK.

The second issue is the potential impact upon the bilateral trading landscape between Bahrain and the UK. This would not necessarily be affected much, if at all, by Brexit.

The EU has been unable to reach a free trade agreement with Bahrain (or the GCC) despite negotiations going back many years, meaning that in theory the UK could strike further beneficial bilateral trade deals with Bahrain, even if it were to leave the EU.

The UK, for example, already enjoys a number of agreements with Bahrain, including an Agreement for the Promotion and Protection of Investments, a Memorandum of Understanding on Economic, Trade and Technical Cooperation, and a Double Taxation Agreement, demonstrating that bilateral deals might actually be preferred and more easily achieved.

As set out above, there are both pros and cons to Brexit, but potential opportunities are likely to arise for Bahraini investors and businesses when the UK does leave the EU. To ensure business disruption is kept to a minimum, Bahraini companies and investors should be aware of the planning that can be done to maximise opportunities, and to lessen the impact of potential challenges that lie ahead.

This article was originally published by LexisNexis. For more information, please contact Paula Boast on +973 17 133212.