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F1 Highlights the Real Gulf Competition

Geoff Cutmore, CNBC Anchor

Four former world champions line up on the starting grid to start one of the most exciting and intriguing Formula One seasons for years. Personally, my head is supporting Button or Hamilton, but (as the years tick by) my heart is rooting for the old guy, Schumacher.

Like most major sporting events around the world these days the racing will provide an opportunity for companies to entertain their best clients, and woo potential new ones. The bankers are here in numbers. Regional stalwarts like BNP Paribas see this as an opportunity to grab more business in a part of the world where there is still good growth. Bahrain would have hit 6.5 percent GDP this year without the credit crisis and they still think they will make 4 percent. That's far from shabby compared to Europe.

BNP's local Chief, Jean-Christophe Durand, said even though "we are not out of the woods yet on the credit story, and Dubai will only slowly recover, there is still plenty of potential business in the Middle East for the banks supporting the big infrastructure projects governments are backing."

Bahrain skyline

BNP Paribas chose Bahrain as their headquarters for the region some years back, and no doubt feel pretty pleased about that now.

Dubai casts a large shadow here. But Dubai's loss is Bahrain's gain. Even the taxi drivers tell you that. It's not that they want Dubai to suffer, it's just nice to see some humility. And there will be business consequences. Foreign companies that might have defaulted headquarters to Dubai are instead heading once again to Bahrain. It is relatively liberal, tax rates are attractive and it has a deep vein of financial expertise. The offshore banks are stuffed with some $150 billion in oil dollars.

Bahrain's leaders have been watching Dubai World's woes with interest. The head of Bahrain's Economic Development Board, Shaikh Mohammed bin Essa Al Khalifa, acknowledges the lessons. An economy overdependent on one industry is vulnerable. Bahrain's financial industry grew to facilitate the oil industry and the money it threw off. But recent years have seen testing times for banks and oil producers.

"We have long been strong on services, we saw that as a way of reducing our reliance on oil revenue," he said. "But we are also cultivating industrial companies and other sectors of the economy now."

Bahrain is not immune from another round of credit market distress. Local operations like GFH have had their problems, and there is considerable exposure to real-estate lending, such that the kingdom's central bank backed off introducing a mooted rule tightening real-estate lending because they were worried about its destabilizing effect. Read that as a realization that such a rule could force further distress by making banks offload assets at well below their existing book value.

Formula 1 track, Bahrain

Elsewhere the central bank has been busy confirming everybody can meet stricter liquidity ratios. The ruling family doesn't want to attract the sort of headlines that Dubai made.

So whoever you want to win at the race on Sunday, bear in mind the other competition taking place in the Middle East. It's a race to attract talent, capital and recognition.

Right now Dubai is sitting in the pits with tire problems, Abu Dhabi lent it some patches to get it back on the track, but it's probably Bahrain that has the best opportunity to improve its lap times.

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