As far as size goes, Qatar might be just a blip in the geography of the Gulf but it has proved its economic might time and again in the global arena. Blessed with abundant gas reserves, the country has enjoyed decades of affluence and has one of the highest per capita income rates in the world. Moreover, with around $335 billion worth of assets under management, the country’s sovereign wealth fund, the Qatar Investment Authority, is one of the richest funds globally.
Today Qatar is in the throes of a construction boom as it prepares to upgrade its infrastructure to host the 2022 FIFA World Cup. The government has announced multi-billion dollar projects in roads, transport, stadiums and various attractions, which has attracted a slew of builders and developers, eager to tap into the potential of the country.
A Steady Economy
Economic growth in most Gulf countries has slowed. A loss of more than 50% in oil prices within two years has wiped billions of dollars off GCC economies, resulting in budget
deficits and leading to limited public spending. Qatar was not immune to the volatility in the oil markets, as in 2016 it recorded its first deficit in 15 years, but it recovered rapidly due to a conservative spending plan and has managed to narrow the deficit for this year. More importantly, it has managed to finance the deficit in a way that will not severely affect the local economy. Qatar, unlike other GCC countries, plugged its deficits through debt, rather than drawing from the financial reserves, generated by its wealth fund. According to a note by the International Monetary Fund (IMF), the Gulf state has raised a total of $14.5 billion of external debt and issued $2.6 billion of domestic bonds and Sukuk. However, Qatar’s Finance Minister, H.E. Ali Shareef Al Emadi, has said that the government might skip issuing a bond in 2017 as oil prices have risen to a comfortable point for the country to continue without borrowing. The improvement in Qatar’s finances is also reflected in its growth rates. The IMF predicts the real GDP growth of Qatar to reach 3.4% in 2017, up from 2.7% in 2016. Meanwhile banks in the country have been well capitalized with a non-performing loan ratio of 1.2%, one of the lowest in the GCC, the fund noted. All of this doubtlessly points to Qatar’s resilient fiscal position as headwinds rock the regional and global economies.
Qatar’s efforts to modernize and liberalize the infrastructure have also garnered appreciation globally. According to the Global Competitiveness Report by the World Economic Forum, Qatar ranks 18th among 138 countries, largely thanks to the infrastructure development carried out to enhance the quality of services provided. Business conditions have also been improved in the Gulf state in an effort to shore up foreign direct investments. Qatar ranked third in the MENA region for ease of doing business, while it took the number one spot in the ‘paying taxes’ category in the World Bank’s Doing Business 2016 report. The country also improved its ranking in the category of ‘starting business’, as it launched initiatives for improved processes for businesses operating within Qatar. Aside from an active construction sector, Qatar has a sound financial market, with banks holding up well despite the liquidity problems, making it a favored financial hub. In 2016, Doha ranked 35th worldwide and third in the MENA region in the Global Financial Centres Index, which ranks the most significant financial centers worldwide. Meanwhile Qatar’s capital markets have seen increasing investor confidence as regulators introduced various reforms over the years to encourage listings. As a result, the Qatar Stock Exchange has also enjoyed various upgrades. In May 2014, Qatar was upgraded to an emerging market status from a frontier market by MSCI. This was followed by an upgrade from S&P in September 2014, and by FTSE a year later, to a secondary emerging market.
Qatar’s appeal among investors has primarily grown thanks to a series of measures taken by the government. Over the past few years, the Ministry of Economy and Commerce (MEC) has launched several initiatives to facilitate the establishment of businesses in the country and bolster competitiveness. These include a new smart application, smart electronic services and a single window project for investor services, among other initiatives. Meanwhile, the establishment of certain economic zones has also attracted private companies. Qatar Financial Centre (QFC) and Qatar Science and Technology Park (QSTP) are among those precincts with benefits ranging from tax breaks to relaxed ownership structures. Companies that establish a presence in the QFC are allowed 100% repatriation of profits, pay only a 10% corporate tax rate, and operate under a legal framework based on English common law. QSTP has a framework that allows 100% foreign ownership; duty-free import of goods, equipment and services; unrestricted repatriation of capital and profits; and no restrictions on hiring expatriate employees. At present, QSTP has 34 tenants occupying it’s Tech 1 and Tech 2 buildings, whilst the Tech 4 building is currently under construction. This new addition will have capacity for 12 companies across a total of 6,000 square meters.
A Concrete Bond
Qatar’s intentions to increase its share of non-oil income have gained strength as volatility raged across the crude markets. The government is in the process of preparing the National Development Strategy (NDS) 2017-2022, a five-year plan that broadly looks at implementing the objectives espoused in the Qatar National Vision 2030. Qatar is aggressively targeting change in the next five years as it envisions a much bigger and more substantial role for the private sector. In an address by HH the Emir Sheikh Tamim bin Hamad Al-Thani in November 2016, it was stated that NDS will focus on completing all infrastructure projects for the 2022 FIFA World Cup; will work towards involving the private sector heavily in health and education; continue to review tariffs on services to ensure they reflect their true economic costs; and would strive to eliminate bureaucratic hurdles to investments. With such commitment from the authorities, the country could grab both international and local investors’ interest.
With a focus on invigorating the private sector, Qatar is in the process of setting up a private-public partnership (PPP) framework in infrastructure and services. A draft PPP law has already been submitted to the cabinet and is expected to be approved soon.The framework is designed to enhance the participation of the private sector through a set of risk sharing and cost containment arrangements. The model of PPP has been historically used in the Gulf within the utilities sector but now is used increasingly in sectors such as healthcare and education. In Qatar, the MEC, in cooperation with Ministry of Education and Higher Education, is working to launch investment opportunities in the education sector through Land Allocation PPP. Through this, the ministry allocates land plots to investors wanting to develop and operate both private and public schools in the education sector. The MEC is also providing investment opportunities for the private sector to design, build and operate family entertainment centers within this framework.
Meanwhile, within healthcare, the MEC has joined hands with the Ministry of Public Health, and has launched an initiative to provide investment opportunities in the health sector through the allocation of land plots to develop and operate comprehensive and integrated healthcare facilities that cater to all segments of society in line with global standards. The formulation of PPP laws could also prove to be very timely as it will help accelerate the use of this model to assist Qatar in building the massive infrastructure it requires for the 2022 FIFA World Cup. Ahead of the soccer tournament, Qatar is planning to build the $45 billion Lusail City that is dedicated solely to hosting the 2022 FIFA World Cup while another mixed-use project Msheireb Downtown Doha will be built in the heart of the city. The government is also revamping its transportation sector as it is investing heavily in developing a rail network. Currently it is working on three projects: Doha Metro; a long-distance rail system; and Lusail Tram – opening up vast opportunities for PPPs in Qatar.
Qatar Beyond 2022
Even as Qatar carries out a $200 billion infrastructure upgrade ahead of the 2022 FIFA World Cup, it is determined that the impact of the tournament on the economy should last much longer. One key area it has identified to diversify is by focusing on opportunities within the lucrative sports sector. Qatar is trying to emulate the success wrought by other sports hubs like Barcelona and is forming a Sports Business Cluster to further this aim. “Sport is part and parcel of the Qatar National Vision 2030,” Sheikh Ahmed bin Jassim bin Mohammed Al Thani, Minister of Economy and Commerce, said in an address to Qatar Sports Business Forum last year. “The 2015 Handball World Cup was hosted here, and around 30 major events are organized here on an annual basis. This domain can be further developed. Qatar has splendid facilities, and will have the best stadiums in the world. The management of events, stadium construction, sports tourism, promotion, marketing and PR campaigns–these are the main disciplines which we need to develop. There are plenty of opportunities for the private sector to participate and we will facilitate access for the private sector through the Qatar Sports Business Cluster.”
According to a study commissioned by MEC, Qatar has identified opportunities worth QAR72 billion ($20 billion) in the sports industry that the private sector could tap into. Kickstarting the process, the government signed a memorandum of understanding with Aspire Zone to build a Sports Business Park last year. The park is aimed at attracting major international sports companies as well as startups and small enterprises through the provision of high-quality services including facilities, as well as research, innovation and development services. A working group from MEC has also prepared 30 detailed studies on investment opportunities in the sports sector over the next seven years that the private sector could use. “We have always looked to give an important role to the Qatari private sector companies, to help them benefit from this tournament,” Hassan Al Thawadi, Secretary-General, Supreme Committee for Delivery & Legacy (SC) said in an address at the forum. “Qatar will become a center for exporting this expertise to the region and the world. We are ready to support all the infrastructure developments which lead to 2022, and are working to leave a lasting economic legacy by cooperation and partnership with the private sector.”
Backed by a strong economy that is set to continue to grow at a steady rate, Qatar’s future is bright as it aims to score big in economic diversification and emerge a leader in sports business.