By Simon Kerr, Financial Times Published: 00:00 November 21, 2009
Qatar benefits from diversification
Oil and gas continue to make up the lion's share of government revenues in Qatar with huge export projects expected to come on line by September but the government has set its sights on a healthy diversification of the economy with infrastructure getting due attention.Image Credit: APDoha: Much has been made of Qatar's so-called "recession-proof" economy. Bolstered by oil exports and an increasingly complete gas export infrastructure, the tiny emirate has been able to weather the global financial crisis well.
Despite losses of as much as $15 billion (Dh55 billion) on its portfolio of international assets, the country's sovereign wealth fund managed to step in and save the financial sector from the ravages of the credit crunch, pumping billions to alleviate banks' toxic stocks and real estate portfolios.
"Qatar is still one of the fastest-growing economies in the world," says Simon Williams, chief economist with HSBC in Dubai.
Yet Doha was not immune from the global shock. With falling oil prices, real gross domestic product headline numbers are showing deceleration, falling from 12.7 per cent in 2008 to 6.4 per cent this year, according to investment bank EFG-Hermes. Nominal growth is expected to contract by 8 per cent this year as a result of the hydrocarbons slowdown.
However, these numbers may end up being a mere blip. The doubling of natural gas output by the end of next year, along with the demand increase consequent on a global economic revival, should further shore up the government coffers.
Economic Growth
The International Monetary Fund sees 2010 real GDP growth of 18.5 per cent and a nominal increase from $92.5 billion this year to $128.2 billion in 2010. EFG paints an even brighter picture, predicting a 37 per cent expansion in real GDP next year.
The real pain this year has been felt in the non-oil sector. As the global economy slowed, so did Doha.
Non-oil GDP growth is forecast to halve from 16 per cent last year to 7 per cent in 2009, EFG says.
The huge export projects are almost complete: from next September liquefied natural gas output will have risen to 77 million tonnes a year, before long propelling the tiny emirate into being the world's richest nation.
Economists are now looking to strong government spending to help the non-oil sector's recovery.
"If we want stability and growth and this is actually our main challenge, we have to have diversification in our economy, and one of the elements actually is to have enough infrastructure; I'm talking airports, ports, roads, all these things," says Yousuf Kamal, the finance minister.
Oil and gas continue to make up the lion's share of the government's revenues, but Kamal says that the country remains set on diversification, especially into finance, health, education and small enterprises.
Infrastructural Growth
Qatar is to open a $14 billion international airport in 2011 with capacity for 24 million passengers.
New port and roads infrastructure will later be complemented by a rail system, including a metro linking Doha to the new city of Lusail, further out from the new central business district of West Bay.
No stranger to capital markets in the past, the emirate is leading the region in returning to the bond market as it picks up after being frozen out by the global financial crisis.
After launching its first sovereign issue of $3 billion in April, Qatar's finance ministry cherry-picked five top banks to run a second bond that could target as much as $5 billion.
The finance ministry is working on the growth it is targeting for the non-oil sector. "We cannot deny that oil and gas will be reduced as a percentage of our GDP, because it is huge. But it is good to use it as a catalyst to expand the other sectors of the economy," says Kamal.
The government has opened up three sectors — consultancy and technical services, information, technology and distribution — to 100 per cent foreign ownership.
Outside the Qatar Financial Centre free zone, where financial institutions, lawyers and consultants have set themselves up, businesses have to be 51-per cent controlled by a Qatari national.
The foreign portions of these businesses have been paying tax at a rate of 35 per cent a year, but the government is to slash that rate to 10 per cent from January.
The tax break on QFC-registered companies is expected to end in January, with companies then paying the same 10 per cent tax as would be due outside the centre.