Out of adversity, comes opportunity, goes the saying. No-one would pretend that things have been easy for Qatar. But the Gulf state has demonstrated that in the face of some challenging conditions, its economy has prospered. Rather than sit back, Qatar has taken the initiative and significantly expanded its international trading relationships.
As Economy Minister Sheikh Ahmed Bin Jassim Bin Mohammed Al Thani told Bloomberg in in early September, the embargo may even have been a “blessing” for the gas-rich nation’s economy.
The IMF has attested to the country’s resilient growth performance, underscoring how the direct economic and financial impact of the diplomatic rift between Qatar and some regional countries has been manageable for Doha.
After its Article IV consultation with Qatar that concluded in May, the Fund said that considerable buffers and sound macroeconomic policies had helped Qatar successfully absorb shocks from lower hydrocarbon prices and the diplomatic rift.
The near-term growth outlook is broadly positive. Overall, GDP growth of 2.6% is projected for 2018 – though other analysts put it higher still. Public finances remain in a robust position, with the underlying fiscal position continuing to improve. The fiscal deficit is estimated to have narrowed to about 6% of GDP in 2017 from 9.2% in 2016, says the IMF. National Bank of Kuwait’s research team forecast the fiscal deficit to decline further to just 1.2% in 2019.
The stronger foundations follow government-backed measures aimed at fiscal consolidation, with reductions to subsidies and the introduction of a series of government efficiency measures. This helped bring public expenditure down by 12% in 2017. Additional support has come with the strengthening of oil prices this year, and additional non-hydrocarbon revenue streams, such as VAT, which is on course to be implemented next year.
Since the boycott began, Qatari exports have risen 19%, while its global trade climbed 16%, Sheikh Ahmed told Bloomberg. “The blockade on Qatar from an economic point of view is behind us,” he said.
Qatar’s economic diversification strategy has helped it deal with dislocation in the supply chain caused by the embargo. The embargo’s impact in suppressing imports was mostly transitory, noted the IMF, and new trade routes were quickly established. The rerouting of trade led to a significant recovery in imports. And the implementation of key infrastructure projects was unaffected due to the availability of inventory of construction materials and alternative, and competitive, sources of imports, it said.
Although bank deposits and inter-bank placements fell by about $40bn (11% of total liabilities) in the wake of the blockade, the decline was offset by liquidity injections by the central bank and public-sector deposits, particularly from the Qatar Investment Authority (QIA), the country’s sovereign wealth fund.
“I take solace from the fact that the local economy has all but weathered the negative effects of the economic blockade,” says Adel Mustafawi, Group CEO of Masraf Al Rayan, a Qatari commercial bank. “In fact, local economic growth in Qatar has picked up from the second quarter onwards, benefitting from increasing construction activities in anticipation of finishing 2022 World Cup projects. The hydrocarbon sector has also been positively contributing to the growth story with increased output levels. As a result, the consensus is that Qatar’s GDP growth rate can reach above 3% in 2019-2020.”
Ratings agencies have lauded the Qatari authorities’ use of the country’s large fiscal and external assets to mitigate the impact of the boycott. S&P expects the authorities to continue the key macroeconomic policies of the QR461bn ($127bn) infrastructure development plan for 2015-2024. It said the Qatari authorities’ policy response to falling oil prices since 2015 has been relatively strong, covering the reining in of current expenditures, merging line ministries, and implementing numerous cost-saving initiatives within its core government-related entities. Fiscal deficits have been modest as a result.
The past year has also provided an opportunity for Qatar to broaden its horizons, diversifying its trading and commercial relationships well beyond the confines of the Gulf Cooperation Council. Rather than losing “a 110-million market, Qatar had opened a 400-million market,” Sheikh Ahmed told Bloomberg – taking in countries including Turkey, Azerbaijan, Armenia, Pakistan, Iran and central Asia.
Turkey remains a close trading partner, with Qatari-Turkish trade growing by 30% in H2 of 2017. Turkish companies are heavily involved in the Qatar economy, working on some $11bn worth of projects including those related to the FIFA 2022 World Cup. In light of the Turkish lira’s recent problems, Qatar pledged to invested up to $15bn in Turkey to support Ankara’s effort to shore up its financial system.
Back home, Qatar has worked hard to capture foreign investor interest. “Qatar’s economy has been enriched with different investors taking interest in the country due to the 2022 World Cup and a number of billion-dollar mega projects related to the National Vision 2030,” says Bassel Gamal, Group CEO of Qatar-based QIB Group. “The economic diversification, strengthening foreign investments and upgrade of Qatar’s financial capabilities are key factors pointing to further domestic business growth and opportunities for all banks present in the country.”
Prospects for 2019 have been boosted by stronger growth, due in part to rising LNG production and the stronger oil prices. “The government has renewed its commitment to spending on major projects in the build-up to the 2022 FIFA World Cup and in realisation of the National Vision 2030 which presents financing opportunities. The economic blockade has also resulted in new types of opportunities with government-led initiatives related to economic self-sufficiency, such as transport and logistics, food production, tourism and LNG downstream industries using abundant feedstock,” says Joseph Abraham, Group CEO of Commercial Bank of Qatar.
Qatar National Bank (QNB), the country’s largest lender, has revised its average oil price forecast up to $72bn 2018 and $69bn in 2018. “Strong global demand and various supply disruptions will keep prices firm heading well into 2019 before slowing global GDP growth and increased US shale supply damp prices somewhat,” says Ali Ahmed Al-Kuwari, QNB Group CEO. He projects Qatar’s GDP growth to gain by a solid 2.6% in 2018 as headwinds from the hydrocarbon sector abate and the booming construction sector drives non-hydrocarbon growth.
“Government policies to promote private-sector development are also lifting domestic demand,” says Al-Kuwari. “We anticipate non-hydrocarbon GDP growth of 5% in 2018, rising to 5.3% in 2019, and hydrocarbon GDP at a modest growth of 0.2% in 2018, which would end four years of declines. Overall GDP growth is seen at 3.2% in 2019.”
Qatar is benefiting from the judicious completion of key infrastructure projects, notably the $7.4bn Hamad Port, which as finished at the end of 2018 and which will bolster Qatar’s plans to become regional transport hub.
Looking forward, there is a growing attention on the country’s hydrocarbons sector, particularly its prize asset – its natural gas industry. Qatar has the world’s third-largest proven natural gas reserves. By the end of this year, the 1.4bn cubic feet a day Barzan gas facility will come on stream, providing gas feedstock to a series of domestic downstream industries. Plans also call for Qatar to expand its gas liquefaction capacity by 30% to 100m tonnes a year (t/y), with state energy company Qatar Petroleum planning to add three 7.8mn-t/y LNG trains by 2023. This will help Qatar maintain its position as the world’s leading liquefied natural gas (LNG) exporter, amid increasing competition from new market entrants.
Last year, QP announced an end to the 12-year moratorium on drilling in its giant North Field. That will pave the way for more gas to be diverted to LNG exports over time. More recently, Qatar struck a major deal to supply 3.4m t/y of LNG to China over a 22-year period.
The government is meanwhile keeping its foot on the reform pedal, for example announcing legislation to end the system of exit visas which had required almost 2 million expatriate workers to obtain their employers’ permission to leave the country. Another recent law allows children and spouses of Qatari women married to non-Qataris to acquire permanent residence status.
This year, the International Labour Organization (ILO) inaugurated its first project office in Qatar to support the implementation of a comprehensive programme on working conditions and labour rights in the country.
Qatar’s Minister of Administrative Development, Labour and Social Affairs Issa Saad Al-Jafali Al Nuaimi, reiterated Qatar’s commitment to the implementation of this programme which he said is fully in line with international standards and best practices, as well as with Qatar’s National Development Strategy 2018-2022.
Other measures have made it easier for non-Qataris to obtain visas to visit the country. According to the World Tourism Organization, Qatar has become the most open country in the Middle East and the 8th most open in the world in terms of visa facilitation. Nationals of 88 countries can enter Qatar visa-free and free-of-charge, including Indians, Chinese and Russians.
The IMF has supported the Qatari authorities’ efforts to enhance economic diversification and promote private sector development, welcoming reform efforts related to the labour law, privatisation, special economic zones, and increased foreign ownership limits. The Fund noted that laws promoting equal remuneration and discouraging gender-based discrimination would help contribute to inclusive growth. Additional measures to improve the business environment, including contract enforcement and reform of the insolvency mechanism, will boost private sector growth prospects.
All this will give additional confidence to local business leaders, as they look to build for growth. “The future is bright for Qatar with or without any regional political bickering. It has always been,” says Masraf Al Rayan’s Mustafawi.