Country Profile: Export opportunities in Qatar built on sand

STRANGE as it may be, the World Cup in 2022 will comprise just a fraction of the spending under way in the oil- and gas-rich state of Qatar. As big as the world’s largest sporting event is, it is dwarfed by the spending the tiny Gulf country is committed to over the next 15 years.

In fact, Qatar is in the process of shelling out $220bn (£146bn) by 2030 on its National Vision. Even if the World Cup had been handed to another country, Qatar would still be hosting a gargantuan infrastructure programme. More than enough for UK exporters to aim for.

This vast investment comes after 20 years during which Qatar has changed beyond all recognition as it has attempted to build its international profile. According to Sabe Tibbitts, a former trade adviser with UK Trade and Investment and now an export consultant specialising in the Middle East: “The opportunities are huge. Links with the UK are very strong.”

Qatar expects to post GDP growth of more than 6% for 2014 (the IMF is estimating 3.5% while others estimate about 5%-5.5%) and was the highest-growth economy during the financial crisis, booking 11.7% growth in 2010 and then 13% in 2011. From 2008 to 2012, real GDP growth was 12%.

The boon comes from substantial oil and gas reserves (oil accounted for an average of 70% of government revenues from 1998 to 2013) as well as spending on the World Cup and its National Vision, a plan designed to build an “advanced society capable of sustaining its development and providing a high standard of living for all of its people”, by 2030.

The vision aims to reduce dependence on hydrocarbons, though its centrepiece is an infrastructure plan that involves a vast expansion of its transport network, not only in Qatar but across the region. At its heart is a 56-station metro system for Doha, as well as a light rail system and an international network connecting to Saudi Arabia, Kuwait, Oman and UAE. On top of that is a £1.9bn project to construct a new sewer system for Doha. And this comes in addition to the construction for the World Cup. The implication is obvious: a huge demand for goods, services and expertise.

Acquisition-happy

The UK fares well in its dealings with Qatar. According to UKTI, Britain is the fourth-largest exporter to Qatar and UK exports of goods and services totalled £2.2bn in 2013. Bilateral trade was more than £5bn. Most days, the business pages carry news of a Qatari acquisition in the UK, such as the £2.26bn takeover of Canary Wharf by the Qatar Investment Authority and Canadian fund manager Brookfield.

According to the World Bank, Qatar’s GDP in 2013 was £132bn ($203bn). A GDP per capita of nearly $100,000 makes the country the richest in the world and, in those terms, an exporter’s dream.

Though growth has been jaw-dropping, there are concerns. Observers have begun to identify risks that might affect Qatar’s ability to continue with its infrastructure investment and imports. According to Capital Economics, there are oil price worries. The consultancy estimates Qatar needs an oil price of just under $60 per barrel to balance its budget. But from a high of about $120 per barrel in early 2013, the price now hovers around $55.

The dramatic fall in yield could signal a change, according to Capital analyst James Tuvey: “It does look like the government will post a budget deficit this year. Government debt is quite high, 30%-40% of GDP. But Qatar has plenty of reserves at hand. The authorities say they may delay some projects.”

Which projects remains unclear. The government has also stated its investment will continue. But oil prices are not the only business risk to take into account. There are concerns about inflationary pressures inside Qatar triggered by the vast government spending. However, Tuvey estimates the risk of overheating is less than it was year ago.

Others see the prospects for exports to Qatar slightly differently. According to Dr Duha Al-Kuwari, assistant professor of economics at the University of Qatar, the country’s issues with oil is likely to have “indirect and limited implications” for imports from the UK.

“In the long run, the oil price decline may decrease Qatar investment in the UK,” she says. Her point is that oil prices have been depressed by the strengthening value of the US dollar. At the same time, the value of sterling has decreased relative to the Qatari rial. This leaves British exports potentially more secure.

While Qatar may have become a big spender, it also faces reputational risks through its foreign policy agenda. It was under the former king, Sheikh Hamad bin Khalifa al-Thani, who abdicated abruptly in June 2013, that the economy grew six-fold and Qatar began its policy of reaching out to the world through the launch of Al Jazeera, welcoming the US military and taking on the role of regional mediator.

But in recent years, a new dimension has been added to foreign policy. Qatar took part in military action in Libya during the overthrow of Gaddafi and has funded the Free Syrian Army against the Assad regime. However, it is Qatar’s long-term backing of the Muslim Brotherhood in Eqypt that has caused a falling out with its regional neighbours. Saudi Arabia, a supporter of the Eqyptian military, became so perturbed by Qatar’s support of the Brotherhood that last year it became one of three countries, alongside UAE and Bahrain, to withdraw its ambassadors from Doha. Indeed, the imprisonment of Al Jazeera journalists in Eqypt can be seen as an extension of the conflict over Qatar’s foreign policy.

In an article for the journal International Affairs, academic Lina Khatib concludes: “Qatar still has some way to go before being in a position to mount a credible challenge to Saudi Arabia’s influence in the region – despite the latter’s declining influence over the past decade.”

The embarrassments do not end there. Winning the 2022 World Cup has come with allegations that it made bribes to secure the tournament. However, observers believe the affair is unlikely to affect Qatar’s standing. Chris West, an analyst of Middle East financial markets who writes for Forbes, says: “Generally, companies doing business with Qatar want one of two things: they either want Qatar’s money, to advise on how to invest it, or to receive investment, and in neither of those situations is alleged malpractice in the World Cup bidding process going to worry them.”

That may be because Qatar has worked hard to welcome exporters and investors. The World Bank’s Ease of Doing Business Survey ranks Qatar 50th out of 189 economies. Gaining the right construction permits can take as little as 57 days on average in Qatar, compared to 149 in the OECD. Obtaining planning permission can take as little as three days.

The rules on setting up in business, however, require having a Qatari partner who owns 51% of a business. Sabe Tibbitts warns that finding the right partner requires care.

“You need to know who you are dealing with. Going there and just meeting one person is not enough. You have to do your due diligence, and much of that won’t be published somewhere. You will have to ask around. There are a lot of overseas nationals in Qatar and you may not be talking to the right people,” she says.

Reforms announced

The country has also attracted criticism for its treatment of migrant workers. Local rules say workers are bound to the company that employs them and can only work for the same organisation while in Qatar. The exit system means workers have to seek permission from employers to leave the country, regulations which many say have been abused local employers. Last year, Qatar announced reforms for early 2015, but they are yet to be clarified. Already this year organisations like Human Rights Watch have insisted Qatar go further with its changes and accelerate reform.

Finding the right skilled labour is an issue for companies doing business in Qatar. Companies working in the Gulf state find it difficult to source experts from the local population and face shipping in workers with the necessary experience. Concerned for the long-term economy, and its skills base, the country introduced the Qatarisation project, seeking to reduce reliance on expatriate workers by ensuring 50% of all workers in industry and the energy sector are Qatari.

Outside Qatar, there is some scepticism about the immediate effects. Many Qataris are highly educated but, according to James Tuvey, there is a preference among them for well-paid government posts. If they look to the private sector, it is more likely banking and finance. This has led to Qatar developing a well-educated national workforce which lacks “implementation experience” in other industries, according to one observer.

But for all that, Qatar looks set to continue spending vast sums on national development, which in the short to medium term requires foreign skills, services, goods and resources. Opportunities for exporters will continue being built on the sands of Qatar. ?

Qatar – key facts:
Population: 2.1m – 545,000 Indians, 400,000 Nepalis, 280,000 Qataris, 200,000 Filipinos, 180,000 Egyptians, 150,000 Bangladeshis, 100,000 Sri Lankans, 90,000 Pakistanis.
GDP growth: 6.8%
Key UK exports: industrial machinery & equipment, electrical machinery, vehicles, luxury goods, foodstuffs and power-generation equipment.
Latest available figures for the value of the UK’s export of services, including legal, financial and consultancy services, were £521m in 2012.
Economic overview: Between 2008 and 2012, Qatar was the world’s fastest-growing economy and has the third-largest economy in the GCC, after Saudi Arabia and the UAE. Over the next five years, the IMF forecasts Qatar will have the highest real growth in the region.
Large-scale infrastructure projects include the Doha Metro system, New Port Project and major road projects. Rapid population growth is expected to drive demand for accommodation (both residential and commercial) as well as medical and education services.
Qatar’s growth has been built on exploiting the world’s third-largest gas reserves (after Russia and Iran), 12% of the global total, and the world’s largest non-associated gas field, which it shares with Iran.
Sources: BQDoha.com, UK Trade & Investment