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No sign of gas boom abating

Only a decade ago, low energy prices and rising debts suggested difficult times ahead for Qatar but now it is a global-scale player, write Eleanor Gillespie and Jon Marks.
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A decade is a long time in global economics: 10 years ago, oil and gas prices were slumping and bankers were starting to express fears about Qatar’s ability to meet its debts, as Emir Sheikh Hamad Bin Khalifa Al-Thani – who came to power in a 1995 bloodless coup with a view to modernising the emirate’s then ailing economy – set about monetising the huge North Field gas reserves. Now, Doha is booming, with Qatar emerging not only as the world’s largest liquefied natural gas (LNG) exporter by some margin, but also as a significant regional financial and educational centre.

Sheikh Hamad has worked hard – with his core team consisting of leading wife Sheikha Mozah Al-Misnad, prime minister Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, oil minister Abdullah Al-Attiyah and finance minister Yousef Hussein Kamal – to remove doubts that the emirate’s gas plans would ever be implemented and make Qatar’s economy one of the region’s most dynamic. By 2005, its economy had trebled in size since 1996 in nominal terms, and the growth trend continues.

Growth forecast

Qatar Planning Council forecasts gross domestic product (GDP) growth of 15.5% this year, compared with 12.5% in 2007. GDP is expected to reach Qr286bn ($78.6bn) in 2008, up from Qr232bn in 2007. The council says the mining and quarrying sector – which includes oil and gas production – grew by 9.3% in 2007 and is expected to grow by 10.9% in 2008. Construction grew by 22% in 2007 and the council forecasts growth of 24.2% this year, while the financial services sector is expected to grow by 27.8% in 2008.

Recent Qatar Financial Centre forecasts said the size of the economy was projected to hit the $100bn mark by 2013, with an estimated $142bn- worth of projects planned over the next six years.

With a huge amount of funds flowing into the economy, Qatar, which is something of a latecomer to high-­profile foreign investment, has been bidding globally for prime assets with ambitions to be in the same league as the United Arab Emirates. Its sovereign wealth fund, Qatar Investment ­Authority (QIA), chaired by the emir’s son and heir apparent Sheikh Tamim and led by the ambitious prime minister Sheikh Hamad, is increasingly attracting attention through its high-profile acquisitions of assets. Sheikh Hamad says he is learning from his older “brothers”: Kuwait Investment Authority and Abu Dhabi Investment Authority.

Qatar is also looking to mark its place in the art world. It recently spent £26m on Francis Bacon’s Study from Portrait of Pope Innocent X and plans to open a new Islamic art museum later this year.

International play

The leadership has developed an astonishing range of international connections, reflected in Qatar’s reputation for being a regional peacemaker, despite what one analyst calls its “unusual foreign policy” (courting radical Islamist groups and Israel at the same time) and the anger that its Al-Jazeera Satellite Channel generates in many Arab states. It has recently been involved in conflict resolution negotiations in Yemen, Syria and Israel/Palestine.

Israeli foreign minister Tzipi Livni’s visit to Doha in April sparked some controversy but also respect. “Emir Sheikh Hamad is the most extraordinary leader and Qatar has done what none of its neighbours will do: have relations with Israel and openly meet its leaders,” one former European ambassador to Qatar tells The Banker.

Qatar is using its low tax environment to draw in investors. It has no personal taxes and a further reduction in the levy on corporate income is planned. But the rocketing cost of housing and goods has put off some potential workers, although the senior leadership continues to publicly brush off worries about the rate of inflation (which rose to 13.7% in December 2007), maintaining that it is to be expected with such a high rate of growth.

Qatar Central Bank governor Sheikh Abdullah Bin Saud Al-Thani said recently that inflation should ease by the end of the year due to an increase in the supply of housing. “Inflation has reached maturity in the last two quarters at 13.7%, and it is heading towards a decline by the end of this year,” he said.

Following recent Article IV negotiations, IMF directors noted that, although medium-term prospects were very favourable, high inflation remains a concern and its reduction should be a priority. The IMF said that most directors expected inflationary pressures to remain high in the near term even if pressures from the shortage of housing units ease.

The Asia facet

Qatar is increasing its ties to Asia. The QIA announced plans to invest $1bn in Indonesia. Ties with South Korea are strong, based on gas supply and ship building. South Korean engineering companies are also heavily involved in projects in Qatar. In late March, prime minister Sheikh Hamad was in China, Cambodia and Vietnam, where numerous deals were signed. Qatar uses its gas as a tool of foreign policy and, in April, signed gas supply deals with China to sell a total of five million tonnes of LNG a year starting in 2009 and 2011.

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