Two years on from Saudi Arabia, the United Arab Emirates, Bahrain and Egypt cutting diplomatic and economic ties with Qatar, the country continues to show stable growth. The negative effects of the blockade have been far less dramatic than many predicted, and with oil prices up and the economy increasingly realigned, business leaders in Qatar are optimistic about the future.
“The blockade turned out to be an opportunity for increased self-reliance, and some of the economic and structural reforms put in place have enabled the country to become far more productive and secure,” says Dr R Seetharaman, CEO of Doha Bank, one of Qatar’s biggest banks. He expects possible gross domestic product (GDP) growth of upwards of 3% for 2019.
Optimism returns
The ongoing diplomatic rift with its neighbours was expected to weigh heavily on Qatar’s economy, but strong government intervention, in the form of infrastructure spending and economic reforms, has largely offset any potential risks.
Economic growth in Qatar dropped to 1.6% in 2017, from 2.1% in 2016, as a result of the blockade, but rose to an estimated 2.4% in 2018. The government’s fiscal balance also returned to surplus in 2018, after Qatar recorded its first budget deficit in a decade-and-a-half in 2016, which was tied to lower global oil prices.
In December, S&P Global Ratings revised its outlook on Qatar from 'negative' to 'stable', saying that Qatar will continue to “effectively mitigate the economic and financial fallout of the boycott”, while pursuing prudent macroeconomic policies that support large recurrent fiscal and external surpluses in the period up to 2021. “We believe that the Qatari authorities have sufficient resources to continue to successfully manage the boycott fallout,” it added.
According to Joseph Abraham, group CEO of Commercial Bank of Qatar (CBQ), one of the country’s largest lenders, the country has plenty of reasons to be optimistic: the International Monetary Fund is forecasting 2019 GDP growth of 3.1% and Qatar continues to invest heavily in strengthening the country’s knowledge-based economy. “Qatar has maintained its position as the world’s biggest gas exporter, and a budget surplus is expected to flow back into the economy with oil prices above the government’s conservative assumed price,” says Mr Abraham.
Qatar reported a trade balance surplus of $3.8bn in February, according to the latest Qatar Monthly Monitor released by Qatar National Bank (QNB), while the country’s foreign exchange reserves rose to $49.6bn, the equivalent of 8.9 months of import cover.
At the same time, Qatar continues to invest heavily in strengthening and diversifying its economy, in an attempt to secure the country’s long-term future. “What has changed since the blockade is that investment in self-sufficiency projects, especially relating to food security, manufacturing and logistics, has been deemed a higher priority by the government, creating new opportunities for lenders and accelerating economic diversification,” says Mr Abraham.
In January 2018, Qatar unveiled plans to award contracts worth about $29bn to the private sector as part of a short-term policy focused on increasing food security.
Beyond hydrocarbons
While self-sufficiency may be a short-term goal, Qatar's key long-term target is to create a more diversified economy that relies less on the country’s hydrocarbon wealth.
The hydrocarbon sector continues to contribute heavily to Qatar’s economy, responsible for roughly 50% of GDP, 80% of government revenues and 90% of exports. Yet those figures have been slowly decreasing. Between 2011 and 2017, when the economy grew by a cumulative 22%, the share of hydrocarbon GDP declined from 60.1% to 48.2%, led in part by strong performances in the manufacturing, construction, finance and insurance sectors. Non-hydrocarbon output grew by roughly 6% in the first half of 2018.
“A key component of Qatar’s diversification programme is that the private sector is increasingly taking a lead in driving the economy and is no longer solely reliant upon government spending,” says a spokesperson for QNB, the country’s largest lender.
Even so, Qatar continues to push investment in hydrocarbons. The country, which has the third largest proven natural gas reserves in the world, estimated at about 24,000 billion cubic metres, and is the largest exporter of liquid natural gas, is targeting a 40% increase in annual gas exports by 2024, to 110 million metric tonnes a year.
The announcement in November 2018 that the 12-year moratorium on the North Field development had been lifted will also rekindle the expansion of the hydrocarbon sector, “driving another new phase of Qatar’s development”, says the QNB spokesperson. The giant North Field gas reservoir is considered the world’s largest non-associated natural gas field, and this new investment phase is expected to generate substantial multiplier effects for the wider economy.
In December 2018, Qatar also announced that it was leaving the Saudi Arabia-led Opec, saying the move was due to a desire to focus more on gas production, though is it possible that there was a political element to the decision.
Winning friends
Analysts predict that higher global oil prices in 2019 will support increased government spending in Qatar, though the country is hardly short of cash. Qatar is estimated to have more than $340bn in central bank reserves and sovereign wealth fund assets.
The country is pouring cash into infrastructure in the run-up to its hosting of the 2022 World Cup: an estimated $200bn has been committed to metro and rail systems, sports stadiums, hotels and other projects since Qatar won the hosting rights to the tournament in 2010. The government hopes these projects will have long-term benefits for the country.
Qatar is also hoping that economic reforms pushed through in the past two years in areas such as labour laws, privatisation and foreign ownership – 100% foreign ownership is now allowed in all sectors of the economy except banking and insurance – will make the country more attractive to foreign companies and investors.
“Qatar is doing a tremendous amount to attract foreign investment,” says CBQ’s Mr Abraham, pointing to investment forums, the foreign investment reforms and the establishment of free-trade zones close to the country’s ports of entry. “Small and medium-sized enterprises and international investors are being encouraged to participate in downstream industries and industrial projects using natural gas as a feedstock,” he adds.
One direct benefit from the geopolitical situation has been an increase in the number of foreign companies setting up offices in the country. “The blockade has had a rather paradoxical effect in that it pushed international companies to open branches in Qatar, as they were not able to cater to the Qatari market from their regional headquarters,” says Sheikha Alanoud bint Hamad Al Thani, managing director of business development at Qatar Financial Centre (QFC), a business and financial centre located in Doha. QFC saw a 66% rise in the number of businesses registered on its platform in 2017, its strongest ever year, followed by a 31% increase in 2018.
The downsides
The blockade has hit some sectors harder than others, however. Real estate prices in Qatar have fallen and tourist numbers are down, affecting both hotels and the national airline, Qatar Airways. Earlier in 2019, Qatar Airways announced that it would start flying over Syrian airspace again, as part of an effort to circumvent its inability to using the airspace of the blockading countries, which has increased flight costs and resulted in a $69m loss for the fiscal year 2017-18, from a profit of $541m the previous year. The airline lost access to 18 cities in the region in the immediate aftermath of the blockade.
Nevertheless, Qatar has strong hopes for its tourism sector, aided by increased exposure from signature events such as the World Cup and the expansion of its visa-free entry programme to citizens of 80 countries.
“Policies such as this are enablers, and if you look at ease of doing business, Qatar is moving up the ladder,” says Doha Bank’s Mr Seetharaman.
Qatar shares its only land border with Saudi Arabia, and before the blockade more than half of Qatar’s imports came through the countries now boycotting it. In response, Qatar has opened up new trade routes and has actively cultivated alternative economic relationships, notably with the likes of Turkey and Oman: between 2016 and 2018, trade between Qatar and Oman jumped 240%, from QR2bn ($550m) to QR6.8bn, with Oman now Qatar’s top importer of non-oil products, according to the Qatar Chamber of Commerce and Industry.
Port advantage
In another timely development, three months after the blockade began the $7.4bn deep-water Hamad Port, located on Qatar’s eastern coast, opened. With a capacity of 7.5 million containers per year, the port allows for a greater flow of goods between Qatar and the rest of the world, avoiding the need to rely on re-exports from other ports in the region.
Meanwhile, in February Reuters reported that the UAE had eased a ban on the shipping of goods between its ports and Qatar, though it has maintained a ban on vessels flying the Qatari flag, or those owned by Qatari shipping firms or nationals, and UAE-flagged vessels are still forbidden to call at Qatar ports.
While this is unlikely to herald a thawing of relations, or the end of the political and economic blockade, it is perhaps another sign that, with Qatar’s economy continuing to grow and rebalance, economic considerations are increasingly becoming a factor.
