Country Report Qatar
While the era of double digit economic growth is over, Qatar’s economy is likely to expand by a still robust 5-6% in 2013. Qatar has built a reputation as an international peace broker, but its foreign policy entered choppy waters this year. Fixing this will be one of the challenges for the new emir, Sheikh Tamim.
Strenghts (+) and weaknesses (-)
(+) Strong external position
Qatar’s high oil export revenues have resulted high external surpluses and a large stock of foreign assets, the majority of which has been placed in the country’s sovereign wealth fund.
(+) Strong fiscal position
Due to high oil export revenues the country has posted high budget surpluses for many years.
(+) Reputation of peace broker
Qatar has built a reputation of being the Switzerland of the Middle East; it is able to maintain cordial and incompatible relations with countries such as the US and Iran simultaneously and acts as an intermediary in international conflicts.
(-) Economy is too dependent on the hydrocarbon sector
The economic base of Qatar is very narrow. The country is highly dependent on the hydrocarbon sector and oil export revenues.
1. Era of double digit economic growth rates is over
After registering stellar double-digit expansion rates between 12-26% per year in 2006‑11, Qatar's economy shifted down to a lower growth gear in 2012, following the completion of major hydrocarbons projects. GDP growth was 6.2% year-on year (yoy) in 1Q13 and 6% yoy in 2Q13, and was thus slightly lower than the 4Q12 GDP growth of 6.6%. Growth in 2012 as a whole was 6.2%. Real output in the hydrocarbon sector, which accounts for 42% of total output, grew by 0.8% yoy 1Q13, following growth of 1.7% in 1Q12. Meanwhile, the non‑hydrocarbon sector, which makes up for the remaining 58%, performed strongly at 10.6%. While the era of double digit growth rates is over, economic growth is forecast to remain robust in 2013 and 2014, with GDP expected to grow by about 5-6%. An expansive government spending program, high liquidity in the banking sector and strong population growth are underpinning the increase of non‑hydrocarbon activity. Non‑hydrocarbon growth is fairly broad-based, with the largest contributions coming from construction, finance, manufacturing, as well as trade, restaurants and hotels. All these sectors registered double‑digit growth in 2012 and 1Q13 and together now represent around 40% of output. Alongside these sectors, government services also expanded strongly and thus supported growth, too. Going forward, we believe that the government's development plans will be a boon for the construction sector in the coming year. The pipeline of projects includes the launch of the Qatar National Railway System, costing around USD 40bn; roads and public works (USD27.8bn); and new stadiums and hotels. Manufacturing is also set for substantial further expansion, as Qatar Petroleum proceeds with major petrochemical projects in 2013 and beyond.
2. Foreign policy in choppy waters
2013 has not been an easy year for Qatar’s foreign policy. Qatar has been known as the Switzerland of the Middle East, as it takes a neutral stance and maintains cordial relations with all the countries in the region. But this policy has not worked well with regards to Egypt and Syria. Qatar’s lost its influence in Egypt, which it had worked on hard to achieve, through the ousting by the military of the Muslim Brotherhood (MB) administration. Qatar financially backed Egyptian president Morsi and the MB, but as this administration appeared increasingly authoritarian, the hostility of the majority of the Egyptian population grew, along with resentment against Qatar. After the ousting of president Morsi however, Qatar did manage to save face somewhat through the provision of natural gas shipments in August. Thus, it appeared to support “the people of Egypt” instead of the old regime. Also, Qatar’s has stood at odds with the other countries of the Gulf Co-operation Council (GCC) this year, since the GCC countries all seek the removal of Mr. Assad in Syria, while Qatar maintains cordial relations with certain Islamic actors friendly to Mr. Assad. Another foreign policy challenge Qatar faces is maintaining friendly relations with its two largest regional allies: Turkey and Saudi Arabia. Both countries have different positions on Egypt. While Qatar and Turkey both are against the use of force in Egypt, Saudi Arabia explicitly backed the military and the crackdown on protesters. Qatar is unlikely shift to Saudi Arabia’s position, even though Qatar cannot afford to alienate Saudi Arabia overly since it requires an open land border to import huge amounts of raw materials and food for its rapidly expanding capital, Doha. Also, Turkey remains an important friend, as it has worked closely with Qatar on supporting the Islamist rebel groups in Syria.
3. The new emir seems to be a capable leader
Sheikh Hamad officially handed power to his son on June 25th this year, which was an important moment for the country, as it signals a transition to a younger leadership. The new emir, Sheikh Tamim, is widely perceived to be a capable leader. He has been groomed for this position in the past decade, after he assumed the role of crown prince in 2003. He was educated in Britain and has gradually been increasing his role in in the management of state affairs. He became for example the chairman of the Qatar sovereign wealth fund and deputy commander‑in‑chief of the Qatar Armed Forces. While he is well versed in foreign policy, as he made a number of high profile appearances on the world stage in the past year – including acting as a mediator between King Abdullah of Jordan and Hamas, a Palestinian Islamist group-, foreign policy will be balancing act. His father set a high standard by propelling the tiny state to regional prominence. During his reign, Qatar extended its influence in Tunisia, Libya, Egypt and Syria and played a leading role in transforming the Arab League into a more cohesive policy-making body. As Qatar’s foreign policy regarding Egypt and Syria ran into problems, mending relations with both countries will be a key challenge for Sheikh Tamim. Other challenges he has stated to focus on are the growing pains of the rapidly developing domestic economy. Population growth is rising faster than expected and large infrastructure projects need to be carefully coordinated to ensure delivery and diversification of the economy.
Qatar has been ruled by the Al-Thani family since the mid-1800s and enjoys political stability. The almost 1 million inhabitants of this small peninsula are with a nominal GDP per head of USD 104,755 the richest people in the world. The country’s wealth is due to the huge oil and gas resources the country is endowed with. As such, oil and gas exports have historically been the twin engines of the Qatari economy. They are the principal providers of government revenue, and large parts of the manufacturing and services sectors are closely linked to these sectors. Oil and gas exports (including petrochemicals) constitute 89% of total export earnings. In the past 15 years, Qatar, in partnership with foreign companies, has invested in excess of USD 70bn to expand its oil and gas production capacity. Qatar’s proven oil reserves increased from 3.8bn barrels in the mid-1990s to 15bn barrels, and its production capacity increased from less than 300,000 barrels a day (b/d) to around 1m b/d (actual production is around 740,000 b/d, however, to prolong the life of the reserves). The oil reserves are estimated to amount to 57 years at present production levels and Qatar’s natural gas reserves are the third largest in the world. Business opportunities beside the hydrocarbon sector are constrained by the small size of the population and of the country’s GDP. No significant efforts towards diversification of the economy are made, as a sense of urgency is lacking given the large hydrocarbon resources.