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Forging a new path for growth

By GlobalCapital
30 Sep 2019

Qatar’s economy is in expansion mode, with diversification and investment underpinned by the government’s ambitious Vision 2030 strategy.

Qatar’s economy is charting an ambitious growth course, building on the positive momentum of the past two years when its inner resilience was reaffirmed under a diplomatic and trade embargo imposed in 2017 by some regional states.  

Economic prospects look healthy in 2019. Qatar’s Planning and Statistics Authority  is anticipating real GDP growth averaging 2.8% between 2018 and 2020, amid rising spending on major projects – expected to rise by 15% this year. Economic growth has also been given a boost by the government’s 2018-2022 National Development Strategy, which envisages a greater role for the private sector.

Meanwhile, foreign capital inflows have returned to the pre-2017 levels, while Qatari banking liquidity has improved. Official reserves suggest the position returned to pre-embargo levels; foreign exchange reserves rose to reach $38.9 billion in August 2019.

The public finances have also recovered since 2017. The country’s budget remains firmly in surplus territory, expected to reach QR 4.35 billion ($1.19 billion) in 2019,  despite some substantial spending commitments.

The ongoing  realignment of Qatar’s trading relationships since 2017, with Turkey and Iran figuring more prominently in its commercial routes, has helped the country to overcome some of the punitive measures imposed on it.

The IMF, in its Article IV assessment of Qatar’s economy released in June 2019, noted that GDP growth could reach 2.6% this year, a rise on 1.5% in 2018, thanks to an underlying recovering in in the hydrocarbon output and still robust growth of the non-hydrocarbon sector.

The projected non-hydrocarbon growth for 2019 reflects the lingering multiplier effects of sustained increases in capital expenditures in the last few years, the gradual pace of fiscal consolidation, ample liquidity, and increased private sector activity, notes the Fund.

Medium-term growth will be supported by increased gas production from the Barzan natural gas field, a planned increase in liquefied natural gas (LNG) production capacity by 40% to 110 million tonnes a year with the addition of four LNG trains by 2024. The Barzan gas production facility, valued at $10bn, is to be commissioned in 2020, and will boost gas production by 2 billion cubic feet a day. 

The government’s fiscal policy is regarded by the IMF as an appropriate monetary anchor, and sound financial regulation and supervision frameworks and considerable buffers continue to underpin strong macroeconomic performance. Increased gas production, a slower pace of fiscal consolidation, infrastructure programmes and adequate credit growth will underpin growth over the medium term.

Going forward, Qatar’s private sector is poised to take a more prominent role in building out the country’s most vibrant non-oil sectors, such as manufacturing and services. 

Foreign investment is being promoted through a strategy in which allowing 100% foreign ownership figures strongly. The country has two major free zones offering a range of investment incentives, along with a well-regarded legal system.

The fruits of its pro-foreign investment approach are already being felt. Qatar’s inward foreign investments grew by 6.6% in the first quarter of 2019, according to a joint study by Qatar’s Planning Ministry and the Central Bank. Total foreign investments in Qatar had amounted to QR 722.6 billion  ($199.7 billion) at the end of the first quarter of 2019.

The focus on economic diversification is a major feature of the government policy, explains Sheikh Abdullah Bin Saud al-Thani, the Central Bank Governor.

“Various policy measures have been taken in Qatar to promote economic diversification,” he says. “Through several economic and structural reform measures government continued its efforts to develop the non-hydrocarbon sector. These measures include among others, improvement in the investment environment; encouraging of local manufacturing industries; expansion of new air and sea routes; visa-free entry; investing in human resource development, fiscal reforms through expenditure rationalisation, etc. In the long run,  manufacturing, construction and developments in services sector industries like transportation, public services and banking services, etc., would  provide sustainable   growth in non-hydrocarbon sector .”

Some of Qatar’s financial institutions are contributing strongly to this effort. To promote the diversification of economy, Qatar Development Bank is providing direct and indirect financing to mandated sectors such as (agriculture, industries, health, tourism and education), including small and medium enterprises. It also supports them in enhancing technical skills and developing capabilities.

Sheikh Abdullah also notes that steps have been taken to strengthen the resilience of financial institutions and markets. All these would underpin higher economic growth on sustained basis.

Healthier public finances should also lead to a reduction in public debt. The government was prompted to approach the debt markets in 2018, taking advantage of low interest rates. This enabled it  to raise about $24bn, however debt levels are on courser to fall from 53% of GDP in 2018 to 41% in 2021.

Leading bankers in Qatar see the government playing a constructive role in helping develop the economy. They suggest that this is creating opportunities for the banks too. Mr. Abdulla Mubarak Al-Khalifa, Acting Group Chief Executive Officer of QNB, stressed that the bank’s strong results were achieved in part by aligning itself with the domestic measures undertaken.

“Domestically, our primary focus in 2019 was on the utilities, transport and food security sectors as well as 2022 FIFA World Cup Qatar™ infrastructure projects. We have also continued to support the SME sector, helping fuel growth in the economy. Internationally, we continue to witness underlying growth in our core markets of Turkey and Egypt as well as within our growing international network in Asia, Africa and Europe,” says Al-Khalifa .

The banking sector has been a beneficiary of efforts by the government to support the economy, as well as insulate it from the negative effects of the embargo.

Qatari bank leaders attribute the positive macro-economic climate to the country’s non-hydrocarbon diversification model and prudent fiscal management.  “The country is currently witnessing mega infrastructure projects culminating towards the FIFA world cup in 2022,” says Raghavan Seetharaman, CEO of Doha Bank. “The financial sector has a key role to play in achieving the Qatar National Vision 2030 owing to high level of capitalization and by providing world class banking services and products. Measures taken by the Qatar Central Bank and the government have led to a robust growth in the financial industry. Qatar’s financial sector will therefore be an enabler for Qatar’s economic transformation.”  

Commercial Bank Group CEO Joseph Abraham says that Qatar’s economy remains in good shape, and the government continues to invest heavily in strengthening the country’s knowledge-based economy to secure the nation’s long-term future.

“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. As in other parts of the region, the real estate sector has weakened but good lending opportunities continue for Qatari banks in infrastructure development related to the World Cup in 2022 and energy projects as normal,” he says.

“Since the economic blockade was imposed in 2017, self-sufficiency projects relating to food security, manufacturing and logistics, have been deemed a higher priority by the government, creating new opportunities for lenders and accelerating economic diversification,” says Abraham.

Other Qatari bank chiefs see positive momentum building. “Qatar’s economy is sailing through its post-blockade recovery and entering a transformative era. We’re moving from sustenance to sustainability in the lead up to the World Cup 2022 and in line with the National Vision 2030.  On the back of the blockade in the past couple of years, industries were expanded in the local economy away from the hydrocarbon sector, directed toward trade logistics, food supply, commodities and agricultural businesses, among many others.” says Khalid al-Subeai, GCEO at Barwa Bank.

Fahad al Khalifa, GCEO of Al Khaliji Bank, is another prominent Qatari banker who is confident about Qatar’s macroeconomic outlook.  “These exciting times hold massive potential for country. Qatar’s transformation, as outlined in its National Vision 2030, is well advanced and an entirely new domestic, self-sustainable economy powered by local businesses and entrepreneurs is shaping up,” he says. 

There is, says Al-Khalifa, unprecedented entrepreneurial and investment activity in the local market. “Robust industries, in services, trade logistics, food supply, commodities and agriculture were born on the back of this transformation. Furthermore, preparatory works for the FIFA World Cup 2022, as well as mammoth infrastructural developments in the country, promise to not only recoup but also, grow sectors that were impacted by the geopolitical developments of recent years,” he says.

“There have been many positive reforms to policy making under the visionary leadership of H.H. The Emir Sheikh Tamim Bin Hamad Al Thani to develop a global open economy,” says Al-Khalifa. “The country has forged new trade alliances, is promoting public-private partnerships, relaxing the regulations on foreign direct investment, enhancing ownership rights and easing visa requirements. We are extremely confident in the macro-economic outlook and future of Qatar.”

By GlobalCapital
30 Sep 2019