Quantifying Qatar's promise is the next $100 billion wager. In the coming decades will Qatar be seen as a classic micro Gulf state boasting vast energy reserves, a great airline, and little else? Or will it have the chops to become Dubai Mark II, a new regional playground for bankers and superannuated sporting stars? And what of investment prospects for this tiny country. Will Qatar diversify, as Dubai – which lacks long-term scalable energy resources – has done, building world-class infrastructure and dragging in tourism dollars? Or will the ruling Al Thani family ride on the coattails of the nation’s vast gas reserves for as long as possible?
First, the positive news. By any reasonable measurement, this is a country superficially rich in potential and resources. Gross domestic product rose 6.2% year-on-year in 2012, according to the Qatar Statistics Authority, and by 6.6% on an annualized basis in the final quarter of the year.
“Qatar,” notes William Jackson, an emerging markets economist at Capital Economics in London, “is likely to [remain] one of the world’s fastest growing economies in the Gulf over the next few years.”
Selling gas, notably to resource-poor Asian countries, has enabled the nation to join the leagues of the super-rich. Measured by purchasing power parity per capita, Qatar ranks as the world’s wealthiest nation, according to IMF data, ahead of Luxembourg and Singapore.
This vast wealth has fostered a desire for global prestige, manifesting itself – as it has in the Emirati capital Abu Dhabi – through the conspicuous buying of foreign assets.
In recent years, the nation’s sovereign wealth fund, the Qatar Investment Authority (QIA), has sunk billions into buying everything from football clubs (Paris Saint-Germain – PSG) to marquee shopping malls (Harrods) and Hollywood studios (Miramax).
Then there’s the silverback in the jungle: the World Cup, coming to the Middle East for the first time in 2022. Qatar’s successful bid for football’s premier tournament was a huge surprise – it still is – and politicians and strategists in the capital Doha are leaving nothing to chance.
The tournament is being used as an opportunity to build an entire economy. Around $250 billion will be spent during the next decade building new stadia and new cities, connected by high-speed rail and served by new ports and airports.
The region’s first integrated hydrocarbon-focused business hub, Energy City Qatar, will be installed 20km north of Doha International Airport. All of this provides a bonanza for local and foreign corporates, from architects to real estate managers and financial underwriters to construction giants.
Neither is this just about hardware. In recent years, Qatar has channelled billions of dollars into transition states, including Egypt and Tunisia – former dictatorships with painful pasts and uncertain futures. By padding gently into the world of soft power, Qatar has shown it is keen to shape its future, as well as the region around it, rather than reacting passively to events.
Then there’s the tricky issue of diversification. This is never easy, particularly when one resource – in this case hydrocarbons – predominates.
Kazakhstan, another resource-rich nation squeezed between bigger sovereign beasts, is seeking, through its Business Roadmap 2020, to boost entrepreneurship, IT investment and the export of finished manufactured products.
Yet even that country’s central bank governor Grigori Marchenko admits that forcing investment capital into new branches of the economy does not guarantee success. Marchenko flags up the cautionary tale of Houston – America’s self-declared world energy capital.
“I was there a decade ago,” he tells Euromoney. “They had a long-term plan to diversify away from oil and gas, which they threw money at [in the 1980s and 1990s]. Yet over that period the share of people employed [in the energy sector] only fell from 56% to 53%, so it’s not easy to diversify when one commodity dominates, and is profitable.”
Qatar, to its credit, has opted to plough on regardless. Its outsized ambitions here are eye-watering: funding the national budget using non-petrochemical means by 2020; a 20-year healthcare and IT plan; channelling $18 billion into education and welfare, and $20 billion into tourism infrastructure.
Is this working? It’s a case of so far, so good. Revenues generated from oil and gas, which makes up half of all Qatar GDP, rose only 1.7% in 2012. By comparison, the construction and finance sectors both grew in size by 34% last year, while manufacturing expanded by 28%.
There is a downside to this story. Diversification is easier announced than achieved. Like many resource-rich countries before it, Qatar is finding that generating money is the easy part. Investing it wisely and profitably for the benefit of current and future generations is far trickier.
What's more, although Qatar’s economy continues to grow apace, GDP surprised on the downside in 2012: after all, this is an economy that expanded at 14.1% in 2011 and 16.7% in 2010.
The good times seem unlikely to return. “Qatar’s years of double-digit growth rates have come to an end,” warns Capital Economics’ Jackson, who also highlights “growing vulnerabilities” in the overleveraged and opaque banking sector, and the greater threat posed by a sustained fall in energy prices.
Therein lies a bigger issue. Gas might have made Qatar rich, but it’s a finite resource. New discoveries look set to disrupt global production and pricing. The US is on track to be a leading exporter of shale gas. Australia is set to overtake Qatar as the world’s third-largest natural gas producer by 2020.
Qatar, to its credit, is reacting to this threat by securing new, 20-year liquefied natural gas delivery contracts with a host of resource-poor Asian nations, including South Korea, Taiwan and Pakistan.
The World Cup is another quandary. Much global attention has been lavished on the quadrennial event, and rightly so. However, when the hoopla subsides in August 2022, what will the nation do?
The big challenge will be to ensure that investors, bankers and multinationals stay on. This won’t be easy – after all, Dubai, a city that blends business and leisure, is just up the coast.
Indeed, football might come to define this tiny Gulf state. Will Qatar approach 2022 secure in its future: a self-confident nation boasting a diversified economy that emulates, and even surpasses, Dubai’s? Or will the tournament’s closing ceremony herald a steady outflow of investment and executives, negating and even reversing some of the country’s achievements.
The jury is out. Perhaps only a decade from now will we fully be able to quantify Qatar.