Added incentives: Making industrial cities more attractive to investors

The Qatari government’s strategy to diversify the country’s economy and industrial base is likely to rise or fall on the back of the investment environment it creates on the ground. While major steps have already been taken in this direction, the government recognises the need to do more to create the incentives that will attract new and dynamic industries to the peninsula.

PLANNING DEVELOPMENT: According to the National Development Strategy 2011-16, created by the General Secretariat for Development Planning, “Industrial land use is subject to fragmented regulation and procedural encumbrances, and the associated infrastructure services are of variable quality. Some efficiencies and improved services have been realised through programmes designating specific areas for industrial uses, including a number of industrial cities to serve the hydrocarbons sector and related industries.” Qatar has two primary industrial areas, Ras Laffan Industrial City, home to the country’s LNG sector, in the north, and Mesaieed Industrial City (MIC), which houses much of the petrochemicals industry, in the south. These areas have been extremely successful at creating industrial clusters in the country, but as the government looks towards a further move downstream and greater diversification, the cities will have to be able to adapt. According to Dominic Carlone, the head of strategy and systems at MIC, “Mesaieed is the downstream hub. We are now focusing on light industries. Down here it’s all about diversification. We receive the feedstock and either use it for power generation or petrochemicals and other downstream products.” As such, the city, located around 40 km south of Doha and owned by Qatar Petroleum, is looking at a number of developments to support the government’s diversification strategy. For example, a 12-sq-km light industry zone is currently being developed. The area will house plants and factories moving further downstream from the city’s core industries of petrochemicals and steel. According to William Pottiger, a senior urban planner at MIC, 80% of the land in the area has already been allocated, suggesting a strong demand for industrial space in the country.

LOW COSTS: Natural gas and electricity are provided to tenants at nominal rates, which have supported the mushrooming of Qatar’s heavy industrial and petrochemicals sectors. Land prices have given investors a compelling reason to look at Qatar, with industrial land starting at a rate of QR2 ($0.55) per sq metre per year, according to the Ministry of Business and Trade. The low cost of establishment is bolstered by a number of other regulations that support industrial production in the country. For example, since 2000 the government has altered the investment environment, removing Customs duties on imports of machinery, equipment and spare parts for industrial projects, eradicating export duties and allowing non-Qatari companies to invest up to 100% in companies in certain industrial sectors. According to the Ministry of Business and Trade, foreign direct investment reached QR31.67bn ($8.7bn) in 2009, compared to an annual average of QR615m ($169m) between 1990 and 2000. The 2009 figure represents a QR7.28bn ($2bn) jump on 2008 levels.

The government continues to improve the environment for industrial investment. MIC has been working to improve the conditions for establishing an industry in Qatar. According to the World Bank’s Doing Business Report, Qatar ranked 116th out of 183 countries for starting a business in 2012. While this represented an eight-place rise on 2011, it suggests there is still room for improvement. MIC has been working on this by providing services to coordinate the registration and establishment of industry in the zone.

MESAIEED: The Mesaieed area is emerging as one of the main engines of industrial growth in the country. The area has the country’s largest industrial port, with an annual capacity of 400,000 twenty-foot equivalent units (TEUs), and approximately 60% of Qatar’s exports passing through its berths. According to Mohammed Briouig, a senior marine planner at MIC, “The country will rely on our port to handle most of its imports. This will be critical because the 2022 FIFA World Cup, and potentially the Olympics, will require a lot of imports.”

The New Port Project located between Doha and Mesaieed will bring an additional three container terminals with capacities of 2m TEUs when it opens in 2016. Mesaieed will likely emerge as a hub for the building materials industry, given that it is home to the Gabbro berths that will bring in the aggregate for the forthcoming building surge. To accommodate this, the city has built an additional 360-metre Gabbro berth and brought in four new gantries. Similarly, the area is likely to benefit from the government’s move into lighter and high-tech industries. The authorities in the city have been gearing up for an expected increase in activity. According to Carlone, a lull in activity caused by the global financial crisis has given them an opportunity to put strong foundations in place for the future. “We have taken an opportunity to pause and work on the beautification of the city and some infrastructure work that hadn’t been done. We’ve been working on roads and housing for people who will live here on a permanent basis. We’re taking this opportunity in anticipation of the next boom,” he said.

DIVERSIFICATION: As such, the city is planning developments around this, establishing a transport master plan in 2011 to ensure no bottlenecks arise within the city or its environs, and bolstering residential housing in the area. There has also been a significant expansion of the area’s electricity capacity, which currently stands at 3500 MW. MIC will also add a business park, providing office space to light industries, the high-tech sector, and government and education establishments.

The National Strategy 2011-16 calls for three economic zones that, once approved, “will represent a significant step forward in the availability of high-quality industrial land”. Diversification is also being aided by hydrocarbons transport firm Nakilat’s Erhama bin Jaber Al Jalahma Shipyard. The facility became the country’s first dry-docking project for LNG in 2010, and subsequently started shipbuilding and repair activities, a first for Qatar. Erhama bin Jaber Al Jalahma Shipyard encompasses two components: ship repair yard Nakilat-Keppel Offshore & Marine (also known by its abbreviation N-KOM) owned by Nakilat (79%), Keppel Offshore & Marine subsidiary KS Investments (20%) and Qatar Petroleum (1%); and shipbuilder Nakilat Damen Shipyards Qatar (known as NDSQ) owned by Nakilat (70%) and Dutch shipyards group Damen.

The government is laying the groundwork for a rapid and broad expansion of the country’s industrial base.

Well-established industrial areas are upgrading and expanding their facilities in expectation of higher demand, while new industrial and economic zones that will support the existing infrastructure are in the pipeline.

All of these areas are unified by the cheap cost of industrial operation and by a determination on the part of the government to establish a favourable regulatory environment for investment in the industrial sector.

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The Report: Qatar 2012

Industry chapter from The Report: Qatar 2012

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