Although total foreign direct investment (FDI) inflows to Qatar declined in 2013, foreign investment is thriving in Qatari industry, representing over half of all investment in the sector in 2014. As construction activity ramps up in the state, FDI in the industrial sector is expected to expand further on the back of planned industrial zones, incentives for investors in high-priority sectors and state-sanctioned lending provided by Qatar Development Bank (QDB), which has seen funding for a host of new domestic projects soar in recent years.
GROWTH: From a regional perspective, the “World Investment Report 2014” by the UN Conference on Trade and Development (UNCTAD) shows FDI outflows from West Asia jumped by 63.1% in 2013 to $31bn, up from $19bn in 2012. Growth was driven by GCC countries, which have high foreign exchange reserves due to large surpluses from exports.
In Qatar’s case, as a result of its international clout and rising export earnings, FDI outflows more than quadrupled, from $1.8bn in 2012 to $8.02bn in 2013, accounting for 14% of the state’s gross fixed capital formation, up from 3.4% in 2012. According to UNCTAD, Qatar’s outward FDI stock grew by 39.2% from $20.41bn in 2012 to $28.43bn in 2013, while its inward FDI stock declined marginally, from $30.8bn in 2012 to $29.96bn in 2013. Meanwhile, overall FDI inflows dropped in 2013, falling to -$840m, from $327m in 2012, indicating that the value of foreign divestment was greater than the value of newly invested capital in the Qatari economy.
A large portion of such investment comes from industry. In mid-2014 the Ministry of Energy and Industry announced that total investments in Qatari industries reached QR248bn ($68bn) as of June 2014, of which 52% was foreign, and a total of 670 industrial facilities established to date. This is set to continue: Mohammed bin Saleh Al Sada, minister of energy and industry, told local media the ministry is striving to attract domestic, regional and foreign investment in new areas, including value-added downstream gas production. According to Al Sada, the ministry has prepared a list of 30 small and medium projects in areas including pharmaceuticals, chemicals, metallurgy, environmental services and high-tech industries, for which it plans to offer tax and fee exemptions on inputs and equipment, with some project financing to be arranged through QDB, in addition to new industrial areas for projects.
QDB: Previously known as Qatar Industrial Development Bank, QDB was established in 1997 to support economic diversification by promoting and financing small- and medium-scale development projects. The bank has played an active role in helping finance new domestic projects, offering financial services, banking and loans for high-priority sectors, including industry, tourism, education, health care, agriculture, animal resources and fisheries.
Its Al Dhameen programme, for example, assists start-ups and existing companies that need collateral to fund their establishment or expansion in the manufacturing, health care, education, tourism and added-value service sectors. The programme facilitates financing for small and medium-sized enterprises (SMEs) from one of 14 partner banks by issuing guarantees valued at 85% of the finance value, and capped at QR15m ($4.1m.) Under the programme, Qatari SMEs and joint ventures with annual turnover of up to QR30m ($8.2m) can apply for a loan guarantee through Al Dhameen, which offers an eight-year tenor for manufacturing projects with a two-year grace period, or a five-year tenor for services projects with a one-year grace period.
According to its 2013 annual report, QDB approved QR146.4m ($40.1m) in these types of loan guarantees in 2014 through the Al Dhameen programme, securing access to lending for 62 SMEs that otherwise may not have received financing. In total, the bank has approved some QR553m ($151.6m) in loan guarantees for more than 205 SMEs since 2011.
The bank is also active in lending. QDB’s direct lending portfolio rose to QR2.6bn ($712.7m) in 2013, with total lending up 20% during the first 10 months of 2014, according to QDB officials. This expansion was driven by new manufacturing, industrial and raw materials projects, which remain a prime focus for direct lending. “Building materials will continue to be buoyant moving into 2015,” Zaheer Seth, acting executive director of business finance at QDB, told OBG. “The steel industry, for example, performed poorly from 2009 to mid-2013, but all of a sudden all major players have secured sizeable contracts, so we are witnessing lending rise as a result.”
Tourism remains a high-priority development sector. In November 2014, the Qatar Tourism Authority (QTA) and QDB identified six projects to be fast-tracked to bridge gaps in the market. The projects, including a luxury dhow dining cruise, coach company, 4×4 leasing company, business tourism management company, ticketing and mobile information centre, and SME cottage markets, will be fast-tracked through the approval process with QTA’s assistance. Within one month of the announcement, four of the six had received funding.
QDB is also targeting investment in the education sector, providing QR29m ($7.9m) in education loans in 2013. This is set to expand in 2015: in June 2014 QBD announced plans to offer a 15-year loan for private investors that are establishing institutions at the pre-primary, primary and secondary school level to expand offerings and meet a growing shortage of primary and secondary spaces. QDB partnered with the Supreme Education Council (SEC) to offer loans subsidised at around 3-4% per year, covering 70% of the project cost. The SEC will conduct feasibility studies for proposed projects, while QDB provides financing. These efforts are much needed, as no capital investment in the sector was recorded in 2012, according to a 2014 report published by Alpen Capital, in part due to the capital-intensive requirements to register a business.
PRIVATE SECTOR: Private firms in Qatar will benefit from ongoing state support, as indicated by recent statements from Sheikh Tamim bin Hamad Al Thani. In November 2014, the emir announced the government had taken steps to restrict public institutions from competing with private entities, in order to bolster private sector development. Addressing the Advisory Council, the emir said the government had issued a circular restricting state-funded institutions from setting up companies or engaging in economic activities in sectors where private players are active without prior permission from the Office of the Prime Minister. He added that 19 new projects had been initiated to improve private firms’ competitiveness. With development of the private sector high on the agenda, Qatar’s business climate is expected to become increasingly attractive to investors.
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