With oil and natural gas exports accounting for over 50% of GDP and almost 70% of government revenues, Qatar’s economy relies heavily on leveraging its hydrocarbons resources. The Gulf state has the third-largest proven natural gas reserves in the world and is currently the largest producer of liquefied natural gas (LNG). Elevated oil and gas prices combined with a strategic investment programme have helped make Qatar one of the world’s highest per-capita income economies – and one that continues to grow.
CENTRAL ROLE: Despite a reduction in new projects, the oil and gas sector grew by QR124.71bn ($34.25bn), or 52%, in 2011 with a total output of QR364.46bn ($100.08bn) according to the Qatar Statistical Authority. This growth was mainly attributed to higher international oil prices. As a result, the contribution of hydrocarbons to GDP increased from 44.8% during 2009 to 57.7% in 2011. These resources also drive growth in non-hydrocarbons sectors such as construction, real estate, tourism and education.
Within this context, the country’s entire economy is at present particularly exposed to price fluctuations in global energy markets. In its 2012 Article IV staff report for Qatar, the IMF attempted to calculate the extent of this potential exposure, assuming a “crisis” scenario that envisions an average price of oil at $55 per barrel in 2012 and $70 in 2013. It also assumed LNG production at 15% below the benchmark scenario, with crude oil prices used as a proxy for gas prices. The IMF concluded that, under these assumptions, Qatar would have a fiscal deficit after 2012 and that its current account surplus would fall from 25.6% of GDP in 2012 to 5.6% of GDP in 2015.
RESPONSE: The government’s long-term strategy therefore places stability against volatile markets at the centre of the country’s development plan with a comprehensive vision to balance growth and stability. Through the Qatar National Vision 2030 (QNV 2030), the country’s leadership has committed to investing its resources in its people and in infrastructure to create a more diversified economy in which the private sector plays a bigger role. In the more immediate term, the first National Development Strategy 2011-16 (NDS) identifies priorities for the country and seeks to articulate specific actions and targets for each sector. The NDS calls for major investments in education, health and research to help develop a knowledge-based economy that encourages innovation and entrepreneurship.
The NDS assesses the challenge presented by volatility in energy markets by analysing the potential impact of lower oil and gas prices separately because oil and gas spot prices increasingly shift independently of each other. Furthermore, Qatar is partially shielded from volatile hydrocarbons prices because its gas is sold on the basis of long-term agreements that seek to lock in prices. Most recently, RasGas, for example, signed a deal to supply South Korea’s KOGAS with 2m tonnes of LNG a year for 20 years, starting in 2013.
However, the structure of such agreements does mean that extended periods of low prices would still affect the country’s fiscal conditions.
FISCAL REFORM: The first element in Qatar’s strategy to ensure stable growth in a volatile global energy market is to strengthen fiscal management by reforming the national budget framework. The country plans its expenditures against an annual budget that is based on inputs such as salaries, spending on specific projects and operating expenditures. While this has not hindered growth over the past decade, the NDS recognises the need for a more effective allocation of resources to maximise revenue efficiency. As such, a specific goal of the NDS is to establish a coordinated budget process that is linked to the strategy and to the plans of other government agencies.
Linking budgets to the NDS, which is a five-year strategy, will require shifting away from annual inputs to a multi-year programmatic planning process that is focused on outcomes that are in line with goals in the NDS. These will be associated with key financial performance indicators that will strengthen monitoring and evaluation and help measure progress. In parallel, Qatar will establish an investment management framework that will help prioritise investment projects through a sector-wide approach. The Ministry of Economy and Finance will lead this process with support from other government agencies including the General Secretariat for Development Planning.
The Qatar Central Bank (QCB) also has an important role in ensuring economic stability, pointing out that “a sound macroeconomic policy supporting a stable environment will play a crucial role in the expansion and prosperity of the non-hydrocarbons sectors”. To this end, the central bank promotes financial stability, through the use of both macroprudential tools and monetary policy. With respect to the latter, the riyal’s peg to the dollar limits monetary actions, but the QCB controls liquidity through reserve requirements, the QCB money rate, open market operations and administrative controls on banks consumer credit activities. It also utilises preventive measures to ensure the economy is not exposed to an unacceptable level of risk.
DIVERSIFICATION: In addition to strong fiscal and monetary management, the government is using its resources to diversify the economy and reduce its exposure to external risks. Improved infrastructure, for example, will help attract a range of businesses to the country. The $11bn New Doha International Airport is set to help establish Qatar as a centre for business and tourism when it opens by the end of 2012. It will eventually have a maximum capacity of 50m passengers and 2m tonnes of cargo. The new airport will directly generate jobs for 8000 staff with an associated impact on firms providing ancillary services.
Additionally, the country has several large-scale road projects in the pipeline that will continue to improve national and regional connections. The planned Bahrain Causeway ($3bn), Dukhan Highway ($1bn), Doha Expressway ($0.44bn), Qatar North Highway ($0.6bn), and Al Khor to Al Ruwais Road ($0.6bn) projects are just a sample of the investments currently under way.
BUILDING FOR GROWTH: Construction is also moving forward for a number of major real estate projects, such as the $1.35bn Barwa Financial District, which will serve the global, regional and local financial sector (see Construction & Real Estate chapter). In late 2011 Qatar Today reported that the property sector is likely to see launch of QR36.4bn ($10bn) worth of projects in the coming years, noting that there are at least 18,000 residential and commercial buildings under construction in Qatar. Out of 160 towers proposed for launch in 2022, 13 will be ready by 2013.
Finally, business and leisure tourism is poised to grow rapidly over the next few years (see Tourism chapter). Qatar has targeted the high-end market by developing multibillion-dollar resorts, venues and sporting events. Tourism is a major part of the economy, with the Qatar Statistical Authority reporting trade, restaurants and hotels accounting for more than QR34.92bn ($9.59bn) of GDP in 2011.
A large part of this stream comes from the meetings, incentives, conventions and exhibitions (MICE) segment. As part of the NDS, Qatar is investing $17bn into tourism infrastructure to develop luxury hotels, resorts and meeting facilities. The Qatar Tourism Authority estimates that hotel capacity will need to increase to over 29,000 luxury rooms and apartments by the end of 2012 to meet demand.
INVESTING IN DIVERSIFICATION: Qatar has used its oil and gas revenues to create a strong foundation upon which other sectors will build as it works to continue driving the growth of the economy. The Qatar Investment Authority (QIA), the country’s sovereign wealth fund, is a major part of these efforts. Domestically, the QIA invests to support small and medium-sized enterprises, national branding and promotion, property development, education, and research and development, among other activities.
Internationally, the QIA invests directly and across asset classes. Executive board member Hussein Al Abdullah said in July 2012 that the QIA’s overseas investments for the year would surpass $30bn. Among the authority’s investments are stakes in French oil company Total, real estate in London and Paris, and Spanish power company Iberdrola. The QIA is also seeking approval for a $5bn stock and bond purchase in China and is active in negotiating commodities firm Glencore’s takeover bid for mining company Xtrata, in which the QIA has a stake of around 11%.
Looking ahead, the non-hydrocarbons sector is projected to grow at between 9% and 10% annually until 2016, according the IMF. Qatar’s determination to expand its non-hydrocarbons sectors is illustrated by its goal of fully financing its budget from revenues derived from sources other than oil and gas. Winning the rights to host the 2022 FIFA Football World Cup suggests that public spending will increasingly be directed to support non-hydrocarbons growth over the next 10 years. Furthermore, investments in a diverse range of sectors including health, education, tourism and financial services should ensure that the country’s recent gains can be sustained over the longer term.
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