2008 Year in Review


Economic News

22 Jul 2010
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Though many of the world's economies moved into recession in 2008, Qatar utilised its high energy income and massive fiscal reserves throughout the year to maintain growth and economic stability, while at the same time investing for future expansion.

In August, Qatari National Bank (QNB) estimated that the country's Gross Domestic Product (GDP) would rise by 19.5% this year and by 16% in 2009. Though well down on the 30% seen in the years 2004 to 2006, the figure is nevertheless enviable.

Much of this growth will be driven by Qatar's booming energy sector. With proven reserves of at least 32trn cubic metres and having spent heavily in processing and shipping infrastructure, Qatar is now the largest exporter of liquefied natural gas (LNG) in the world.

In early April, Mohammed bin Saleh Al Sada, Qatar's minister of state for energy and industrial affairs, announced an ambitious programme to reinforce Qatar's LNG dominance. Under the scheme, gas output would be increased from the current 31m tonnes to 77m tonnes by 2010, while oil production capacity would rise to more than 1m barrels per day from the present level of 850,000.

To meet this target, Qatar is bringing new gas fields on line and raising production at existing fields, along with increasing storage capacity and building a new prefabricated loading berth at the port of Ras Laffan to speed up gas transfers.

Not only is Qatar boosting production, it is also increasing its profile as a transporter of LNG, with producer Qatargas building up its fleet of tankers. Indeed, eight are already flying the company flag, while the Qatar Gas Transportation Company (QGTC) announced plans in the middle of the year to boast 56 tankers in its fleet by 2010, making it one of the largest LNG carriers in the world.

Having captured a large slice of the Asian market in recent years, the emirate is also looking to expand its client list. It has begun exports to Spain, and officials from Poland and Hungary are holding talks with Qatar about future imports. Additionally, both the UK and Italy have turned to Qatar as a source for gas, with the former planning to meet 20% of its gas needs through imports from the Gulf state and Italy around 10%.

With long-term contracts locked in, and new markets opening up, Qatar's energy sector performed well during the year and will continue to be the foundation for the economy in the future.

Another sector to have survived the worst of the international credit crisis is Qatar's banking industry, which has been less affected than some in the region, with only minor exposure to toxic loan instruments.

In mid-December, the Fitch ratings agency released its latest assessment of Gulf banks. While the agency downgraded the individual ratings of some banks in the region, it affirmed the Issuer Default Ratings (IDR), individual ratings and outlook predictions for all six Qatari banks reviewed.

Fitch's assessment was based in part on expectations that Qatar's sovereign wealth fund, the Qatar Investment Authority (QIA), would provide support to any banks in need. In October, authorities unveiled a scheme under which the QIA would buy up to 20% of listed banks' capital, part of a programme to inject liquidity into the banking sector, stimulate growth and maintain confidence.

One issue that has consistently been a source of concern across the region is inflation. However, there are signs that Qatar's rate, the highest in the Gulf, has peaked and has begun to ease. At the end of March, inflation climbed to 14.75%, and hit a record high of 16.59% by June, driven in part by soaring commodities prices and the falling value of the US dollar, to which the Qatari riyal is pegged. But with the greenback regaining some of its former strength, and with shipping costs down and global commodity prices retreating, inflation fell to 15.81% in the third quarter, according to figures released by the Qatar Statistics Authority in early December.

Earlier in the year, there had been calls to cut the link with the US currency as the dollar plunged, pushing up the cost of imports. Now, with inflation falling and the dollar trading strongly, the Qatari government's determination to maintain the peg has been vindicated.

Like all of the exchanges in the region, the Doha Securities Market (DSM) experienced a year of ups and downs. Having closed 2007 at 9,580.45 points, the DSM's main index climbed to a record level of around 12,500 points by June before beginning a steady retreat, falling by 25.6% in October and 12.4% in November. By mid-December, the DSM had dropped back to 6,642.60. However, it is now showing signs of recovery.

During 2008, Qatar pushed ahead with efforts to boost the country's infrastructure. In late March, Qatar Electricity and Water Company (QEWC), the country's partly privatised utilities service provider, and Qatar Petroleum (QP) signed an agreement with French firm Suez Energy International and Mitsui of Japan to build and operate a new $3.8bn power and water production facility at the Ras Laffan Industrial City (RLIC).

The new contract was signed only days after the official opening of a $900m water and electricity plant, also located at the RLIC. Also in March, Qatar General Electricity and Water Corporation awarded contracts worth $323m for the expansion of water supply networks and pipelines, while QEWC announced plans for a water desalination plant at Ras Abu Fontas.

Through careful management of its fiscal and energy reserves, along with considered spending and investment to ensure growth, Qatar should ride out the worst of the global downturn and appears well placed to exploit the economic rebound when it kicks in.

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