In a recent exclusive interview, Yousef bin Hussain Kamal, Minister of Finance of the State of Qatar, spoke to OBG about the plans being hatched to channel profits from the oil and gas industry into diversifying the Qatari economy.
OBG: Last time you spoke to OBG we discussed the five-year plan that you laid out. How has this proceeded?
Kamal: If you look at the figures it has gone better than we expected. It's a rolling five-year plan, so we review it every year with a view to the next five years. The only thing I can say is that our plan has stayed as it is. We didn't change anything and we achieved almost everything we wanted for 2004. GDP was higher than we expected because of the high price of oil. On the projects side, I think all of our projects are proceeding according to our timetable, there are no delays.
OBG: How have plans for continued diversification proceeded?
Kamal: Whilst we cannot go too far from oil and gas, and most GCC countries depend heavily on oil and gas, diversification is not just directly downstream. It's also about how much of your assets you use for things like investing in education and health. In the long run, this is a diversification; having growth in the minds of a well-educated people. Of course, we are pushing ahead with investment in our plans to develop tourism and other sectors like banking and finance. But for the next five years we will depend almost 75% on oil and gas; we aim for diversification and we have great plans for it, but it doesn't happen overnight and it's hard to achieve widespread diversification within five or six years.
OBG: What are you plans to develop financial services as a sector?
Kamal: We have plans for an international business and financial centre which we are already working on. We have the laws and the legislation, with the official announcement coming in May this year. The centre will effectively be a state within a state; they will have their own laws, registration, jurisdiction, management, regulatory body - in fact everything will be there. It will be under our sovereignty but will be beyond our regulatory authority and will hence have little to do with the State of Qatar in terms of the autonomy we grant it to encourage an attractive and open business environment.
OBG: How will that compete against other similar developments in the Gulf, such as the Dubai International Financial Centre?
Kamal: Well I think you have to look what catalysts there are for developing these centres, if you take the growth in the State of Qatar and the projects that are going on here then we are investing about $80bn within the next seven years. That money is the catalyst for any financial institution to think where they should position themselves geographically. Most of the financial institutions like to be near to where the project is - it works to their advantage - and we want to provide the facilities for them to be here without needing to operate under the auspices of the Qatar Central Bank (QCB) and our domestic regulation.
OBG: So the institutions would be here but they wouldn't operate under the jurisdiction of the QCB?
Kamal: No, it is like a state within a state; so they have their own jurisdiction and everything but their own flag. It's for business too though. There are many oil companies that wish to have their regional headquarters here. They are looking for a location where there are favourable regulations, no tax and no controls. We're trying to create the place they can come too.
OBG: Is the project funding all coming from international credit markets?
Kamal: If you are looking at the oil and gas projects, then most of these are joint ventures geared at 30% as equities and 70% as loans. All the loans come from outside. Of the equity, 70% is owned by the state of Qatar through Qatar Petroleum, which means we pay 70% of that 30%. The other 30% of the equity again comes from outside.
OBG: What are Qatar's plans for pursuing free trade agreements and who with?
Kamal: Negotiations are ongoing through the Gulf Cooperation Council (GCC) framework for agreements with the European Union, Pakistan, India and China. The only country which is undertaking individual negotiations is the US. They have already signed with the Kingdom of Bahrain, but the United Arab Emirates, Kuwait and Qatar have already started negotiations with them too. We had a team in Washington last month negotiating the terms of our agreement. We know what we want from this and the time frame is determined by us achieving that. We don't see that going outside the GCC framework is an issue.
OBG: Do you think the mechanism of GCC integration could be disrupted by the individual approach to negotiating free trade agreements with the US?
Kamal: I don't think so. In the end, if you take the individual agreements they are essentially just one portion of the wider agreement. If you take a unified view of all the agreements, in the end it will be like one big agreement.
OBG: What are the benefits for Qatar of GCC membership?
Kamal: Well it's better to have a bigger market and more access to it. This is especially true for the GCC countries, [all of] which have a lot in common, particularly in terms of the[ir] dependence on oil and gas. Trade between GCC countries has been enhanced more than 25% in the last two years because of the customs unification alone and in the future we will open our market completely, so this effect will stimulate more activity, which highlights the benefits of a bigger, more open economy. There are other benefits too, such as travelling around the GCC without showing passports, but we have to think about the long term. In the short term, some people may think there are no benefits, but in the long run integration has many advantages over staying separate.
OBG: It seems that the state of the US dollar is hitting those locally who import from the EU and the Far East. What kind of measures can you take to stave off these effects?
Kamal: Well, first of all you have to understand that if there wasn't a weak dollar then there wouldn't be an oil price of $45 a barrel. Most non-dollar countries are not paying that price in real terms; they pay in their own currency. When you look at it this way, the increase in the price of oil has been less than 7%, not the 30% people are talking about. However, if you come to the State of Qatar, our development is built in dollars, the loans are in dollars and we are paying it back in dollars. Also if you look at the imports and exports, most of them are in US dollars, so this means the effects have not been as pronounced as it may first seem.
It is also the case that most non-dollar countries are still selling their products at the same price in dollars as they were two years ago - they aren't increasing their price 30%, despite the currency moving because they realise the need to keep their markets. Finally, inflation has not necessarily been because of the US dollar and its weakness; prices have been driven by demand. We realistically estimate 80% of inflation has been demand driven.