Industrious Emirate

Qatar

Economic News

22 Jul 2010
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Qatar's long standing policy of diversifying its economy is bearing fruit, with the country's industries making greater contributions to Gross Domestic Product (GDP), increasing their share of export earnings and offering employment opportunities.



Directly or indirectly, most of Qatar's industrialisation process is dependent on the country's massive reserves of natural gas - the third largest in the world. Gas either provides the power source used to fuel much of Qatar's industrial plants or serves as the raw feedstock for industries such as the petrochemical, plastics and fertiliser sectors.



The government began pursuing a policy of industrialisation soon after the emirate started large-scale oil exports in the mid-1970s, setting up joint ventures with foreign partners to establish facilities for steel and petrochemical production, with other industries being launched in subsequent years.



The success of the industrialisation policy can be seen in the performance of the Industries Qatar (IQ), a holding group formed in 2003. Some of the country's main industrial producers have been brought under IQ, including Qatar Steel; Qatar Fertiliser Company (QAFCO), the Gulf region's largest producer of fertilisers; Qatar Fuel Additives Company (QAFAC), which produces methanol and methyl tertiary-butyl-ether; and Qatar Petrochemical Company (QAPCO).



The group's profits topped $1.4bn in 2007 and had total assets of $5.5bn as of December 2007. Expansion plans are set to see this increase to $9.5bn by 2010.



Petrochemical production remains one of the sector's strongest performers. Early last year, Energy Minister Abdullah bin Hamad Al Attiyah said Qatar's annual petrochemicals output was expected to reach 18m tonnes in 2012, which firmly puts the country amongst the biggest producers of petrochemical products in the world.



As part of that commitment to growth, QAPCO has announced plans for a $700m expansion programme to increase ethylene and polyethylene output, having commenced operations at a new $220m ethylene plant at Mesaieed.



IQ's plans for expansion go far beyond the petrochemicals sector, with Qatar Steel having also announced plans to almost double production by 2012, building on its current capacity of 1.14m tonnes of steel billets and 832,000 tonnes of steel bars. Though the construction sector in many Gulf states is experiencing a slowdown, analysts expect the impact of the global economic crisis to be lesser in Qatar, where there is still high demand for residential, business and manufacturing properties, as well as the government's own long-term infrastructure programme.



While Qatar has ample supplies of gas to support its growing industrial base, it is heavily reliant on imports of other raw materials to feed production. Companies such as Qatar Steel and Qatalum, the joint-venture aluminum producer set to begin operations at its $4.8bn smelting plant at Mesaieed late this year, will have to rely on overseas suppliers for ore. The cost of these materials will push up Qatar's import bill, though with much of the final product from both firms destined for export, these costs will be more than offset by revenue.



While the industrial sector in Qatar represents huge opportunities for investment, there is a slight concern that new ventures could be slowed down in the increasingly bearish global market. Qatar's industries may suffer from a slowdown in foreign direct investment (FDI) in the short-term, due to the financial crisis, limiting financing and credit provision, and possibly forcing companies to scale back their expansion programmes.



Still, this should remain a short-term matter as the fundamental economic factors underpinning Qatar's industries remain sound. With existing capacity and new developments planned, Qatar's industries are well placed to take advantage of the next cycle of regional and global economic growth.
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