Looking Back

Qatar

Economic News

22 Jul 2010
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Last week's Fifth Doha Development Forum provided Gulf Cooperation Council (GCC) leaders with an opportunity to take stock and reflect on the achievements of their organisation's 14-year history. The forum also highlighted Qatar's role in the council, and how much has changed in the region since the GCC was set up back in 1981.



According to 2003 estimates, Qatar made up 5.08% of the combined GDP of the GCC, while holding only 1.71% of its population. In terms of natural resources, Qatar is considerably better endowed than some of its more populous regional partners, owning 3.52% of the GCC's oil reserves and a massive 62.80% of the organisation's proven gas reserves.



In the mid 1990s, Qatar's real GDP growth rate was fourth highest in the GCC, averaging 2.9%; the United Arab Emirates was in the top spot, with 6.7%. However, 2004 real GDP growth in Qatar is put at 9.3%, with the next highest growth rate that of Bahrain, at 5.5%. The Arab Monetary Fund predicts a drop in 2005 for Qatar, to 5%, but this will still leave Qatar among the top two fastest-growing economies in the region.



The challenges Qatar faces are similar to those faced by its regional partners. Economic diversification, industrial development, social change and managing labour markets skewed by large numbers of expatriates are all issues shared by the six member states, as are concerns over security. Indeed it was this latter worry that formed a large part of the initial drive to create the GCC.



The Islamic revolution in Iran in 1979, followed by the outbreak of war between Iran and Iraq in 1980 brought regional security concerns to the fore. These Qatar shared with Kuwait, Bahrain, Saudi Arabia, Oman and the UAE. Once a sustained conflict seemed likely, the countries agreed to co-operate by establishing the GCC, although the mandate of the organisation was ostensibly economic.



Initial moves established a framework of co-operation in the fields of economy, finance, trade and customs. Despite some very ambitious goals early on, the group has now largely eliminated barriers to the free movement of goods, services, national labour and capital. Moves to harmonise banking regulations are also coming along and cross listing of public companies on members' stock exchanges has been allowed. Laws on real estate ownership have also been relaxed so citizens can purchase property in other member states.



The single common external tariff now means that imports originating in the GCC are exempt from duties if 40% of their value-added component is from the region. This customs union is expected to become a full single market by 2008. Although significant challenges in harmonisation still remain, the countries also plan for monetary union by 2010. Whilst some say the effects of this on intra-regional trade will be small, the move will be significantly helped along by the fact that all GCC currencies are pegged to the US dollar.



However, the initial concern over collective defence measures has not been lost in the excitement over economics, as frequent regional defence manoeuvres and ratification of the GCC joint defence agreement in 2001 demonstrate. Under this agreement, any act of aggression targeting another member of the GCC is considered an act of aggression against all members. The agreement also drew up a formal legal framework for military co-operation.



Security has also become a regular feature of regional political rhetoric. The challenges of fighting global terrorism are of paramount concern to GCC nations as they seek to become increasingly attractive venues for foreign investment. The collective voice of the members' governments regularly denounces all acts of terror and has been proactive in developing member states' frameworks for detecting and eliminating terrorist funding that may flow though their financial systems.



However, the last two decades has not all been chocolates and flowers between Qatar and its GCC neighbours; issues of contention have on occasion brought Doha to low-level military posturing with both Saudi Arabia and Bahrain.



In September 1992, Qatar accused Saudi forces of attacking the Qatari border post of al-Khofous, killing two border guards and capturing a third in the process. In protest, Qatar suspended an un-ratified 1965 border agreement with Saudi Arabia, and temporarily withdrew its 200-strong contingent from the Saudi-based GCC Peninsula Shield force in Kuwait.



The Saudi reaction was to deny involvement of its armed forces and blame the incident on fighting between Bedouin tribes. Subsequent mediation by Kuwait made some ground with the release of the captured Qatari, but Qatar was still unhappy, staying away from that year's meeting of GCC ministers.



Qatar subsequently resumed attendance of GCC sessions after mediation by Egypt's president, Hosni Mubarak. This also established a committee to finalise the borders. Late 1994 also saw a resumption of frosty relations when Qatar stayed away from a meeting of GCC interior ministers in Saudi Arabia on the basis of alleged armed incidents on their mutual border.



Qatar has had other territorial disputes with its westerly neighbour, Bahrain. Unresolved tensions stemmed from the 19th century, when the Al Thani, the current ruling clan of Qatar, forswore allegiance to the Al Khalifa and established their own state.



The Hawar islands, which lie between the two nations, were the principle source of contention. A decision by the British over territorial sovereignty in 1939 had ruled in favour of Bahrain, but Qatar had never accepted the decision and periodically raised the issue. The dispute took on fresh importance with speculation over fossil fuel resources to be exploited in the area.



Repeated incidents (the last in 1986) were diffused by other GCC member states. In its position as the de facto owner of the islands, Bahrain sought to consolidate its claim by developing infrastructure on the small islands - including a hotel and leisure facility, which still operates today.



In March 2001, the International Court of Justice in The Hague made a ruling that both parties agreed to honour. The decision said the status quo should be preserved, with Bahrain given sovereignty of the islands and Qatar being granted another disputed area, Zubara - a small strip of land on the Qatari mainland.



However, both Bahrain and Saudi Arabia were to show disdain at Qatar once again in 2002, when Bahrain's King Hamad and Prince Abdullah bin Abdul Aziz, Crown Prince of Saudi Arabia, boycotted Doha's GCC 2002 summit.



The boycott this time was due to news coverage by Qatari based satellite TV news station al-Jazeera, which the Bahraini and Saudi leaders claimed had defamed them.



Both countries chose to be represented by their foreign ministers instead. Bahrain subsequently refused to allow the station to cover their municipal elections, claiming it was a "Zionist instrument".



In December 2003, Bahrain and Qatar buried the hatchet and decided to re-activate a joint committee, chaired by the two countries' crown princes; both sides have since moved to improve relations and especially to develop projects that could benefit both economically.



Plans for a causeway to link the states, called the Friendship Bridge, became a reality in 2004 after being given the go-ahead in late April. The bridge is expected to enhance trade opportunities between the two states and is part of GCC plans to link road transport, rail transport, electricity networks and gas distribution networks between member states.



The GCC summit in December 2004 however brought new intra-GCC issues to the fore. Saudi Arabia registered discontent with Bahrain's plans to enter into a bilateral Free Trade Agreement (FTA) with the US. They claimed the agreement contravened an economic agreement signed by the GCC Supreme Council in 2001. This states that "no member state may grant a non-member state any preferential treatment exceeding that granted herein to member states, nor conclude any agreement that violates the provisions of this agreement".



However with Qatar, Kuwait, Oman and the UAE all seeking to negotiate FTAs with the US bilaterally, the issue was set aside and the final communiqué of the summit sought to focus on co-operation, modernisation and combating violent militants.



Yet, whilst disputes will no doubt continue, as they do in any economic union, the rhetoric of the GCC has become increasingly progressive and active in addressing the practicalities of integration - both institutionally and physically. With its central location and massive gas reserves, Qatar has a strong role to play in this - and much to gain.

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