With the spotlight often firmly on Qatar's vast oil and gas resources, the country's current - and potential - industrial output can be easily overlooked. Nevertheless, industrial development remains an integral part of the little Gulf state's ongoing ambition to build a viable private sector, albeit from the top down.
Aware of the vital role private industry plays in achieving economic growth in developed economies, Qatar has carefully prepared - and, in many cases, successfully executed - ambitious plans for its nascent heavy manufacturing sector. With the government's stated desire to reorient the country's largely state-motivated economy towards a market-driven one, Qatar's vast oil revenues have been made use of to create a productive infrastructural landscape for the development of heavy industry.
Along with several of its sister states in the Gulf Cooperation Council (GCC), in 1998, Qatar ratified the Uniform Industrial Development Strategy, which spelled out the country's long-term goals vis-à-vis its industrial sector. These included, among others: raising industrial production to 75% of total exports; doubling the contribution of manufacturing industries to the GNP; investing financial resources into new industrial projects; increasing the production capacities of petrochemical, chemical, fertiliser, and iron and steel plants; attracting foreign investment, thereby acquiring new technologies; and boosting the number of industrial licenses issued each year.
So far, the results have been encouraging. In 2002, the manufacturing sector - which consists overwhelmingly of industrial output - grew by 2.3%, making it the fourth-largest contributor to GDP among the non-oil and gas sectors.
The major sub-segments of the country's industrial sector are petrochemicals, steel, fertilisers and cement production. While Qatar also boasts several active light industries (including the manufacture of footwear and household-items, food and beverages, textiles and leather, wood products and furniture and paper products), national hopes for a diversified economy are pinned mainly on the heavier-lifting petrochemical and metallurgical sectors.
Some critics have questioned whether the move from energy production to downstream industry - like petrochemicals, fertilisers and steel, all of which rely on hydrocarbon-based feedstock - can rightly be called "diversification" per se. "After all," commented Khalifa al-Sowaidi, managing director of the Qatar Fertiliser Company, or QAFCO, "selling fertiliser is just another way of selling gas."
Nevertheless, in these days of globalisation and the all-important competitive advantage, the strategy makes sense. With Qatar's easy access to cheap natural gas, these gas-based national industries have seen their production capacities, and their profits, grow - and this at a time when many other regional downstream competitors, forced to import gas-based feedstock, have disappeared from the market. In the words of Qatar Steel Company (QASCO) general manager Sheikh Nasser Bin Hamad Al Thani, "Our competitive edge will be maintained by our abundance of energy." QAFCO's al-Sowaidi then added, "There's plenty of feedstock for everyone."
Given Qatar's status as an energy producer, the biggest building blocks of national industry take the form of the state's handful of petrochemical concerns and one steel company, all of which use the country's abundance of oil and gas as feedstock to produce value-added products for both domestic consumption and export.
While these sectors are led by the state, the importance of foreign partners - and the technology and expertise brought in their train - hasn't gone unappreciated.
Petrochemicals are produced largely by a handful of massively capitalised corporations in which state-owned Qatar Petroleum (QP) enjoys significant stakes. Holdings are shared, in turn, with partially privatised Industries Qatar (IQ), along with several big foreign energy companies.
QP, for example, holds 80% of the Qatar Petrochemical Company (QAPCO), which produces high quality ethylene, low-density polyethylene (LDPE) and sulphur. The remaining 20% of the company is held by Atofina, the chemical arm of France's TotalFinaElf.
QAPCO, which launched its operations in 1981, completed a QR1.4bn expansion project in 1996, significantly raising its production capacity. By 2002, the company was manufacturing 495,066 tonnes of ethylene, 379,173 tonnes of LDPE, and 43,998 tonnes of sulphur. Recent de-bottlenecking of QAPCO's LDPE line has further boosted production capacity to 390,000 tonnes, making the company the largest LDPE producer in the Middle East, while ethylene production capacity is expected to increase to 720,000 tonnes annually later this year.
QP also holds a 50% stake in the Qatar Fuel Additives Company (QAFAC), which it shares with Opic Netherlands Antilles N.V. (20%); LCY Investments Corporation (15%); and International Octane Ltd. (15%). In 2002, QAFAC's five-year-old, $650m plant, located in the industrial city of Mesaieed, produced 773,000 tonnes of methanol and 576,000 tonnes of methyl tertiary butyl ether (MTBE).
Another of QP's big joint venture projects is the Qatar Vinyl Company (QVC), in which the petroleum giant holds a 25.5% stake, with the rest held by sister company QAPCO (31.9%), Norsk Hydro (29.7%) and Atofina (12.9%). The $680m project was launched in 2001, devoted to the production of ethylene dichloride (EDC), vinyl chloride monomer (VCM) and caustic soda. The following year, QVC produced 202,790 tonnes of EDC, 227,679 tonnes of VCM, and 922,491 tonnes of caustic soda.
In a model example of horizontal integration, stakeholder and sister company QAPCO provides QVC with ethylene feedstock along with several technical facilities.
The Qatar Chemical Company (Q-Chem) is the last of the big four petrochemical "Q" companies. Born of a joint venture agreement between QP (51%) and the Chevron Phillips Chemical Company (49%) in 1997, Q-Chem converts ethane and butane feedstock into high-density polyethylene (HDPE), LDPE and hexane-1.
In 2002, the company's $1.2bn ethylene cracker plant cranked out 273,000 tonnes of HDPE, 189,000 tonnes of LDPE, and 47,000 tonnes of hexane-1.
While the big four industrial Qs are faced with difficulty of selling enormous inventories in a miniscule - albeit wealthy - home marketplace, they have met this challenge by exporting the bulk of their production mainly to nearby markets like India, Pakistan, Iran and other GCC countries.
Meanwhile, petrochemicals aside, government strategy has also aimed at developing local metallurgical industries, which can also utilise the plentiful supply of oil and gas to manufacture iron, steel and, eventually, aluminium.
The iron and steel sector is represented entirely by one, majority state-owned corporation, the Qatar Steel Company (QASCO), which began its operations in 1978 as a joint venture between the government of Qatar and two Japanese steel firms, Kobe Steel and Tokyo Boeki. Subsequently, however, the state bought up the latter firms' interests, bringing the company entirely within the national fold.
QASCO, unlike more orthodox steel producers, employs a natural, gas-based process for the manufacture of iron and steel, the first company in the region to do so.
Like Qatar's other downstream industries, QASCO relies heavily on exports. According to General Manager Sheikh Nasser Bin Hamad Al Thani, the firm currently exports between 60% and 70% of its steel to other GCC countries, while simultaneously meeting some 95% of local demand - a reminder of just how small the domestic market is.
Nevertheless, "Local consumption is increasing month by month," noted Al Thani, thanks largely to the boom in construction that has come in the wake of the economy's impressive performance over the last five years.
Another gas-based metallurgical industry is aluminium production, although this still remains, for the time being at least, within the realm of the theoretical. Currently, Qatar doesn't produce any aluminium (gas-based production of the metal requires some 50 times as much gas as does steel production), although this could soon change. The government has long envisaged the creation of an aluminium smelter plant, especially given the availability of cheap gas. In 2003, an agreement was signed between Qatar's United Development Company (UDC) and the Dubai Aluminium Company (Dubal) for the construction of an aluminium smelter, in which UDC will hold a 51% stake.
The $2bn plant, scheduled to launch operations in the fourth quarter of 2006, will have an initial annual aluminium production capacity of 516,000 tonnes, and will be located at the Ras Laffan industrial city.
All of which should seriously advance the government's strategy, leaving the emirate more diversified and less energy dependent.