Qatar: Industrial intent

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After several years of substantial economic expansion, Qatar was recently named the wealthiest nation in the world in terms of GDP per capita. However, with many of the oil and gas related projects nearing fruition, focus is turning to manufacturing and other non-hydrocarbons businesses and the role they will play in the local economy.

In mid-June the US-based business magazine Global Finance reported that Qatar’s per capita annual GDP (based on purchasing power parity) amounted to just over $90,000, making it the wealthiest country in the world by this measurement.

This achievement caps a period of rapid economic expansion. In 2007 and 2008 real GDP growth exceeded 20% per year. In 2010 this figure amounted to 16.3%, and the economy is expected to increase by a further 20% this year, according to the IMF. Indeed, the Fund has called Qatar “one of the fastest growing economies in the world”.

Expansion is expected to continue into the future, albeit at a slower pace. The IMF has projected that GDP will increase by 7% in 2012, followed by 4% in 2013. However, unlike in recent years, the non-hydrocarbons sector is expected to expand while projections show that oil-and-gas economic activity will stabilise.

Samba Financial Group, a Saudi banking firm, noted this economic shift in a recent report. “A key factor in the medium-term projections is the recognition that the contribution from the hydrocarbons sector to growth will drop off dramatically as the 20 year gas-based investment programme comes to an end and the last of the major projects come on stream in 2012,” the report stated. “This then leaves the non-hydrocarbons sector as the driver of future real GDP growth.”

Much of this expansion will be led by the state-backed Industries Qatar (IQ), which controls most of the country’s petrochemicals and metal production capacity. In late April, IQ released its first quarter results, reporting revenues of QR4bn ($1.1bn). Net profits amounted to QR2.1bn ($567m), representing a 73% increase over the same period in 2010.

These financial results came on the back of strong showings by its steel unit, along with improved earnings from its petrochemicals and fertiliser companies. According to Abdulrahman Ahmad Al Shaibi, the group’s chief coordinator, this performance “vindicate[d]” the company’s “volume-based, capital investment strategy”.

With IQ committed to investing a further QR12bn ($3.3bn) over the coming five years, it is expected to continue to lead the sector. However, smaller private manufacturing operations are being encouraged to play a larger role in the economy too.

R Seetharaman, the CEO of Doha Bank, says that small and medium-sized enterprises (SMEs) in the manufacturing sector are helping to strengthen industry’s contribution to GDP, a strong indication that Qatar’s economic diversification programme is working.

Government support for SMEs, which includes tax holidays, exemption from some Customs duties, lower energy costs and access to credit, has been instrumental in accelerating industrial development, Seetharaman said in comments carried by the Gulf Times on June 14.

The role of smaller industrial businesses will likely be boosted by the move to establish a parallel stock market attached to the main Qatar exchange. This would allow more SMEs to go public, giving them the opportunity to raise additional capital.

According to Hashim Al Sayed, a Doha-based stock and financial analyst, the plan to set up a second-tier market would benefit the firms themselves and the national economy as a whole.

“The country’s crucial economic diversification drive is expected to be bolstered with a junior stock market coming into existence,” he said in an interview with The Peninsula in late May, days after the announcement that studies would be conducted into setting up the parallel bourse.

Although Qatar’s smaller manufacturers will likely never challenge the economic dominance of IQ, they will provide both an outlet for the entrepreneurial initiative that the government is trying to foster and generate employment opportunities. With support being provided by the state, Qatar is creating an environment in which industries large and small are being given an opportunity to flourish.

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