Clocking the world’s highest growth rate in 2011, Qatar is maintaining expansion despite a difficult international economic climate clouded by the eurozone crisis and doubts over the sustainability of US debt. Indeed, the country saw GDP growth of 14% in inflation-adjusted terms last year, with energy exports its leading economic driver.
Qatar is forecast to outstrip global growth again in 2012, though the rate is expected to slow to around 6%, according to the IMF. The energy sector, most notably natural gas, has been the largest driver of economic expansion. The nation is the world’s biggest liquefied natural gas (LNG) exporter, and hydrocarbons as a whole account for more than half of all exports. However, the government’s imposition of a moratorium on the launch of new hydrocarbons projects, with the aim of maintaining reserves over the longer term, is one of the reasons for the slower rate expected this year. Combined with a sluggish global outlook, this may mean exports will be moderate moving forward. It may also, however, mean a welcome refocusing on domestic demand, with public spending and wage rises ensuring the economy keeps ticking over at a good pace.
The government is also looking to other sectors to keep growth steady. Infrastructure plans worth $95bn are set to run until 2016, for example, and are aimed at ensuring that public services catch up with economic and population growth, as well as lay the necessary groundwork for Qatar’s hosting of the 2022 FIFA World Cup.
As the IMF noted in its January 2012 assessment of the Qatari economy, the spending programme should also help “maintain strong growth in the non-hydrocarbons sector”, crucially supporting the country’s economic diversification programme. One of the aims of this programme is to lower the country’s dependence on energy exports
Mohamed Jaidah, the chief development officer of Jaidah Group, a diversified Doha-based conglomerate with interests in segments such as industrial supply, automotive distribution, heavy equipment, furniture and energy services, said that companies based in Doha can leverage the country’s competitive advantages to build a regional presence. Jaidah sees international expansion as a necessity for large and ambitious Qatari firms and argues that it can help support Qatar’s diversification.
“The only way to look at Qatar is as a platform to serve the rest of the GCC, because the domestic market is very small,” he told OBG. “Companies need to grow on a regional level. Services are the way to go – for example IT, design, marketing, and other sectors that are easily exportable and not labour intensive.”
Positive as the outlook is, the IMF drew attention to a number of downside risks that could affect growth this year and possibly beyond. Lower hydrocarbons prices would indeed curb export earnings, though the first three months of 2012 have indicated an upward trend seems more likely, given tight supply, rising demand and geopolitical factors.
The IMF also forecast inflation of 4% this year, at the upper end of the government’s 2-4% expectation. The IMF expects rents – a major component in the consumer price basket – to stop falling in the medium term, thus slowing the drag they have put on inflation.
Closer oversight of financial institutions by the Qatar Central Bank (QCB) to ensure that credit quality does not fall, that risk assessment remains rigorous and that thorough stress-tests are undertaken is also recommended, the IMF said. The fund also stated it was advisable for the QCB to take a more active role in liquidity management.
The report also indicated that the government’s aim of fully financing its budget from non-hydrocarbons revenues by 2020 will involve making substantial medium-term savings. A programme of monetary and fiscal reform over the coming years would ensure that the country’s long-term future is secure, with a lower proportion of GDP and government revenues coming from hydrocarbons and more coming from the private sector.
The country is in the fortunate position of having time to make these adjustments, while also having ample resources to invest in infrastructure, public services and diversification that will support the economy. Qatar continues to enjoy a strong growth rate and has the opportunity to build its position as one of the world’s most dynamic economies.