Strong gains by the non-oil and gas sector underpinned solid growth in Qatar’s economy in 2018, laying the foundations for further expansion as the country works to mitigate the fallout from the regional blockade and step up efforts to diversify its economy.
Offsetting fluctuations in hydrocarbons output and prices, the non-energy sector accelerated in 2018, growing by 6% in the first six months of the year, according to a report released by the IMF in November.
According to the IMF, GDP growth of 2.4% is projected for 2018, up from the 1.6% growth recorded in 2017. This expansion is set to gather momentum again in 2019, with GDP expected to rise by 3.1% on the back of both increased hydrocarbons and non-hydrocarbons activity, before stabilising to around 2.7% per annum between 2020 and 2023.
This growth also translated into a return to fiscal balance, with the Qatar Central Bank (QCB) announcing in December that the country had achieved a budget surplus of QR7.1bn ($2bn) in the first half of 2018, reversing the QR35.4bn ($9.7bn) deficit of 2017.
QCB also reported that foreign currency reserves had rebounded from the sharp outflow that followed the imposition of the regional blockade in mid-2017, which saw a 20% drop in the country’s foreign currency liquidity. According to QCB figures, Qatar’s international reserves totalled QR46.5bn ($12.8bn) at the end of September, exceeding the QR45.7bn ($12.6bn) held in May 2017 prior to the blockade.
Inflation remained largely flat throughout the year with the Ministry of Development Planning and Statistics reporting a year-on-year (y-o-y) decrease of 0.25% in October. This drop was largely driven by falls in the price of communications, housing and utilities, and food and beverages, along with improved supply flows following the disruptions brought about by the blockade.
See also: The Report – Qatar 2017
Qatar leaves international oil organisation and focuses on gas production
One of the most significant developments for the country came in the last month of 2018. On December 3 Saad Al Kaabi, minister of state for energy affairs, announced that Qatar would leave the Organisation of the Petroleum Exporting Countries (OPEC) as of January 1, 2019.
Exiting the association frees the country from OPEC-imposed restrictions on oil pricing and output ceilings. Qatar was OPEC’s 11th-largest oil producer, accounting for 2% of the club’s total output. However, the country’s oil production has declined steadily in recent years, down from 728,000 barrels per day in 2013 to 607,000 in 2017.
Meanwhile, Qatar plans to solidify its status as the world’s leading exporter of liquefied natural gas (LNG). An expansion project in the North Field will add four liquefaction trains, raising LNG production from its current level of 77m tonnes a year to 110m tonnes by 2024. This 43% increase, along with a planned boost to oil production, should extend Qatar’s standing in international markets.
The banking sector returns to stability
The IMF also reported that Qatar’s banking sector has stabilised, having rebounded from the withdrawal of foreign funding from the market in the wake of the diplomatic rift with neighbouring states.
Stronger energy prices across much of the year, combined with the return of foreign liabilities, also enhanced liquidity and supported private sector credit growth, according to the fund.
This was underscored by a 1.5% y-o-y increase in bank deposits in October and credit growth of 2.7% over the same period, according to data published by Qatar National Bank. In addition, banks saw a solid 5% rise in asset values over the 12 months to the end of October.
Legal changes and industrial zones to boost diversification
The country is looking to build on the progress made in 2018 by implementing a series of reforms and projects aimed at further diversifying the economy and facilitating overseas investment.
Central to this policy is the new Foreign Direct Investment Law, set to come into force in early 2019. The legislation will enable 100% foreign ownership in most sectors of the Qatari economy, excluding the banking and insurance industries.
The new law will also put foreign companies on the same legal footing as domestic firms, allowing them to bid on government contracts, while strengthening investor rights and the legal standing of overseas companies.
These changes dovetail with establishment of the Qatar Free Zone Authority in 2018, the body charged with overseeing the regulatory framework of free zones in Qatar. The two areas currently in development are located close to key logistics centres near Doha.
The Um Alhoul free zone is situated next to Hamad Port, Qatar’s main seaport, and is expected to open during the first quarter. It will play host to a broad array of businesses, including maritime industries, construction and building materials, metal processing and machinery, along with downstream petrochemicals and logistics.
Meanwhile, the Ras Bufontas free zone, located next to Doha’s Hamad International Airport, is set to host advanced technologies, health care and medical services, in addition to automotive and aerospace industries, along with business services operations.
In addition to a programme of benefits and incentives to encourage international companies to set up in the free zones, such as extended tax holidays and Customs exemptions, the government has established a $3bn development and investment fund to help companies relocate.