Consistently posting sizeable budget and trade surpluses, Qatar has seen its trade and investment activity reach historic highs in recent years, driven by steady hydrocarbons exports, growing import demand, measured market liberalisation and expansion of bilateral trade relations. Although foreign direct investment (FDI) inflows declined in 2013, FDI outflows have skyrocketed, cementing the state’s position as a powerhouse of international investment. Bilateral trade between Qatar and its largest Asian trade partners saw strong growth in 2014, most recently when the Qatar Investment Authority (QIA) signed multibillion-dollar investment and currency swap deals with China. Development of new special economic zones should see local investment and FDI rise steadily over the medium term, while a host of planned GCC free trade agreements (FTAs) could see international trade volumes expand further in the coming years.
INVESTMENT LAW: Foreign investment is governed by Investment Law No. 13 of 2000, which limits foreign ownership to 49% of a company’s capital. For firms listed on the Qatar Stock Exchange (QSE), amendments in August 2014 raised the stake foreigners may own from 25% to 49%, subject to state approval, and granted all GCC citizens equal treatment as Qataris for purposes of QSE stocks. In certain cases and with government pre-approval, the law allows up to 100% foreign ownership in some sectors, including agriculture, industry, health, education, tourism, energy and mining.
An earlier amendment in 2004 allowed foreign participation in the banking and insurance sectors, kick-starting their recent expansion. The Qatar Financial Centre (QFC) also allows foreign financial institutions to set up offices with 100% ownership and permits full repatriation of profits. All QFC-registered firms are subject to a 10% corporate tax on locally sourced profits.
Further amendments came in 2009, when the Council of Ministers agreed on changes proposed by the Ministry of Economy and Commerce, which, together with the Ministry of Foreign Affairs, Qatar Investment Promotion Department and Qatar Chamber of Commerce and Industry, oversees domestic trade and investment activities. Under these amendments, foreign investors are permitted to hold 100% stakes in certain service areas, including business consulting, ICT, culture, sports, entertainment and distribution. The Qatar Science and Technology Park, a dedicated free zone, was inaugurated in 2009, offering foreign investors exemptions from tax, Customs duties and Qatarisation quotas (see analysis). Certain sectors, however, remain closed to both foreign and domestic competition, including public transport, utilities, steel, cement, and fuel distribution and marketing. The 2014 amendments are part of reforms aimed at expanding the state’s stock market – the GCC’s second largest after Saudi Arabia, with a capitalisation of $187bn as of February 2015.
OPENING THE FINANCIAL MARKET: Qatar’s leadership hopes to further develop the financial industry by introducing legislative reforms aimed at encouraging foreign investment, which declined sharply in 2013. Foreign ownership of shares on the QSE stands at about 11%, most of this owned by GCC nationals and local expatriates. Qatar’s Mutual Fund Law No. 25 of 2002 permits expatriates to invest indirectly in the stock market, though foreign investors are generally not allowed to participate in initial public offerings (IPOs).
In 2014 Qatar was the second-most-open trade market in the GCC, scoring 80% on the Heritage Foundation’s Trade Freedom Index, ahead of Oman, Bahrain, Kuwait and Saudi Arabia. Qatar’s economy has undergone extensive liberalisation in the last decade, although this has been more gradual regarding investment, reflecting a desire to protect local companies and nurture domestic industrialisation.
Sustainable development is a priority in the government’s trade and investment strategy. The investment law stipulates that, when approving majority foreign ownership in a project, authorities must ensure it fits with the state’s wider development plans, as guided by Qatar National Vision 2030 (QNV 2030), which aims to broaden economic diversification, boost non-oil growth, improve value addition in the hydrocarbons sector and build up human capital. In a 2014 report on the investment climate, the US State Department noted that in foreign investment, Qatar gives preference to projects that use locally sourced raw materials, manufacture products for export, create new products, use innovative technology, aid in knowledge transfer and enhance human resources. In the construction sector, major contracts are generally awarded to joint ventures between foreign and local firms, in line with the diversification and Qatarisation priorities in QNV 2030.
TAX REGIME: The push to protect and nurture local markets has been reflected in tax policies. “Paying Taxes 2013”, a yearly report by consultancy PwC, the World Bank and the IMF, ranked Qatar the second-easiest country in which to pay taxes globally for the fourth year running, while the World Bank’s 2015 “Ease of Doing Business” survey ranked it first worldwide in the “paying taxes” category. Although expatriates are exempt from income tax on salaries, legislation passed in 2010 imposed a 10% flat rate on the profits of all non-Qatari companies and foreign partners in Qatari companies, except for those in the energy sector, where a 35% rate is applied to oil and gas operations.
More recently, in June 2014 Qatar’s advisory council rejected a proposal to exempt foreign investors from capital gains and income tax on domestic stock market investments. Offering exemptions on gains and income from cash dividends, and interest from bonds, Treasury bills, and debentures, the proposal was approved by the State Cabinet and Financial and Economic Affairs Committee before the advisory council called for a revision of three of its articles, arguing that granting favourable conditions to foreign equity investors would not benefit the economy as a whole.
TRADE GROWTH: The European Commission (EC) reports that the total value of Qatari trade has increased steadily in recent years, rising by 32.1% to $90bn in 2010, by 39.2% to $131.4bn in 2011, and by 23.8% to $150.3bn in 2012. Growth slowed somewhat in 2013, with total trade flows expanding by 1.3% to around $157.2bn. Investment as a share of GDP rose to 30.4% during the second quarter of 2014, according to the Ministry of Development Planning and Statistics (MDPS), bolstered by the implementation of major projects in preparation for the 2022 FIFA World Cup.
Qatar’s foreign exchange reserve, according to the World Bank, stood at $31.18bn in 2010, dropping by 53.9% to $16.81bn in 2011, before rebounding by 97.4% to hit $33.19bn in 2012, and expanding another 26.8% to reach $42.08bn in 2013. Qatar National Bank’s 2015 “Qatar Economic Insight” report showed the figure reaching $43.2bn at the end of 2014, as the current account surplus narrowed slightly to 26.3% of GDP, while the state’s import cover was 7.9 months, well above the IMF’s advisory three-month minimum.
IMPORTS & EXPORTS: The MDPS’s “Quarterly Sequence of Economic Accounts for the Total Economy” report for second-quarter 2014 found that the value of freeon-board (FOB) exports grew by 2.4% to reach QR135.09bn ($37bn), up from QR131.89bn ($36.1bn) in the same quarter of 2013 and driven by rising exports in the travel and transport categories. Exports’ share of nominal GDP that quarter was estimated at 71.2%, compared to 75.3% in the first quarter of 2014 and 74.2% in the second quarter of 2013. The export market is dominated by hydrocarbons, with net revenues at $42bn in 2013 and $21bn year-to-date in June 2014, according to the US Energy Information Administration. The value of Qatari exports (excluding re-exports) in 2013 stood at QR492.38bn ($135bn), according to the MDPS, of which 88.6% came from fuel and lubricants.
Export growth has been helped by initiatives aimed at improving the non-oil economy. Qatar Development Bank (QDB), for example, launched its Tasdeer programme in 2011, which offers credit export insurance and advisory services for exporters. QDB reported QR250m ($68.5m) in new business orders for Qatari exporters following the QDB-backed participation of 60 Qatari SMEs at 10 international trade exhibitions.
The total value of FOB imports in the country rose by 8.5% to reach QR57.41bn ($15.7bn) in the second quarter of 2014, against QR52.9bn ($14.5bn) in the same period of 2013. The MDPS attributes this to increased imports of machinery and motor vehicles, as the state moves forward on a host of infrastructure projects as part of QNV 2030. The total value of imports stood at QR98.13bn ($26.9bn) in 2013, led by QR29.2bn ($8bn) of industrial supplies, QR20.2bn ($5.5bn) of transportation equipment and QR13.27bn ($3.6bn) of consumer goods. Although imports have risen in recent years, especially of machinery and construction-related goods, exports earnings, generated largely by the oil and gas sector, have kept the trade balance in Qatar’s favour. According to the MDPS’s Economic Outlook 2014-15, Qatar’s 2013 trade surplus stood at 52.1% of nominal GDP, while its current account surplus stood at 30.9% of nominal GDP, leaving the state well positioned to expand trade and investment activities.
QATAR INVESTMENT AUTHORITY: Qatar has used its budget surpluses to diversify and modernise the economy, increasing spending on infrastructure, social programmes, health care and education. It has also moved to diversify its economy through international investment into different asset classes. Qatar’s sovereign wealth fund, QIA, was established in 2005, and tasked with investing funds outside the state in asset classes including equities and fixed income, as well as through direct investment. With the long-term policy goal of securing wealth for future generations, QIA has built an enormous international portfolio: the Sovereign Wealth Fund Institute estimates its assets to be worth $170bn, with investments ranging from listed securities and property to alternative assets and private equity. Despite the drop in oil prices in 2014, with Brent crude dropping from above $100 a barrel in February 2014 to below $50 per barrel as of January 2015, QIA has said this will not affect its investment strategy.
In November 2014 QIA told media that its long-term strategy has accounted for market volatility, with no plans to adjust its short-term strategy. This suggests that outward FDI will likely continue on an upwards trajectory in the coming years. Although FDI inflows showed a sharp decline in 2013, Qatar’s industrial sector remains dominated by foreign capital, with the Ministry of Energy and Industry recently announcing plans to provide more sector incentives to foreign investors, while QDB has been active in funding new projects across a host of high-demand sectors (see analysis).
QATAR STOCK EXCHANGE: With the June 2013 decision by international index compiler Morgan Stanley Capital Index to upgrade the QSE from frontier market to emerging market status as of June 2014, plus August 2014 reforms to boost foreign ownership of listed firms, Qatar’s capital markets are poised for further growth. The QSE comprises 43 listed companies, with market capitalisation valued at QR676.8bn ($185.5bn) as of the end of December 2014, up from QR555.6bn ($152.3bn) on December 31, 2013. CNN Money reported that the QSE expanded by 43.8% in the year to May 2014, while Reuters reported 27% growth in JanuaryAugust 2014. New IPOs are expected as a result, following state-run energy company Qatar Petroleum’s historic January 2014 launch of a 26% stake in Mesaieed Petrochemical Holding Company, which raised QR3.2bn ($877.1m), the nation’s largest share sale since Vodafone Qatar raised $1bn in 2009, and its first IPO since 2010. In November 2014, QSE announced two new investment funds are expected to list in the near term.
BILATERAL TRADE: According to the EC, six of Qatar’s top-10 trading partners are East Asian countries, led by Japan (1st) and South Korea (2nd), with India, China and Singapore taking fourth, fifth and sixth place, respectively, and Thailand occupying the eighth spot. The EU is Qatar’s third-largest trading partner, followed by the US (7th), the UAE (9th) and Saudi Arabia (10th.) In recent years Asian countries have witnessed a host of new investments and trade deals with Qatar. Cumulative trade with Japan and South Korea reached €45.65bn in 2013, according to the EC. Japan alone traded some €26.9bn with Qatar in 2013, representing 22.7% of the state’s total trade volume, as well as being Qatar’s biggest exports destination. As with other East Asian countries, trade between Japan and Qatar has grown as a result of Qatari oil and gas exports, with goods exports to Japan standing at €25.79bn in 2013, against €1.1bn of imports from Japan.
Qatar is South Korea’s top supplier of liquefied natural gas, and fifth-largest oil supplier, and South Korea is Qatar’s second-largest export partner and its second-largest trade partner. Korea’s ambassador to Qatar reported trade volumes between the countries reached $26.72bn in 2013, a marginal increase over $26.24bn in 2012, but representing 25.9% growth over $21.21bn in 2011. The EC reports that Qatar’s exports to South Korea stood at some $24bn, against $955m of imports.
CHINA: China was Qatar’s fifth-largest trading partner in 2013, with exports to the country standing at around $7.8bn in 2013. Recent announcements suggest that Qatar-China trade could expand significantly in the coming years, with the QIA ramping up its activity in Asia in October 2014, when it paid $616m to acquire a 20% stake in Hong Kong retailer Lifestyle International Holdings. In November 2014 QIA announced its plans to establish a $10bn investment fund, one half of a 50/50 investment vehicle with CITIC Group, China’s largest conglomerate. CITIC and QIA aim to invest between $15bn and $20bn over the next five years, in areas that include health care, infrastructure and real estate. In a statement to Chinese media announcing plans to expand its presence in Beijing and New Delhi, as well as open a new office in New York, QIA said it saw real long-term investment potential in Chinese companies due to the increasing availability of interesting and sustainable investment opportunities as China’s economy develops and diversifies, as well as the continuing emergence of an affluent and increasingly discerning middle class.
The deal came in the wake of an historic agreement earlier that month, in which China’s central bank signed a CNY35bn ($5.7bn) currency swap deal with the Qatar Central Bank, one step towards further expansion of Chinese yuan usage in a region long dominated by the US dollar. The deal is expected to allow the two central banks to swap currencies if needed to ease trade and investment. Qatari investment institutions will now also receive the right to invest up to CNY30bn ($4.89bn) in mainland Chinese securities.
EUROPE: In announcing the $10bn CITIC deal, the authority also emphasised that it plans to continue its investments in Europe, having already spoken publically about its intent to further pursue investments in the UK in February 2014. Indeed, Europe remains a prime investment destination for QIA, which has long been known for seeking out new opportunities, particularly in Britain and France. QIA’s existing UK portfolio includes the department store Harrods, acquired in 2010 for some $2.3bn, and more than a 25% share of supermarket group J Sainsbury, as well as significant stakes in Barclay’s, the London Stock Exchange, the parent company of Heathrow Airport, and half of the Olympic Village apartments. At the end of January 2015 QIA and its bid partner, US investor Brookfield Property Partners, bought Songbird, owner of London’s Canary Wharf, for $4bn. QIA had already owned 29% of Songbird, which in turn owned 70% of Canary Wharf Group.
The EU also is Qatar’s third-largest trading partner and primary import partner, with total trade between the two reaching an all-time high of around $25.7bn in 2011, before declining to $21bn in 2012 and around $20.1bn in 2013, according to the EC. EU imports from Qatar jumped by 128.3% in 2010 to reach roughly $10.5bn, expanding by a further 71.5% in 2011 to around $18.9bn, before declining by 23.8% and 13.2% in 2012 and 2013, respectively, to rest near $11.9bn – although still more than three times the value of its 2008 imports, which stood around $4.3bn. Qatar’s EU imports reached a value of $8.1bn in 2013, representing a little over a quarter (26.3%) of total imports that year.
FREE TRADE AGREEMENTS: Qatar has made considerable progress towards signing and joining new FTAs in recent years. In July 2014 the possibility of establishing a joint free trade zone with Iran was discussed, while Qatari officials also met with Turkey’s Ministry of Finance to discuss a potential FTA in February of that year.
The state is also poised to benefit from a number of GCC-Asia FTAs currently under negotiation. The GCC-China Strategic Dialogue resumed in January 2014, following a two-year hiatus. Elsewhere in Asia, the GCC moved closer towards a FTA with India in April 2014, when Doha Bank Group’s CEO, R Seetharaman, spoke at the “Opportunities in Qatar and GCC” event in Chennai, in the run-up to Doha Bank’s entry into the Indian financial market, having obtained a banking licence from the Reserve Bank of India in December 2013. The event took place after Indian and Saudi officials moved closer towards signing a FTA in February 2014, with both countries agreeing to establish a $750m joint investment fund in March of that year.
OUTLOOK: Qatar’s healthy trade surpluses, expanding investment portfolio abroad, and growing bilateral relations in Asia and Europe have driven growth in its trade and investment. Although FDI inflows have dropped in recent years, in keeping with wider regional trends, the state’s favourable tax regime, steady market liberalisation and economic growth will likely see this change over the medium term. QIA’s rapid expansion into foreign markets has demonstrated the government’s commitment to fostering new bilateral ties and ensuring sustainable growth for future generations, with new trade agreements expected to further bolster Qatar’s international trade and economic development.