Wide-reaching economic reforms and a strong investment promotion drive are helping to bolster Qatar’s retail sector. In response to the blockade imposed by some of its neighbours in June 2017 Qatar has expanded its trading relationships, particularly with Iran, Turkey and Russia. The country has also promoted its own domestic industries to help surmount limitations on imports. As a result, the retail sector has shifted towards locally produced goods, especially in the food and luxury segments. This has been supported by continued strong levels of consumer confidence as the population benefits from high standards of living. One concern that players in the market face is a potential oversupply of retail and commercial space. Several new shopping centres opened in late 2019 and early 2020, and at least eight more are scheduled to open before 2021. Even so, the price per sq metre of retail space has fallen in recent years, highlighting a potential imbalance.
Structure & Oversight
The Ministry of Commerce and Industry (MoCI) is the government body responsible for overseeing commercial and industrial activities. It provides public services to the sector, regulates trade practices, registers commercial and investment establishments, issues licences and provides general oversight. It is also responsible for consumer protection guidelines and guarding against commercial fraud and monopolies.
However, since the onset of the blockade, efforts to promote domestic production and investment have been distributed among many ministries. The Ministry of Municipality and Environment, for instance, has been instrumental in the promotion of agriculture and food, as well as in creating the conditions for growth in cattle and dairy production. The Qatar Free Zones Authority (QFZA) has played a key role in facilitating the development of local producers and retailers. “QFZA supervises and organises free zones at an international level with the aim of providing attractive and exceptional opportunities for local companies that are looking to expand abroad,” Sheikh Faisal bin Qassim Al Thani, chairman of local conglomerate Al Faisal Holding, told OBG. “As well as attracting foreign investment to the free zones, these efforts help create a more diversified, flourishing local economy, one that is ready for a new era of development.”
Investment Promotion
An agency that is involved in attracting investment to the retail sector and the economy as a whole is the Investment Promotion Agency (IPA), launched in July 2019. Designed to be a one-stop shop for investment solutions, it has targeted programmes for specific sectors, advises policymakers and coordinates with stakeholders. Its advisory board includes Ali bin Ahmed Al Kuwari, the minister of commerce and industry and chairman of the IPA; Ahmad bin Mohammed Al Sayed, the minister of state and chairman of QFZA; Sheikh Ali Al Waleed Al Thani, a representative of the prime minister’s office; and leaders from other relevant government institutions. “Qatar is already an attractive hub for foreign direct investment (FDI),” Al Kuwari total local press in July 2019 when announcing the agency’s creation. “Launching the IPA will add to Qatar’s efforts to further boost FDI, and the agency will achieve this through a number of initiatives, such as working with stakeholders to support international businesses wishing to set up operations in the country.”
In September 2019 the IPA joined the World Association of Investment Promotion Agencies, an international non-governmental organisation that provides agencies with best practices and networks. Membership in the organisation has allowed the IPA to coordinate with and learn from its counterparts around the world. It has also been active in establishing ties. In the IPA’s first six months of operations, it signed an agreement with Russia to create a joint working group to coordinate investment activities and business projects; expanded trade ties with Turkey; and met with representatives from US firms to promote trade and investment between the two countries. In October 2019 the agency signed a memorandum of understanding with Malaysia’s investment body to promote cooperation and generate investment crossflows between the two countries, and in February 2020 it signed a letter of intent with its French counterpart to boost collaboration and investment. Additional similar agreements are expected to be signed in 2020.
These measures helped Qatar record its first budget surplus in three years in 2019, at QR4.4bn ($1.2bn). However, in December 2019 the Ministry of Finance announced that the surplus for 2020 shrank on the back of higher wage bills related to education, health and railway projects, to QR500m ($137.2m). According to a December 2019 report from the World Bank, Qatar is expected to be the only GCC country to record a fiscal surplus for the period between 2019 and 2021. That trend is expected to be enhanced by a new fiscal framework introduced in 2019 that updated the withholding tax regime and established transfer pricing. Qatar was also set to introduce a GCC-wide 5% value-added tax (VAT) in 2019, but in January of that year it announced that it was delaying implementation until 2020. It is anticipated the new tax will be further postponed, as the 2020 budget made no mention of VAT revenue, and, as such, the tax is not expected until at least 2021.
Performance
Retail is central to Qatar National Vision 2030, the country’s long-term economic diversification and development strategy. Originally launched in 2008, the plan has proven to be especially important after a period of lower global oil prices and a challenging geopolitical environment in the aftermath of the 2017 blockade. Efforts are already beginning to pay off, with wholesale and retail trade expanding at a compound annual growth rate (CAGR) of 21.6% between 2012 and 2017 to $27bn, or 8.7% of GDP, according to the “GCC Retail Industry” report published in April 2019 by investment bank Alpen Capital. Wholesale and retail experienced growth of 76.1% in 2017 alone as oil prices rose and the economy picked up.
GCC consumers are among the largest spenders on luxury items, outpacing their European counterparts by almost 10-fold, the report found. As such, luxury goods is a segment with significant potential. Luxury-related expenditure has been strong as the population expanded, living standards raised, tourist numbers increased and infrastructure improved. The segment is not only dominated by well-known international brands such as Versace, Gucci, Dior, Cartier and Armani, but local brands have also found success. QELA – the country’s luxury label launched in partnership with the Qatar Luxury Group – and Pharmakeia – a boutique that sells organic beauty and wellness products – have also proven to be popular with locals and foreigners alike.
Consumer Confidence
The authorities have worked to develop a domestic market for consumer goods as it tries to diversify its economy and reduce dependency on imports. According to the Planning and Statistics Authority, at the end of the first quarter of 2019 – the most recent date for which figures were available – the consumer confidence index rose to 184.5, up 0.1 points from the previous quarter and 0.4 points year-on-year (y-o-y). Around 33.7% of families surveyed reported feeling increased financial security, and 27.7% of consumers reported feeling that now is the time to purchase durable goods.
Consumer confidence is boosted by the fact that Qatar is the sixth-richest country in the world in terms of GDP per capita at current prices, behind Luxembourg, Switzerland, Ireland, Macao and Norway, according to the IMF. In 2020 Qatar’s GDP per capita at current prices measured in at $70,700, up from $58,000 in 2015. This makes it the wealthiest GCC country by far, outpacing the UAE ($37,400), Kuwait ($28,900), Bahrain ($25,500) Saudi Arabia ($22,500) and Oman ($17,700). The international organisation expects Qatar’s GDP per capita to climb both in terms of value and ranking, reaching $83,300 in 2024 to place fifth worldwide, behind Luxembourg, Switzerland, Ireland and Norway. It is this level of purchasing power that has helped maintain a strong performance in the luxury segment, even as the general retail market has showed a relative slowdown.
Retail Space
In recent years investors have expected above-average growth in demand for retail space due to rising consumer purchasing power and a projected increase in business and recreational travel prompted by the hosting of global sporting events such as the 2022 FIFA World Cup. As such, investors have poured capital into new retail space, which has translated into a plethora of new shopping malls opening around the country. This trend was further reinforced by the government’s decision to open real estate ownership to non-nationals in 10 different zones across Doha and to allow for 99-yearlong property lease contracts in 16 additional zones. Law No. 16 of 2018, the freehold ownership law that came into effect in March 2019, opened up the market to much larger foreign involvement, along with a new framework for FDI that offered a number of tax exemptions, from income tax to import levies, for new projects supported by FDI.
Qatar had a total of 1.9m sq metres of organised retail space by the end of the third quarter of 2019, a considerable increase from the 1.6m sq metres it registered at the end of 2018. Between 2015 and 2018 the country added some 688,700 sq metres of retail space. Looking to the future, the country is expected to add another 548,000 sq metres of gross leasable retail area by the end of 2020 through the opening of eight new shopping malls, according to an October 2019 report by consulting group Valustrat. In terms of saturation, Qatar has 677 sq metres of shopping centres per 1000 capita, higher than the GCC average of 615 sq metres per 1000.
While this supply expansion demonstrates confidence in the market, it also represents a challenge in terms of potential oversupply, with rents pushed down as a result. According to Valustrat, the price per sq metre in retail units within Doha fell by 13% y-o-y in the fourth quarter of 2019. For units outside the capital city’s limits, that figure was down by 9.5%.
Some market features are changing as retail space owners struggle to differentiate themselves and attract brands to occupy their spaces. This has been reflected in falling retail space sales. The purchase of retail space grew by 10% in 2019, down from the 18% growth rate in 2018. Even so, several developments are expected to attract shoppers to both new and established shopping centres. The opening of the Doha metro system in May 2019 is expected to facilitate visits to malls across the capital, most notably Villaggio Mall, City Center and Mall of Qatar. However, the Covid-19 pandemic will likely impede activity in at least the first and second quarters of 2020. In March of that year the MoCI ordered the closure of all retail stores and shopping malls to slow the spread of the coronavirus.
The pandemic also casts doubt on whether planned sporting events will go ahead, which have the potential to boost the retail sector. For example, the International Association of Athletics Federations’ 2019 World Athletics Championships had a positive impact on retail. Robert Hall, general manager of Doha Festival City shopping centre, told local press in October 2019 that the sporting event helped increase the mall’s business performance by 22% compared to the same period in 2018 and drew 15% more guests than otherwise projected.
Food Production
The blockade prompted Qatar to invest heavily in its food production and retail industry. Before the stoppage, the country imported around 90% of all its food, and 40% of food imports arrived via overland trade from Saudi Arabia. In the years since, the country has made considerable strides, with food production growing by 400% between June 2017 and March 2019, according to the Ministry of Municipality and Environment. Qatar is also currently self-sufficient in dairy, whereas previously imports accounted for 72% of supply.
To support food production and self sufficiency goals, the National Food Security Strategy 2019-23 put in place a number of incentives and development programmes to assure that Qatar would not be dependent on outsiders for its food needs. The strategy was designed to address the issues posed by the blockade to food security by coordinating government efforts, tapping the country’s natural resources and promoting the direct involvement of the private sector towards the goal of food security. As a result, locally produced goods are showing up on supermarket shelves, and many Qatari brands are becoming household names. Baladna dairy producer is perhaps the most notable success story. Shortly after the blockade the country imported its first cows from Europe and built a large dairy farm, complete with air-conditioned sheds. As of April 2019 the firm produced 320 tonnes of milk a day, enabling Qatar to be self-sufficient in dairy. It now supplies more than half the milk consumed. The company is set to expand its offerings, announcing in November 2019 that it would add 50 new products such as cheeses and juices by the end of 2020.
Grocery Stores
Supermarket chains are supporting the shift towards locally produced offerings. In January 2020 Al Meera, Qatar’s largest domestically owned retail chain, said it would offer more “Made in Qatar” products in its supermarket and hypermarket branches in a bid to support local small and medium-sized enterprises, particularly those that are in the agriculture and agri-food industries. Al Meera operates 53 hypermarkets and supermarkets across Qatar, with its most recent branch opening in Rawdat Al Hamama in January 2020, and is planning further expansions in the future.
While local supermarkets dominate, there are also a number of international chains that have increased their operations. Among these is Carrefour, which was founded in France but now owned by regional real estate giant Majid Al Futtaim Group. In December 2019 the company launched a webstore in cooperation with Doha Post, allowing for delivery services to over 100 neighbourhoods. Also active in the market is Dutch group SPAR, which opened its first store in Qatar in 2017. It now operates three branches, the newest of which opened in November 2018.
E-Commerce
Among markets in the Middle East, North Africa and South Asia, the GCC is the fastest-growing and highest-spending in terms of e-commerce. The region is expected to spend $10.8bn in the segment in 2020, which would represent a CAGR of 26.6% on the $5.4bn spent in 2017, according to an October 2018 report by advisory firm DinarStandard. Online spending per shopper averaged $586, and top firms in the region include Souq.com, the largest e-commerce site in the Arab world; Jarir Bookstore; and electronics-focused Sharaf DG. E-commerce spending is heavily concentrated on consumer electronics, fashion, lifestyle, and health and beauty purchases. The report credited government diversification and job creation plans that fund start-ups and build entrepreneurship programmes for the strong performance. However, e-commerce in the region continues to be stymied by low consumer awareness.
The authorities are working to address such constraints. In October 2019 the MoCI and the Ministry and Transport and Communications launched the e-commerce platform Theqa. The new programme will certify e-commerce companies to enhance consumer confidence and improve the quality of services provided by local online suppliers. The voluntary programme aims to boost the e-commerce sector and will provide local firms with the tools, capabilities and skills they need to succeed. As of late March 2020 the portal had certified 85 retailers that offered products and services including travel, beauty, electronics, groceries and flowers. These efforts will be especially important as e-commerce use is expected to spike after brick-and-mortar stores were temporarily closed in early 2020 due to Covid-19.
Outlook
In the years since the 2017 blockade retail in Qatar has bounced back, with local brands leading the charge. Indeed, where the blockade once presented so many challenges, today it has opened the door to opportunities for entrepreneurs. Qatari firms lead in segments such as supermarkets and luxury, and have leveraged international events to increase the number of visitors to their stores. The supply of retail space has risen, supporting Qatar’s reputation as a regional shopping centre. While there are issues such as an oversupply of commercial space, the change in the FDI law and the 2022 FIFA World Cup position Qatar well for medium-term growth.
