Endowed with natural resources, including an abundance of liquefied natural gas (LNG), Qatar is witnessing an economic boom supported by the rising price of petroleum products. In recent years, the small state has used its petro-earned surplus to jumpstart a slew of development projects aimed at diversification. Focusing on education, entertainment, finance, etc., Qatar is revamping opportunities for its citizens through several long-term projects. The evidence of Qatari government spending is found in the country’s expanding budget, which rose from $7.42 billion in 2004 to $13.75 billion in 2006.
There seems to be no end in sight for the wealthy nation. An outlook by Global Investment House expects Qatar to “record a strong trade surplus in 2007 as volumes of LNG and oil exports are likely to increase due to the expected increase in production.” The growing energy appetite of developing economies, in particular China, is likely to support Qatar’s mainstay industry in the medium term. Qatar’s gas development strategy will make the country “the world’s biggest exporter of liquefied natural gas,” according to Global Investment House, estimating an expansion of Qatari LNG production to 77 million tons by 2012 from around 25 million tons in 2006.
Yet not all news is positive for Qatar, as the country is battling against inflation and the currency’s peg to the dollar. Strong, double-digit growth in the money supply has increased consumption and inflation.
The banking sector
Large banks continue to control the country’s credit facilities and are led by Qatar National Bank (QNB), which tops the banking system with 39.1% of total assets and 43.2% of total deposits, in addition to a 43.3% market share of net loans and advances. New banks, including the Islamic-oriented Al-Rayan Bank and the more conventional Gulf Commercial Bank recently entered the market. The Qatari government is encouraging foreign attraction to the country’s banking sector by permitting joint venture projects with foreign participation, as long as Qatari partners own 51% of capital.
Liberalizing the telecom sector
Another industry set to liberalize is Qatar’s telecom sector, which has seen steep market penetration, recording 104% in 2006, up from 85% in 2005. Although Qtel (Qatar Telecom) currently has a monopoly over competition, moves by the government are underway to attract a second operator to the market. A report by Oxford Business Group (OBG) stated that “even though Qatar is currently one of the most saturated mobile phone markets in the world…there is still potential for a new operator to dial in to the lucrative market.”
While much of Qatar’s economy is continuing the trend of strong growth, the country’s financial sector, like most others in the region, reported downward trends, including loss in market capitalization for several stock markets. Nonetheless, encouraging signs are pointing to an up-tick in the near future, with development and infrastructure projects likely to have a spillover effect on other sectors. In addition, mergers and acquisitions activity is growing for Qatar. The OBG reported that while “it is widely agreed that M&A will not continue to enjoy the same boom witnessed in recent years [by most Gulf states], this is far from the case in Qatar, where large-scale investments outside the country are expected to remain very high.” The report attributes the positive outlook to high growth in government revenue and gross domestic product (GDP) from a rising oil price.
Foreign M&A activity by Qatar has the added benefit of creating a hedge against the dollar, to which the nation’s riyal is pegged. Concurrent with the dollar, Qatar’s currency is weakening against other major currencies and increasing the cost of imports. Many analysts agree the peg is also to blame for the nation’s inflationary pressures, as monetary policy, including interest rate policy, takes its lead from moves by the US Federal Reserve.
Combating inflation, managing extreme growth, and dealing with the dollar-peg are the challenges Qatar will continue to face in the medium term, yet the overall economic outlook for Qatar’s economy is likely to remain bright.
