Big spender: Government contracts lead the way in a surge of fresh investment

The years ahead are set to see major new investment in a range projects in Qatar – some of them already under way, others entirely new. The built landscape of the country is due for a number of significant changes as the country gears up for the 2022 FIFA World Cup and beyond.

Fiscal Expansion

This programme of spending, largely spurred by government contracts, will also have a significant effect on the country’s macroeconomic balances. Fiscal policy expansion will boost the money supply, soak up budget surpluses and alter the balance of payments.

Managing such major expansion is likely to be key in the months and years ahead, with a close eye being kept on the economy’s temperature by the Qatari authorities. Yet these projects, which have to meet stringent criteria if they are to leave the drawing board in a coordinated fashion, should also give Qatar an infrastructure on which to base its wealth and prosperity for many years to come.

Packed Agenda

In terms of existing major projects, many are in the realm of transport infrastructure. Due to finally open in 2014, the country’s new air hub, Hamad International Airport – formerly known as New Doha International Airport – lies 5 km east of the current airport and covers an area of 9000 sq metres, half of which is reclaimed land.

When completed, the airport will have a capacity for 50m passengers and 2m tonnes of cargo per year, with around half that passenger capacity in its initial phase. The cost up to November 2013 was widely estimated at around $15.5bn.

Running from Hamad International Airport will also be a high-speed rail line of the $35bn Qatar Integrated Rail Project. This system will eventually deploy 300 km of rail around the capital, Doha, with a four-line metro one of its main achievements. In the city centre the metro will run underground, before emerging above ground in the outskirts. A light rail network is also part of the plan, linking West Bay to Lusail, with a scheduled completion date of 2016, along with a passenger and freight link between Ras Laffan, Doha and Messaieed. The aim is to complete the first phase by 2022, in time for the World Cup.

The first phase of the metro got under way in mid-2013 too, with the award of $8.24bn in contracts by Qatar Rail (QR) for design and build. By November 2013 QR was able to announce that it had signed $32bn of deals for the project, with work officially begun at the sites of 20 of 24 metro stations.

Ports

A third major transport development is the New Port Project. This $7.4bn development is located south of Doha, and will be a commercial and military marine transport hub with its own economic zone covering a total area of around 26.5 sq km.

Construction started in 2011, with operational readiness planned for 2016. In November 2013 a report on the project’s website stated that 65% of the harbour basin area had been excavated and 2.7 km of marine breakwaters completed by China Harbour Engineering Company, the contractor.

Old Doha port is also being upgraded, with its capacity due to rise to 700,000-800,000 containers per year, and subsequently to 1m, according to figures from the Ministry of Transport.

Meanwhile, a range of road and utilities projects is also ongoing, under the watchful eye of Ashgal, the country’s Public Works Authority. In October 2010 this body began an $8.1bn, 280-km, dual four-lane expressway programme, which is expected to be completed in the third quarter of 2017. Key in this are the Doha, Lusail and Dukhan highways, which will link the capital to new urban developments on its rim, with a 2016 completion date.

At the same time, Ashgal is at work on a range of local road, drainage and utilities schemes. Among the latter group are the Zone 46, 70, 74 and 75 phase two road improvement schemes, and peripheral road development for Barwa City. In all, some 150 km of road and drainage schemes are involved, costing $14.6bn and also due for a 2016 completion. In November 2013 local press also reported that some QR73bn ($20bn) is set to be spent on bridges and subways alone over the next few years as part of the road and rail programmes. Much of the transport infrastructure is connected to other, large-scale residential and industrial projects.

Real Estate Developments

The Lusail mixed-use development is among the largest such projects in the Gulf, with Qatari Diar overseeing.

Eventually providing homes for 250,000 people over an area of 35 sq km, it includes 22 hotels, four artificial islands, a $275m marina and two golf courses, with an estimated total cost of approximately $45bn. It also has a 2020 completion date, as it will be the venue for the World Cup final, in the brand-new, 80,000-seat Lusail Stadium.

Three other major real estate projects are Doha Festival City, a $1.6bn shopping and entertainment complex; Al Waab City, a $2bn mixed-use complex of hotels, apartments and commercial spaces; and Msheireb, another mixed-use project restoring 750,000 sq metres of downtown Doha at a cost of approximately $6.4bn. These three all have 2016 completion dates. Meanwhile, The Pearl, Qatar’s iconic artificial island development, continues towards a final, 2015 completion date. Another offshore development is the $5.5bn Barwa-Oryx Island, which will include accommodation for 25,000 World Cup fans and features five floating hotels.

Petrochemicals

Some major projects are also taking place in the petrochemicals industry. Al Sejeel Petrochemical’s aromatics and petrochemicals plant is scheduled to come on-stream in 2018, while Al Karaana Petrochemical at Ras Laffan will see production of ethylene glycol and alpha olefins in a joint Qatar Petroleum and BP project.

On top of all this is the stadium-building programme set to take place in preparation for the World Cup. This involves both the refurbishment of existing facilities, such as the Al Khalifa Stadium at Aspire, and the construction of new ones. While the exact number of venues has yet to be finalised, officials suggested that five were being prioritised, with the award of the first design, for Al Wakrah Stadium, announced. More tenders are expected in 2014. The redevelopment contract for Al Rayyan Stadium was also announced in February 2014. AECOM was named project manager for the plan to expand the stadium’s capacity from the current 22,000 to 40,000 and install a new cooling system.

Substantial Outlay

Putting all of this together, a report by EC Harris in late 2013 suggested that by 2030, a total of $156.8bn will be spent on major construction programmes (those worth over $1bn). The peak will likely come in 2016, with $34bn of projects due for delivery that year.

This comes after some under-spend in the development budget in 2012, as projects scheduled for roll-out fell behind schedule. Going forward, this position seems likely to reverse. According to a National Bank of Kuwait report in the third quarter of 2013, investment activity – a sound measure of the number of contracts being awarded – was up 30% in the first half of 2013, year-on-year, and likely to reach $56.5bn by the end of the year.

Extra Funds

National Bank of Kuwait predicted that development spending would increase from 7% of GDP in 2012 to 9.5% in the financial year 2013/14. The government budget for that year allocated a 20.6% increase in development spending, with total spending rising to $57.9bn. This was predicated on a $65-per-barrel oil price, which with the actual barrel price some 50% or more higher, means that the government is likely to record a large fiscal surplus again, further strengthening its position when it comes to financing future projects.

Most of the capital expenditure taking place in Qatar will be directly financed by the government – an IMF study in 2011 estimated $100bn of such government financing between 2012 and 2015/16, or 10% of expected cumulative nominal GDP. This poses some risks, from inflationary pressures to bottlenecks adding to project costs. Managing the fiscal budget over the course of this spending programme is therefore key, coordinating projects and their phased roll out to avoid any bottlenecks.

Qatar National Vision 2030 (QNV 2030) and the National Development Strategy 2011-16 are part of this process. At the same time, the adoption of a medium-term budgeting strategy has also been key. Progress on this, while causing some delay in project roll-out in 2012, will likely produce major benefits and efficiencies in the years to come. Current reorganisation of ministries and departments, commenced after the accession of the new Emir, will likely evolve in this context. A new public finance law is also reportedly in the pipeline, which will pave the way for a macroeconomic unit to be established. Large-scale capital investment projects that demonstrate ability and leverage real growth are dominant.