Qatar increases access to finance for small and medium-sized enterprises

Following Qatar’s first delivery of liquefied natural gas in 1996, the state created Qatar Development Bank (QDB) in 1997, to nurture, encourage and support small businesses as well as to help allocate land to Qatari citizens. The QDB plays a vital role in supporting small and medium-sized enterprises (SMEs) in Qatar, underscoring the government’s commitment to the country’s smaller players, which will be vital in developing a more diversified economy. However, according to IMF estimates, SMEs receive just 2% of total credit in Qatar, suggesting there is further headway to be made in improving inclusion and encouraging entrepreneurial activity in the country.

Development Bank

In January 2020 the QDB announced that credit to SMEs increased by 8% in 2019, with outstanding loans of QR6.7bn ($1.8bn), up from QR6.2bn ($1.7bn) in 2018. Many of the businesses supported by the QDB have helped plug gaps in the market created by the economic blockade that was started in 2017 and the trade embargo. In 2019 the QDB noted increases in the number of companies it supported across affected sectors, such as food security firms (65%) and industrial companies (26%). The total number of businesses on its books rose by 5% to 951 in 2019. The development bank made investments in 27 SMEs that year. In addition, 6600 trainees attended workshops run by the QDB.

The QDB also works with the Qatar Chamber to support local industries, and in February 2020 it sponsored the chamber’s 2020 “Made in Qatar” exhibition in Kuwait. Furthermore, the bank publishes research to provide local businesses and potential entrepreneurs with information and insights. In 2019, for instance, it published a report on the manufacturing of detergents, soaps and fragrances, noting that these are all products that are traditionally imported by Qatar. The QDB reported there were five firms manufacturing detergents in Qatar, two of which produced some hand washes – the only soaps made in the country – with two companies making perfume. The report noted that while 57% of detergent imports were from Saudi Arabia before the economic blockade, Oman has since stepped in, supplying some 31% in 2019, up from just 5% in 2016.

Picking Winners

In a discussion paper published in June 2019 on Qatar’s efforts to diversify its economy, the IMF noted that “governments are famously unsuccessful at picking winners” when it comes to selecting individual companies, but that national policies targeting sectors have worked for other countries. It cited the examples of Japan and South Korea, both of which prioritised sectors but supported a multitude of industrial groups that competed against each other. The IMF points out that in economies where “national champions” claiming significant rents have been created or supported without clear benchmarks to measure their success, those enterprises have had very little impact on the wider economy beyond “inefficient import substitution”. The fund suggests that Singapore’s strategy, which identified and pursued expansion in precision engineering, chemicals and biomedical sciences, while also eschewing the country’s more advanced sectors, would be a good example for Qatar. The Ministry of Commerce and Industry (MoCI) has identified potential sectors. “We created a national industrial manufacturing strategy in 2015, and this includes some clear target industries,” Mohamed Al Malki, the deputy undersecretary for industrial affairs at the MoCI, told OBG. “One focus is on technologies of the future. Qatar has a distinct value proposition in this area, such as 3D printing, where we produce the raw product; agricultural innovation in arid climates, which would contribute to food security; and the technology used in desalination, which is a major industry here.”

Fintech Hub

Beyond import substitution, one of the industries that the QDB is prioritising is financial technology (fintech). It has created Qatar Fintech Hub, which offers a co-working space, an incubator facility for start-ups, hackathon competitions to inspire entrepreneurs, and plans to establish a fintech accelerator in 2020. In December 2019 QDB officials announced that QR230m ($63.1m) had been committed to 30 Qatari start-ups, thanks to the QDB’s $100m Fund of Fund initiative. Meanwhile, Qatar Fintech Hub has established partnerships with similar bodies in other countries as well as with Qatar’s leading banking and insurance businesses. In addition, the country’s central bank, Qatar Central Bank, is working on plans to develop a regulatory sandbox in 2020, which would act as a controlled test bed for innovative financial products that are new to the market.

In February 2020 Abdulaziz bin Nasser Al Khalifa, CEO of the QDB, pointed out that certain fintech products could significantly support SMEs. “Through fintech, there is a huge opportunity for SMEs in GCC countries, particularly in Qatar, to gain greater access to funding, which is among the major challenges that SMEs face globally,” Al Khalifa said at the UK-Qatar Financial Services event in Doha. Also represented at the event was Qatar Financial Centre, which is an onshore hub dedicated to attracting both foreign and local investment into Qatar’s financial services sector, while operating under its own regulatory authority and legal system based on English common law. Yousuf Mohamed Al Jaida, CEO of Qatar Financial Centre, said at the event that the centre will continue to provide a supportive environment for the growth and success of the country’s SMEs.

Venture Market

Another financial institution that is working with the QDB and other partners to foster the growth of SMEs is Qatar Exchange (QE), which is taking steps to create a secondary market focused on smaller enterprises, called the QE Venture Market (QEVM). The QEVM would cater to businesses with a minimal track record and a higher risk profile, helping them to acquire capital to stimulate growth. The hope is that for some businesses, the QVEM would work as a feeder for the main market. In December 2017 Rashid bin Ali Al Mansoori, CEO of the QSE, said in a speech to students at Carnegie Mellon University Qatar that there were 10 SMEs in the pipeline for listing. However, one key stumbling block, which the QDB was working with businesses to resolve, was the required seed capital of between QR300,000 ($82,300) and QR400,000 ($110,000).

Classification

To provide greater clarity, the MoCI issued new directions in 2018 to define what constitutes an SME in Qatar. It stipulated the maximum headcount for an SME would be 250 employees, with a maximum annual revenue of QR100m ($27.4m). The regulation recognised three sub-categories: micro-enterprises, which have fewer than 10 employees and turnover below QR1m ($274,000); small firms, with a staff of 11 to 29 and turnover under QR20m ($5.5m); and medium-sized businesses, with 51 to 250 employees and annual turnover between QR2m ($549,000) and QR100m ($27.4m).

Research Centres

Qatar Foundation, a semi-private, non-profit organisation, has attracted a number of international branches of research-led universities to Qatar and also runs a number of hubs focused on research and innovation, as well as provides funding for research. Its research hubs include: Qatar Science and Technology Park (QSTP), which hosts research and development arms of international oil companies as well as 20 local start-up businesses; Qatar Biobank, which serves as a repository of biological samples and information on the health and lifestyles of Qatari citizens, thereby enabling research into health issues affecting the population; and the Qatar Genome Programme, which draws on some of the work done by Qatar Biobank in order to produce precision medicine and personalised health care. QSTP also runs an incubation centre offering a 12-month residence for start-ups developing a product or service, acquiring their first customers, or raising funds.

Tawteen

In January 2020 state-owned Qatar Petroleum (QP) launched its in-country value programme Tawteen, which seeks to ensure that the benefits of its business activities were distributed across the petrochemicals value chain and fed down to local enterprises, passing on new opportunities as QP embarked on major expansion plans. The scheme will require international business working on or bidding for tenders with QP companies to undertake an audit detailing the extent to which they use Qatari companies in their supply chain. Tawteen will also develop suppliers to ensure local businesses are able to meet the needs of contractors. “One of the key thrusts of Tawteen is the development of local SMEs, and we welcome entrepreneurs to avail the many business opportunities that are being made available,” Saad Sherida Al Kaabi, president and CEO of QP and minister of state for energy affairs, said. “QP will collaborate with other entities supporting SMEs in Qatar and we look forward to assisting new entrepreneurs undertaking the opportunities available under Tawteen.”