Recent diplomatic difficulties encourage local industry expansion in Qatar

The blockade imposed on Qatar by Saudi Arabia, the UAE, Bahrain and Egypt in June 2017 has had many significant effects on the country and its economy, not to mention the wider region. Yet while much of this was initially disruptive, there is a sense among government officials and business leaders that the situation also presents opportunities that Qatar and businesses operating in the country can exploit.

“The blockade made us stronger and we now have hope because of the government’s efforts to promote the local manufacturing industry. Our goal now is to expand our operations,” Rajesh Raveendran, sales manager of Doha Regional Plastic Solutions, told Gulf Times in late July 2017. Additionally, another executive told the publication that this was indeed a valuable chance for the “Made in Qatar” brand to grow and expand into new markets.

Government Aid

A team from the IMF visited Qatar in August 2017 and concluded that the country’s economy and financial markets were adjusting well to the challenges caused by the blockade.

“Efforts to diversify sources of imports and external financing and enhance domestic food processing are accelerating. As a result of the authorities’ quick response, some trade has been rerouted and alternative sources of food supply have been established, allaying fears of potential shortages,” Mohammed El Qorchi, who led the IMF visit, said in a statement. “The initial concern that trade disruptions could impact the implementation of key infrastructure projects has also been mitigated by the availability of an inventory of construction materials and alternative sources of imports.” Despite this, non-oil growth is projected to drop slightly from 5.6% in 2016 to 4.6% in 2017, with transportation and food costs up 8.9% and 2%, respectively, due to rerouting issues, which has increased operational costs for some businesses.

Expanding Opportunities

In the past Qatar has relied heavily on imports, whether for foodstuffs, consumer goods or raw materials for its industries and construction sector. Most of these were received via neighbouring countries – many of which are now engaged in the blockade – forcing local authorities and businesses to investigate ways to circumnavigate the embargo, as well as become more self-reliant and self-sustainable. While this has led to higher costs in the short term – food prices jumped 4.5% year-onyear in July 2017 – it has also created opportunities for local growth and expansion, especially when it comes to Qatar’s small and medium-sized enterprises (SMEs), and manufacturing sector.

In July over 150 local companies participated in the second instalment of “Buy Local Products”, a two-day exhibition sponsored by Qatar Development Bank aimed at promoting and supporting the local manufacturing industry. The event took on new significance in 2017, given the blockade, giving SMEs a platform to showcase their wares as part of the drive to localise supply chains. SMEs involved included those engaged in producing general building materials, plastics, aluminium, copper, steel, iron, glass products, information technology and equipment.

“At present, one of our key priorities is ensuring that the Qatari wholesale suppliers, who may no longer order their merchandise from their traditional sources, are matched with new providers. This effort ensures that their business may continue to operate as normal, and I am delighted to share with you that in this endeavour, we have met much success,” Abdulaziz bin Nasser Al Khalifa, CEO of Qatar Development Bank, told media at the time. “Not only are SMEs able to promote their products, this initiative also gives them the opportunity to meet with major contractors and buyers, thus contributing to the marketability of their products in the local market.”

Construction 

In August 2017 Khashif Aijaz, an executive at Don Construction Products, told local media that the company’s workload had doubled recently as it tried to increase its manufacture of construction chemicals to keep up with new demand. “Our orders have increased, and there is an above-proportional growth in the orders we are getting every day,” he said, adding that the main challenge was the availability of raw materials, as previously they were importing raw materials from Europe, China and the US via Jebel Ali Port in the UAE.

According to reports, imports to Qatar fell by almost 40% in June, the first month of the blockade. Roughly 70% of the country’s construction materials were thought to come either from or through Saudi Arabia and the UAE, potentially dealing a significant blow to a country in the midst of major building works. Despite this, Qatari officials have stressed that the drop in overall imports would not affect key government projects. This is important given that Qatar is experiencing a construction boom in preparation for hosting the 2022 FIFA World Cup – total investment in key infrastructure in the lead up to 2022 is expected to be in the region of $200bn – as well as developments linked to Qatar National Vision 2030, the long-term national development plan.

These projects require significant raw materials to move forward, with officials confident that recent geopolitical tensions will not affect the building work. “When it comes to our projects, when it comes to Qatar 2022, we don’t foresee any issues. Even if this blockade continues for 20 years we will keep delivering,” Abdulla Hamad Al Attiyah, assistant president at the Public Works Authority (Ashghal), told local media in August 2017. In fact, the new challenges could be a boon for local suppliers and contractors eager to step into the shoes of regional companies.

Confidence 

While Fitch Ratings cut the country’s credit rating one notch to “AA-” with a negative outlook in late August 2017, suggesting Qatar may have to reduce its capital spending on economic and infrastructure projects if the impact of the blockade intensifies, others are confident of the country’s ability to thrive. In September 2017 Qatar’s minister of economy and trade, Ahmed Bin Jassim Al Thani, told media that the embargo was an “opportunity” which was opening up new trade routes between Qatar and Turkey, Kuwait, Oman and other countries.

One well-timed development is the opening of Hamad Port in early September 2017. The new facility means that large container vessels can now unload directly in Qatar, rather than docking at ports in the UAE, with the cargo then being transferred to smaller vessels, as was the case in the past. Located in the town of Mesaieed, Hamad Port will have an annual capacity of 7.5m shipping containers when fully operational – which is forecast for 2020 – with separate terminals for general cargo, cereals, vehicles and livestock. According to Qatar News Agency, the port will open up new routes connecting Qatar with ports including Oman’s Sohar and Salalah, Izmir in Turkey, Karachi in Pakistan, Shuwaikh in Kuwait, and Mundra and Nhava Sheva in India. In addition to filling the import gaps created by the Saudi-led blockade, this new infrastructure could also help to grow the export side of Qatar’s industry and make a strong impact as the country looks to strategically increase its non-petroleum industries and exports. The port’s location, facilities and scale could help position Qatar as a re-export hub for the region, helping to increase the volume of trade between it and the rest of the world, while stimulating new business opportunities.

Fast Track 

In July 2017 the government created a new initiative aimed at fast-tracking the establishing of manufacturing companies and factories in Qatar. The project, “Own your Factory in Qatar in 72 Hours”, offered 250 investment opportunities in the industrial sector, complete with attractive incentives and readily available plots of land. The initiative saw 9349 applications from local and international companies within a month, mostly coming from major industrial sectors. Some 3168 applications – 34% of the total – came from the food segment, 1334 came from the metal segment, 1086 were from the paper segment, 941 came from rubber and plastics, chemicals had 826 applications, electricals had 732, medical had 710, and machinery and vehicles had 552. Of these, Qatari investors represented around 85% of the total, with the other 15% coming from investors from 52 different countries. Initiatives like this should help Qatar’s industrial sector to grow significantly and could also ensure that confidence among companies operating in the country, especially those reliant on outside trade, does not dip.

More will need to be done to promote “Made in Qatar” as a valued commodity, while ensuring supplies are available for local manufacturers and industries is also a priority. However, outside of short-term disruption, there are signs this geopolitical crisis between Qatar and its neighbours could be less negative for the economy than initially thought, and may even have some positive knock-on effects.