Qatar's SME Zones

While diversification strategies aimed at moving economies away from hydrocarbon dependency have become commonplace around the Gulf in recent years, the practical implementation of these strategies has often proved challenging.

In Qatar, the move towards solidifying diversification has been underway for some time, and from an early stage, the government has recognised that the creation of a vibrant and expansive world of small and medium-sized enterprises (SMEs) is key to success in this. It has therefore been concerned, too, with measures to help bring in the investment, expertise and entrepreneurial culture necessary to ensure this becomes a reality.

Yet by far the majority of SMEs in the state remain dominated by expatriates, a fact recently illustrated by moves to boost Qatarisation rates in the private sector (see October’s issue). The Qatar National Bank (QNB) September 2014 Economic Review stated that as much as 94.1% of the private sector labour force was non-Qatari.

One important step towards tackling this imbalance has recently been taken with the Ras Bufontas specialised economic zone, which is set to break ground in late November.

While it is true that special economic zones have been widely established across the region in recent times, Ras Bufontas is significantly different: the zone is the first of three such parks specifically targeting Qatari SMEs – not only SMEs based in Qatar, that is, but most importantly those set up and run by nationals.

This is an important step in recognising that long-term, sustainable growth in the state is best served by an indigenous private sector, capable of competing globally and providing the country with future jobs and prosperity, long after the major, prestige infrastructure projects – and even the natural gas – are over.

“The government does not want the economy to drop off after the 2022 World Cup,” Fahad Rashi Al Kaabi, CEO of Manateq, which is behind the zones, recently told OBG. “The idea is to encourage local industrial capacity. The overall aim is to target locals to set up across a wide range of sectors, while attracting international tenants to be the main anchors in the zones.”

Manateq is the renamed state economic zones company, owned by the government via Qatar’s SME Authority. With an authorised capital of QR5bn, it is now in the process of creating special economic zones for local SMEs at Um Alhoul, Ras Bufontas, and one additional location that is being currently discussed.

Ras BuFontas Special Economic Zone is the most advanced, and will eventually occupy a 4 sq km area near Hamad International Airport, with all three phases of the project expected to be complete by mid-2019 with phase 1 launching in 2017. Um Alhoul will be the largest – a 34 sq km area adjacent to the New Port Project at Wakrah. Eventually including a canal, it will launch the first of its three phases to the market in 2017 while the last phase begins after 2022. The Economic Zone 3, meanwhile, is the least advanced and is still looking for a location.

The zones’ novel approach is to reserve their space and incentives for local SMEs and businesses in general, particularly those within the knowledge economy. Investment in these companies and in the zones can be from anywhere, with global players being courted to set up operations, but the target is mainly the national, Qatari private sector.

This is likely to be widely welcomed. The local, Qatari national private sector has long faced a number of obstacles – not the least of which is the lack of incentive for many Qataris to go into business, when public sector jobs are so attractive.

For SMEs, too, obtaining finance has often been problematic, given the family nature of many enterprises and their consequent lack of transparency. A third challenge has been the creation of an entrepreneurial culture in schools and colleges, training new generations to think in terms of commercialisable opportunities.

Recent times have seen numerous schemes rolled out to tackle these challenges, however, particularly in financing and education. Manateq is now providing the space and conditions for Qatari SMEs to show what they can do within an incentivised, one-stop-shop environment.

Many will be watching to see how these economic zones develop, as they will likely provide a good test of how far a local entrepreneurial culture has taken root – as well as being an important test of the ability of government policy to shape the goals of future generations of Qataris.

---This original article from OBG originally appeared in Qatar's The Edge magazine, December 2014 issue.