Boosting efficiency key to maintaining industry growth in Qatar

Central to Qatar National Vision 2030 (QNV 2030), the country’s long-term development plan, is creating a competitive and diversified economy. The industrial sector plays a key role in this, broadening the scope of private sector activity, encouraging the shift to higher value-added activities and creating jobs in an increasingly knowledge and innovation-based economy. Recent times have seen the impact of the shift away from hydrocarbons dependency, despite the large share of Qatar’s GDP still contributed by its oil and gas sectors.

Now though, with some industrial projects having been scaled down or put on hold due to lower oil and gas revenues in recent years, the sector has to demonstrate its resilience. Enhancing efficiency and cutting costs are thus major priorities, with leaner and more agile competitive industries the likely result. Furthermore, while the ongoing economic blockade of Qatar by Saudi Arabia, the UAE, Bahrain and Egypt, which began in June 2017, presents a challenge, government entities and the private sector have pushed for initiatives to expand industries and establish new projects to boost local products and achieve self-sufficiency.

Facts & Figures

Recent years have seen a steady rise in the non-oil and gas sector’s share of GDP. According to the Ministry of Development Planning and Statistics (MDPS), GDP experienced a compound annual growth rate of 4.2% during the 2011-15 period, with the mining and quarrying segment’s share of GDP – which includes oil and gas – falling from 58.8% in 2011 to 38.6% in 2015. The non-mining and quarrying sector, which includes manufacturing, construction, electricity and water, wholesale and retail trade, among others, saw its share of GDP rise from 41.2% to 61.4% over the same period, with manufacturing making the largest single contribution from this sector at 9.7% in 2015.

Making Tomorrow

Manufacturing in Qatar has long been dominated by oil and gas sector-related activities, particularly petrochemicals and plastics, with manufacturing performance dependent on the global hydrocarbons market. It has significant construction material manufacturing capacity, particularly in cement, steel and aluminium, and also possesses a light industrial segment, involving a wide range of activities, from downstream metal mouldings to food processing.

The strategic vision behind these developments – as outlined in QNV 2030 and a subsequent series of medium-term development plans – is one that has historically tried to channel industrial investment into areas where the country can clearly exercise a competitive advantage. Thus, the emphasis has largely been on petrochemicals, drawing upon substantial hydrocarbons reserves and one of the world’s largest non-associated natural gas fields (see Energy chapter). This natural gas abundance also enables industries with high levels of energy consumption, such as metallurgy, via gas-fired power plants. These heavy industries also provide a good basis for chemicals and plastics.

Manufacturing accounted for some 9.5% of GDP in 2011, reaching a high of high of 10.5% in 2012, then falling to 9.7% in 2015, according to MDPS figures. In nominal GDP terms, it contributed QR71.57bn ($19.7bn) in 2012, rising to QR76.13bn ($20.9bn) in 2014, before sliding on the back of falling oil and gas prices to QR58.06bn ($15.9bn) in 2015. Data from Qatar National Bank’s monthly monitoring reports show manufacturing contributing QR50.2bn ($13.8bn) to GDP in 2016, a 13.6% dip from 2015. The industrial sector as a whole – which includes construction and utilities alongside manufacturing – made up QR119.7bn ($32.9bn), or 21.6%, of total nominal GDP for 2016, which stood at QR555bn ($152.4bn). While the latter figure was down 7.4% on the previous year, the non-oil and gas sector’s overall contribution to GDP rose by 5.1% to QR386.7bn ($106.2bn), nearly 70% of the total. The industrial sector contributed QR32.4bn ($8.9bn) – 21.4% – to overall nominal GDP of QR150.9bn ($41.4bn) in the first quarter of 2017, with the manufacturing segment accounting for QR12.7bn ($3.5bn) – 8.5% – of this contribution.

Governing Bodies

The key government body for the sector is the Ministry of Energy and Industry (MEI), of which Mohammed bin Saleh Al Sada is the minister. Several other ministries also have significant roles within the sector, including the Ministry of Economy and Commerce and the MDPS. The latter was responsible for drawing up QNV 2030, and the previous medium-term plan, the National Development Strategy (NDS) 2011-16. On the private sector side, the Qatar Chamber of Commerce and Industry was founded in 1963. The country also hosts the International Chamber of Commerce Qatar, the American Chamber of Commerce in Qatar and the British Chamber of Commerce Qatar.

Major Players

Within the sector a number of government-linked companies have central roles. Industries Qatar (IQ) is one of the largest of these, with fertiliser, petrochemicals and steel companies in its portfolio. IQ is 51% owned by Qatar Petroleum (QP), the state’s central oil and gas player (see Energy chapter). Incorporated in 2003, with a successful initial public offering on the Qatar Stock Exchange, IQ became the umbrella company of several firms previously held directly under QP: Qatar Petrochemicals Company (QAPCO), which is split 80:20 between IQ and Total Petrochemicals; Qatar Fuel Additives Company (QAFAC), in which IQ has a 50% stake; Qatar Fertiliser Company (QAFCO), which is 75% owned by IQ and 25% by Yara Netherland; and Qatar Steel, which is fully owned by IQ. QAFCO also has two subsidiaries, the Gulf Formaldehyde Company and Qatar Melamine Company, while Qatar Steel has three subsidiaries, Qatar Steel Company FZE, Qatar Steel Industrial Investment Company and Qatar Steel Rebar Fabrication Facility. Qatar Steel also has three associates: Qatar Metals Coating Company, Solb Steel Company and Foulath Holding. In the metals segment, Qatar Aluminium (Qatalum) is a joint venture between QP and Norway’s Hydro Aluminium.

Other Holdings

In February 2017 QAPCO also began to integrate the Qatar Vinyl Company (QVC) into its structure. This process, which is due to be concluded by the end of 2017, was expected to result in major cost savings for both firms, as well as for IQ and QP, the parent company. QP also owns the Mesaieed Petrochemical Holding Company (MPHC), a major stakeholder in QVC. This integration represents part of QP’s ongoing merger and reorganisation programme, a major cost-cutting and efficiency-boosting scheme that has seen plans to merge Qatargas and RasGas, the state’s two giant liquefied natural gas (LNG) manufacturing outfits (see Energy chapter). QAPCO also continues to be part of two other joint ventures, which are Qatar Plastic Products Company and QATOFIN.

MPHC also has a 49% stake in Qatar Chemical Company (QChem) and QC hem II. Other shareholders in the two firms include Chevron Phillips Chemical International Qatar Holdings and QP. QC hem II, QP and QATOFIN also jointly own the Ras Laffan Olefins Company (RLOC).

Industrial Centres

QP also runs an Industrial Cities Directorate, which has two industrial cities in its portfolio, Mesaieed and Ras Laffan, as well as the Dukhan Concession Area (DCA). The Mesaieed Industrial City is a centre for petrochemicals, fertilisers, metallurgy and primary building materials, while Ras Laffan concentrates on natural gas-based industries, such as LNG and gas-to-liquids (see Energy chapter). DCA, meanwhile, remains an oil and gas production facility. Mesaieed is thus now home to QAPCO, QAFCO, QC hem, QC hem II, QAFAC, QVC and Qatar Steel. It is also home to the Qatar Plastic Products Company (QPPC), which is jointly owned by QAPCO, Italy’s Stefano Ferretti and the Qatar Industrial Manufacturing Company (QIMC).

QIMC was set up in 1990 with a 20% government and 80% private sector equity distribution. Its aim was to encourage greater private sector participation in the industrial sector, as part of early efforts at diversification. It now has 13 subsidiaries and joint ventures within its portfolio, with 100% ownership of the Qatar Acids Company, Qatar Paving Stones, Qatar Sand Treatment Plant and National Paper Industries (NAPICO), along with a 40% stake in the Qatar Aluminium Extrusion Company (QALEX). Joint ventures include partnerships with Saudi outfits in gypsum and pipes, and with QAFCO and other QP associates in formaldehyde. Mesaieed is also home to SEEF – which produces linear alkyl benzene – Qatar Lubricants and Qatar Construction. The city provides residential, commercial, retail, logistics and leisure facilities for the firms based there.

New Management

Since January 2017 QP has handed over management and operation of its light and medium industries and the concrete zone at Mesaieed Industrial City to the Economic Zones Company (Manateq). Established in 2011, this government-owned firm provides support to private sector companies. In addition to its areas within Mesaieed, it currently has three special economic zones in its portfolio: Ras Bufontas, which has a technology and logistics focus and is next to Hamad International Airport; Umm Al Houl, next to Hamad Port and the Mesaieed Industrial City; and the planned Al Karaana, which will be located halfway between Doha and the Saudi border at Abu Samra, for which full details will be available in 2018. It also has logistics parks at Jery Al Samur, Al Wakra, Birkat Al Awamer and Aba Saleel, as well as a range of commercial plots and logistics warehousing within the state. The MEI itself also has a selection of smaller industrial zones as well as lots under its Department of Management of Industrial Zones.

Pulling together the considerable output from Qatar’s petrochemicals and chemicals industries for marketing purposes is the responsibility of Qatar Chemical and Petrochemical Marketing and Distribution Company (Muntajat). Set up in 2012, the firm sells a vast range of chemicals, from ethylene to hexene, and polymers that range from low-density polyethylene (LDPE) to polystyrene, in addition to fertilisers such as ammonia and urea formaldehyde. Meanwhile, in construction materials Qatar National Cement Company (QNCC) produces a range of products, including ordinary Portland cement (OPC) and washed sand, with manufacturing based at Um Bab, in the west of the country. A listed entity, QNCC’s production stood at 3.7m tonnes of OPC in 2016 (see Construction chapter).

Getting Results

Recent global economic conditions posed challenges to many of Qatar’s industries. In 2016, following a sustained low-oil price environment that emerged in mid-2014, petrochemicals saw a similar fall in prices, while the fertilisers industry faced oversupply in the international market. The economic downturn also hit steel and aluminium demand, at a time when supply was also increasing. The fall in oil and gas prices translated into declining revenues for all Gulf economies, with a consequential slowdown in spending, the main driver of economic activity in the region, and a decline in demand for construction materials.

Nonetheless, Qatar’s industrial outfits still managed to largely maintain sales volumes and outputs. In 2016 IQ posted a QR3bn ($823.9m) net profit, despite a 6% decline in revenue in petrochemicals, a fall of 27% in fertilisers and an 11% dip in steel, according to the company’s 2016 annual report. Cost optimisation initiatives and IQ’s ability to utilise its modern systems and strong liquidity position helped secure the company’s balance sheet, as did work by its integrated marketing firm.

Indeed, Muntajat now sells to some 120 countries worldwide. QChem and QC hem II provide it with much of its trade, with the former having a production capacity of 453,000 tonnes per annum (tpa) of polyethylene and 47,000 tpa of 1-hexene. QC hem II added a further 350,000 tpa of this, while it also has a 345,000-tpa-capacity normal alpha olefins unit. RLOC has a 1. 3mtpa ethylene cracker unit, with 700,000 tpa of this going to QC hem II and 600,000 tpa to QATOFIN. Muntajat also sells chemicals produced by QAFAC. These include methanol, with the company’s plant having a 2500-tonne-per-day (tpd) capacity, and methyl tertiary-butyl ether, which QAFAC can produce at 1830 tpd.

Additional Production

SEEF, meanwhile, has the capacity to produce 80,000 tpa of normal paraffin, 100,000 tpa of linear alkyl benzene and 36,000 tpa of benzene, along with 3500 tpa of heavy alkyl benzene as a by-product. QVC adds capacities of 355,000 tpa of vinyl chloride monomer, 180,000 tpa of ethylene dichloride and 370,000 tpa of caustic soda, using imports of ethylene and solar salt from QAPCO and 14m British thermal units per year of gas from QP to fire its processes. Finally, in the chemicals segment the Qatar Acids Company has a capacity of around 33,000 tpa for sulphuric acid production, with most being used locally. QAPCO also creates LDPE under the trademark Lotrene, producing 1.24m tonnes of polyethylene of all types in 2015. Furthermore, QATOFIN has a design capacity of 450,000 tpa of linear LDPE, made using feedstock from RLOC’s ethylene cracker in Ras Laffan. QATOFIN is 63% QAPCO owned, Total Petrochemicals France holds a 36% stake and QP holds a 1% share.

In addition, Qatar Melamine Company (QMC) provides around 5% of the world’s total melamine production capacity. Some 60,000 tpa can be produced at its plant in Mesaieed. For this, QMC utilises high-quality urea produced by QAFCO, which manages and operates QMC’s plant. QAFCO has the capacity to produce 5.6m tpa of urea, some of which it blends with formaldehyde to make UFC-85. The company also has a production capacity of 3.8m tpa of ammonia. Qatar is thus the world’s fourth-largest producer of urea, with QAFCO able to utilise an integrated facility that combines ammonia production with a granulation unit on site.

Growing Competition

In common with other Gulf petrochemicals industries, Qatar’s petrochemicals continue to be entirely based on ethylene as a feedstock. This commodity has recently seen erosion in its competitiveness versus growing global rival, naphtha, as oil and gas prices have fallen. A meeting of GCC petrochemicals industry players in Dubai in late 2016 saw member states declare a willingness to consider greater cooperation in the petrochemicals market. A pan-GCC ethylene pipeline to combat shortages of natural gas feedstock for ethylene crackers around the region was one proposal. This project might help hedge against any further availability of Iranian products, along with an expected wave of US-based petrochemicals in the second half of 2017 as a result of shale gas expansion coming on-stream. An LNG-rich country, Qatar may have a much larger role to play in the GCC petrochemicals sector in the years ahead, although with the recent blockade, this could be delayed somewhat. The decision to revoke a 12-year moratorium on further exploitation of the country’s giant natural gas field, the North Field, in April 2017 may also add to local feedstock provision.

Showing Metal

Qatar Steel became the Gulf’s first integrated steel plant when it was established in 1974, with the company going on to base itself in Mesaieed Industrial City, while operating a UAE-based subsidiary, Qatar Steel FZE. Nowadays, the company produces cold direct reduced iron (DRI), hot briquetted iron (HBI), steel billets and rebar. The company produces some 700,000 tpa of DRI and HBI for sale, with markets including the Middle East, India and East Asia. In 2014 the company began production at its fifth electric arc furnace (EAF) at the Mesaieed Industrial City. It has two direct reduction plants, two rolling mills, two calcined limestone plants and one limestone pulverising plant. Also in 2014 Qatar Steel mothballed two EAFs, in line with a business strategy for the 2014-18 period that has taken into account the general downturn in global market conditions. In October 2016 the company installed a Siemens Integrated Drive System at its first rolling mill, which should raise output by some 3.7% per annum.

Moving Downstream

In the aluminium segment, Qatalum went into full production in 2011, using a dedicated 1350-MW power plant to fire 704 cells, and with a first-phase production capacity of 585,000 tpa. Qatalum now produces both extrusion ingots and primary foundry alloy ingots, with production capacities of 340,000 tpa and 300,000 tpa, respectively. Meanwhile, QALEX, located in Doha’s Industrial Area, has a 2250-tonne extrusion press with a capacity of 8000-10,000 tpa. It also has a log oven with a design capacity of 4000 kg per hour, stretchers, double pullers, precision cutters, die ovens and a fluidised nitriding surface.

QIMC was behind the establishment of QALEX, with the company involved in the construction materials segment (see Construction chapter) and the parent of NAPICO. The latter produces facial tissues, toilet rolls, kitchen rolls and m-tork rolls at the Salwa Industrial Area. Its production lines have a capacity of around 5000 tpa of tissue paper, under the Doha brand. QIMC is also in a joint venture in QPPC, which is located in Mesaieed Industrial City and produces shrinkable film and foil, sleeving, top-open bags, heavy-duty rubbish bags and a variety of other plastic packaging materials. Some 90% of its output goes to the local market.

Food & Beverages

In the food-packaging subsegment, QIMC is in a joint venture with Hassad Food to run the National Food Company (NFC). This firm is behind the Al Arabia brand, which produces a range of frozen food items, from burgers to breaded chicken products. NFC is also behind the International brand, which makes fresh minced meat, burgers and chicken breasts.

Food and beverage is a growing industry in Qatar, with Hassad Food being the state’s largest investor in this segment. Hassad is a subsidiary of the Qatar Investment Authority and has its own independent marketing arm, Mahassel. Primary local food and beverage players include Ocean Fish, Albina Snacks, Qatar Food Factories Company and the United Mineral Water Company, among a number of others.

Own Your Own Factory

In a bid to generate greater self-sufficiency in the country’s manufacturing industries, a government initiative called “Own your Factory in Qatar in 72 Hours” aims to aid and fast-track the establishment of manufacturing companies and factories. Launched in July 2017, the initiative received 9349 applications from local and international companies within a month after its introduction, most of which came from major industrial sectors.

Positive growth is anticipated to follow from such initiatives, in addition to boosting confidence among the country’s companies, particularly those that trade internationally. “Despite the initial hurdles caused by the regional tension in mid 2017, the level of optimism in the local manufacturing sector is justified,” Felix Lobo, Managing Director of Qatar Meta Coats, told OBG. “Both local and foreign owned companies who can take advantage of these new business opportunities should fare well in the coming years.”

Outlook

The year ahead looks challenging for Qatar’s heavy industries, as the continuing uncertainties of the oil and gas sector, and the volatility in prices, impact demand and profit margins. The sector is tackling these challenges with an acute concentration on cost management, while efficiencies and synergies between operations are being identified and acted on. In such an environment major expansion is on hold, although some easing of bottlenecks among petrochemicals and chemicals outfits may occur, as part of a drive for greater efficiency, which is likely to raise output.

Meanwhile, industries that are not dependent on the oil and gas sector may see potential growth opportunities. Qatar’s population continues to increase and there is a wide range of major construction projects under way in the lead up to the 2022 FIFA World Cup. Food processing and packaging, along with the production of higher value-added items for the construction and real estate sectors may well continue to see strong demand.

Despite the economic disruption caused by the GCC’s economic blockade, the emphasis placed on encouraging a more self-sufficient approach to industry from the government and private sector alike have presented more opportunities for growth, as well as the expansion of small and medium-sized enterprises (SMEs) and the manufacturing sector. The state’s entrepreneurs and its SMEs in particular may thus be in a better position to leverage current trends than larger upstream players.

Qatar’s success in adapting to the current business climate will be key to establishing a future corporate and industrial culture that is capable of continuing the state’s development after the 2022 FIFA World Cup.