Qatar’s industry growth strategy focuses on innovation

The beginning of the 21st century heralded a period of rapid industrial growth for Qatar, fuelled by its abundant oil and gas wealth. The country possesses the world’s third-largest natural gas reserves and is vying with the US for the position of the world’s largest producer and exporter of liquefied natural gas (LNG). Those resources have been harnessed to develop strong downstream industries and related exports, but the instability in oil and gas prices since 2014 has highlighted the need for further diversification.

With a relatively small domestic market, the expansion of exports will be crucial to economic growth. To this end, the establishment of industrial parks, free zones and port facilities encircling Doha and stretching along Qatar’s eastern coast has supported the development of the manufacturing and logistics ecosystem. Advanced infrastructure in these areas is attracting international companies as the government seeks to increase private sector engagement in the next phase of the country’s industrial development.

In addition, while the 2017-21 economic blockade of Qatar by some of its neighbours presented multiple challenges, it also accelerated industrial diversification and boosted self-sufficiency. This inadvertently equipped the country to cope better with the unforeseen stresses of the Covid-19 pandemic.

Strategy

Qatar National Vision 2030 (QNV) – which was released in 2008 – and the Second National Development Strategy 2018-22 are the overarching strategic frameworks guiding Qatar’s economic and industrial development. QNV envisages a modern and sustainable economy underpinned by the country’s natural resources, heritage and traditions, and propelled by diverse, technologically advanced industries. The separate phases of the National Development Strategy provide medium-term roadmaps that are designed to facilitate the realisation of QNV.

The economic blockade imposed by Saudi Arabia, the UAE, Bahrain and Egypt in mid-2017 temporarily disrupted many of Qatar’s regional supply chains. Although the blockade was lifted in January 2021, the government responded at the time by forging new trade and investment partnerships, and devised the Qatar National Manufacturing Strategy 2018-22 to enable the continuation of its diversification drive.

The strategy’s core goals are to strengthen institutional coordination, develop business zones and clusters, attract foreign and domestic investment, encourage entrepreneurship, assist small and medium-sized enterprises (SMEs) to take a more prominent role in the economy, boost international trade, promote innovation, enhance domestic human capital and attract foreign talent to the manufacturing segment.

Oversight

The Ministry of Commerce and Industry (MoCI) oversees these activities in line with the goals of QNV. Policy implementation and the facilitation of business, investment and export development are among the MoCI’s chief directives, as are the provision of services for businesses, the regulation of trade professions, and the registration and licensing of commercial and investment entities.

Qatar Chamber of Commerce and Industry was established in 1963. In addition to promoting the local private sector and its domestic and international business interests, Qatar Chamber acts in an advisory capacity on the development of the country’s stock exchanges, ports and trade markets, while providing an influential voice on laws and policies relating to economic and financial affairs. It also issues certificates of origin for the export and re-export of goods; coordinates activities to boost economic relations, such as trade fairs, exhibitions and delegations; and oversees the publication of relevant reports.

Shifting Focus

Qatar’s oil and gas reserves have long provided feedstock for its manufacturing operations, which means that the majority of industrial production is fuelled by hydrocarbons. As the world makes a concerted effort to shift away from oil, Qatar’s manufacturing segment faces a similar adjustment. However, possessing the world’s third-largest natural gas reserves gives Qatar something of a cushion: natural gas emits less carbon dioxide than oil, and many countries plan to use it as their primary source of power during the transition to renewable energy. To this end, Qatar continues to ramp up LNG production in order to capture maximum value from its leading export.

A key project is the North Field expansion, a strategic initiative to boost the capacity of the world’s largest source of natural gas, which Qatar shares with Iran. The government announced plans to increase annual LNG production from 77m tonnes in 2019 to 126m tonnes by 2027, and boost downstream output and exports concurrently (see Energy & Utilities chapter). By investing a large portion of the receipts in the diversification of manufacturing, the government’s long-term goal is to create a sustainable economy that can thrive independent of oil and gas revenue.

This shift in focus is reflected in the October 2021 name change of the country’s largest government-owned enterprise. Qatar Energy (QE) – formerly Qatar Petroleum – has stated that its amended moniker more accurately reflects its mission moving forwards, which has at its core energy efficiency and the deployment of environmentally friendly technology.

Public Involvement

Either directly or through QE, the government holds large minority or controlling stakes in multiple industrial companies, such as Qatar Industry Manufacturing, a diversified firm active in chemicals, petrochemicals, construction materials and food processing; Industries Qatar, a conglomerate with interests in petrochemicals, steel and fertiliser; and Mesaieed Petrochemical, a holding company for three petrochemicals businesses.

QE operates two industrial cities that account for a large proportion of the country’s overall industrial activity. Ras Laffan Industrial City, 80 km north of Doha, is the core of QE’s onshore operations, housing both the world’s largest LNG export facility and Ras Laffan Helium, the world’s largest helium producer. Mesaieed Industrial City is located 40 km south of Doha and comprises petrochemicals, fertilisers and primary building materials plants, as well as oil refineries.

Investment Opportunities

While the government remains central to Qatari industry, significant regulatory amendments have been made in recent years in order to deepen the private sector’s role in industrial development. The government has identified polymers, plastics, aluminium, additives, food and beverages, pharmaceuticals and products relating to environmental services as segments into which it plans to diversify in order to boost self-sufficiency and serve international markets. Driven by the goals of the Qatar National Manufacturing Strategy 2018-22, the authorities have set the target of those subsectors accounting for 51% of the country’s manufacturing output in 2030, compared to 39% in 2016.

In order to attract the levels of foreign investment needed to achieve this, the government now permits 100% foreign ownership in almost all sectors of the economy, following the enactment of the 2019 Foreign Investment Law. Further steps were taken to open up specific companies to foreign investment in 2021, with the publication of a draft law to allow 100% foreign ownership of the country’s listed banks. The law gained Cabinet approval in August of that year.

Performance & Size

The blockade, accompanied by oil price volatility and the 2020 onset of the Covid-19 pandemic, created major challenges for the industrial sector. Nevertheless, solid fiscal buffers and the agility displayed by the MoCI and key industry players enabled manufacturing operations to not only weather the storm, but also press ahead with diversification.

In response to the outbreak of Covid-19, the government unveiled a series of economic stimulus measures totalling QR75bn ($20.6bn) to support the economy – particularly the most vulnerable segments of business and society. Despite this financial support, the number of people employed in manufacturing declined by 2.4% from 157,319 in 2019 to 153,600 in 2020. Indeed, manufacturing accounted for 7.4% of Qatar’s economically active population in 2019 and 4.8% in 2020. Looking ahead, the government aims to increase the industrial sector’s production value by up to 30% over 2019 levels by 2025 and add 26,000 jobs in that time frame. Reaching these goals entails, in part, offering additional support to manufacturing SMEs and attracting foreign investment.

In terms of performance, preliminary figures from the Planning and Statistics Authority (PSA) show that manufacturing contributed QR41.6bn ($11.4bn), or 7.9%, to GDP at current prices in 2020, down slightly from QR53.5bn ($14.7bn), or 8.4%, in 2019. This slowdown can be partly attributed to the disruption to global supply chains and economic activity caused by the Covid-19 pandemic. Prior to the health crisis, manufacturing gross output at producer prices dropped from QR127.2bn ($34.9bn) in 2018 to QR116bn ($31.8bn) in 2019 – the most recent year for which data is available from the PSA. While this slowdown reflects the negative impact of varying economic shocks over the last few years, the fact that the figures show relatively minor contractions illustrates the sector’s resilience and the success of policymakers’ related mitigation initiatives.

The PSA’s weighting of the industrial producer price index (PPI) is segmented between mining (72.7%), manufacturing (26.8%), and electricity and water (0.5%). In November 2021 the industrial PPI stood at 93.9, which represented a 5% month-on-month increase and a jump of 100% from its November 2020 level. The subindex relating solely to manufacturing increased by 7.3% in the month of November 2021, and by 78.3% between November 2020 and November 2021. This year-on-year (y-o-y) growth was driven by rising prices for basic chemicals (134.1%), refined petroleum products (77.3%), basic metals (40%), rubber and plastics products (11.4%), cement and other non-metallic products (3.3%), and grain mill and other products (1.4%). Slight decreases were recorded in the prices of other chemical products and fibres (2.9%), beverages (2.1%), juices (0.5%) and dairy products (0.2%).

Exports

Qatar’s population is approximately 2.8m – a relatively small domestic market – which means that strengthening export operations and forging additional partnerships with international markets will be vital to the sustainability of Qatari industry. Between 2017 – the year the economic blockade began – and 2019 the value of Qatar’s exports and re-exports rose by about 8%, from QR245.7bn ($67.4bn) to QR265.5bn ($72.9bn). That figure decreased by 29.4% to QR187.5bn ($51.5bn) in 2020 as global trade was upended by the pandemic. Preliminary figures from the PSA show that the total value of exports and re-exports in December 2021 was QR35.6bn ($9.8bn), up 107.8% y-o-y and 3.8% on the previous month. Meanwhile, private sector exports jumped from QR1.9bn ($521.5m) in August 2021 to QR2.2bn ($603.8m) the following month, representing growth of 15.8% for September.

High growth figures are to be expected considering the easing of pandemic-induced economic stress, the lifting of the blockade and rising oil prices. Nevertheless, the 2017-21 period showed Qatar’s ability to adapt its industrial activity and export trade to enable it to absorb economic shocks better, while also demonstrating government efforts to engage the private sector in its development agenda.

Food Production

This resilience is perhaps best evidenced in food production, with Qatar making significant strides towards food security. The blockade prompted Qatar to secure new import deals with India, Iran, Ireland, Kuwait, Oman and Turkey, among others. The government also injected QR105m ($28.8m) into domestic food production, helping local agricultural companies to establish hydroponic and organic growing operations, develop aquaculture capabilities, diversify crops and boost crops yields.

During the blockade, private agriculture firm Agrico – which operates a combined 240,000 sq metres of farmland in Qatar – was producing 6-7 tonnes of vegetables per day, 50% more than before the blockade. In 2020 the company unveiled plans to add 100 ha of organic and hydroponic growing facilities to its operations. Meanwhile, the country achieved self-sufficiency in dairy products in 2018, and Baladna, Qatar’s largest dairy operator, began exporting its products.

The government expects similar development trajectories for other types of food. The country’s various food self-sufficiency initiatives placed it 24th overall and first among Arab nations on the 2021 Global Food Security Index, published by Economist Impact. Such developments meant that the country was relatively well prepared for the disruption to food supply chains caused by the Covid-19 pandemic.

Free Zones & Business Support

Ras Bufontas free zone and Umm Alhoul free zone, managed and regulated by Qatar Free Zones Authority (QFZA), are positioned to serve QE’s industrial cities. QFZA partners with both local and international businesses whose areas of interests either complement Qatar’s existing strengths or help to drive the country’s diversification initiatives. It offers tax exemptions, among other financial incentives, and advanced physical and digital infrastructure to companies that establish a presence in the zones. The zones already house a number of manufacturing, chemicals, trade and logistics, and emerging technology companies. This clustering is intended to optimise production and distribution, attract talent, and create vibrant and diverse industrial ecosystems that can help propel economic growth.

In 2021 QFZA signed an agreement that will see global logistics and shipping provider GAC establish a 27,000-sq-metre facility in the Ras Bufontas free zone. Set to begin operations in 2022, the facility will use sustainable materials; employ renewable energy; and support the food and beverage, fast-moving consumer goods and health care segments, among others.

The government has been focused on growing Qatar’s network of industrial zones and business and logistics parks since the early 2000s, with Doha Industrial Estate the first to open in 2005. The number of manufacturing-related establishments in Qatar increased from 2270 in 2000 to 3239 in 2019, and that figure is expected to reach nearly 3500 by 2025. “The Qatari domestic market is already well served by local industrial companies, but the country is attractive for international investors aiming to set up an export-oriented business given the low energy costs and favourable taxation regime,” Ziyad Eissa, CEO of S’Hail Holding Group, a supplier and exporter of recycled metals and other industrial products, told OBG.

There is also a focus on strengthening the ecosystem for manufacturing SMEs, and Qatar Development Bank is lending significant support in this regard. Among the organisation’s ongoing initiatives are its Tasdeer service, through which it enhances SMEs’ human capital and knowledge of export markets; the Jahiz scheme, launched in August 2021, which provides approved SMEs with ready-to-operate factory space at subsidised prices to help them begin or expand manufacturing activities; and the establishment of various business incubation centres.

Technology & Innovation

Technological innovation is at the heart of Qatar’s industrial and broader economic development agendas. Qatar Science and Technology Park (QSTP) is another of the country’s free zones, providing an operational base for companies such as Microsoft, Siemens, ExxonMobil and Mitsubishi, while also offering business incubation and acceleration facilities to start-ups.

QSTP is part of Education City; the research, development and innovation carried out there benefits both the country’s production processes and its education system, boosting domestic capabilities and driving output of high-tech physical and digital products. In 2020 Qatar’s Barzan Holding – a QSTP resident – partnered with US firm Wilcox Industries to produce Qatari-designed artificial ventilators in response to the increase in global demand due to Covid-19.

In August of the following year QSTP announced that it would partner with Microsoft to offer research and product development support to start-ups incubated in the park. Other initiatives of QSTP include the Product Development Fund (PDF), through which selected start-ups receive up to 50% of the research and development funds required to get high-tech products to market. Three start-ups were awarded PDF assistance in July 2021 for the development of their digital applications, and later that year two additional companies received the grant – one for the development of a digital Braille-reading gadget and the other for production of a smart prayer mat.

Sustainability is increasingly being placed at the core of innovation. Qatar’s development strategies encourage manufacturing firms to incorporate recycling into production processes, for example. In 2020 Qatar produced 434,000 tonnes of building materials from recycled construction waste. As of May 2021, 215 products made from recycled materials were produced in 135 of Qatar’s 920 factories. “Qatar has developed strict regulations for environmental sustainability and industrial firms are increasingly adopting international standards to minimise their environmental impact,” Eissa told OBG.

This agenda is also filtering through to education institutions, with the next generation of local talent learning to deploy sustainable strategies in the industrial and corporate world (see Education & Research chapter). “Many students are now eager to understand how to achieve environmental sustainability, not only because it is the right thing to do, but also because it produces positive results,” Pablo Martin de Holan, dean of HEC Paris Qatar, told OBG. “Local education institutions are adapting to these demands and incorporating sustainability as a key aspect of the curricula as we help to prepare Qatar’s future business leaders.”

Outlook

Qatar’s response to the blockade beginning in 2017 saw it accelerate the diversification of local manufacturing and forge new trade agreements. Five years on – and following the January 2021 lifting of the restrictions – those new capacities and agreements complement the re-activation of regional partnerships, providing the country’s industrial sector with a solid springboard for post-pandemic growth.

In order to capitalise on the current environment, the government continues to refine regulatory frameworks to attract foreign and domestic investment for its industrial diversification agenda. GCC neighbours are also executing long-term diversification programmes designed to reduce fossil fuel dependency. As a result, regional competition is expected to be robust, particularly in the re-export and tech-related spaces.

Qatar’s natural gas supply insulates it from the fiscal ramifications of the shift away from oil to a degree. While pressure to reduce LNG use is slowly mounting, LNG is likely to continue to play a central role in the global transition to renewable energy – placing Qatar in a strong position. If part of the revenue from LNG output related to the North Field expansion can be effectively channelled into further diversification of the industrial base and capacity-building among manufacturing SMEs, Qatar’s industrial sector can look forward to sustainable growth over the long term.