Pillars of strength: Moving forward with long-term plans for development and diversification

With sustained, long-term economic growth, the highest per capita income in the world and one of the largest reserves of natural gas just offshore, Qatar today has many advantages. Add in a stable and well-capitalised banking sector and a sovereign wealth fund that is of true global significance, and it is clear that Qatar is in a strong position from which to continue its robust economic performance. The years ahead are also set to see one of the world’s largest construction drives in the country, in line with the principles of Qatar National Vision 2030 (QNV 2030) and catalysed by preparations for the 2022 FIFA World Cup. By the time the teams arrive for the tournament, the country will have undergone another transformation on top of the astonishing changes that have taken place already over the last couple of decades. A skyline of towers has sprouted across the capital, Doha, while the country’s population has jumped, from 744,029 in 2004 to over 2m today. There is a palpable sense here that the future is one of great possibility, and that it is arriving fast.

Economic History

The jump in population is not the only exponential increase that Qatar has seen in a short time, either. When the country gained independence from the UK in 1971, its GDP was around $390m, but by the end of 2012 it had reached $183.4bn, according to World Bank figures. GDP per capita thus also rose from around $1303 to some $91,690 over the same period, with this figure hitting $102,200 at purchasing power parity (PPP) in the latter year, according to Qatar National Bank (QNB). This gave the country the highest per capita GDP at PPP in the world for 2012.

Field Of Dreams

One of the main reasons for this staggeringly rapid growth was the discovery, also in 1971, of the vast North Field, the world’s largest non-associated natural gas reservoir. The field lies partially under the north-east corner of the Qatar Peninsula, then stretches out many kilometres further into the Gulf. In 2005, the government imposed a moratorium on further development of the field in order to create a strategy future production. According to the Oil and Gas that helped the country recover after its traditional foreign exchange earner – the pearl industry – was decimated by the discovery of pearl culturing by the Japanese in the 1930s.

Even with a combination of fields run by the national oil company, Qatar Petroleum, and production-sharing agreements with international oil companies, the country’s oil production has been gradually falling in recent years, with production at approximately 730,000 barrels per day (bpd) in 2012.

In addition, around 8.4m barrels of condensates were produced that year, while Qatar has also invested heavily in gas-to-liquids technology, which helped further sustain its petroleum output. A moratorium on any further development of the North Field which runs until 2015 has also led to these other hydrocarbons sectors increasing in relative value in terms of their contribution to GDP.

In 2012 this all added up to reserves of 193bn barrels of oil equivalent, according to figures from QNB. This gave Qatar the highest hydrocarbons reserves – and revenues per capita – of any country in the world that year, with revenues averaging $183,000 and reserves estimated at 724,000 barrels of oil equivalent per Qatari national.

Demographic Changes

One consequence of the gas and oil boom was the arrival in Qatar of a wave of expatriate workers. The development of associated industries, such as petrochemicals, added to the numbers, while the trickle down into other sectors began to lift services and manufacturing.

The first major wave of immigration, which lasted from 2004-09, saw annual average population growth of 14.9%, according to QNB, peaking at 19.1% in 2008. The subsequent global economic downturn slowed growth somewhat, but then a second wave of immigration began as Qatar unleashed its huge infrastructure programme.

In consequence, Qatar’s population reached 2.01m in January 2014, according to QNB, following 5.9% growth, year-on-year. The majority of these people are non-Qataris, with nationals making up around 273,000 of the total in mid-2013. Most of the expatriates are low-skilled or semi-skilled workers, often employed in the construction and services sectors – and are mostly young males. Figures from the Ministry of Development Planning and Statistics (MDPS) show 75.6% of the total population, including Qatari and non-Qatari nationals, were males as of January 2014, while just 24.3% were females. More than 80% of the total population lived in Doha at that time.

This creates a great many challenges for a developing economy such as Qatar’s. Yet the authorities have long been aware of the need to manage this growth. A clear series of plans has been drawn up over the years and implemented, with the overall strategy known as QNV 2030.

Looking Ahead

Published in 2008, QNV 2030 charts a course for Qatar that aims to establish it as “an advanced country capable of sustaining its own development and providing a high standard of living for all of its people for generations to come”.

To achieve this ambition, the plan recognises five major challenges that need to be addressed. One is that of balancing the size and quality of the expatriate labour force. The other four are seen as: modernisation and the preservation of traditions; the needs of the current generation and those of future generations; managed growth and uncontrolled expansion; and economic growth, social development and environmental management.

Sustainability

QNV 2030 also takes as a fundamental starting point the fact that growth based on non-renewable hydrocarbons resources will ultimately prove unsustainable. The welfare of future generations must therefore be a factor in determining how the gas and oil fields are developed – an approach that is clearly behind the current moratorium on the North Field, but also behind a key word in QNV 2030: diversification.

At the same time, the impact on the environment in one of the world’s most delicate ecologies must be addressed, with overall development aiming to balance environmental restoration and preservation with the inevitable impact of population and economic expansion. QNV 2030 aims to manage these challenges by basing its strategy on four pillars: human development, social development, economic development and environmental development.

These principles are common to all of the country’s plans, whether they be short, medium or long term. QNV 2030 can be broken down into a series of five-year sequential steps, or National Development Strategies (NDSs), with the first and current one of these being NDS 2011-16.

The Human Factor

The first QNV 2030 pillar recognises the need for the Qatari people themselves to become the country’s greatest resource. This means establishing “advanced educational and health systems” while simultaneously boosting the numbers of Qataris in the workforce.

On this latter point, MDPS data shows that the country’s labour force – expatriates included – totalled around 1.5m in the second quarter of 2013, with 74% of these in the private sector, and 37% of that total employed in the construction sector – the largest segment. While producing most of Qatar’s wealth, oil and gas accounted for just 7% of the labour force, illustrating the pressing need for new areas of employment and diversification.

Qatari nationals have also traditionally tended to take government jobs. According to the MDPS, 84% of nationals with jobs were public sector employees in 2012, a total made up of 71% government departments and 13% government companies. Just 9% worked wholly in the private sector, with the remainder in the mixed sector.

Higher relative wages and better working conditions, in terms of pensions and other social support, are the usual reasons why Qataris prefer the public sector. Public sector wage hikes in 2011 and 2012 reportedly increased its attractiveness as well. In addition, given that the number of Qatari women that work is quite limited, overall only around one-third of Qatari nationals are in the labour force, according to figures from QNB.

Qatarisation

QNV 2030 recognises that improving human resources means building a knowledge-based economy, while balancing the numbers of expatriates with nationals in the workforce also means encouraging Qataris to enter the private sector and existing businesses to hire more Qataris.

Thus, there is a policy of Qatarisation, a strategy begun in 2000 which aims to achieve 50% Qatari national employment in the industry and energy sectors. Many sectors and companies have since exceeded this target, though others are still working towards it. RasGas, for example, announced it had reached 34% Qatarisation by November 2013.

Providing skilled and trained professionals for energy and industry requires a major investment in education. This is under way, with projects such as Qatar Foundation’s Education City bringing in overseas universities, while the government increased education spending to QR26.3bn ($7.2bn) in its 2014/15 budget, a 7.3% rise over 2013/14.

Spending on health – another key element in building human resources – was also increased by 12.5% in the budget, with this covering a major new hospital building and improvement programme.

In the shorter term, nonetheless, there is recognition that expatriates will continue to provide the bulk of the labour force, particularly in the lower-level jobs. QNV 2030 thus advocates incentives and institutional arrangements to continue to attract workers from abroad, while “ensuring the rights and safety of expatriate labour”.

Workers' Rights

This latter point has recently been somewhat controversial, with concerns expressed over workers’ conditions in the construction sector, now that the international spotlight is on Qatar in the run-up to the 2022 FIFA World Cup. The deaths of several Nepalese workers – although they were not engaged in World Cup projects – made global headlines in consequence, and highlighted other issues with the Qatari labour market.

Sponsorship System For Expatriates

Expatriate workers for the larger projects are usually hired via agencies that are based overseas, with a quota given for each country. Workers who obtain the necessary sponsorship from a Qatari employer – and pay the requisite fee – can obtain visas and an employment contract to come to Qatar. They thus enter the kafala – or sponsorship – system. This restricts their ability to move from one employer to another, as both their visa and residency are then tied to a particular job.

While in many cases workers remain with the same employer, finish their work and return home without incident – and with their earnings a valuable source of remittances for their family and home economy – in some cases, the system lends itself to the exploitation of employees. It also leads to a highly rigid labour market, with bottlenecks regularly appearing. As workers cannot move between projects without great difficulty, fresh visas often have to be obtained and new workers hired for new projects, which can lead to employers being obliged to hire inexperienced employees, while experienced ones have to return home, particularly if their country has already reached its visa quota.

At the same time, leaving Qatar can require an exit visa, leading to some being effectively marooned if they lose their employment. Other market distortions occur as well, with some calls being made – both inside and outside Qatar – for reform of the system, as well as for improved health and safety conditions for workers. In late November 2013 Hassan Al Thawadi, the secretary-general of the now-renamed Supreme Committee for Delivery and Legacy, told reporters that the committee was “working hard” to produce a “sustainable system for the long term”.

Sustainable Growth

The aim of the second pillar of QNV 2030 is social development, a recognition of the need to adhere to high moral standards in progressing towards the vision’s goals. This takes the family as the basis for society, with women taking on an enhanced role as that society develops. Being a just and tolerant country, with a constructive role in international affairs, is also seen as key here. This gives Qatar a principled basis for engagement overseas, in multilateral and bilateral organisations and initiatives, including its leading role in the main regional economic bloc, the GCC.

International Role

Qatar is also a member of the World Trade Organisation, with Doha the venue for the 2001 meeting setting the mandate for the most recent round of global talks.

In addition, Qatar has an important role in promoting investment overseas – through the country’s sovereign wealth fund, the Qatar Investment Authority (QIA), and its subsidiaries, such as its direct investment arm, Qatar Holding – investing in equities, bonds and other projects worldwide (see analysis).

Financial Aid

Qatar has offered financial aid to several Arab countries currently in transition. According to the IMF, between 2010 and early 2013 this totalled $3.2bn, composed of $2.5bn in investments and $675.8m in cumulative financial support to Egypt, Jordan, Libya, Syria and Tunisia. Following the military coup in Egypt in July 2013, however, it was unclear what level of support Qatar would continue to give to the Egyptian authorities.

The country also plays an important role internationally in terms of remittances sent home by the expatriate workforce. These are often crucial in emerging markets such as Pakistan, India, the Philippines, and the Middle East and North African states. The IMF estimates that there was $60bn in outflows via remittances between 2006 and 2012, with 54% of this going to Asia and 28% to other Arab states.

Growth & Diversification

The third pillar, economic development, begins with the policy of using Qatar’s current hydrocarbons wealth to leverage sustainable economic development for the future. Diversification is the central plank of the consequent economic growth strategy, with the stated aim of balancing the budget with non-hydrocarbons-based revenues by 2020.

That growth has been phenomenal in recent years, too. From 2000 to 2011, real GDP grew at an annual average rate of 13.1%, an average that since mid-2005 has outstripped even China. In 2012 GDP grew by 6.2%, down from 13% in 2011 but still one of the word’s fastest rates. Data from the MDPS showed that growth should pick up to 6.8% in 2014, up from 6.2% in the third quarter of 2013, given the number plans for large infrastructure projects.

Dependence On Hydrocarbons

A large part of the reason for slowing growth is the dependency of the country on hydrocarbons – and thus on the vagaries of international oil and gas prices.

Indeed, the hydrocarbons sector was the main driver of growth overall for many years – up until the second quarter of 2011, when the current phase of LNG expansion was completed. At that time, hydrocarbons’ contribution to real GDP had grown 30% year-on-year, according to MDPS data, while the non-hydrocarbons sector saw only around 9% growth.

According to MDPS and QNB figures for 2012, the respective shares of Qatar’s $192bn GDP taken by gas and oil that year were 42.2% and 15.6% – making a total of some 57.8% for the oil and gas sector.

Services accounted for 29.6% of the total, with financial services the largest contributor within this category, at 10.2%. The non-oil industry sector then contributed a total of 14.6%, with manufacturing taking 9.8% and construction 4.4%. Thus, the non-hydrocarbons sector took 42.2% of GDP, an amount equivalent to the gas sector’s contribution.

In 2011 the contribution of non-hydrocarbons sectors was similar – around 42% out of a total GDP of $173bn, according to QNB. This was largely made up of financial services, which accounted for around 28% of non-hydrocarbons GDP for the year, and manufacturing, which was responsible for 24%.

Oil & Gas Prices

A look at benchmark Brent crude oil shows that barrel prices have fluctuated significantly in recent years – from an average of $97.40 in 2008 down to $61.70 the following year, in the aftermath of the global downturn. Prices then picked back up, to $79.60 in 2010, and then jumped to $111 in 2011. They peaked at $111.70 in 2012, while by November 2013 they had fallen to about $108 a barrel and remained at around that level as of mid-February 2014. At the same time, gas prices have been decoupling from oil prices, which they had historically tracked closely. Industry insiders have expressed concern recently that the development of US shale gas resources, in particular, may drive a further wedge between LNG and oil prices, with the former often contractually indexed to the latter.

Acting as a counter to what could be a long-term decline in LNG pricing, however, are contingent and non-contingent factors that have recently been in play. On the contingent side is that after the tsunami that struck Japan in 2011, demand for LNG jumped in one of Qatar’s primary export markets, as Tokyo shut down its nuclear power stations.

On a more fundamental level, demand elsewhere has risen too. While LNG accounted for around 5% of global gas consumption in 2000, it now makes up around twice that. Demand is currently exceeding the supply capacity of existing liquefaction plants, particularly in Asia and Europe.

In recent years, then, benchmark Japanese LNG prices have risen steadily, despite a sharp drop in the wake of the global economic downturn in 2008. In 2012 they reached $16.80 per million British thermal units (MBTU), up from $12.80 just before the downturn and $4.70 in 2000. Japanese spot market prices also rose steadily until the end of 2012, from $10 per MBTU in January 2008 to a high of $18.10 in 2012. Since then they have declined, although they were still standing at $15.10 at the start of 2013.

At the same time, most of Qatar’s LNG is sold on fixed, long-term contracts, which also protects the country against short-term price fluctuations.

The net effect of all of this, then, has been an overall increase in hydrocarbons revenues; however, in recent years, the oil and gas sector’s share of nominal GDP has been gradually decreasing. The main driver of growth is now the non-hydrocarbons sector, which began to see higher percentage annual increases than oil and gas from late 2011 onwards.

In the third quarter of 2013 non-hydrocarbons growth was around 9.5% year-on-year, while hydrocarbons saw 1.8% growth. This trend is likely to continue going forward, given the current moratorium on new gas developments, and the slow decline in oil output as existing reserves decline.

Also significant for QNV 2030 as well as for the NDS 2011-16 has been the increasing contribution of manufacturing. In 2012 the value of this sector grew by some 11.8%, year-on-year, thanks to projects in petrochemicals, fertilisers, metals and cement. Construction also grew, by 10.6%, primarily driven by government expenditure on infrastructure.

Surpluses

Meanwhile, the surge in revenue has created some substantial fiscal surpluses for the government in recent times, particularly as during the last five years an average of more than 80% of budget revenues have come from hydrocarbons.

The financial year 2012/13 saw a record fiscal surplus of $22.6bn, equal to 11.8% of GDP, according to preliminary figures from Qatar Central Bank (QCB). This was nearly double the $13.2bn fiscal surplus of the previous financial year.

This was largely due to an increase in hydrocarbons production combined with higher global prices. It is not uncommon for Qatar to post budget surpluses, as the assumed price of oil is traditionally set considerably lower than the market value.

Rising Revenues

However, oil and gas revenue fluctuations are only a part of the story behind the surplus. In the financial year 2012/13, total government revenue went up by 25.7% to a record figure of some $76.6bn, while direct oil and gas revenues, and revenues from the state’s investments in the sector, rose by around 18.9%. The rest of the increase was accounted for by corporate and other taxes, Customs revenues and other income sources, demonstrating improved collection by the Qatari authorities, as well as the effect of more revenue-raising activities coming on-stream as the economy grew.

Low Tariffs

At the same time, tax and Customs revenues have never been high. Qatar is generally a low-tariff country, with the majority of import tariff lines at 5% or below. Since 2010 there has been a withholding tax and a corporate income tax of 10% of taxable profits on Qatar-sourced income, unless the corporation is wholly owned by Qatari and/or GCC nationals, in which case there is no corporate income tax payable. Exemptions also exist for those involved in a number of projects, such as Qatar Science and Technology Park. There are also no personal income taxes.

Behind the increase in the surplus was also the fact that while revenue jumped, expenditure was left lagging behind. Total government expenditure in the financial year 2012/13 increased by 13.1%, to $54bn. This was a marked change from the previous financial year, when expenditure had risen by some 21.3%. For the first time since 1990, the year saw expenditure below budget, with development spending increasing a marginal 0.5% year-on-year, to approximately $13.9bn.

Current expenditure increased by 18.2%. Much of the latter was also taken up by pay increases, with public sector wages costing 14.8% more in the financial year 2012/13 than they had done the year before. Other categories generally declined. The development budget shortfall was largely attributed to delays in the roll-out of government capital projects, highlighting one of the challenges in managing the country’s rapid economic expansion.

According to a report by National Bank of Kuwait, project awards exceeded $8bn in value in the first quarter of 2012, but then declined steadily to less than $4bn by the fourth quarter of the same year. The majority of these projects were in the transport and construction sectors. There are various factors behind this decline. Partly, government fiscal policy itself created an atmosphere of greater prudence in expenditure, a decision taken in light of the generally sluggish performance of the global economy in the financial year 2011/12.

There has also been recognition that budgeting itself needs improvement, with the government planning to move to a three-year budgetary framework, a move that was welcomed by the IMF. This should ensure more stable medium-term fiscal planning, eliminating short-term volatility, and should also help government agencies more effectively track and distribute funding for major projects.

Beyond these proposed changes, bottlenecks in supply have also sometimes introduced delays, with two key transport sector projects – the new Hamad International Airport and the new sea port – key to easing these. The first is nearly finished and is now due to be operational in 2014, and the latter’s first stage is set to open in 2016. Some suppliers told OBG that, in the meantime, they were accessing the neighbouring Saudi market to bring in materials by road, although Saudi Arabia’s own large infrastructure projects were soaking up capacity there as well.

Key Indicators

With hydrocarbons and non-hydrocarbons revenues increasing, Qatar’s current account has long been healthy. In the first three quarters of 2013, it registered a record surplus, at 33.5% of GDP. This was up slightly on the 32% recorded in 2012, and well ahead of the recent low of 6.5% in 2009 after the first impact of the global slump.

The capital and financial account, however, has generally been in deficit in recent years, reflecting strong capital outflows. In the first three quarters of 2013, this was recorded as 27.9% of GDP, a drop from the 23.1% posted in 2012 but still an improvement from 2011, when the capital account deficit was 36.5%. Putting the current and capital accounts together, the resulting balance of payments maintained a surplus of 4.2% of GDP in the first three quarters of 2013, with the QCB reporting a surplus in the first quarter, a dip into the red in the second and returning to the black in the third. This is compared to an 8.4% balance of payments surplus posted in 2012 and an 8.4% deficit recorded in 2011.

Although Qatar’s international reserves dropped by nearly 50% over 2011, down to QR59.3bn ($16.2bn) by the end of the year, they have nearly tripled since then. By the end of 2012, net international reserves had reached QR118.9bn ($32.6bn), growing a further 27.5% over the course of 2013 to reach QR151.7bn ($41.6bn) by December 2013. Import cover stood at 16.5 months, a figure over five times the minimum IMF-recommended level for countries that operate with an exchange rate peg.

Peg

Since an emiri decree in 2001, the riyal has been pegged to the US dollar at a rate of $1:QR3.64, with this allowed to fluctuate within a band between QR3.6415 and QR3.6385. While there has been periodic discussion of changing this arrangement in Qatar and among the GCC countries – which are similarly pegged to the dollar, aside from Kuwait – it seems unlikely to occur any time soon. The peg gives the riyal stability, and continues to be well supported by the country’s strong revenues and large overseas investments.

Short-term interest rate policy is thus closely tied to the US Federal Reserve rates. The QCB has three policy rates – deposit, lending and repurchase – with the lending rate the main mechanism for sending signals to the market. The lending and repurchase rates were reduced from 5% to 4.5% in August 2011, while the deposit rate went down from 1% to 0.75%. They have remained there since.

One other advantage of the large fiscal surplus is that it helps ameliorate gross government debt. This stood at 38.7% of GDP in 2010, according to QNB, falling to 37% in 2011 and then rising a little to 37.8% in 2012. The main reason for this expansion was a deliberate government policy.

For some time now Qatar has been attempting to develop its capital markets, and the state has embarked on a programme to support the bond market. To do this, it has made a series of debt issuances with the aim of establishing a domestic yield curve. In November 2013, for example, the QCB issued QR4bn ($1.1bn) in Treasury bills.

Secure Banking

The country is also blessed with what is widely considered to be a very secure banking system. This sector is now the third largest in the GCC and showed the strongest asset growth of all six member states in 2013, at 11.4%.

The six commercial banks, four Islamic institutions and one development bank that constitute the local sector control all but around 5% of total assets, with that portion divided among seven foreign banks. By far the largest local bank is QNB, which controlled 48.7% of total assets in December 2013.

Loans

The largest share of overall loans is taken by the public sector, which accounted for 42.5% of bank credit facilities in June 2013, down from 45.8% in 2012. Overall loan growth between 2008 and June 2013 was 19.1%, with total credit facilities extended standing at $146bn by June 2013, up on $140bn at the end of 2012 and $111bn at the end of 2011.

In addition, there are some 150 financial services companies operating in Qatar Financial Centre. This offshore facility grants those operating within it special privileges, including the possibility of 100% foreign ownership and full profit repatriation.

The domestic banks have fairly low non-performing loan (NPL) ratios, with the sector recording an NPL ratio of 1.7% in 2012, up slightly on the 1% of 2011, according to the QCB. The ratio of provisioning to NPLs was 97.5% in 2012, however, up from 87.2% in 2011. Capital adequacy is also high – the sector average for regulatory tier 1 capital to total assets was 12.8% in 2012, up from 12.6% in 2011. The ratio to risk-weighted assets was 18.2% in 2012, down from 19.9% in 2011.

In terms of international ratings, the main Qatari banks all score highly. QNB has an “Aa3” rating from Moody’s, and an “A+” from Fitch and Standard & Poor’s. Commercial Bank has “A1”, “A” and “A-” ratings with the same agencies, respectively, while Qatar Islamic Bank is rated “A” and “A-” with Fitch and Standard & Poor’s, respectively, as is Doha Bank.

Forging Ahead

The banking sector and the government are thus both well provisioned to finance major projects – with a long list of these either already ongoing or in the pipeline (see analysis).

As hydrocarbons diminish in terms of their share of the economy, project development – particularly of infrastructure – is growing its share, becoming the chief driver of economic expansion. These projects are also increasingly in non-hydrocarbons-related areas, with many focused on the 2022 FIFA World Cup, although with much longer-term legacies.

A report by EC Harris in late 2013 forecast $156.8bn in construction spend up to 2030. Meanwhile, according to QNB, estimated project spending displayed a compound annual growth rate of 46.3% between 2000 and 2012, with a recent peak in 2008 of $30.8bn. Much of the spend up to then had been oil- and gas-related, however.

Now, infrastructure of a different kind is taking the lion’s share, with QNB figures showing construction accounts for 46.8% of all current project spending and transport 34.9%. Some $29.1bn in project spending is scheduled for 2013, with this rising to $41.8bn in 2018, equivalent to a 7.5% compound annual growth rate over the five years.

Spending Programme

For the financial year 2014/15 as well, the government has announced an enormous spending programme. According to local press in March 2014, the QR225.7bn ($61.82bn) budget as approved by the Emir is 2.5% larger than it was for 2013/14. A QR7.3bn ($1.99bn) surplus is projected, with spending of QR218.4bn ($59.82bn). But the actual level of spending is likely to be higher still. The estimates are based on an assumed oil price of $65 per barrel, but with barrel prices at about $100 in March 2014, government revenue is likely to be higher. The budget allocates a 54% share to education, health, infrastructure and transportation, with QR75.6bn ($20.71bn) going to infrastructure projects alone. The allocation represents a 22% increase in spending for infrastructure over the 2013/14 budget to enable the expansion and completion of projects for the 2022 World Cup.

Inflationary Pressures

Naturally, with such a large injection of government spending, inflation is a concern. Excess structural liquidity has been an issue in Qatar for some time, due to the high revenues from hydrocarbons exports and the booming economy. QCB data shows that inflation has been creeping up recently, too. The consumer price index stood at 1.87% in 2012 on average, but in the last two quarters it rose to end the year at 2.65%. By December 2013 QNB reported the figure at 2.7%, year-on-year. The M3 money supply went from QR442.5bn ($121bn) in 2012 to QR576.8bn ($158bn) in the fourth quarter of 2013, according to the QCB.

Housing Prices

One of the main sources of inflationary pressure has traditionally been housing, with this in shorter supply in the early part of the last decade, as Doha’s population expanded more rapidly than new-built residential property could come onto the market – all at a time of both high liquidity and credit growth. Recently though, the market was somewhat looser, with land prices even falling slightly in the third quarter of 2013. This drop was likely only a temporary situation, however, with the population set to expand ahead of the 2022 FIFA World Cup due to the influx of workers needed for construction projects (see Real Estate chapter).

Already, the QCB’s real estate price index, which hit an all-time high of 192.2 in 2008, stood at 157.2 by the end of 2012, then a high of 189.8 in December 2013, showing a generally upward trend.

The completion of new housing projects should ease this to some degree, but bottlenecks are expected to continue to appear, and are likely to make pricing volatile. These may also occur in the supply of materials to the country’s many infrastructure projects, causing price hikes there, too.

While there is some debate among economists on the issue, inflation therefore seems likely to continue to be a factor in the country going forward. Bottlenecks in supply – rather than excess liquidity – are generally thought likely to be behind any future price hikes, with measures such as the development of bond issuances and the management of the reserve requirement and loans-to-deposit and liquidity ratios for local banks all helping in this regard. In June 2013, the MDPS forecast inflation for both 2013 and 2014 would come in at around 3.6%.

Outlook

With such robust fundamentals, it is no surprise that Qatar consistently ranks high in the international ratings agency standings. Moody’s had the country at “Aa2”, not on watch, for long-term risk in November 2013, with its outlook rated stable. Standard & Poor’s had it at “AA”, with a stable outlook, for the same period. Looking at credit default swaps, the country’s spreads are among the lowest in the region, at around 66 basis points above US Treasuries for a five-year bond as of February 2014.

In terms of competitiveness, Qatar also scores well. The World Economic Forum’s “Global Competitiveness Report 2013-14” placed it 13th out of 148 countries, and top within the GCC region. The World Bank’s “Doing Business” survey, meanwhile, ranked Qatar 40th in the world and third in the GCC, reflecting the survey’s emphasis on regulatory factors (see analysis). This gave added weight to issues such as gaining access to credit and starting a business – concerns that the government is anxious to address as it attempts to provide greater support for business start-ups (see analysis). It is to the area of private sector growth, beyond the oil and gas business, that emphasis is now being given, with a recognition that this segment is vital to the success of QNV 2030 – and to the country’s long-term prosperity.

Looking at the QNV 2030’s four pillars, balancing the country on these will be both the challenge and the potential opportunity for investors, domestic and international, as the country heads towards a much greater global presence in the years ahead.