Qatar moves to allow more foreign ownership and diversify trade partners

After weathering a succession of external shocks in recent years, Qatar’s trade and investment outlook is promising in the short and medium term. Years of low global oil and gas prices, the 2017-21 economic blockade, and the Covid-19 pandemic have all affected the flow of cross-border commerce and finance in recent years. However, Qatar is gearing up to host the 2022 FIFA World Cup, which it aims to leverage as a showcase for investment.

These efforts will be supported by measures enacted in recent years that strengthened the country’s regulatory regime, reformed administrative processes, and digitalised trade and investment operations. The country has actively sought foreign investment, amending laws to facilitate higher foreign ownership stakes. The country’s trade and investment performance is set to improve further as countries around the world recover from the economic effects of the pandemic.

Oversight

The executive authority for trade and investment policy in Qatar resides with the Amir, who is advised by members of the Council of Ministers (CoM). Since elections in October 2021 decisions are subject to scrutiny by the Shura Council, which also votes on the annual budget.

Trade treaties are adopted into law once approved by the Amir and published in the Official Gazette. Relevant government agencies and ministries – whose heads are also members of the CoM – are then tasked with carrying out the agreements. Top government authorities in this space include the Ministry of Commerce and Industry (MoCI), which replaced the Ministry of Economy and Commerce in 2019, and the Ministry of Finance. The office of the prime minister, the office of the minister of state for energy affairs, the Ministry of Communications and IT, the Ministry of Transport, and the Ministry of Environment and Climate Change are also important bodies for trade and investment policies.

Other Players

Qatar Development Bank (QDB) and the Qatar Central Bank (QCB) have important roles in advising on trade policy. The QDB is home to the national non-hydrocarbons export development agency, Tasdeer, which engages in training and capacity building, and is a member of the Enterprise Europe Network. The QDB offers a range of programmes to support small and medium-sized enterprises (SMEs) and export finance and insurance schemes, as well as direct lending at beneficial rates to businesses. Joint ventures – foreign and Qatari – can benefit from these programmes, provided they are based in Qatar.

The QCB, for its part, monitors the country’s trade and current account balances, and advises the government on policy implementation and planning on issues including trade. It works to implement the country’s long-term development plan, Qatar National Vision 2030, as well as five-year national development strategies. The current strategy runs from 2018 to 2022. These plans seek to boost diversification of the economy away from oil and gas; support the development of SMEs; and develop human resources, entrepreneurship and innovation.

The Qatar Financial Centre (QFC), supervised by the QFC Regulatory Authority, operates according to its own legal regime based on English common law and international best practices. The QFC offers 100% foreign ownership and repatriation of profits, as well as investment incentives including a 10% corporate tax on locally sourced profit, no personal income tax and double-taxation agreements with more than 80 countries.

The Qatar Free Zones Authority (QFZA) administers the Ras Bufontas and Umm Alhoul free zones; while other specialised zones include Qatar Media City, and Qatar Foundation’s Qatar Science and Technology Park (QSTP) and Education City. The QFZA acts as a one-stop shop for its two free zones. Ras Bufontas focuses on light manufacturing, logistics, consumer goods, technology and pharmaceuticals, while Umm Alhoul concentrates on maritime industries, plastics and polymers, heavy manufacturing and associated logistics. The zones offer 20-year corporate tax holidays, zero Customs duties, full repatriation of profits and 100% foreign ownership. The QSTP offers a similar regime, as well as training programmes and funding for SMEs.

Another key player is the Investment Promotion Agency, which was launched in July 2019 to help connect investors to various business and licensing platforms. The body liaises with government, domestic and international stakeholders to find and highlight opportunities for investment, and conducts outreach to potential investors.

Wealth Fund

The Qatar Investment Authority (QIA), the country’s sovereign wealth fund, was created in 2005 to protect financial assets for the future, and help diversify the economy. It has made a series of high-profile international investments to ensure its population will continue to benefit from the financial surpluses generated by the hydrocarbons sector for decades to come.

The QIA’s portfolio includes real estate, infrastructure, health care, financial institutions and retail entities, among others, in markets around the world. The entity had $445bn in assets under management at the start of 2022. In recent years it has focused on environmentally sustainable projects. In January 2021 the company signed an agreement with Italian renewable energy firm Enel Green Power to build and operate renewable energy plants in South Africa and Zambia. Once complete, the facilities will add 800 MW of capacity to the countries’ grids.

Dedicated Court

In late 2021 a new Investment and Commerce Court was established to adjudicate commercial and investment cases. When the law comes into force in May 2022, the body will have jurisdiction over commercial contracts, disputes between merchants, disputes between partners and shareholders, foreign investment, bankruptcy proceedings, intellectual property rights, public-private partnerships (PPPs) and competition, among other issues. All proceedings of the court, from filing to the judgement, will be done electronically, in line with digitalisation efforts to increase transparency and efficiency in governance. Under the new court, experts nominated by either party can be appointed, expanding the court’s breadth of expertise.

Memberships & Regulations

Qatar is a member of the World Trade Organisation (WTO) and the GCC. The latter has a Customs union agreement among members and a common external tariff, which is approximately 5% for most goods. The GCC is also a party to the Greater Arab Free Trade Area (GAFTA), meaning that imports from GCC and GAFTA members are duty-free. Qatar also has trade agreements with Singapore and the European Free Trade Association. Both WTO and GCC regulations and laws supersede domestic laws in matters of trade.

There have been several regulatory changes implemented in recent years to foster higher levels of trade and investment, as well as enhance transparency and bolster the business climate. In 2019 Qatar passed an anti-money-laundering law, and in May of the following year passed a law requiring all companies, direct trust funds and non-profits to be registered in the Unified Economic Register housed in the MoCI. The centralised platform aims to boost the transparency of economic and financial transactions, and make basic information available to public officials and other stakeholders. The same month, a new PPP framework came into force, aligning Qatar with international best practices in the preparation of project business cases, as well as in the design, tendering and terms of partnership contracts.

Moreover, recent years have seen profound changes in the country’s foreign investment framework. In 2019 a law was implemented that allowed 100% foreign ownership of Qatari-registered companies, except in prescribed areas such as banking and insurance. This was followed, in April 2021, by a measure approved by the CoM to raise the foreign ownership limit of most companies on the Qatar Stock Exchange from 49% to 100%, which could lead to investment inflows of up to $1.5bn to listed companies, according to a report at the time from investment bank EFG-Hermes.

“Qatar has made significant policy changes and investments in recent years to make the country a more attractive destination for investment,” Ullattil Achu, general manager of Doha-based holding company Dyarco International Group, told OBG. “It has emphasised an openness to dialogue and ideas, which can only bring positive results for Qatar as an investment destination.”

External Pressure

Efforts to improve Qatar’s attractiveness for trade and investment have helped the country to navigate external headwinds in recent years. Several years of low oil and gas prices that began 2014 affected Qatar’s balance of trade at a time when it was vying with the US and Australia to be the world’s top exporter of liquefied natural gas (LNG). In 2014 some 67.4% of the $126.7bn in merchandise trade came from LNG, with crude oil accounting for 17% and other petroleum oils 5.1%, highlighting the country’s dependence on hydrocarbons. This figure has remained relatively stable, with 2019 figures showing that LNG accounted for 61.9% of the $72.9bn in merchandise exports, followed by crude oil at 17% and other petroleum oils at 7%. The merchandise trade surplus declined from $96bn in 2014 to $44bn in 2019 on the back of low energy prices in international markets.

Exports were subsequently affected by the pandemic, which caused oil and gas prices to fall in the early months of 2020 as economic activity slowed. Lockdowns, travel restrictions and other health measures tampered demand for energy, and halted activity in the transport and tourism sectors.

Another factor that affected trade flows was the economic blockade imposed on Qatar by some GCC members and Egypt in May 2017. Qatar responded by strengthening trade ties with other partners, including Turkey, Oman and the US. Bilateral trade with Turkey, for example, rose from $643m in 2013 to $1.4bn in 2020, with $1bn of that figure coming from imports from Turkey. The blockade was lifted after the signing of the Al Ula Agreement in January 2021.

Rebound

By late 2020 oil and gas prices had began to recover, which helped the current account surplus reach highs not seen since 2014. By the end of the third quarter of 2021 export revenue totalled $22.7bn, up more than $3bn from the previous quarter and double the figure seen in the third quarter of the previous year. The balance of trade reached $15.9bn in the third quarter of 2021 – the highest since the close of 2014 – with LNG, natural gas, liquefied petroleum gas and condensates exports totalling $13.8bn, followed by crude oil ($3.3bn) and refined hydrocarbons products ($2.2bn). Non-hydrocarbons exports were valued at $3.5bn, the highest figure since the third quarter of 2015.

Some 80% of exports are shipped to markets in Asia, with LNG sales making China, South Korea, India, Japan and Singapore the country’s top export destinations. Qatar has also been courted by Western leaders who have sought to ameliorate the effects of gas shortages in Europe after Russia invaded Ukraine in February 2022. Qatar was the second-largest supplier of LNG to the continent in 2021, behind the US. However, much of the country’s output is locked into long-term contracts and earmarked for markets in Asia.

In the longer term, the North Field expansion project is set to increase LNG output by 64% once the four new trains come on-line in 2027. With oil prices surging upwards – from $90 per barrel in late January 2022 to $130 per barrel in early March of that year – the high returns from LNG exports should bolster the balance of trade and revenue, even if immediate supply pressures ease.

The country could further benefit from Europe’s efforts to diversify its sources of energy away from Russia, even if returns would not be realised in the short term as it would take time for many countries to develop the infrastructure needed to import and regasify LNG on a wider scale than seen at present. Even so, there have already been steps to this end: in February 2022 the German government announced a series of energy investments, including in the construction of two terminals for LNG.

Merchandise & Services

Merchandise exports have remained fairly constant, falling slightly from $30.4bn in 2014 to $29.2bn in 2019. That year, the main goods imported were machinery and electrical equipment (26.6%), transport equipment (12.5%), base metals and articles thereof (8.7%), and chemicals (8.5%). Figures from the Planning and Statistics Authority for December 2021 show a similar distribution, with the top-three imported items being electrical and electronic apparatus, automobiles and other transport vehicles, and aeronautical equipment. The main countries of origin for imports in 2021 were China (QR1.8bn, $494m), the US (QR1.3bn, $356.8m), the UK (QR610m, $167.4m) and India (QR586m, $160.8m). The total value of imports rose in 2021, with the figure for the first three quarters totalling $20.2bn, compared to $19.1bn in the same period of 2020.

Qatar has traditionally had a deficit in terms of services, with the import of services rising from $30.8bn in 2015 to $35.4bn in 2019, while services exports grew from $15bn to $19.1bn over the same period. The top services imports are in finance and insurance, while the main services exports are in transport – particularly passenger transport – and travel, with national enterprises such as Qatar Airways among the key players. Both sectors were impacted by the pandemic, after Qatar closed its borders between March and November 2020. Recovery should be supported by the 2022 FIFA World Cup, and its related boost to travel and tourism (see Tourism, Culture & Sport chapter).

Foreign Investment

The majority, or around 90%, of foreign direct investment (FDI) has historically gone to the oil and gas sector and its associated services, such as transport and engineering. Financial services is another sector that receives a steady inflow of FDI, usually from the US and Europe. The pandemic and economic blockade put downward pressure on FDI, which fell by a record $2.1bn in the first quarter of 2020. Inflows have slowly recovered, with the country seeing growth of $534.6m in the last quarter of 2020. While FDI recorded declines in the first two quarters of 2021 – of $303.6m and $90.6m, respectively – the performance still highlighted a recovery from much of 2019 and 2020. Indeed, despite the continued pressure of the pandemic, the country registered FDI growth of $8.2m in the third quarter of 2021.

The 2021 measure to allow listed companies to be 100% foreign owned included provisions that facilitated greater foreign participation in the financial sector. In August 2021 the Cabinet formally approved the opening of the country’s listed banks to 100% foreign investment. In addition, non-Qatari investors can benefit from other previously implemented incentives, including income tax holidays of up to 10 years, exemption from Customs duties on machinery and equipment necessary for their businesses, import tariff exemptions on raw materials, favourable land allocation and rental terms, and protection against expropriation.

The hope is that the new PPP law and rules allowing 100% foreign ownership will spur further recovery in FDI. It is also expected that a wider variety of sectors will be recipients of larger amounts of FDI in the coming years. “As most of the large infrastructure projects associated with the 2022 FIFA World Cup have neared completion, it is expected that more sectors will contribute more to the economy,” Achu told OBG. “This will be supported by a larger influx of international visitors, and accelerated development in services and ICT.” Attracting investment in these areas will help fulfil the diversification objectives of Qatar National Vision 2030. It will also help meet the goals of the Smart Qatar programme, known as TASMU, which aims to create a strong digital ecosystem and a knowledge-based economy for the future (see ICT chapter).

Outlook

It is expected that in the short term uncertainty about the course of the pandemic and the speed at which the global economy will recover will negatively affect trade and investment outlooks in markets around the world. However, Qatar is well positioned to face these challenges, especially in light of moves to liberalise its policies, as well as its demonstrated economic resilience in the face of external pressure. The 2022 FIFA World Cup should not only be a boon for tourism, but also show investors the country’s potential as an attractive and secure destination for investment. In the medium to long term it is likely that policies implemented to encourage FDI and diversification will begin to bear fruit, with a range of emerging industries and services likely to benefit from trade and investment incentives, as well as improvements in the capacity of local human capital and scientific research.