Industrial firms play a larger role in Qatar's economy

Though chiefly known for its success in the oil and gas sector, which has made it one of the world’s wealthiest countries, Qatar is also home to a number of non-hydrocarbons industries that are playing an increasingly important in the economy, particularly in light of the government’s broader plans for diversification. According to the Ministry of Development Planning and Statistics (MDPS), the non-hydrocarbons sector accounted for all GDP growth in 2015, and was led by the services and construction sectors, which contributed 2.5 and 1.1 percentage points to real GDP growth, respectively.

Construction was the fastest-growing non-hydrocarbons sector in 2015, growing by QR7.9bn ($2.2bn), or 17.8%, to QR53.4bn ($14.7bn). The sector saw a huge boost due to Qatar’s investment in several significant construction projects like the Doha Metro and the real estate developments in Lusail City. Meanwhile, manufacturing output grew by 3.2% to hit QR79.1bn ($21.7bn). Manufacturing growth has been slowed in recent years by the availability of feedstock from upstream production.

Traditional production lines saw declines in growth, with fertiliser, seeing only a 1.7% growth and production of basic chemicals, mainly petrochemicals and gas-gas liquids, dropping by 8.9%. Steel fell by 6%, a result of the global oversupply, which helps to explain the weak growth in manufacturing compared to 2011 and 2012, when growth in the sector hit double digits. The mining sector saw negative growth of -0.2%, while utilities grew by 7%, according to the MDPS.

Supervision

Because the sector encompasses so many segments, industry is overseen by several state agencies, which align their efforts with the goals of the National Development Strategy (NDS) 2011-16 and Qatar National Vision 2030 (QNV 2030). Chief among these is the Ministry of Energy and Industry, which is charged with building up the industrial sector, though significant roles are also played by the Ministry of Economy and Commerce and the MDPS. The Qatar Chamber of Commerce and Industry, founded in 1963, has a diverse membership of domestic private businesses and represents their interests, both overseas at trade fairs and at home as their liaison with the government. Representing foreign interests is the International Chamber of Commerce Qatar, as well as the chambers of specific nations, notably the US and the UK.

History

The majority of Qatar’s industry is relatively new, having been built up in the last few decades, largely as downstream components of the oil and gas sector. Development of the hydrocarbons sector began in earnest soon after independence in 1971, the same year Qatar’s North Field – the world’s largest deposit of non-associated natural gas reserves – was discovered. Many of Qatar’s largest industrial companies thus have a long history of state ownership, often having started up the domestic industries in which they operate.

In this category fall four of Qatar’s largest industrial players: Qatar Fertiliser Company (QAFCO), founded in 1969; Qatar Petrochemical Company (QAPCO), set up in 1974; Qatar Steel, also formed in 1974; and Qatar Fuel Additives Company (QAFAC), established in 1991. All of these are now subsidiaries of Industries Qatar (IQ), a joint stock company founded by state-owned hydrocarbons firm Qatar Petroleum (QP) in 2003 as part of a reorganisation.

Listed on the Qatar Stock Exchange that same year, IQ was initially 70% owned by QP, but nine years later this share was reduced to 51%. More recently, the government set up Qatar Primary Materials Company in 2006 to supply the local construction industry; Qatar Aluminium in 2007 as a joint venture between QP and Norway’s Hydro Aluminium; and Qatar Pharma in 2008 to supply the health care industry. In 2012 the government established a state company in a bid to consolidate the country’s domestic petrochemicals production assets. Starting in 2013, this entity – known as Muntajat – gained exclusive rights to buy, distribute, market and sell all output from the nine state-owned companies operating in the segment: QAFCO, QAPCO, QAFAC, Qatar Vinyl Company (QVC), SEEF Limited, RLOC, Qatar Melamine, Qatar-Chem (Q-Chem), Qatar-Chem 2 and QATOFIN.

Development Plans

One cause of local industry’s recent growth is a long-standing government commitment to diversify the economy. Under QNV 2030, a range of industrial zones have been set up with investor-friendly incentive schemes, such as tax breaks and inexpensive utilities, attracting a wide range of investments. In all, the Gulf Organisation for Industrial Consulting, a regional research consultancy, calculates that the GCC invested $158bn in industrial ventures in the five years to 2014, of which 21.7% came from Qatar, the second-largest portion after Saudi Arabia’s 55.3%.

Fresh impetus for diversification has also come from the recent drop in oil prices, which, as the state was preparing its 2015 budget, had roughly halved in the previous eight months. This prompted a wave of cost-optimisation efforts at many ministries and state companies, including state-owned QP, which has stakes in a number of the country’s largest industrial firms, notably those wrapped into IQ. In the wake of lower revenue forecasts, two QP petrochemicals projects were subsequently shelved (see analysis).

Later in 2015, Qatar Steel also pulled out of a joint venture with Algeria’s Sider for a planned $2bn Bellara steel-making complex in Algeria, though it will still play a role in sharing expertise. Further planned projects falling under QP’s umbrella were still in limbo in mid-2016. Capital expansions were reportedly being considered, with the firm positioning its cash reserves to weather a potential global downturn.

Private Sector Role

The 2003-12 period was a time of major expansion, in which IQ invested some QR20bn-22bn ($5.5bn-6bn) in new capacity and diversification. The cyclical nature of the commodities market has compelled many companies in the sector to shift focus to improve cost optimisation, in light of the drop in oil prices. Most of IQ’s costs are in the firm’s operations, not inputs, so improving natural gas usage by finding more efficient ways to use resources, such as through better carbon capture, is a priority. In the coming years, manufacturing may shift towards greater reliance on non-state players, particularly as the government pushes to expand the role of the private sector, attract foreign investors, and assist small and medium-sized enterprises. Support for all of these groups, already embedded in the NDS 2011-16 and other government strategies, was confirmed in a speech given by Sheikh Tamim bin Hamad Al Thani, the emir of Qatar, to his Advisory Council in November 2015, in which many observers saw key signals on government policy.

“I have directed the government to hammer out a strategy to increase the contribution of manufacturing industries to GDP, particularly those based on knowledge,” he said, adding that an increase in domestic food production was in order. Though as of mid-2016 official details on the new strategy had not yet emerged, the speech included assurances that critical projects would go forward, particularly infrastructure related to the 2022 FIFA World Cup but also the industrial zones, new storage capacity and programmes to “reduce operational costs for investors”.

Petrochemicals 

Receiving its feedstock at favourable rates directly from QP, Qatar’s petrochemicals industry has seen rapid expansion in recent years, growing at a rate of 9.5% a year in the decade to 2013, when its output reached 19.3m tonnes and was worth some $13.2bn. In terms of value added, the latest figures show the segment contributed $9.3bn to GDP in 2014, or 43.6% of the manufacturing total, according to the Gulf Petrochemicals and Chemicals Association (GPCA). This equalled 9% of the non-oil economy that year. The sector’s main player, QAPCO, uses ethane feedstock from its parent company, QP, to produce ethylene, from which it also produces low-density polyethylene (LDPE). A joint venture between IQ (80%) and France’s Total (20%), QAPCO has three operating facilities with a total capacity of 700,000 tonnes of LDPE per year, and owns stakes in three other local petrochemicals companies: QATOFIN, QVC and Qatar Plastic Products Company.

QAPCO also has a 63% stake in the sector’s second major player, QAFCO, which makes methane that it exports to Europe and Asia or further processes into methyl tert-butyl ether, selling the latter mostly within the GCC and the wider MENA region. Two other players are Q-Chem and Q-Chem II, both jointly owned by QP and Chevron and producing polyethylene products – including at its ethylene cracker unit, the world’s largest with a capacity of 1.3m tonnes a year. QP’s petrochemicals assets – in Q-Chem, Q-Chem II and QVC – are rolled into its subsidiary, Mesaieed Petrochemical Holding Company.

Fertiliser

In 2014 Qatar joined Saudi Arabia as the GCC’s joint top exporter of fertiliser, with each country exporting about 8m tonnes and having a 35% regional market share, according to the GPCA. Growth in Qatar’s sector has been about 10% a year over the past decade, compared to 7.5% for the entire GCC, pushing its share up by seven percentage points in that period. As for export markets, of the 22.9m tonnes the region sent abroad in 2014, over half was sold to Asian countries (53%), notably India. However, rising portions are going to Central and South America, which now buys as much as North America (13%), and to Africa, which absorbed 10% of the total. Qatar is the largest producer of urea fertiliser in the GCC, accounting for 37% of the 15.2m tonnes produced in the region in 2014, up from 28% a decade earlier, according to the GPCA. With the founding of QAFCO in 1969, fertiliser became the first major expansion of the country’s industrial base. Originally a joint venture with Norsk Hydro Norway, Davy Power Gas and Hambros Bank, QAFCO is now owned by IQ (75%) and Yara Netherlands (25%), producing some 5.6m tonnes of urea and 3.7m tonnes of ammonia each year between its six plants, and earning a profit of about $632.5m in 2014, the latest year for which data is available.

Metals

Qatar Steel, founded in 1974 and wholly state-owned since 1997, operates what was the Gulf’s first integrated steel plant. Located in Mesaieed Industrial City south of Doha, the 707,000-sq-metre facility started operations in 1979 and now puts out some 1.2m tonnes of molten steel and 740,000 tonnes of rolled steel each year, employing 1250 people. As the price of many commodities tumbled in 2014 along with that of oil, Qatar Steel sold higher volumes at lower prices to maintain competitiveness, according to its general manager, Ali bin Hassan Al Muraikhi. Sales that year rose 8.6% on 2013 to 2.6m tonnes, pushing sales revenues up by 2.6% y-o-y to QR5.97bn ($1.6bn). Meanwhile, the integrated aluminium plant owned by Qatar Aluminium – a joint venture between QP and Norsk Hydro founded in 2007 and now known as Qatalum – reached full operation in 2011, and it now produces 340,000 tonnes of extrusion ingots and 300,000 tonnes of primary foundry alloys each year, selling three-quarters of its output to automotive industries around the world.

Industrial Zones

Like many of its GCC neighbours, Qatar has established a range of industrial areas and special economic zones (SEZs) that offer incentives to businesses looking to set up operations in the country. The four oldest are rooted in the oil and gas sector: Ras Laffan Industrial City, a centre for utilities and natural gas; Mesaieed Industrial City, which houses many of QP’s industrial subsidiaries; Dukhan Petroleum City, focusing on oil processing; and Doha Industrial Estate, serving light and medium industries. In the research and development segment, the Qatar Science and Technology Park in Doha hosts businesses in ICT, health sciences and environmental research, allowing 100% foreign ownership and full tax exemption, while the Small and Medium Scale Industry Area houses companies in a range of product lines such as textiles, wood, paper and chemicals.

Three new SEZs are currently being developed under the purview of a government company called Manateq, set up for the purpose in 2011 by the Ministry of Economy and Commerce. Ras Bufontas, a 4-km site next to Hamad International Airport in Doha, will focus on logistics, business services, and high-tech sectors like automotive, aerospace and medical devices. Having announced the project in 2014, Manateq awarded the QR1.7bn ($466.5m) design-and-build contract in July 2015 to a joint venture of Qatar’s UrbaCon Trading and Contracting and Spain’s Sacyr, with the first phase to be completed in the fourth quarter of 2017. The second zone, Um Alhoul, is located on a 34-km site near Hamad Port some 20 km south of Doha, and will cater to marine industries, petrochemicals and construction-related sectors, with the first phase to finish in early 2018. The third zone, Al Karaana, is in the planning stages and will be located near the border with Saudi Arabia, focusing on machinery, logistics and building materials.

Outlook

The substantial investments Qatar has made in its industrial sector, especially over the past 15 years, form a solid base for future expansion into more sophisticated product lines – such as using domestic metals to fabricate more advanced construction materials or expanding petrochemicals into newer synthetic plastics. That there will be challenges in the next few years is not in doubt, not least as the country adjusts to the possibility that oil prices might stay low for some time – during 2015, the price of crude slipped to around $30 a barrel and volatility continued through the spring of 2016 – which saw prices recover somewhat to nearly $50 per barrel, affecting the pace of planned expansion projects.

Yet Qatar’s industrial players have reasons for optimism as new thinking takes root on how to use limited resources more efficiently. In the meantime, they benefit from core advantages that are unlikely to change: a favourable business climate, economic stability and government policies committed to diversifying the economy by supporting manufacturing.