Scoring a goal: Following the AlUla Declaration, how will Qatar's growth plans fare?
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Scoring a goal: Following the AlUla Declaration, how will Qatar’s growth plans fare?

Scoring a goal: Following the AlUla Declaration, how will Qatar’s growth plans fare?

Normalisation of ties with the GCC, the upcoming FIFA World Cup and economic reforms are painting a positive picture for the gas-rich nation


For Qatar, the year 2021 commenced on a resolute note.

The signing of the AlUla Declaration in Saudi Arabia in January this year not only signalled an end to a three-year regional row and helped restore ties among the GCC countries, but it also thrust Qatar into the spotlight as a potential investment and growth spot.

Multiple sectors could reap the benefits from the end of the blockade. Financial institutions, airlines, tourism and energy are among the industries expected to extend gains on the back of increased air traffic, transfer of liquidity and greater economic collaboration.

“We expect that the restoration of ties between Qatar and boycotting countries will improve political and economic cooperation within the GCC and wider region,” observes Shokhrukh Temurov, analyst, Sovereign Ratings, S&P Global Ratings.

“Qatar’s intra-regional travel, tourism, and real estate sectors will have some economic benefits from improving relations, but the impact on bilateral trade could be marginal. Intra-regional trade was relatively limited even in the pre-boycott period given the almost uniform concentration of GCC member states’ exports on hydrocarbons and the limited scope of strong agriculture or manufacturing sectors in the region.”

Additionally, Saudi clients, who withdrew deposits from Qatari banks due to the blockade, are expected to start shifting some of their funds back, according to a note by Fitch Ratings.

The blockade led to the withdrawal of about $30bn of non-resident deposits from Qatari banks in June-October 2017.

“This will provide Qatari banks with an additional pool of liquidity, which will diversify their funding base, reduce their reliance on price-sensitive government-related entities and corporate deposits, and cut their funding costs,” the agency said.

Qatari entities share the optimism: QNB Financial Services, part of Qatar National Bank (QNB) Group, said in a strategy report that banks in the country will benefit from the GCC resolution ‘based on general investor optimism’.

“Qatar Airways and consequently Qatar Fuel Company could benefit from increased air traffic between Saudi Arabia and Qatar,” the report adds.

Playing host to the FIFA World Cup next year, the first to be staged in the Middle East, is also projected to support the country’s growth momentum. The tournament, to be held from November 21 to December 18, 2022, will be a shot in the arm for Qatar and its long-term strategic goals. A total of 32 teams will play 64 matches over 28 days, during which over one million people are expected to visit the country. A staggering amount of roughly $8bn has been budgeted in total for the tournament’s infrastructure.

“The FIFA World Cup will solidify Qatar’s position on multiple fronts, including economic, social, environmental, and international standing and perception. Preparing for FIFA 2022 has served as a catalyst to accelerate several nation-wide projects that form part of Qatar National Vision 2030, enabling plans like the metro, the new airport, the expansion of road networks and world-class hotels,” opines Antoine Nasr, partner, Global Economic Development at Kearney Middle East.

“From an economic perspective, FIFA 2022 is expected to create 1.5 million new jobs in sectors such as construction, real estate and hospitality, and expected to generate QAR66bn by 2025 for the Qatari economy. The tourism sector in particular will enjoy a strong rebound as a result of FIFA 2022 in the short-and long-term. Qatar anticipates over one million visitors for the World Cup. Beyond the World Cup, state-of-the-art hospitality infrastructure left as a legacy of the event, and the memory of an enjoyable experience will lead to visits by tourists that had not previously considered Qatar as a target tourism destination.”

Economic prospects, despite being strained by the Covid-19 pandemic, don’t look too bleak either: Real gross domestic product will grow 2.7 per cent this year, following a projected contraction of about 2.5 per cent last year, the International Monetary Fund (IMF) stated, following virtual meetings held in December 2020. The recovery will be supported by increasing gas production and a rebound in domestic demand. Meanwhile, its sovereign wealth fund is looking at deals in Asia to diversify its investment portfolio, Bloomberg reported in January. Qatar Investment Authority manages around $300bn in assets and ranks as the world’s 11th biggest by total assets, according to the Sovereign Wealth Fund Institute.

“Qatar Investment Authority’s investment portfolio is currently heavily weighted towards North America and Europe. These are in especially high demand by the Gulf sovereign wealth funds (SWFs), especially as interest from Gulf SWFs in American assets jumped to the highest on record in 2020. In this light, the move towards Asia for greater investments is a logical step towards increasing Qatar’s diversification and growth potential,” explains Nasr.

Passing the ball
Qatar has made several strides in its efforts to diversify its economy and wean its dependence off hydrocarbons. Its Economic Diversification and Private Sector Development Strategy hinges on two main focus areas: productivity and competitiveness; and private sector-led growth. The strategy also outlines manufacturing, financial services, professional and scientific activities, tourism, logistics services and ICT as priority economic sectors to develop the national economy.

“Qatar National Vision 2030 (QNV) and its subsequent blueprint Economic Diversification and Private Sector Development Strategy earmarked a number of priority sectors for diversification. Years after the publication of QNV, it is clear that Qatar has made significant strides in its diversification efforts: the share of oil and gas contribution to GDP declined from 60.1 per cent in 2011 to 48.2 per cent in 2017, thanks to unprecedented investments and plans for target and enabling sectors (such as new universities and research centres, hospitals, Hamad Port, Hamad International Airport, mega tourism developments, Qatar Science and Technology Park, Qatar Business Incubation Center),” explains Kearney’s Nasr.

Qatar ranked 30th out of 63 countries in the IMD World Digital Competitiveness Ranking 2020 that measures the capacity of economies to adopt digital technologies as a driver for economic transformation. Meanwhile labour reforms and policy changes have also been gaining momentum in Qatar. The country set the minimum wage for all private sector workers at a monthly figure of QAR1,000 last year, and also scrapped the requirement for workers to seek permission from employers to switch jobs. Additionally, it reportedly announced in 2020 that foreigners could own properties in nine areas across the country, up from an earlier figure of three. Qatar also said that it will grant residency permits to owners of properties worth at least QAR730,000 and their families.

“The ambitious structural reform agenda underpins Qatar’s economic diversification efforts to enhance long-term potential growth. The abolishment of the Kafala sponsorship system and strengthening labour protection are welcomed steps in facilitating labour mobility and spur productivity. These measures along with the new real estate and public-private partnerships (PPP) laws should help Qatar to improve its competitiveness,” IMF said.

Temurov expands on it: “Qatar derives about 50 per cent of its GDP from the hydrocarbon sector. This makes the country’s concentrated economy vulnerable to sharp volatility in hydrocarbon prices and global demand. The government is bringing in structural reforms to diversify Qatar’s economy. This could gradually increase Qatar’s long-term growth potential but will require a long timeline to materialise. Nevertheless, apart from being among the cheapest and largest LNG producers, Qatar has large fiscal and external assets, which provide a buffer against economic and financial shocks.”

Furthermore, various infrastructure and development projects are underway in Qatar. In 2020, the country dedicated the biggest budget in five fiscal years to the completion and development of new mega-projects, says Nasr. Some of the key projects include: 2022 FIFA World Cup stadiums; Qatar Rail, Al Sharq Crossing, Hamad International Airport expansion, Lusail City development, Msheireb Downtown Doha regeneration; Bul Hanine Oilfield redevelopment, Barzan Gas Development, North Field expansion and Al Kharasaah Solar Photovoltaic Power project. Going forward, Qatar aims to spend QAR72.1bn on major projects in 2021, including those related to the World Cup. Understandably, the tournament will play a more definitive role.

“From an international standing perspective, Qatar has the opportunity to create a long-lasting image that truly portrays the country’s vibrant culture and values, as well as negate any negative misconceptions. With this being first time a Middle Eastern country is hosting the World Cup, Qatar has the unique opportunity to define the image and perception for the region,” states Nasr.

It now remains to be seen whether Qatar will succeed in scoring the goal.

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