Special Report for Executive magazine
Read my commentary on nationalization employment policies in the GCC and Qatar:
Also read my article on the financial sector and regulations in Qatar, published earlier in the year:
I wrote about Qatar's foreign policy in May:
You can read about the working conditions of migrant laborers in Qatar here:
This September, it seemed official: newspapers and wire services reported that the world had a new wealth leader in per capita gross domestic product (GDP). According to the International Monetary Fund’s World Economic Outlook database, Qatar ranked top of the global heap in per capita GDP on purchasing power parity basis, with more than $88,200 using a census figure of 1.7 million residents. The equivalent figure for Afghanistan, the first country on the alphabetical IMF roster, was $909. Moreover, with Qatar’s expansion of GDP forecast at 18 to 20 percent this year by the IMF, the country is one of the fastest growing economies in the world and the most rapidly growing in the Middle East and North Africa, by far.
To top it all, Qatar is not only both rich and growing, it has huge investment visions. Ongoing projects in the country are valued at $250 billion, with some $80 billion invested in infrastructure, followed by oil and gas at $75 billion, real estate at $55 billion, and petrochemicals, energy and water projects some $11 billion, according to financial information provider Zawya.
With this exceptional combination of wealth and opportunities, it is virtually inevitable that the desert peninsula is viewed as a veritable gold mine by a hoard of construction firms, engineering companies, architects, service providers and infrastructure developers that have struggled to stay afloat in the wake of the global financial crisis.
“The whole world is looking to get a foot into this market,” wryly observed a Jordanian official at a construction exhibition in Doha earlier this year. “Qatar needs everything, from construction and building materials to food stuffs. There is huge demand.”
Indeed, the May 2011 Project Qatar construction show — held only weeks after a 2022 World Cup Construction Conference organized by the government in Doha and benefitting visibly from the hype created by last winter’s surprise awarding of the World Cup still over a decade away — got a size boost of some 73 percent over the previous year and attracted more than 1,700 local and international companies, according to organizers International Fairs and Promotions.
The travelling circus of opportunity seekers entailed national trade bodies and companies from more than 70 countries, champing at the bit to establish a presence in Qatar and get some of the $3 billion in tenders to be issued in 2012 for the World Cup. “Qatar is developing quickly and it’s a good investment opportunity. We are hoping Qatar will be what Dubai used to be,” said Pamela McDowell, project manager at the Italian Business Council Qatar (IBCQ). Membership in IBCQ, an organization founded in 2004, doubled from 20 to 40 companies within the past year, and the organization hopes to have 50 companies involved in hydrocarbons and construction projects by 2012.
Corporations that used to make good profits in other countries of the Gulf region have been lining up to do business in Doha. “We are seeing migration of Australian companies from the United Arab Emirates to where the money and opportunities are,” said Susie Billings, Trade Consultant-Qatar at the Australian Trade Commission.
But while acknowledging the presence of investment and business potentials for international players, experts on the Qatari market also express caution that the boom mentality is dangerously crowding the field with contenders. “The World Cup is a big boost for Qatar but people think the road will be paved with gold, and they will be in for a shock. There is tight competition out there, margins will be tight, and a lot of people want a slice of the action,” said Andrew Wingfield, a partner at international law firm Simmons and Simmons in Doha. “But such competition will be good for Qatar.”
Other experts asked by Executive about the investment opportunities they see in Qatar offered surprisingly mixed perspectives, the great enthusiasm of some juxtaposed by advice to be conservative or to not even invest at this time.
The next Dubai?
Although Qatar was not overly affected when the global financial crisis hit the Gulf some three years ago, the government did have to shell out $3.96 billion to shore up state-linked banks and real estate firms in 2009. In oversupply scenarios somewhat reminiscent of Dubai’s property troubles, overpricing and scant demand for commercial real estate space in Doha has also prompted the government to rent an estimated 20 to 22 percent of all office space to give support to Qatari developers.
“That can be a problem here. Buildings are empty until the government comes to take it off developers’ hands,” [see real estate story page 66] said one analyst who was, like several others interviewed by Executive, only ready to share his insights if his name was not quoted, noting that being candid can cost one one’s job.
But while such market “corrections” may raise questions over how level — and how well-shielded against manipulations — the playing field really is in the competition for developing real estate in Qatar, the difficulties to fill some office towers with tenants have certainly not dimmed Qatar’s aspirations.
In April, the chairman of real estate developer Ezdan, Sheikh Thani bin Abdullah al-Thani, announced plans to construct the world’s tallest tower in Qatar. In another bid for a “largest of its kind” undertaking, some $7.9 billion has been pledged by the government to fund the Sidra Medical and Research Center, the largest endowment to a medical facility anywhere in the world.
The state-linked $20 billion The Pearl Qatar (TPQ) residential project and the $5 billion Lusail development rank as some of the most expensive real estate projects on the planet and in terms of hotel construction cost, the bills are said to be the most expensive per square meter in the world.
“Why? Labor is cheap (as low as $250 a month) but it is expensive because everything is imported from somewhere, and there is a monopoly on shipping and many other things,” said a real estate analyst. Inflation, which had been rampant in the country prior to the global financial crisis, is another risk that developers and construction investors have to watch out for. It is projected to reach 3.3 percent this year, according to QNB Capital, a unit of Qatar National Bank, which is the country’s leading commercial bank and one with strong state affiliation.
There are also questions, however, as to how Qatar will manage the outcomes of its current aspirations, such as hosting the 2022 World Cup, in ways that are socially and economically sustainable. “Don’t ask about 2023. There will be 90,000 hotel rooms and 15 million square meters of office space by then. Who will take up the slack?” said a real estate analyst.
On the side of probable future liabilities, Qatar is also well on course to being the largest water consumer and have the highest carbon footprint per capita in the world, currently only nudged out of the top post by the UAE [see Greenwash story page 78].
Diversification of the national economy away from reliance on hydrocarbon exports has been a mantra for every single oil-producing Arab country for decades. In Qatar, diversifying the economy is happening, with the contribution of oil and gas down from 60 percent to 51 percent of GDP last year. However, the country’s wealth is driven up primarily by hydrocarbons. “It is the fastest growing economy in the world because it is pumping gas, not because of anything else,” said one analyst. It also doesn’t help that the private sector is still a minimal economic player and dwarfed by the state’s participation in every branch of the economy. “Some 90 percent of the workforce are employed by the government or semi-government agencies,” said Wingfield.
“The private sector doesn’t drive anything, it’s the government,” said a real estate analyst. “Everyone is waiting under the government tap for some drips, as it was very much turned off over the past two years. But with projects that were slated to be finished by 2030 now having to be done by 2022 — so compressed into just 10 years — there is so much to do.”
Vision 2022 or 2030?
Being pulled in numerous directions, Qatar is now at a crossroads as to where it should go on a national level. Follow the economic model promoted by the West — of the kind Dubai fully embraced with major ramifications — or pursue a model that will preserve its identity and culture while focused on being a knowledge-based society?
The National Vision 2030 is quite explicit about the direction the country is to take. It talks of the country’s “abundant wealth” creating “previously undreamt of opportunities and formidable challenges,” and that it is “imperative for Qatar to choose the best development path that is compatible with the views of its leadership and aspirations of its people.” Its main four pillars are human, social, economic and environmental development, which “emerged from an intensive consultation across Qatari society.”
As Wingfield noted of the Vision 2030, “There is some quite frank stuff about what needs to be done; I was surprised.”
However, it has to be asked how effective the supposedly open discussion over the country’s direction can be if all the consultants, professors, analysts, real estate experts, bankers and so on that were interviewed were wary of making any negative comments, even constructively critical ones. As one professional said: “I’d like to have certain quotes off-the-record, as this is a country in which you mind your Ps and Qs.”
The question how can you truly progress if there is no re-evaluation, no taking stock of development, may be vital also for Qataris themselves, who traditionally have little say in the country’s future, with the decisions made at the top level. Political parties are banned and only the fourth municipal elections were held this year. Under such conditions it is not easy to undertake a wide societal discussion that includes constructive criticism of the direction the country is going in. Also in corporate decision making, evidence during the extensive research for this report strongly suggested that final decisions would often be imposed from the top-down, and sometimes even totally out of the blue, making management consensus a matter of acquiescence instead of effective team work.
Executive is committed not to fall into the mold of non-critical, starry-eyed views of countries so it is the mission of this Qatar investment report to support real development by reporting in a constructive manner. Potential investors and businessmen need to know, now more than ever, what is going on, particularly in times when global financial uncertainty is converging with regional unrest.
One lesson from the mistakes of Dubai was the absence of careful reality checks by gushing media punting unending promotions of limitless growth, luxurious lifestyles and presumably easy money. Doha should also not want to repeat the Dubai error of falling for the money-driven fine-weather-only consultants who put out serial reports of great promise and then vanished, along with the validity of their research, when harsher realities required actual solutions.
For those with genuine care for Doha’s long-term appeal and fulfillment of its potentials in regional and global communities, now is a time of concern even as Qatar’s own experts speak assuringly of the next few years.
“We will catch up with Dubai, but Dubai was obliged to change its economy (due to depleting hydrocarbons), and we don’t have that problem here,” said a Doha-based analyst.
Certainly Doha wants to make its mark on the world stage, but such incredible growth and change needs to be carefully managed.
“If the time to 2030 is not filled in the right way, it will be wasted,” said Ali al-Humaidi, managing director of Almaras Management Consultancy in Doha. “We are rushing into being a modern country, but upgrading so fast is short-sighted. And you can’t cheat on learning, we can’t kid ourselves and say what others have done in 20 years we can do in five.”