Qatar is turning itself from a Gulf desert backwater into a cutting-edge 21st century state with a football World Cup to host in 2022. How are its systems coping under the pressure?
By Paul Cochrane for Accountancy Futureswww.accaglobal.com/
Qatar is a country in a hurry. Under its 22-year plan, the Qatar National Vision 2030, the country is planning to diversify away from its reliance on hydrocarbons to become a knowledge-based, sustainable economy. That vision commits the government to spending US$93bn on education, healthcare and infrastructure, not to mention its hosting of the planet’s most watched sports event, the World Cup, in 2022. Altogether, the state is investing US$200bn over the next decade in capital projects.
‘The infrastructure has to be of a globally recognised standard, not just for the World Cup,’ says Mark Lawrie, partner and head of consulting at Deloitte in Doha. ‘Roads, the metro, stadiums, schools and hospitals are all being built concurrently, which is pretty much unprecedented. It is a huge logistical challenge to bring everything into such a small country in such a short time.’
The fear of scoring an own goal is very real, given that the main financier of development is the state. Major developments are being backed by public or semi-public entities, including such developments as the US$20bn residential, retail and entertainment hub Lusail City and the US$14bn Pearl-Qatar artificial island project.
Project management is a clear concern, especially given the ticking clock of the World Cup. Qatar will not want delays and spiralling budgets, as was the case with the Doha Asian Games in 2006, and Hamad International Airport, which was slated to open in April 2013 (at a cost of US$17.5bn – back in 2006, the allocated budget was US$2.5bn) but is now slated to open in “early 2014.”
Muhannad Abu Ghazaleh, accounting director and acting executive director of finance at Al Jazeera Media Group, says: ‘There’s a need to avoid some of the issues faced in the Asian Games, when it became open budget and extra cost was paid. You can’t look at finance and auditing alone, but also at supply services – contracting process, payments, follow-up. Early planning is critical.’
Suggesting that some of the mega-projects under way may cost far more than anticipated, Bank of America Merrill Lynch reported in April that Qatar was seeking permission from international football association FIFA to reduce the number of World Cup stadiums from 12 to eight or nine.
Given Qatar is a small country (its two million people live in a 160km-long thumb-shaped peninsula), managing and governing these projects is a ‘massive challenge’, says Ewald Müller, director of financial analysis at the Qatar Financial Centre Regulatory Authority.
‘The next nine years and beyond the fall-out after the World Cup are going to be a big challenge for the profession, and that goes over into procurement. For me, transparency is key, and the profession needs to step up. The ratings agencies, Moody’s, have made noises about that.’
While Doha arguably has the funds – especially if energy prices remain high – a Moody’s report in April highlighted the issues faced by the country’s banks: a still developing corporate governance and risk management culture; lack of transparency surrounding local conglomerates; questionable commercial rationale for many of the government-related projects financed by the banks; rapid credit expansion; and the moral hazard that past government interventions have created.
That Qatar is playing catch-up is noted by the accounting profession. ‘Qatar started very late compared to neighbouring Gulf countries,’ says Dr Helmi Hammami, head of the accounting department at Qatar University, ‘we are lagging behind. There is movement behind the scenes, from education to streamlining the set of laws governing the profession – who should be certified, who should be an accountant in Qatar. That said, the profession needs a lot of improvement and the market needs a tremendous number of accountants. We need reporting. You can forget about an investor coming to a country where they don’t have a sound accounting profession; we cannot ignore this.’
Indicative of the newness of the profession is that the number of students studying accounting at the university has doubled over the past five years, and that only in 2011 was a master’s degree introduced. Hammami says: ‘In terms of curriculum, we’ve improved a lot. We used GAAP up to 2010, then we shifted towards International Financial Reporting Standards.’ But with just 60 to 70 Qatar University students graduating a year, and only half of that number being Qatari nationals, there are not enough graduates to meet demand or bolster the state’s drive to increase the number of Qatari employees.
It’s a challenge. Qataris number fewer than 300,000, while the overall population has gone from under 800,000 in 2002 to 1.9 million in 2013, according to the Qatar Statistics Authority. Some 94.1% of workers in the country are not Qataris, while 74.8% are unskilled or semi-skilled workers.
‘The Big Four are struggling to get Qataris,’ says Hammami. ‘It is a major issue here as graduates go to state-linked companies or banks, with big salaries. We are working to develop a strategy with the Big Four to show students the advantages of being in a major accounting firm.’
It is not just Qatari graduates who are avoiding the Big Four. So are local companies when it comes to choosing an accountancy and auditing firm. Rabih El Sous, a senior manager at KPMG Qatar, says: ‘There are many local accounting firms in Qatar, but from what I have observed compared with Dubai, Oman and Kuwait is that Qataris appreciate working with local firms rather than the Big Four. This, interestingly, puts pressure on the Big Four to behave differently, to be closer to clients.’
In the meantime, outsourcing financial services may resolve problems down the line. ‘Sometimes the speed of getting a talent on board, security clearance etc, is not as fast as in other countries, so having strong outsourcing for accounting could fulfil a need in the market,’ says Abu Ghazaleh.