Home Economy Qatar Heading Towards a Strong Economy

Qatar Heading Towards a Strong Economy

Going into the background, before the discovery of oil in the year 1939, Qatar seems to tell a different story. With some scattered villages on the shoreline, the economy was dependent on pearls, breeding of cattle, and fishing. If we track down the first signs of development, it was under the British rule as a protected state with the help of hydrocarbon revenue. Qatar then became independent in the year 1971. Under Emir Hamad’s rule, Qatar saw a series of economic reforms that shaped various developmental activities. The infrastructure sector was strengthened, and heavy investments were done in education as well as the health sector. Al-Jazeera Satellite channel also came up in his period that brought Qatar into the international arena. With the hydrocarbon boom, there emerged a need for more and more foreign labourers. With time with the help of natural resources and the system of Kafala, the Qatari nationals transformed into a very prosperous minority and now, Doha is known as a major economic and financial hub. Qatar remains a major player in global energy markets. 

The impressive figures in the graphs below indicate that Qatar can remain a major player as long as natural gas continues to be an important energy source.

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Graph 2 :

GDP Growth

Qatar has the third-largest proven natural gas reserves in the world and therefore is highly dependent on the hydrocarbon sector for 80% of its export earnings and 90% of government revenues. An International Monetary Fund (IMF) report of the year 2017 found little impact of the blockade on the hydrocarbon sector. With the huge dependence of the economy on hydrocarbon exports and the availability of substantial financial reserves, Qatar’s economy proved resilient post-shock. The figures depict the same as GDP grew by 1.6% in 2017 and 2.6% in 2018 and the fiscal budget returned to a surplus in 2018 which is about 3.3% of GDP. It also witnessed a 129% rise in the trade balance in October 2018 compared to the previous year. The growth of non-oil revenue picked up in 2018 compared to pre-2017 levels at 5.2% and is expected to rise further. 

Education

All efforts of Qatar aim to be a leader in higher education and scientific research both regionally and internationally and continually raises its investment in the sector to transform the resource-rich nation into a knowledge-based one. The overall literacy rate is almost 99%. Assistance from the international community is being taken to reform the education sector and also to develop academic institutions and research centres along the lines of world-class institutions.  Private schools are growing in importance as about 100 new private schools were approved lately. Currently, eight international universities and one Qatari University have campuses in Education City. Qatar Science and Technology Park, a Qatar Foundation project, currently hosts 48 world-class companies involved in scientific research and development. 

Healthcare

Basic health care is provided by the state through the Hamad Medical Corporation. Their services are free for citizens, and other residents have to pay a small amount to be eligible for treatment. National Health Strategy 2018 – 2022 aims to prioritize public health care by increasing government spending. The budget for 2019 allocated 10.9% of public expenditure to be spent on health care which is a very steep rise from 2.2% in 2014.  Legatum Prosperity Index ranked Qatar’s health care system 5 out of 149 countries worldwide and the best in West Asia. Life expectancy at birth is 78.3 years which is the highest in the GCC. 

Unemployment

The unemployment ratio is almost negligible. With quite a small population and having abundant resources has enabled the policymakers to create jobs in the public sector with huge perks, high salaries, job security, and prestige. This is also one reason why citizens are mostly found in the public sector rather than the private sector. However, many measures are being undertaken to make the private sector more competitive and attractive. 

Condition of Women 

Concerning the condition of women, the major index that tracks the health, employment, and empowerment of women that is the Gender Inequality Index (GII), Qatar has remained the highest-ranked Arab country. On the education front, the proportion of women enrolled in secondary and tertiary levels exceeds that of men. And further, in the higher education segment, almost two out of every three students enrolled are females. Participation of women has no legal obstacle. 

Privatization and Competition

The government of Qatar is doing rigorous efforts towards privatization and encouraging competition. Many privatization efforts are going on for the health, education, and airways sector. More and more efforts are to encourage financial transparency. And after the imposition of the blockade on Qatar, the government has started to boost up its efforts to open up more for foreign investments by removing the restrictions and limits. 

Qatar National Vision 2030 puts the performance of Qatari companies centre-stage. The privatization of parts of the telecommunications and utility sectors in the last years has been praised by Qatari businessmen as boosting the efficiency of the economy. 

Qatar had very early recognised the ill effects of mergers, collusions, and abusive contracts and had issued the competition law way back in 2006 for a transparent and open business environment and to offer a level playing field for competition. The law makes it difficult for the emergence of any dominant market players.

Qatar achieved the sixth rank out of 63 countries in Economic Performance in 2020 in The World Competitiveness Yearbook 2020, published by the International Institute for Management Development. Internationally it ranked 14th, further confirming Qatar’s strong performance across fields. In infrastructure, ranking at 40 is maintained. It performed best in business efficiency, governance, and economic performance. In “Qatar’s Second National Development Strategy 2018-2022”, clear cut goals in the areas of infrastructure and private sector advancement are highlighted. These figures have shown a sign of a crisis resilient economy and can rebound from the current global situation.

Economic Freedom

On the front of economic freedom, in comparison to the regional average of 53, Qatar gained a score of 60. On fronts like starting a business, it ranks 84 out of 190 countries which is much better than the regional average. The World Bank’s Doing Business Report 2019 and the Index of Economic Freedom of the Heritage Foundation, Qatar’s openness to trade is higher than the regional and global average and has been rising over the last few years. 

This trend was caused by the opening of the new Hamad Port and a drop in the country’s average tariff rate from 4.1% to 3.4%. Non-tariff barriers remain low. 

In recent months, Qatar has made considerable adjustments to its legal framework to meet the needs of international partners. Having eased visa requirements and liberalizing tax laws, the government also enacted a new investment law and removed the obligation for non-Qatari businesses to have a local majority shareholder. So now, all sectors of the Qatari economy are open for FDI, except banking, insurance, and defence. 

Construction Sector

Among the various non-oil sectors showing signs of a boom in the construction sector. Steel prices are under government control to protect the local producers from any sort of harmful competition and also to protect infant industries.  

Banking

Post blockade, after the withdrawal of assets of GCC, the lenders took many steps to stabilize the shock.  To grow nationally and at an international level, banks are restarting to a merger. which helped in fiscal consolidation. The IMF has also called its banking system to be resilient to shocks. Post- blockade too, banks showed a 9.5% increase in net profits and a 3.2% increase in total assets. Ratings are stable and non-performing assets are quite low. Qatar’s ranking on WB’s EODB improved five places in 2019 due to its lending initiative without even a bank account. Liquidity levels remained at easiness, with the ratio of liquid to total assets reaching 29.1%.

Economic Diversification

If we trace the growth of Qatar, the efforts are more and more towards diversifying the economy to cater to any downfall in the oil sector in the future. All efforts are in the direction of transforming it from a rentier economy to a knowledge base, service economy. In the major sectors of an economy like education, health, poverty, Qatar’s performance seems to be very promising. On UNDP’s Human Development Index, Qatar has consistently remained in the ‘very high category’. With regards to the incidence of poverty, based on international criteria poverty does not exist. The basic needs like healthcare, water, electricity, education are free for citizens and many loans and subsidies are present. In 2008, Qatar launched National Vision 2030 (QNV 2030), an ambitious development plan to transform the country into an advanced society. Improvements to education and healthcare are among the key ambitions of QNV 2030. Qatar has earmarked QAR 22.1bn ($6.07bn) for the education sector this year, representing 10.5 percent of total government expenditure. School expansion and skill enrichment, particularly among Qataris, is viewed as essential. 

Future Projections

A recent study by HSBC economists reported Qatar’s economy to be projected to grow by 3.3 percent in 2021 and the GCC region as a whole by 3.9 percent growth. The 2022 FIFA World Cup is also expected to give an impetus to the growth in overall demand and also to the export-orientated services sector. According to Oxford Economics, Qatar’s economic recovery shows

an overall improvement and in comparison to the GCC, it is performing quite well. According to the IMF, among the few only countries expected to run a budget surplus in 2020, Qatar is one of them. The IMF forecasts Qatar to run a surplus of 5.2 percent of its GDP this year. The Gulf state managed to achieve an average annual GDP growth rate of 5.72 percent between 2009 and 2019 even when fossil fuel prices displayed trademark volatility. 

In terms of exports, Qatar remains committed to expanding its liquefied natural gas (LNG) operation worldwide. Recently, it acquired interests in Mexico and Côte d’Ivoire and development drilling is also underway at its offshore North Field gas field. The kingdom’s transport, logistics and tourism sectors continue to grow, served by the Hamad International Airport and Doha Port. Financial services are the largest component of the Qatar Stock Exchange (QSE). With a market capitalisation of $160.05bn, the QSE is ranked 57th out of the 144 stock markets. 

Post Economic- Blockade Recovery

The resilience of Qatar’s economy is vivid by how it has handled the economic blockade imposed on it. It has started putting its efforts to strengthen its economic ties with many other prominent Asian markets including India, China, and Japan. Post blockade, its ties with Iran has multiplied many folds. With Turkey, a preferential trade agreement was signed and many negotiations with the United States are underway.

All the efforts showed results when the budget showed a surplus in mid-2018. Government spending policies played a crucial role in stabilizing the economy. The IMF report during the same period deemed the public debt of Qatar to be quite sustainable. 

In a major index by the World Bank which is the Doing Business Index, Qatar ranked 20 out of 190 countries, showing an overall improvement. Also, total social spending remains quite generous supporting major social services to its citizens. 

At the time of the blockade, Qatar was importing approximately forty percent of food via its border with Saudi Arabia. After a brief period of crisis, supplies were redirected from Iran and Turkey via sea and air. Imports are now being sourced from many new markets and long-term infrastructure projects and protecting essential sectors. The most efficient strategy is to attain self-sufficiency. For example, regarding milk supplies, before the embargo, Qatar was dependent on Saudi Arabia but after the blockade, it imported top breeds of dairy cows and installed them in specially designed air-conditioned farms in the desert. The scene is such that not just it has attained self-sufficiency in milk production, but it has also started exporting it to other markets. Newer ties are being made with different markets like Vietnam and Bangladesh.

Infrastructure

On the front of capital generation, in the Capital Index, Qatar ranks at 60 out of 157 countries which is much better than the entire region. It has already improved its position in the Ease of doing Business Report 2020 improving 6 ranks which are expected to further improve entrepreneurship and attract more and more foreign investments. The pre-pandemic survey by IMF also concluded that Qatar is quite well placed to balance out any downside risks due to substantial buffers and good policies. Qatar Business Incubation Centre is providing the largest mixed-use incubator facility in the MENA region. Various infrastructure projects, like the construction of the Doha Metro and tremendous tourism gains with multifold arrivals from foreign countries, have increased much over the past few years which shows the way to the country’s new and bright economic future.  The Manateq Free Zones and the modern airport with new port facilities form a triple stimulus for business in Qatar. This stimulus offers modern transportation, access to Qatar’s natural gas, and materials that handle infrastructure all in one go which is a big progression towards the cost-cutting factor. 

Also, the kingdom has invested about $45 billion in the United States and aims to invest a further $10 billion in US infrastructure. While a part of this investment will be in natural gas handling facilities, both importing natural gas into the US and exporting US natural gas production to third world countries. Qatari Investment Authority handles the sovereign wealth fund. It is committed to investing $45 billion of its almost $340 billion sovereign wealth fund in the U.S. To date, it has invested $26 billion. The purpose of the fund is to assure the citizens a cushion against any future economic shock. 

Conclusion

Thus, it is quite vivid that even after pandemic and low hydrocarbon prices, Qatar still has the strongest credit profile. Qatar was reported among the countries with the highest income levels even after the economic blockade. Its external balance sheets remain strong, and its liquid external assets continue to offset the country’s stock of external debt by a high margin. One very remarkable step by Qatar was aligning its Development Strategy (2018-2022) with the goals of the UN’s Sustainable Development Agenda. The kingdom aims to reduce waste and prevent environmental damage on its path to development or aims to adopt ‘sustainable development practices. Thus, to sum up, looking at how Qatar bounced back even after so many economic shocks and after analysing such promising measures it can be concluded that indeed Qatar is and will remain a very ‘strong economy’.

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