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Growth opportunities for Qatar’s economy in the GCC

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Renewed opportunities in construction, travel and LNG await investors in the Gulf natural gas powerhouse.

Kyle Boag, Regional Head of International Subsidiary Banking MENAT, HSBC and Elie El Asmar, Head of Commercial Banking Qatar, HSBC share their views on new opportunities for the GCC after the Qatar rift ended.

Qatar, the world’s top liquefied natural gas (LNG) exporter and host of the 2022 World Cup, might see its economy return to growth of 2.5% this year, accelerating to 3.9% in 2022, the fastest pace since 2015, according to the International Monetary Fund (IMF). 1 The country’s GDP declined by an estimated 4.5% last year due to the COVID-19 impact.

Backed by its natural gas wealth, Qatar changed its trade strategy in recent years by opening new shipping routes through Turkey and Oman, while fending off a U.S.$30 billion outflow of deposits with an even bigger injection from its sovereign wealth fund to secure local banks.

Qatar also set up a 10-year National Food Security Programme, aiming to ensure its food security by 2025 through reforms in energy, water, agriculture and food sectors. In its self-sufficiency drive, the government has been also promoting the “Made in Qatar” brand.

Looking to attract more foreign investors and become a regional business player, the country set up the Qatar Free Zones Authority (QFZA) in 2018 to oversee two free zones near its airport and port. Its large 30 km2 port zone accounts for 27% of trade in the GCC region, according to QFZA. 2 Over the past years, Qatar has managed to rebound from a 2017 GDP decline and record a healthy fiscal surplus of 4.6% of GDP on average in 2018-2020, the IMF data showed.

Boosting business opportunities

A greater cooperation between the GCC countries, after the recent normalisation of relationships, is expected to benefit the whole Gulf region, enhancing its international investment profile. This will be a key element in the region’s post-pandemic recovery, where foreign direct investment may be in short supply globally.

HSBC Global Research expects the private sector to dominate in taking advantage of the economies of scale and ease of movement.

Trading corridors resuming

Qatar’s imports of products from the GCC largely comprise fungible goods like construction materials, basic industrial products and food.

However, some businesses may consider reviving previous arrangements where goods were sourced more quickly and cheaply from the UAE, considered the region’s trading and logistics hub, and Saudi Arabia, the Gulf’s manufacturing centre.

Diversifying its supply chains over the past years, Qatar’s trade with Oman more than tripled to U.S.$1.8 billion in 2019, making Oman a major trade partner within the region along with Turkey, UNCTAD data showed. 3

Qatar’s supplies of natural gas to the UAE through the Dolphin pipeline continued undisrupted, meeting about 20% of the UAE's gas demand, according to S&P Global Platts. 4

Construction boom

Qatar is set to benefit strongly from the improvement of relationships, as it is likely to fully participate in the GCC proposed mega-projects such as a regional gas pipeline, electricity grid and railway.

On the other hand, the country’s ambitious infrastructure plans around the FIFA World Cup 2022 and the Asian Games 2030 may provide construction and contracting opportunities for neighbouring countries.

Three stadiums have already been inaugurated and are fully operational, with the remaining five at various stages of construction, FIFA said in November. 5

Regional travel to take off

Visitor numbers to Qatar and to the Dubai Expo this year are likely to increase, followed by tourist spillovers from the 2022 World Cup, the first such event in the Arab world.

The World Cup will put Qatar in the global spotlight, giving it an opportunity to showcase its state-of-the art infrastructure and sport facilities as well as cultivate the image of a tourist destination, boosting its economy in the medium term.

Before the coronavirus pandemic, some 400,000 soccer fans were expected to travel to Qatar, which had planned to spend over U.S.$200 billion on various infrastructure projects and facilities in preparation for the tournament.

Across the Gulf, hospitality, real estate and retail, which have been impacted by the COVID-19 shock, will benefit from the revival of regional tourism when the pandemic eventually eases.

Visitors to Qatar from Saudi Arabia, Bahrain and the UAE have historically accounted for almost 40 percent of total arrivals, with tourism accounting for around 9 percent of the country’s GDP, according to Moody’s.

LNG expansion

After lifting the moratorium on new gas development at North Field, Qatar, which accounts for 22 percent of global LNG trade, aims to boost its liquefaction capacity to 126 MTPA (million tonnes per annum) by 2027 from the current 77 MTPA.

The project is targeting first LNG by 2024 and is in the tendering stage for onshore construction contracts, according to the International Gas Union (IGU). 6 The invitation to tender for LNG carriers was also issued to shipbuilders in 2019.

In February, Qatar Petroleum (QP) signed a contract covering major onshore engineering, procurement and construction with a joint venture between Chiyoda and Technip for the first phase of its North Field LNG project expansion, which will boost the country’s LNG production capacity by 43% to 110 MTPA.

The total cost of the project will be U.S.$28.7 billion, making it one of the industry’s largest investments in the past few years and largest LNG capacity ever built, according to QP’s CEO Saad al-Kaabi. 7

Highlighting opportunities for international companies, Samsung C&T secured in March an engineering, procurement, and construction (EPC) contract from QP worth more than U.S.$2 billion for the expansion of LNG storage and loading facilities located in Ras Laffan Industrial City. 8

Another major project to be considered is a long-debated natural gas pipeline and supply to Saudi Arabia to meet its growing energy requirements, and to other countries.

Banking sector liquidity to improve

Another beneficiary in the coming years should be Qatar’s banking sector, whose funding and liquidity profile is likely to improve if some of the lost inflow of funds from the past years start shifting back.

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 entity and corporate deposits, and cut their funding costs, according to Fitch Ratings. 9

Qatar's banking sector is the most dependent in the GCC on non-domestic funding, with foreign liabilities accounting for more than 45% of total funding by the end of Q3 2020, compared with a mere 6% in Saudi Arabia, according to Fitch. Strengthening co-operation among GCC countries is positive for regional risk perceptions and stability, which could stimulate much-needed foreign investor and business interest in the six-member economic bloc.

Qatar’s improved self-sufficiency, diversified supply chains as well as major projects and events put the natural gas powerhouse firmly in focus of both regional and international investors, which is likely to lift FDI inflows in the coming years.