The pearl of the Gulf

Cash-rich Qatar is one of the world’s fastest growing economies – outstripping even China and India with recession-defying growth of 18.5 percent forecast for 2010. MENA Infrastructure reports on why the world is Qatar’s oyster.

Man-made islands: check. Ultra-modern skyline: check. A ruler with big ambitions: check. It's a familiar scenario in the Middle East. But whereas Dubai's development dream has been dented in the wake of the downturn and recent debt crisis, the tiny peninsula a couple of hundred clicks to its west - while moving at a far less frenetic pace of construction - has established itself as a less brash, but equally modern, alternative to the UAE's party capital. Welcome to Qatar, the Gulf's next big development hotspot.

Dubai became an entrepreneurial hot spot and global real estate playground precisely because it lacked the natural resources that are now making Qatar one of the region's most important destinations for construction and development. Once an economy based on pearl hunting and fishing, the tiny Gulf state is capitalising on its gargantuan gas reserves to create a knowledge economy and is ploughing billions into infrastructure projects, healthcare, education and real estate. Qatar's per capita income is now more than US$70,000 a head, elevating it to one of the wealthiest nations in the world, while the economy grew 11 percent last year - an impressive figure considering the financial maelstrom. The IMF is predicting the economy to grow 18.5 percent this year, while inflation is expected to be just one percent. Unlike the unfettered development of its near-neighbour Dubai, Qatar's transformation has been carefully measured.

Much of this growth will be fuelled by Qatar's vast energy reserves, primarily natural gas. The country's oil reserves are 15 billion barrels - a modest figure by Middle Eastern standards - but since becoming the Emir of Qatar in 1995, Sheikh Hamad bin Khalifa Al Thani has invested mammoth sums into exploiting the potential of its enormous natural gas fields. Today, the oil and gas industry accounts for around half of the state's GDP and almost three-quarters of government revenue.

But the Qatari government isn't just sitting idly on an enormous cash mountain. The hydrocarbon revenues are instead being pumped into diversifying revenue streams - with infrastructure being one of the main beneficiaries. The transportation and tourism industries have been the focus of much attention, while major developments such as Qatar Education City, Sidra Hospital, Hamad Medical Centre, Qatar Science and Technology Park and Qatar Financial Centre offer proof that the diversification strategy is well under way.

"The hydrocarbon related revenues are being put to prudent use, in my opinion," suggests Ahmad Anani, partner in charge of law firm Al Tamimi & Company's Qatari office. Anani says he believes the gulf state is doing an "excellent job" diversifying its economy: "The country has a highly publicised vision focused on improving human capital, providing regional outstanding healthcare services, developing the education sector, promoting research and development and making the country a regional financial hub and an international financial centre over the longer term."

In order to attract foreign investment, Qatar recently passed a law that allows foreign investors to have up to 100 percent ownership in businesses such as consultancy services, IT, services related to sports, culture and entertainment as well as distribution services. Faisal Hasan, head of research at Global Investment House in Kuwait, suggests the policies rolled out by the government will improve the country's economic competitiveness. "All round economic developments are underway in Qatar, from the core projects of the hydrocarbon sector to the infrastructure, real estate and financial sectors," he says. "Diversification of the economic base is highly important to reduce the country's reliance on hydrocarbon assets, and the government is expected to maintain high levels of capital spending on education, health and transport in order to support the expected population growth, which is projected to remain strong over the coming years. This, in turn, will support domestic demand."

Qatar has fairly liberal economic and financial policies, which aim to achieve sustainable development by diversifying income resources, increasing public sector contributions and encouraging foreign investment. The government is also building up its foreign exchange reserves, improving domestic liquidity and meeting external debt repayments.

Infrastructure will be a major benefactor of the hydrocarbon revenues, with the government budgeting US$20 billion alone for road projects over the next five years, as well as constructing a 22km bridge between Qatar and Bahrain that is projected to cost US$3 billion. The new US$1 billion airport, due for completion in 2011 with an annual capacity of 25 million passengers, will even include a US$1 billion subsea tunnel linking the airport with the financial centre. With other schemes in development, Qatar is joining the likes of Dubai and Abu Dhabi in terms of mega-projects.

Turn up the gas

Of course, most of these projects wouldn't be possible without the backbone of Qatar's economy - natural gas. This diminutive gulf nation boasts reserves of almost 26 trillion cubic metres, around 14 percent of the world total. It houses the world's third largest gas reserves after Russia and Iran and is the world's largest producer of liquefied natural gas (LNG) while its four new LNG plants will double production capacity. In 2008 alone, LNG capacity shot up by 40 percent.

This rise, coupled with rising oil prices on the back of a weakening US dollar, will boost revenues and generate "phenomenal growth", according to analysts. Qatar currently produces 54 million tonnes of LNG but this is set to mushroom to 77.1million tonnes per annum by 2011. "These figures suggest notable progress, as output capacity amounted to 30.9 million tonnes a year only two years ago," explains Hasan. "Qatar's biggest strength is continuous expansion in its LNG capacity and the country has significant expansion plans to increase the production over the next three years." Indeed, the country is shelling out US$100 billion on boosting capacity and upgrading infrastructure over the next few years. "Qatar has significant growth prospects left, with de-bottlenecking expected to add 12 million tonnes a year of LNG production capacity and a significant margin left to satisfy future domestic demand growth," confirms Samuel Ciszuk, IHS Global Insight Middle East Energy analyst.

One of the main earners for Qatar will eventually be the Pearl GTL (gas-to-liquids) project based in Ras Laffan. Once constructed, it will be the largest GTL plant in the world; operating under a production-sharing agreement between Qatar Petroleum and oil giant Shell, it is set to churn out 140,000 barrels a day of petroleum products. Phase 1 of the project is due to come online later this year, and Shell senior executive Gerrit-Jan Smitskamp told Reuters that a 50,000-strong workforce is already working on the project and that twice as much concrete has been poured compared to that used to construct the world's tallest building - Dubai's Burj Khalifa.

The downside of this growth in the energy sector - coupled with population growth - is the hefty environmental price. Qataris have the highest carbon footprint on the planet - a surprising statistic considering the bulk of its energy comes from burning natural gas, which has half the emissions of coal. Qatar's carbon emissions quadrupled since 1990 as a result of is soaring energy use, fuelled not just by population growth but by the demands of its natural gas reserves and the amount of energy required to liquefy the gas. As a result, electricity demand in the country is rising by around seven percent a year. The government is, however, addressing these issues and at last year's Carrob World 2009 summit, it unveiled aggressive strategies to reduce CO2 emissions through partnerships between industries and the government. It also launched a US$70 million 10-year project with Shell, Qatar Petroleum, Imperial College in London and the Qatar Science & Technology Park, aimed at reducing the country's carbon footprint.

Storm clouds

The strong growth forecast by the IMF and economists for Qatar bucks the trend of modest growth predicted for fellow GCC countries. Undoubtedly the hardest hit by the global recession has been Dubai, which threw billions of dollars at creating an opulent oasis in the desert. Eventually the real estate bubble burst, people lost their jobs and Dubai was forced to accept a handout from Abu Dhabi. Qatar is a different prospect, says Eckart Woertz, Executive Director of the Gulf Research Council. "It has a solid revenue stream from its energy exports, which Dubai does not have, and it has less over-ambitious white elephant projects, because it was a latecomer to the real estate game."

Since the financial crisis, the Qatari government has taken measures to stabilise the economy, including a financial institution bail out plan that involved purchasing the investment portfolios of all banks on the Qatar Exchange (DSM). Additionally, the government has made several budget cuts that improved the bottom line performance of the economy.

Anani says the government's policies have averted a nosedive in GDP. "The Qatari economy could have been as vulnerable as all the other economies of the region," he explains. "I believe the key to Qatar's success is the government's commitment to the development plan, commitment to reform, the private sector's commitment to growth and the commitment to expand the country's hydrocarbon infrastructure. This has helped Qatar focus on overcoming the obstacles in its way. Timely action by the government has improved liquidity and confidence-building measures helped the economy to remain on track. Also, implementing key policy initiatives at the right time has always been Qatar's main strength and helped it to remain the least affected. Qatar is adopting a proactive approach for further liberalisation of the economy."

Nevertheless, despite the country's strong economic foundation and the government's damage limitation strategies, Qatar has not been entirely immune from the economic woes that have befallen its GCC neighbours. Consumer prices across Qatar plunged by 4.9 percent overall in 2009 as the country suffered from deflation due to a slump in property prices. The slump exceeded expectations and ended a period of record inflation in Qatar, which peaked at 15.2 percent in 2008. Qatar's Central Bank, however, predicts inflation will peak at between two and five percent this year.

In the first nine months of 2009 house prices across Qatar fell by 20 percent and are expected to ease by a further 15 percent in the country in 2010 due to completed projects flooding the market with property supplies. Keith Edwards, Head of Asset Management at The First Investor Asset Management investment bank, told Arabianbusiness.com: "We expect 2010 to be the bottom of the market in terms of prices, but we don't necessarily see any upturn in 2011 as being aggressive because of the supply coming in."

But while property may be set for a slump, this will not endanger the country's burgeoning construction sector, which is set to grow exponentially this year with a massive 40 percent of the country's state budget already earmarked by infrastructure projects, as the country works to catch up with its more developed neighbours. With natural gas in demand worldwide and billions of dollars being poured into the creation of a capital city to rival the likes of New York or London, it seems Qatar's progress is unstoppable.

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How Qatar is transforming its skyline and diversifying the economy (Use a small pic with each of these).

MUSHEIREB Formerly named Heart of Doha, this 35-hectare district is the developer Dohaland's flagship project. It will be home to 27,000 people and will contain over 200 buildings and 1000 residential units. The development will be built close to the Souq Watif and Doha's West Bay business district. Part of the project will feature original buildings, which will form a Heritage Quarter. Construction is currently underway on the first phase of the project, which is due to be completed in 2012.

Cost: US$5.9 billion

Completion: 2016

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THE ENERGY CITY QATAR Energy City Qatar is currently in design as a residential development covering around 700,000 square metres of land including 5000 residential units, marinas, a mall and golf courses. As the Middle East's first energy business centre Energy City Qatar will cater to the commercial, technical and human resource needs of the oil and has industry operating in the Gulf region.

Cost: US$2.6 billion

Completion: 2013

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THE PEARL-QATAR A 985-acre reclaimed island off the coast of Qatar, the Pearl-Qatar is the country's first international urban development venture, its largest urban development and the first to offer international investors freehold. The four-phased mixed use development comprises of 10 distinct, themed districts, to be developed over five years, will include beachfront villas, elegant town homes, luxury apartments, five-star hotels, marinas, schools, restaurants and shops.

Cost: US$5 billion

Completion: 2011

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The 2022 dream

Qatar throws its hat into the World Cup ring.

In 12 years time the greatest prize in world football could be contested on Qatari soil if the Gulf state is awarded the rights to stage the 2022 Fifa World Cup Finals - the first time the tournament has visited the Arab world. Despite this being a tiny nation with an embryonic footballing heritage, the bidders are confident of welcoming fans from all four corners of the globe with state-of-the-art stadia and infrastructure. Bid CEO Hassan Abdulla Al Thawadi, told reporters last year that now was the time for the world's favourite game to come to the Middle East. "It's time and we are ready to make history", he remarked.

Qatar is up against South Korea and Indonesia in the battle to host the 2022 tournament while the likes of England, Russia, Australia, Spain and Portugal are bidding for both the 2018 and 2022 world cups. FIFA has given Qatar the green light to its bid, but perhaps the fly in the ointment to Qatar winning is the sweltering summer heat. Temperatures tend to top 40°C during the day and rarely dip below 30°C once the sun retreats in the evening, hardly conducive for end-to-end action on the pitch. However, Qatar's bid team are confident they can overcome this problem with indoor, air-conditioned, stadia. Scorching hot desert outside; pleasantly cool conditions inside for both players and fans. Indeed, the impressive indoor Aspire Sports Hall in Doha stands as a real-life blueprint for potential world cup venues.

If the extreme temperatures can be controlled then Qatar's chances look favourable. Unlike some other Arab nations, security is not a concern while the government has the financial muscle to pump an almost infinite supply of funds into staging the event. All eyes are now fixed firmly on December 2010 when the right to stage this prestigious and highly lucrative tournament is announced.

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Prime destination

With 41 new hotels set to open in Qatar this year alone, there are high hopes that the country's rapidly developing infrastructure will make it a global tourism destination on a par with Dubai. Qatar's government is believed to have set aside US$17 billion to develop tourism facilities and it aims to have a 400 percent rise in hotel capacity by 2012. QTA's Chairman Ahmed Al Nuami explains how the organisation plans to attract the tourists.

Can you describe the main appeal of Qatar as a tourism destination?

Ahmed Al Nuami. Qatar is not looking to attract mass-tourism, but rather a specific niche within the market. We have built our infrastructure to support a very specific demographic, namely business focused tourism and high-end leisure tourism. More than 90 percent of visitors are coming to Qatar for business purposes. As Qatar has a stable economy and we offer business-oriented tourism, we seen an increase of visitors inquiring about new business opportunities - especially during this challenging economic environment.

What differentiates it from other GCC tourism destinations such as Dubai for instance?
AAN. We do not compete with our neighbours. Tourism represents for the GCC a field of new and endless opportunities. Having said that, each GCC country offers something different to visitors. What makes Qatar unique is that we represent the bridge between traditional Arab heritage and global innovation. Qatar is a world-class destination that attracts premiere business, leisure, medical, sport and education tourism, while preserving and maintaining our authentic heritage and rich past.

How much potential do you see for country's tourism sector and how big a part will tourism play in the growth of the country's economy?

AAN. Qatar is a country rich in natural resources. The strength and stability of our economy is derived in large part from significant reserves in oil and gas. Though Qatar currently has the world's third largest natural gas reserves, economic diversity is a top priority of the government to ensure future stability for our country. Tourism is one of the important pillars in this economic diversification strategy. Qatar Tourism Authority launched a new strategy in November 2008, which aims to grow the tourism industry in Qatar by 20 percent in the next five years. The strategy includes targeting five percent of the estimated 50 million passengers who will come through the New Doha International Airport when it opens in 2012, to stay an additional 48 hours. In five years time, tourism will be a strong and active contributor to the country's GDP.

Has the global economic downturn significantly affected the growth of the country's hotel sector?

AAN. The ongoing investment in infrastructure, energy and sports has led to an increase in personnel coming to Qatar, as well as corporate and government officials coming from various countries. Additionally, Qatar's tourism industry has seen a boost as the result of the rapid expansion of Qatar Airways. Doha has become a preferred transit point for passengers from Europe and Asia. Qatar is expecting a very promising year in 2010 as we continue to invest in the infrastructure of the country and the tourism sector.

The global economic recession has not affected tourism-related activities in Qatar, and hotels are still doing good business. With the opening of new hotels, the occupancy has been spread. Hotels have reported an increase in revenue this year, and we expect the situation to improve further in the coming year

What are the biggest challenges you face when it comes to making Qatar's tourism sector a success?

AAN. It has been a little over a year since the QTA launched our new strategy. We are surrounded by countries who are ahead of us in the game of branding their country. Relative to our neighbours, we are still a young brand and it will take time for us to establish our brand and to reach our goals.