Real estate in Qatar - A growth story: The economic background

In recent years, Qatar’s story has been one of breathtaking economic growth. Between 2003 and 2006 alone, nominal GDP growth averaged 24.6%, bringing GDP to $52.7 billion, meaning that in those four years the economy tripled in size. The result, according to a recent Standard & Poor’s report, is that GDP per capita reached $57,000 in 2007, compared with $27,000 as recently as 2002. That makes Qatar one of the world’s wealthiest nations, closing the gap on the leaders in the most recent ranking published by the IMF – which made Luxembourg the richest country, with a GDP per capita in 2005 of just over $80,000, followed by Norway ($64,193).

Other macroeconomic yardsticks paint a similarly impressive picture of Qatar’s recent economic development. The fiscal balance, which was in deficit throughout much of the 1990s, has recorded an average surplus of almost 8% of GDP since the start of this decade. The current account deficit has also swung from being in deficit in the 1990s to a surplus of more than 30% of GDP in 2006. That helped net foreign assets held by the Central Bank of Qatar (CBQ) to reach $5.4 billion by the end of 2006; external debt, meanwhile, fell from 58.3% of GDP in 2003 to 40.8% in 2006, according to World Bank calculations.

Qatar’s explosive growth in recent years has been underpinned by an unprecedented surge in inward investment. According to the World Investment Report for 2006 published by the United Nations Conference on Trade and Development, Qatar ranked third among Gulf Cooperation Council countries for inward foreign direct investment in 2006, attracting close to $1.5 billion of inflows.

Although abundant oil and gas, twinned with rising global commodity prices, have inevitably been the principal motors of growth over the past decade, it is a mistake to attribute the boom exclusively to Qatar’s natural resource wealth. "The country is enjoying the fruits of a development strategy set in the 1990s that combines economic openness with a clear economic diversification plan and institutional and democratic reforms," explains research published in May 2007 by the National Bank of Kuwait. "That strategy, together with favourable energy prices and high investment spending, is likely to see the pace of growth sustained at high levels over the next five years. The size of the economy could double again by 2012."

The Qatari success story has been recognized by international ratings agencies. In August 2005, Capital Intelligence foreshadowed the ratings actions of the larger agencies when it raised Qatar’s long-term foreign currency rating from A– to A+. The agency explained at the time that "the upgrade reflects CI’s expectation that investment in the gas sector and other export-oriented industries will continue to deliver budget and current account surpluses over the medium term, thereby further enhancing already strong debt-servicing ability."

Moody’s followed suit in October 2006, when it raised the ratings of all six members of the GCC. "The upgrade reflected the strengthening of the government’s balance sheet associated with the recent period of sustained, elevated oil and gas prices," Moody’s explains, "providing a significant cushion against economic shocks."

The macroeconomic strength of Qatar – and of a number of other GCC economies – raises the question of why these countries have been unable to secure optimum ratings on a par with a number of western European economies that have much weaker economic metrics. After all, as S&P observed in a report published in May 2007, Qatar’s "combination of high per capita income, an efficient public sector, market-oriented policies, and prudent fiscal policies are typical characteristics of countries in the ‘AAA’ and ‘AA’ categories".

One of the factors holding back Qatar’s rating, says S&P, is the geopolitical risk profile of the region. "Qatar’s vulnerability, in the event of any potential conflict, is due to its large hydrocarbon industry and the presence of US military bases in the country, both of which could make it a target for Iranian retaliation if Iran were attacked by the US or Israel," the agency explains. "A conflict would imply a possible interruption in production of some of Qatar’s main exports."

S&P adds, however, that this risk is slim and receding, in part because Qatar’s strategic location in the region acts as a strong mitigating factor to external threats to Qatar and other GCC countries. "Moreover," notes S&P, "domestic threats in GCC countries are diminishing as internal security is tightened, economic prosperity spreads throughout the population, and elements of democracy are introduced."

There are other elements constraining GCC sovereign ratings, however. Moody’s cites, for example, the relative underdevelopment of Qatar’s political, administrative and legal institutions as decisive factors, together with "a lack of transparency regarding the public finances, and the poor quality and timeliness of official data."

According to data published by Qatar National Bank, in December 2006 Qatar’s oil reserves stood at 26.2 billion barrels, a substantial leap from the total of just 3.7 billion in 1999. That total is set to continue to rise in the coming years. According to the latest report on Qatar published by Moody’s, state-owned petroleum company Qatar Petroleum plans to raise Qatar’s total oil production capacity from the present level of about 850,000 barrels per day to 1.2 million b/d by 2009. The country’s crude oil and condensate reserves, adds Moody’s, are set to last for almost 70 years at current rates of extraction.

It is the Qatari natural gas sector, however, that has been the most conspicuous motor of economic growth in recent years. The 6,000 square kilometre North Gas Field, originally discovered in 1971, is the largest non-associated gas field in the world, with proven reserves estimated at more than 910 trillion cubic feet, which is equivalent to 164 billion barrels of oil. "These reserves would translate into 20% of the world total and will be sufficient to support planned production of natural gas for over 200 years," notes a Qatar National Bank report published in October 2007. It adds that in the Middle East, Qatar has the second-highest proven gas reserves after Iran.