Qatar: From Oil To Business Tourism

In just a few years Qatar has risen to the forefront of the global economic scene. Though the unexpected influence of the TV network Al-Jazeera can occasionally put Doha in a tight spot, the growth of this small Gulf emirate owes nothing to chance. Its rise is based on a long-term strategy that combines liberalism and free trade, development of its exceptional gas reserves and investment in new technologies

By Akram Belkaïd

                 
                       Qatar’s Emir Sheikh Hamad bin Khalifa al-Thani

The Qatari authorities are aware that hydrocarbon reserves will not last forever, and they intend to profit from the financial security that oil and natural gas exports have brought them (80% of external revenue, 60% of total revenue) by diversifying the economy. At the end of 2008, they launched a long-term development plan called National Vision 2030. This strategic programme officially began in March 2011 with its first phase spread over five years. It is divided into four main areas: international centres for the knowledge economy; a transport hub (air, sea and land); a regional financial centre; and tourism focused on business travel, symposiums and conferences.

Qatar’s determination to diversify has also resulted in an ambitious industrialisation programme, especially in petrochemicals, the chemical industry, aluminium, steel, paper and fibre, agribusiness, and the liquefaction of natural gas (see Gas trump card). By 2016 Qatar will have spent an average of $15-18bn per year, around 40% of its annual expenditure, on financing investments in infrastructure and economic diversification. It has already spent almost $100bn under its 2005-10 five-year investment plan.

On a macroeconomic level, to support the development of non-hydrocarbon business, Qatar wants to attract foreign investors and also encourage the creation of local small and medium enterprises (SMEs). The Qatar Industrial Manufacturing Company (QIMC), which consists of six subsidiaries, has the mission of promoting SMEs, if necessary by providing a part of their start-up capital and helping them to export the “Made in Qatar” label. It helps them to identify outlets in Gulf Cooperation Council countries, the Maghreb and Arab countries north of the Arabian Peninsula. The authorities have launched a credit-insurance programme, Al-Dhameen, to improve SMEs’ access to finance. A new agency responsible for SMEs will be created in 2011 under the leadership of the Supreme Council for Economic Affairs and Investments.

Towards academic excellence

The government has also comprehensively revised its protectionist legislation on foreign investors. Since 1 January 2010, corporate income tax has been set at the flat rate of 10% (before there were several rates ranging up to 35%). Similarly, since 1 February 2011, foreign investors can hold 100% of the capital of a Qatar-registered company, except in certain sectors such as banking, insurance, real estate and consumer goods imports, where the majority of the capital must be held by local operators. Finally, Doha has increased its efforts to counter inflation, whose record levels in 2007 (+13.8%) and 2008 (+15%) — due to the simultaneous rise in the prices of hydrocarbons, food and real estate — made the country less attractive. Prices rose by only 1% in 2010 and inflation should level off at 3% in 2011, indicating that it is under control.

The 2022 FIFA World Cup was awarded to Qatar in December 2010, and the decision is already boosting economic activity. The emirate has committed to building nine new stadiums, and renovating and expanding the three existing ones, at a total cost of $4bn. The authorities have decided that this programme is to be headed by local companies in partnership with foreign operators, in the hope that it will revitalise local subcontracting in the civil engineering and construction sectors.

One of Qatar’s main aims for the next 20 years is in the field of the knowledge economy. Under the leadership of the Qatar Foundation, the emirate has finished building Education City, intended to be a regional centre of excellence in higher education. Several North American and European universities and business schools — including Hautes Etudes Commerciales in Paris — have already established branch campuses there. Beyond this flagship project, the Qatar Foundation is also contributing to the development of the Qatar Science & Technology Park (QSTP), whose objective is to attract the R&D functions of large companies in the oil industry (Total, Exxon Mobil) or technology and IT (European Aeronautic Defence and Space [EADS], Apple, Microsoft, etc).

Qatari firms have also begun to invest in R&D. Pragmatech, a recently created subsidiary of United Development Company (UDC), is making a name for itself on the international stage for its text processing, document summarising and referencing software. In June 2011 the Pan Arab Web Awards Academy in association with Microsoft and Business Software Alliance (BSA) awarded Pragmatech a prize for its high-quality web design.

Alongside the knowledge economy, tourism in all its forms is a priority, despite competition from neighbours such as Dubai and the United Arab Emirates. Qatar plans to double its efforts in the hotel business to catch up with its neighbours and prepare for the World Cup. The country currently has 11,000 luxury rooms in 72 hotels, including 17 five-star and 13 four-star establishments. The authorities’ goal is to reach a total of 90,000 rooms by 2022.

More tourism means more air travel. As well as the construction of a new $15bn airport in Doha, which will serve 24 million passengers in 2012 (and 50 million in 2015), the emirate’s business strategy is to make itself the obvious transit point for western tourists travelling to the Far East.

Pollution problem

The idea is that travellers flying with Qatar Airways will stop over for several days in Doha or one of the new towns currently under construction, on either their outward or their return journey. Qatar is in the midst of an air travel boom: the national airline announced in December 2010 that it had had its first profitable year and planned to go public in 2012. This step should finance the expansion of its fleet from 92 planes to 120 by 2013.

Qatar also wants to position itself as a regional centre for medical tourism. In 2012 the $8bn Sidra Medical and Research Centre will open its doors. It is the region’s first hospital entirely equipped with digital machines, and aims to attract patients from Southeast Asia as well as the Gulf area.

The growth of tourism is directly connected to the growth of the property sector. One of the largest projects under way in Qatar is the construction (managed by the UDC) of The Pearl, an artificial island, a few kilometres from Doha city centre. At a total cost of $10bn, the island will consist of marinas, shopping malls, restaurants, and residential zones. Once completed, it will house 35,000 people in 18,000 units. The Pearl is mostly intended for Qataris, but it will also be open to foreigners who, by purchasing real estate there, will have the right to a permanent residence permit.

The Pearl is an opportunity for Qatari engineering firms to develop their expertise and know-how. Qatar Cool, another UDC subsidiary, is perfecting a system of “district cooling” in Doha, meaning the centralised distribution of air conditioning to several parts of the new town. This air conditioning “factory” is about to become a global benchmark in the field. Several towns in the Gulf, all facing rising energy bills caused by the increased use of individual air conditioning units, have shown interest in Qatar Cool’s technological model.

Another new town project, Lusail City, is being developed by the Lusail Real Estate Development Company (LREDC). Situated north of Doha, this new town will be completed in 2019 and will have a total area of 35 sq km, at an estimated cost of $5bn. It aims to accommodate 200,000 residents, 170,000 workers and 80,000 visitors. It will have 22 hotels, 34 mosques, a business park, and several golf courses. A tram line 22km long with 34 stops will connect the town’s various areas; it will have two interchanges with a projected railway crossing the emirate. A system of taxi boats will link the new city to Doha airport and the business area of West Bay. Lusail City will have five stadiums, one of which, the Lusail Iconic Stadium, will host the 2022 World Cup final. And Qatari Diar, a government-owned company, has acquired numerous tourist and real estate properties in Europe, Oman, Sudan, Morocco, Ethiopia, Tunisia, Yemen and Libya.

Qatar, which emits the most greenhouse gases per inhabitant of any country, wants to promote public transport. For an overall cost of $35bn over 10 years, it plans to build four underground lines, two tram lines, an automatic underground line and a high-speed rail link between Doha and Manama, Bahrain’s capital. In addition, there will be several goods rail lines, especially to Saudi Arabia. One of the most important road infrastructure projects is the 40km-long causeway between Qatar and Bahrain, an emblematic project for the region with an estimated cost of $5bn. The country also plans to allocate $20bn to modernising its current road network by building several motorways. It also plans to expand maritime activities: the port of Doha will be expanded and modernised so as to become a platform for logistics and regional re-export (budget $7bn).

The development of a financial hub in Doha is another of Qatar’s strategic objectives. The Qatar Financial Centre, created in 2005, plans to revitalise the banking sector, which already has around 20 banks, 16 of them local. The world’s big financial institutions, attracted by the country’s economic boom and jockeying for position to finance projects, all have a presence here. But above all, the Qatari authorities hope Doha will become the world capital of Islamic finance, to rival centres such as Kuala Lumpur, Geneva, London and Manama. University disciplines have been created to train specialised executives in this field, and the government has decided to encourage the foundation of Islamic banks, particularly through taxat concessions.

National Vision 2030 also positions other sectors as strategic from the standpoint of economic diversification. Qatar, which imports 95% of the food it consumes, is aiming at 70% self-sufficiency by 2023. In 2008 the country’s authorities formed the Qatar National Food Security Programme, whose mission is to secure food supplies by buying farmland abroad, but also by launching agricultural businesses on Qatari soil, notably the production of cereals near the town of Al-Khor.

The country also plans to develop its expertise in hydraulics. Currently dependent on its desalination plants for 99% of its water, it aims to acquire strategic reserves of drinking water. It will therefore invest $2.8bn in building pre-stressed concrete reservoirs (12 metres high, with a diameter of 200 metres), interconnected by pipelines with a total length of 183km. This infrastructure will hold 32m cubic metres of drinking water, the equivalent of seven days’ consumption for Qatar’s projected population in 2040.

Diversifying the economy also means investing abroad, via the Qatar Investment Authority (QIA). This sovereign fund manages assets with an estimated worth of $60bn in almost 20 Middle Eastern, African, European and North American countries. QIA already has numerous partnerships with French companies: it holds 7.6% of Lagardère, 3% of EADS (since 2008); 0.98% of Suez Environnement; 5.78% of Vinci (in exchange for Cegelec and with the approval of the European Commission); and 22.7% of the capital of the Société Fermière du Casino Municipal de Cannes. QIA has also just taken control of 70% of the capital of French soccer club Paris Saint-Germain, and holds 9.1% of the capital of Hochtief, the German construction industry leader, which is a stakeholder in the Lusail City project.

This article was published in Le Monde Diplomatique in its September issue