Qatar is diversifying its partnerships and liberalising its FDI environment to offset the damage caused by the Saudi Arabia-led blockade, which has exacerbated several years of declining foreign investment.
Qatar’s business proposition has been redrawn in light of the blockade, in place since June 2017, when Saudi Arabia, the United Arab Emirates and Bahrain severed most relations with Qatar, closing their airspace, banning residency and limiting business more generally.
The Qatar Financial Center (QFC) is at the forefront of Qatar’s new strategy. Home to 532 companies, 4000 employees and $20bn of assets under management, QFC’s business in much of the Arabian Peninsula has been stalled by the blockade.
“We are operating as if the blockade is there for the long term,” says QFC chief executive Yousuf Al Jaida. “We’ve leveraged our relations with Turkey, Iraq, Kuwait, Oman, Jordan and Pakistan. Qatar can become a platform for multinational companies [MNCs] to access those countries.”
Iran was at the top of this list because relations between the two countries have improved due to the blockade, says Mr Al Jaida. “However, following the new sanctions, we doubt that MNCs will want to touch Iran,” he adds.
Emma Whiteacre, country analyst at political risk insurer Beazley, says Qatari exports have risen since the blockade thanks to the new trade links, particularly with other Middle Eastern and central Asian economies.
Foreign investment into Qatar fell to a seven-year low in 2017, according to data from the World Bank. However, Qatar is calling the blockade 'a blessing in disguise', especially when it comes to foreign investment, according to Mr Al Jaida. “FDI is the most prioritised agenda item for every politician in the country. Enhancements would not have happened without the blockade,” he says.
Since the crisis began, Qatar has allowed visa-free entry for citizens of 80 nationalities, approved 100% foreign ownership in certain local sectors, and raised foreign ownership on listed companies on the Qatar Exchange from 25% to 49%.
Moreover, business improvements have accelerated progress on the Qatar Free Zone Authority (QFZA) – due to open in early 2019 – and Hamad Port, thereby allowing Qatar to bypass Dubai’s Jebel Ali. The QFZA will cater to industries that have historically been closed in Qatar, thereby generating greenfield FDI in industrial, manufacturing, petrochemicals and tech projects.
Although the blockade has caused major disruption to Qatar’s business in the Gulf region, some MNCs have had no choice but to establish themselves in Qatar to cover their clientele, according to Mr Al Jaida. “Pre-blockade, many MNCs were based in Dubai and had exported business to Doha, but this couldn’t go on,” he adds.
This is one reason why the QFC experienced a significant uptick in incoming companies in 2017, growing 77% compared with 2016, it says. The QFC has also boosted incentives to join the centre. Operating under UK common law, it now offers free office space, tax incentives and seed capital for companies setting up their regional headquarters there.
Nevertheless, the blockade has had some adverse effects in Qatar. Most noticeable has been the negative impact on the country's real estate and tourism, with airline Qatar Airways suffering 'substantial' losses because of longer flight routes.
The country has also experienced higher import costs and been forced to repatriate billions from its overseas portfolio – and spend more on infrastructure – to support its financial system, which risks shortages of hard currency.
Greenfield foreign investment into Qatar fell to a 16-year low in 2017 with only 13 projects, valued at $327m, according to greenfield investment monitor fDi Markets. However, a linear decrease in FDI to Qatar since 2013 could also be another factor in this downturn.
Indeed, Mr Al Jaida says 2017’s FDI low is the result of several years of decline caused by fighting in Syria and Yemen, the drop in oil prices and the blockade. However, he is optimistic. “We expect FDI to start picking up in the fourth quarter of 2018 all the way up to the World Cup in 2022, thanks to the liberalisation of our economy and investment laws,” he says.
Qatar’s GDP achieved a growth rate of 2.1% in 2017, almost unchanged from the previous year, and this is forecast to rise to 2.6% this year, according to the IMF.