Qatar’s economy has shown massive growth in recent years and it is currently one of the fastest growing in the world. The country’s gross domestic product per capita, estimated to be about $29,000 a year, recently overtook Switzerland’s and national GDP is estimated to double in 2008.
This growth has generated excitement and although Qatar has been a late developer in the Gulf, the country’s potential is now widely recognised. Moreover, although Qatar is already booming there is a consensus among many familiar with the region that the country’s economy is still only in second gear and its real potential is still yet to be seen.
“Our GDP increased from $8.24 bn in 1995 to $17.8bn in 2000 and $34.7bn in 2005,” said Qatari finance minister Yousef Hussein Kamal in a speech at the US-Arab Chamber of Commerce in 2006.
“We have largely reduced government debt and built reserves that are invested in various projects that emphasise our vision to diversify our revenue sources and decrease our dependence on oil and gas resources,” he added.
Central to Qatar’s success is its oil and gas sector, which accounts for 60% of GDP. The country’s oil production, about 800,000 barrels a day, is relatively low in comparison to its neighbours and the big story in Qatar is the development of its gas sector.
The country is estimated to have the third largest gas reserves in the world, after Russia and Iran. For a long period these reserves were untapped due to a lack of investment and insufficient technology. However, the Qatari government took loans to invest in the gas sector and brought in the expertise of foreign companies to assist in the development of the fields and as a result the sector is booming.
Gas exports are currently about 31 million tonnes a year and are expected to rise to 77 million tonnes a year by 2011. As a result of this increase, GDP has risen sharply and is expected to rise from $55bn in 2007 to $100bn in 2008.
Fuelled by the revenues that are generated by the gas sector, government spending on the country’s infrastructure is set to remain high. Personal consumption is also likely to increase as the government grows – most Qataris are employed in the public sector. GDP growth is estimated to rise from 7.8% in 2007 to 9.3% in 2008.
Although oil and gas revenues are a huge asset there are concerns that Qatar’s economy could rely too heavily on this sector. These fears are valid given the recent speculation over the long-term health of the country’s huge North Gas Field. Some in Qatar’s gas industry are reportedly concerned that the field’s life span, which is currently estimated to be 100 years long, could be cut short by increased drilling and internal demand in Qatar.
Just in case, the government is stepping up efforts to diversify the economy. There is investment in various sectors and free zones are being established in a bid to attract foreign investors. The country’s $40bn sovereign fund, the Qatar Investment Authority, is also embarking on a high-profile campaign of investments to create a reserve for future generations.
One issue that could pose a threat to Qatar’s current economic success is inflation, which according to government figures increased to 14% in the third quarter of 2007. The main factor behind inflation is rising rental costs, which are estimated to have increased by 30% over the past two years.
Compounding the problem is the fact that rental allowances and salaries of expatriate workers have not risen sufficiently to match the rise in rents. The weak dollar has also meant the cost of goods imported into the country has risen, pushing up the price of foodstuffs and other commodities.
The million dollar question
Another dilemma for the Qatari government is the peg of the riyal, the national currency, to the dollar. The recent decrease in the value of the dollar and the subsequent lack of buying power has left some in the country arguing that the dollar peg should be dropped or the currency revalued.
But analysts say the Qatari government is unlikely to drop the peg as it offers reassurance to foreign investors that oil and gas exports are dollar-denominated. Moreover, much of the country’s investments will be in dollars so there is no incentive to decrease their value. As a result the government has repeatedly stated that it remains committed to the dollar peg.
“We are committed, we are committed,” reiterated finance minister Mr Kamal at a meeting of Gulf Cooperation Council (GCC) finance ministers in Qatar on December 3. “We didn’t raise the issue of de-pegging at all. It was not on our agenda.”
A possible, though still far-off, scenario is that GCC countries adopt a single currency – a move that some would say is long overdue and one that would facilitate regional trade and commerce. For the moment, though, Qatar is doing well enough economically without this deeper level of regional integration.
Pop. growth rate: 2.38%
Area: 11,437 sq km
Real GDP growth (2006): 7.1%
GDP per capita: $29,800
Current account: $10bn
Largest sector Industry (% of GDP): 75.8%
Labour force: 508,000
Unemployment rate: 3.2%
Source: CIA World Factbook
Changing Qatar’s labour laws for expatriates
Qatar’s reliance on an expatriate workforce is also a factor that will need careful consideration in years to come. Unrest among the large migrant workforce could threaten the country’s economic development and as India and China develop, workers from Asia may choose to stay at home rather than seek work in the Gulf.
There is also increasing pressure by human rights organisations for states in the Gulf to improve the conditions under which migrant labourers work. Currently Qatari citizens sponsor foreign workers, who must seek permission from their sponsors before they leave the country. However, there are signs the Qatari government could seek reforms to labour laws which would end this situation.
“It is difficult to retain the exit permit system in its existing form,” acknowledged prime minister and foreign minister Sheikh Hamad Bin Jassem Bin Jabor Al Thani in comments to Qatari media in June 2007.