In recent years Qatar has succeeded in making its ambitions known on the world stage. Events such as the Asian Games in 2006 drew attention to a country that, a few decades earlier, was virtually unheard of outside the region. More recently, the investment strategy of its sovereign fund, Qatar Investment Authority, meant the small Persian Gulf state has grabbed the headlines of business pages around the world.
While these stories have elevated Qatar’s public image, the country’s internal business climate has been more opaque. For many years Qatari businesses benefited from government protection and regulations governing foreign investment were underdeveloped. However, there are signs that could be about to change as the country begins to follow a strategy aimed at diversifying its economy away from its reliance on the petrochemicals industry.
Although Qatar does not offer the glamour or vibrancy of Dubai it does offer the advantages of being a stable and peaceful country that is at the heart of a dynamic region. The mainstay of the economy is the country’s huge gas and oil reserves, which have played a key role in the development of the country. Qatar’s gas reserves are estimated to be the third largest in the world and by 2010 the country could supply as much as 20% of the world’s liquid natural gas.
“Qatar is the fastest growing economy in the GCC [Gulf Cooperation Council] and is one of the desirable investment destinations in the world,” said Edmund R Saums, the director for Middle East affairs at the office of the US Trade Representative, in a speech made in Washington, DC, in December 2006.
Roads and airports
Qatar is working to guarantee its future status by investing heavily on its internal infrastructure. According to the government, Qatar will spend about $100bn on infrastructure projects by 2012 and $60bn on 27 different industrial projects by 2010. The country’s airline, Qatar Airways, recently spent $16bn on an order of 80 Airbuses. Doha is building a new airport that is scheduled for completion for 2010 and is eventually expected to have capacity for 50 million passengers and two million tonnes of cargo a year.
Many new hotels and resorts are under construction and the government hopes the country will become a destination for business and tourism, all of which would be served by the country’s new airport and expanded air fleet. The Asian Games was an example of the kind of event Qatar seeks to attract to feed the country’s tourism sector.
Qatar has also overcome a dispute with its neighbour Bahrain and is moving towards opening a causeway that will connect the two states. The project is expected to cost about $2bn and could be completed by 2012. The plan could even include a rail link between Doha and Manama at a cost of $7bn. The bridge could be valuable as Qatar’s current land border with Saudi Arabia has at times proved unreliable due to occasionally uneasy relations between the two countries.
All of these infrastructure projects mean the country is becoming a more attractive place for international business and Qatar’s leadership has said it will continue to try to attract more foreign investment.
“The government of Qatar has adopted major reform initiatives, which have successfully transformed Qatar into a modern state capable of playing a vital pioneering role in both the regional and international arenas,” said Yousef Hussain Kamal, the minister of finance and acting minister of economy and commerce, in a government publication that is aimed at promoting Qatar.
“The Ministry of Economy and Commerce is committed to continue its role in improving the investment climate in Qatar and making the country an ideal oasis for investors and investment activities,” he said.
So far there have been several concrete moves that are aimed at attracting foreign investment. Sheikh Hamad Bin Jassim Al Thani, Qatar’s prime minister, is overseeing a plan that is aimed at developing the economy and foreign investment is a part of this strategy.
“We have protected Qatari businesses so far, but over the next three to five years there will be international competition as in any international market,” he has stated.
The Qatari government has permitted the liberalisation of the telecommunications sector. From next year Q-Tel, the company which currently holds a monopoly over the cellular phone market, will be forced to share the market after the completion of a tender for a second GSM licence by a foreign company. US firm AT&T is one of the bidders for the licence and the firm has gone on record to say that it is attracted to the strong growth of Qatar’s economy.
As a result of a drive to improve education and healthcare in Qatar, foreigners are permitted to own 100% of their own companies in these sectors. This legislation has allowed the opening of local branches of US universities such as Texas A&M and Carnegie Mellon.
In terms of costs, Qatar has some attractive offers for foreign businesses wishing to develop a foothold in the region. The cost of electricity in the country is low and is approximately $0.0178 per kilowatt hour (KWH) and has a lower price of about $0.016 per KWH for industrial plants and $0.0274 per KWH for hotels (US residential electricity costs about $0.10 per KWH). The rental cost of industrial land in Qatar is also relatively cheap.
Qatar’s tax regime is very attractive. There is no income tax on expatriate salaries and no export duties. There are also no import duties for industrial machinery and spare parts and in some cases the Qatari government offers 10-year corporation tax holidays for businesses. There are also plans to cut corporation taxes from 35% to 12%.
As a result of the measures to attract investors to Qatar, foreign investment in the country has increased. According to figures that were recently released by the US government, foreign direct investment in Qatar from the US amounted to $5.08bn in 2005.
Qatar’s real estate, hospitality and leisure sectors are booming as a result of the influx of expatriates that have arrived in the country over recent years. Most real estate is off limits to foreigners in Qatar, although there are some developments in which expatriates will be permitted to buy property. The ownership of these developments is either permitted through freehold or in some cases long-term leases.
The foreign ownership of property was advanced by a 2004 law which will allow non-Qataris to apply for residency visas after they have purchased a property in the country. The visa would also apply to dependable children and would be valid until the resale of the property.
Examples of property developments that will be completed in the coming years include the Pearl, a 985-acre area of land being reclaimed from the sea which will be the first in the country to offer non-GCC nationals freehold. Other developments that are planned in Qatar include Al Waab City and Lusail.
The real estate sector in Qatar is currently considered to be a more attractive prospect than Dubai, which is considered by many in the property industry to be over saturated. However, although Qatar has made tentative steps towards allowing more foreign ownership of real estate in the country, some feel these measures should continue.
Chadi Abou Daher, regional manager of the World Trade Centre in Doha, says: “About 80% of the population are expatriates. They cannot own a house in 80% of the land areas in the country. This is just not right. It is important for the residents of Qatar to be able to own property. The law definitely needs a change.”
Qatar has more reform plans in the pipeline. The government says it is working at introducing plans that will improve the legal and regulatory framework to make foreign investment in the country more attractive.
Qatar has already improved the regulations of its finance industry as a result of the establishment of Qatar Financial Centre (QFC) in 2005. The centre aims to attract international financial institutions and support businesses and will issue licences to those wishing to operate in the country. QFC features a regulatory body and authority which are independent of each other and the centre also features its own judiciary.
According to the management of the QFC, the centre will issue licences to about 80 companies by the end of 2007 and the company hopes to continue to attract more high-profile companies.
“We are looking for high quality not quantity. QFC was set up to build the financial market in Qatar, to bring in new products and expertise into the Qatari market to support the country’s development. What we are doing is broadening the product range by attracting high-class firms to come in and bring expertise and capability on the ground,” said Stuart Pearce, the CEO and director-general of QFC, at a recent conference in Qatar.
The government has also hinted at plans to streamline the process for businesses wishing to launch in Qatar. Currently businesses wishing to obtain registration must seek approval from the Ministry of Municipal Affairs and Agriculture and the Ministry of Economy and Commerce, and the process can be time consuming and complex.
Qatar’s cabinet is also set to approve a move to increase the percentage of foreign companies listed on the Doha Stock Exchange from 25% to 49%.
No trade pact with US
But, unlike Bahrain and Oman, Qatar has refrained from signing a free trade agreement with the US. According to statements by Qatari government officials this is because Doha does not believe the agreement to be sufficiently reciprocal and complains that the US has not opened its markets to Qatari exports such as petrochemicals.
Other developments that will offer an attractive legislative framework to foreign businesses are free zones in which non-Qataris will be permitted to own 100% of their business. One example of an existing free zone is the Qatar Science and Technology Park. Although the zone has been open since 2004 it is expected to become fully operational after it moves into expanded premises. The park’s regulations allow foreign companies to commission buildings and then lease them back. Examples of companies that are currently based in the park include Microsoft, Shell, EADS and Total.
The government recently announced plans to open three more free zones specialising in communications, logistics and chemicals. These will be located next to Doha Port, Doha Industrial Zone and further down the coast at Mesaieed Industrial City. According to the Ministry of Economy and Commerce, several memorandums of understanding have been signed with interested investors, and the government is seeking international investors to help develop the infrastructure of the zones.