Less than half the size of Belgium, the emirate of Qatar is a flat peninsula whose population is under one million (estimates vary between 750,000-900,000), of which roughly only a quarter are citizens, the rest being foreign workers and their families.  But no GCC (Gulf Cooperation Council, a trade bloc created in 1981, involving the six Arab states of the Persian Gulf– Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates) has a faster-expanding economy than Qatar, whose real GDP growth is expected to achieve 14.3 percent in 2008, and 13.5 percent in 2009. 

Perhaps even more impressive is that Qatar is expected to overtake top-ranked Luxembourg in GDP (nominal) per capita next year for the world’s top spot.  This is almost entirely due to the fact that Qatar’s territorial waters include the world’s third-largest reserve of natural gas (after Russia and Iran), which is why Qatar is now home to tens of billions of dollars in gas investments by energy firms such as America’s Exxon Mobil and Chevron Texaco, Britain’s Royal Dutch/Shell and South Africa’s Sasol.  And energy exports as a whole have such potential that, with increased government investment in both oil and gas, as is expected, Qatar will soon be producing the equivalent of 5m barrels of oil a day.  To put that in perspective, that would be half of Saudi Arabia’s daily output, shared by a population that is less than 1/25th of the neighboring kingdom’s!  However, Qatar’s crude oil exports are mainly directed to Asia (97 percent in 2006), and its reliance on crude oil is expected to decline as oil production is expected to peak around 2010.  To that extent Economist writes that “the moratorium on new gas export projects will remain in place, as the government reassesses the size of its gas reserves and seeks to diversify the economy.”   

The real key to Qatar’s continued economic buoyancy is its liquefied natural gas (LNG) industry.  As it matures, increased oil capacity should lead to increased export volumes, which in turn should increase the output of associated condensates (natural gas condensates) as well as other gas-based industrial ventures, such as petrochemicals.  One example of the deals taking place in the industry occured in 2005 when Qatargas, a state-controlled energy firm, and Exxon announced an LNG project whereby gas, frozen in the world’s biggest facilities, would be shipped to Britain (whose liberal energy markets meant Qatar began shipping even before it had signed up specific end-users) in the world’s largest LNG tankers (note that the majority of LNG is shipped to China, India, Korea and Japan).  How exactly did Qatar leapfrog, so to speak, over bigger neighbours such as Saudi Arabia and Iran, which also have lots of gas?  Per an Economist piece at the time of the deal, Faisal al Suwaidi, chief executive of Qatargas, underscored his country’s “appetite for development”.  Moreover, the article concluded that “crucial to Qatar’s breathtaking success has been its welcome mat for foreign investors.  Unlike the Saudis, who have long made life difficult for outsiders hoping to invest in its gas, the Qataris have slashed red tape and offered foreigners the prospect of attractive returns.”  Finally, analysts point out that the creation of a GCC-wide gas grid originating in Qatar remains a distinct possibility.  Such a grid would benefit Saudi Arabia the most, and could help solve the region’s gas supply problems in an environment of ever-increasing demand from the power-generation and other industries. 

Analysts also see further economic growth being fueled by a continued increase in domestic demand, primarily caused by an expansion in the construction and financial services industries.  Long term viability of Qatar’s economy will depend on the growth and viability of its middle class, and just how well the emirate spends and invests its oil bonanza.  To that extent, some of the spending thus far has been folly.  Moreover, the infrastructure and real estate boom runs the risk of adding to already rampant inflationary pressures.  By 2010, Qatar will see construction projects totaling an estimated $82.5 billion, despite measures the government has taken to reduce building costs by waiving customs duty on the import of steel, cement and gravel from outside the GCC.  Nevertheless the trend of building continues.  As the Economist noted, “the biggest bucks [from oil producer’s profits] are flowing into property.  Artificial lagoons and landfills, spiked with villas, hotels and apartment towers, are growing all over the Gulf. The world’s would-be tallest building is already under construction in Dubai, whose latest fantasy development, City of Arabia, with no fewer than 35 skyscrapers, promises to house the world’s largest shopping mall.”  Qatar is embarking on “lots of similar projects,” the article mentions.  However, the return on such extravagence, particularly in the form of tourism and subsequent foreign investment, is certainly debatable.  And much of the emirate’s profits are likely to be reinvested in LNG.  Through 2012, writes Dr. John Sfakianakis, chief economist at SABB, Riyadh, Qatar will invest more than $90 billion in the gas sector, which will result in a tripling of LNG exports. 

For now, proponents of the economy point out that government expenditure will continue to grow strongly in 2008, as capital programs in education, health and transport give the economy a boost.  “This additional spending also triggers more private consumption, since 96 percent of Qatari workers are employed by the state,” notes  Sfakianakis, who also reminds us that “success [in Qatar] comes at a price.  Due to sustained expansion, as well as demand outpacing supply, serious constraints on capacity have created inflationary pressures.  The rise in inflation in 2007 was again due largely to escalating rents as a result of housing shortages, as well as high aggregate demand, and rising wages for both nationals and expatriates.  Although supply-side pressures could subside in 2008, inflation is still expected to reach 11.5 percent.”  However, over the next year or so Sfakianakis expects the supply of housing to achieve a degree of equilibrium as new infrastructures (housing units) continues to come on to the market.  Inflation, he thus argues, should fall into the high single digits in 2009. 

From a geopolitical standpoint, Qatar goes out of its way to be friendly.  With everyone.  Qatar is seeking to build a “bridge of trust” with Iran, for example, in order to forestall any potential backlash from the Islamic Republic should the US launch a strike against it.  However, Qatar is also home to a large base and regional command centre for the US Air Force (which managed the invasion of Iraq, and whose B-1 bombers conducted fly missions over Afghanistan).  The emirate has also extended its largesse to American causes, such as relief for victims of Hurricane Katrina, and a large grant to New Orleans’ Xavier University, which predominantly educates black Americans.  Moreover, Qatar has a long maintained very civil, albeit circumspect, relations with Israel.  In the Fall 2006, for example, Qatar aided the UN’s peacekeeping efforts in Lebanon by pledging up to 300 troops, breaking ranks with other Arab states and facilitating the ability of other Muslim nations, such as Indonesia and Turkey, to joining the UN force as well. 

 

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