Global Research Economic Qatar Qatar Economic & Strategic Outlook Prudent policies targeting sustainability of growth June 2009 Growth Challenges
KSCC Global Tower, P.O. Box 28807 Safat 13149 Kuwait Tel: (965) 22951000 Fax: (965) 22951299 Email: research@global.com.kw http://www.globalinv.net stock market indices can be accessed from the Bloomberg page GLOH and from Reuters Page GLOB Faisal Hasan, CFA Head of Research fhasan@global.com.kw Phone No:(965) 22951270 Chandresh S. Bhatt Assistant Vice President cbhatt@global.com.kw Phone No:(965) 22951282 Walid S. Mohamed Senior Financial Analyst wsamir@global.com.kw Phone No: (965) 22951277 Turki O.AlYaqout Assistant Financial Analyst tyaqout@global.com.kw Phone No:(965) 22951295
Table of Contents Summary 1 Annual Indicators 5 Economic News Flow 6 Macroeconomic Profile 8 Gross Domestic Product 10 Public Finance 14 Current Account 18 Monetary Policy 22 Inflation 26 Population 28 Sector Performance Oil and Gas 31 Banking 39 Industry & Services 45 Infrastructure 48 Real Estate 51 Doha Securities Market Performance 58 Corporate Earnings 61
Summary Qatar s economy continued to be one of the fastest growing economies of the region for the last few years. Preliminary estimates from Qatar Statistics Authority revealed a nominal GDP growth rate of 44% for 2008 to surge to a new landmark of QR372.4bn (US$102.3bn). Consequently, GDP per capita was lifted to a record level of US$70,630 in 2008 from US$57,936in 2007. Thus, Qatar continued to be one of the top ten wealthiest countries in the world with its GDP per capita exceeding the US$70,000 level. Analyzing GDP data for 2008 revealed the huge contribution of oil & gas sector to GDP to stand at a record level of QR229.7bn up from QR146.5bn in 2007. As a result, the sector contribution surpassed the 60% mark for the first time to account for 61.7% of the GDP in 2008 up from 56.6% in 2007. Non-oil sector, on the other side, surged to a new landmark of QR142.7bn. Thus, the sector contributed for 38.3% of 2008 GDP down from 43.4% in 2007. Looking forward, we anticipate that Qatari economy will continue its growth path however at lower pace. We estimate real GDP to grow at a range of 7% to 10% for the year 2009. Such growth rate is considered one of the fastest growth rates during 2009 amid a period of recessionary pressures covering the world economies in general and GCC economies in particular. Major reasons backing such growth will be the increasing dependence on LNG exports rather than Oil as Qatar is pushing ahead with its mega LNG projects to attain its output target of 77mn tons by 2012. Moreover, the ongoing diversification plans will continue to play a major role in waiving the risks of declining oil prices and liquidity crunch facing financial sectors around the world. On the budget front, Qatar approved the new 2009-10 budget during April 2009. The new budget is seen as another expansionary one despite the current financial crisis facing the world economies. Similar to other GCC neighboring countries (Saudi Arabia and UAE), Qatar approved a huge expansionary budget to overcome economic slowdown. The new budget will suffer the first deficit since 2001 estimated to reach QR5.8bn. The new budget is based on an oil price of US$40/b as compared with US$55/b estimated for previous budget. As a result, total revenues were slashed to QR88.7bn down from QR103.3bn estimated for 2008-09, a decline of 14.1%. Expenditures on the other hand are estimated to be high at QR94.5bn, slightly lower than its record budget of QR95.9bn for 2008-09. However, it is important to note that out of total expenditures 40% were allocated for strategic development projects mainly to keep the economy upbeat. On the foreign trade front, Qatar trade balance reached QR70.9bn as of 2007. The external trade continued to report increasing surplus. On a CAGR basis the surplus of Qatar increased 23.5% during the period 2003-2007, it increased from QR30.7bn in 2003 to QR70.9 in 2007. On a Y-o-Y basis, the surplus increased 13.3% by the end of 2007. Total exports grew by 23.4% while total imports increased by 33.8%. As for money supply, Qatar liquidity has been increasing greatly during the period 2002-2008. This has offered different sectors huge credit facilities for growth and expansion. June 2009 Economic & Strategic Outlook
Credit facilities totaled QR201.56bn as of Q2-2008, up 55.1% from the same period a year ago. This have helped the Qatari economy post healthy nominal growth rates of 44% and 10.4% on nominal and real terms respectively by the end of 2008. Money supply as measured by M2-the broad definition of money- reached QR149.96bn as of Q2-2008, increasing by 48.8% over the same period last year. This reflects the level of credit abundance in Qatar. M2 increase was on the back of the growth in both M1 and Quasi Money by 67% and 39.8% respectively. Within Quasi Money, time deposits reached QR72.79bn in Q2-2008, up 60.6% from Q2-2007. Such growth was more than enough to offset the marginal decline in foreign currencies deposits from QR21.95bn in 2Q-2007 to QR21.25bn during 2Q-2008. As a result, Quasi Money stood at a new record level of QR94.04bn in Q2-2008 up from QR67.26bn for the same period last year. On another front, inflation in Qatar continued to pick up over the period 2005-2007 increasing from 8.8% to 13.8%. Entering the year 2008, inflation picked to a new record level of 15%. This was on the back of oil prices sky rocketing to surpass the US$140/b level during July 2008. This meant more oil and gas revenues for Qatari exports which resulted in increased liquidity and therefore inflationary pressure. Increase in oil prices played a big role in increasing prices of other goods and commodities as well. Moreover, new projects were unveiled, infrastructure plans were announced, and oil and gas refineries were in the process of being developed. Therefore, the rise in oil prices has increased the liquidity in the economy. This was coupled with increased government spending on mega projects. Such trend has created a booming domestic demand, increasing money supply, increasing food prices and hiking housing rates. Looking forward, we expect price levels to ease significantly during the course of 2009. This is expected to be a global trend not only for Qatar. This is mainly as the world witnessed a tremendous decline not only in equities and stock markets, but also in commodities prices in the last few months. Factors that will help cool off inflation in Qatar is the sharp decrease in oil prices around the world, this will help ease prices of raw materials, but this could affect government expenditure. Secondly, Rental prices are also expected to cool down in the next year. Weighing heavily on the price indices for all GCC countries, rental increases will slow down in 2009. Prices had been skyrocketing in the past few years, which had been a major cause for higher consumer prices. Finally imported inflation is not seen as a major concern as prices of all material around the world have been declining. Finally, we expect that inflation to ease much more during 2009 to report a one digit level of around 9% on the back of low food, raw material, rental, and oil prices. Qatar population has been increasing at a CAGR of 19.5% during the period 2004-2008 due to the continuing influx of expatriates to the booming economy, ongoing development plans, infrastructure & construction projects and the strong economic activity in the region. For 2008, Qatar continued to witness an increasing population in line with past years economic progress. Qatar s population reached 1.45mn in 2008, or 18.1% increase from 2007. This has shown a very fast population growth compared with previous four years when the average growth rates during 2004-2007 was 14.4%. On the hydrocarbon sector front, Qatar has an abundant quantity of natural gas reserves; however, it is less fortunate with oil reserves. Qatar contains estimated proven oil reserves 2 Economic & Strategic Outlook June 2009
of 27.4 billion barrels acquiring a 3.6% share in terms of oil reserves among Middle East countries and 2.2% among GCC countries. Generally, state owned Qatar Petroleum (QP) controls all aspects of the country s oil sector, including exploration, production, refining, transport and storage. In 2008, oil and gas sectors contribution to GDP was estimated at QR229.73bn, acquiring a 61.7% of the total GDP. Along with other GCC members, Qatar is undergoing several upstream and downstream expansion projects in order to capitalize on economic growth and rising oil demand in Asia. QP plans to invest US$80-100bn in upstream and downstream sectors over the medium-term, with much of this derived from partnership with global energy giants. As for Natural Gas, State of Qatar has the third largest natural gas reserves in the world after Russia and Iran, and is the world largest LNG exporter. Most of the Natural Gas in Qatar is located in the North Field Ras Laffan which holds more than 900 Tcf of proven natural gas. By the end of 2008, Qatar s estimated reserves of natural gas stood at 891.9 Tcf or (25.25Tcm). This represents 14.3% of total world s reserves and posed Qatar as holding the third largest natural gas reserve in the world. In order to maintain the export of gas, the government of Qatar has undergone for massive expansion in the production of gas, along with the development and expansion of LNG handling capacity. As per the expansion plan the government of Qatar is planning to make massive increase in the production of gas in North Gas Field to 25 Bcf/d by 2010. In addition, two phases expansion is planned in the field of Barzan, which will produce 6.2Bcf/d in country s gas production by 2013. Looking forward, natural gas sector will play a major role in the Qatari development path and will be a crucial contributor to its economic growth. Qatar banking sector have reported a significant growth in balance sheet size during 2008. The aggregate balance sheet of all the listed banks grew by 73% in 2008 to QR345.7 from QR252.4bn in 2007. Al Khalij Commercial Bank recorded the highest growth in its balance sheet among its peers as it grew by 142.7% in 2008. The sector s largest bank, Qatar National Bank s assets grew by 32.9% in 2008. Among others, Masraf Al Rayan s assets grew by 58.9% followed by Qatar Islamic Bank 57.2%, Commercial Bank 35.0%, Doha Bank 29.6%, Qatar International Islamic Bank 29.1% and Ahli Bank 14.3%. Among efforts to support its banking sector, the month of March 2009 witnessed Qatar government announced plans to buy banks investment portfolios in a bid to revive lending and support the economy. The government offered to buy part or all of the DSM investment portfolios of local banks with a provision of any dividends received on such equity portfolios for the year 2008 to be provided to the banks and for subsequent years to be provided to QIA. Qatar industrial sector makes up 6.8% of the estimated GDP of Qatar in 2008. It grew on a Y-o-Y basis of 32.4%. Industrial sector is estimated to have reached QR25.39bn in 2008. Due to the credit crisis, Industrial sector fell 30.39% in Q4-2008 from Q3-2008. On another hand, services sector is compromised mainly in the telecommunication, education and health sectors. Collectively, the sector accounts for 4.38% of total GDP. Telecommunication sector contribution reached QR12.27bn, while social services stood at QR2.4bn. As per the data from the Planning Council, the real estate and construction sector contribution to the GDP was 10.4% in 2007 as compared to 10.0% recorded in the previous year. The June 2009 Economic & Strategic Outlook
sector s growth rate was about 30.3% in 2007 as compared to the growth rate of 41.6% recorded in the previous year. Generally, the booming economy is the key factor underpinning the real estate, construction and housing demand in Qatar. High growth in population, very high per capita GDP and abundant resources entailing rapid industrial expansion have all been vital to the growth of the real estate sector in Qatar. As for stock market, Global DSM Index posted annual losses of 24.57% closing at 515.96 by the end of December 2008. The four major sector indices in the DSM ended the year in negative. Global s insurance sector index declined the most retreating by 35.8% to close at 513.51 points. Industry index followed with 28.1% of losses to end the year at 435 points. Finally, Banking and Services indices declined the least retreating by 25.5% and 19% respectively. However, entering the year 2009, the market started to pick up slightly with Global General index reporting monthly gains of 11.1% to close at 386.97 points by the end of 1Q-2009. Finally, considering the economic fundamentals, Qatar is better-placed in the region. In fact Qatar is expected to post one of the highest economic growths in 2009 in the world, though there will be slowdown from 2008. Thus, looking forward, the recent upturn in the market may signal that investors confidence might be returning, especially after the government s backing which gave strong support to the market. Therefore there is a strong case of market gain in the medium-term. In addition, the surge in oil prices and improving macro-economic environment coupled with positive signs of credit growth will be helping the market to remain in positive territory. Moreover, positive sentiment in other GCC markets especially Saudi market will have some impact on Doha market. Thus, we anticipate the market to remain stable as positive signals are received from other GCC and international markets. Finally, we expect that as the economic environment and oil prices gets more stable; the market will continue to show positive momentum. Economic & Strategic Outlook June 2009
Annual Indicators Calendar Year 2003 2004 2005 2006 2007 2008 Gross Domestic Product (QR mn) 85,663 115,512 154,564 206,644 258,591 372,384* GDP Growth (%) 21.5 34.8 33.8 33.7 25.1 44.0 Oil & Gas Sector cont. to GDP (%) 59.0 54.5 59.6 57.3 56.6 61.7 Non-Oil Sector cont. to GDP (%) 41.0 45.5 40.4 42.7 43.4 38.3 Population (mn) 0.72 0.76 0.89 1.04 1.22 1.45 Per Capita GDP (US$) 32,788 41,703 47,794 54,496 57,936 70,630 Crude oil prices OPEC Basket (US$/b) 28.10 36.05 50.64 61.08 69.10 94.45 Brent (US$/b) 28.70 38.13 54.30 65.16 72.55 97.37 Crude oil production (mn b/d) 0.75 0.77 0.79 0.82 0.81 0.84 Financial Indicators Exchange Rate (end-period) (QR:US$) 3.64 3.64 3.64 3.64 3.64 3.64 QCB Rate -Deposits (%) 1.23 2.50 4.40 5.15 2.00 2.00^ QCB Rate -Loans (%) 1.33 2.60 4.50 5.50 5.50 5.50^ Repo Rate (%) 1.53 3.15 5.10 5.55 5.55 5.55^ Money Supply & Inflation M1 (end-period) (QR mn) 11,278.0 14,598.0 22,362.0 27,883.0 35,374.5 55,922.1^ M2 (end-period) (QR mn) 37,223.0 44,865.0 64,271.0 88,659.0 117,634.1 149,962.8^ Inflation (%) 2.3 6.8 8.8 11.8 13.8 15.0 Banking System Foreign Assets (net) (QR mn) 25,821 31,812 47,820 61,251 61,312 79,315^ Total Deposits (QR mn) 52,964 60,264 84,631 119,304 162,841 207,280^ Private Deposits (QR mn) 35,076 42,271 61,405 84,700 113,147 144,589^ Total Credit (QR mn) 43,346 48,294 67,366 94,773 146,329 182,038^ Private Credit (QR mn) 23,415 29,824 48,716 73,236 110,427 139,725^ Foreign trade Exports (QR mn) 48,353.5 67,345.7 92,365.4 122,456.3 151,053.0 - Imports (QR mn) 17,826.3 21,856.2 36,621.0 59,841.4 80,097.0 - Trade balance (QR mn) 30,527.1 45,489.4 55,744.4 62,615.0 70,956.0 - Capital Markets Market Capitalization (QR mn) 97,200.0 147,200.0 317,202.0 221,729.0 347,695.0 279,042.0 Number of Shares Traded (mn) 190.0 305.3 1,033.4 1,865.4 3,411.1 3,337.8 Value of Trading (QR bn) 11.7 23.1 102.8 74.9 108.9 153.7 Global General Qatari Index (base year 1999) (Points) 287.8 424.7 779.2 487.2 684.0 516.0 * Preliminary data, ^ As of Q2-2008 Source: Qatar Central Bank, DSM, OPEC, Global Research June 2009 Economic & Strategic Outlook
Economic News Flow The Washington-based Heritage Foundation think-tank has rated Qatar s economy as being 62.2% free in its assessment for the current year. This makes it the world s 66th freest economy, among the 162 countries that were taken into account by the organization. The country has been ranked 8th out of 17 states in the MENA region. (Source: The Peninsula) Standard & Poor s affirmed AA-/A-1+ sovereign credit ratings on the State of Qatar with a stable outlook. The ratings on Qatar are supported primarily by strong fiscal surpluses, substantial external liquidity, healthy economic prospects driven largely by the gas industry, and high per capita income. However, ratings remain constrained primarily by the geopolitical risks facing countries in the Gulf region. (Source: Zawya Dow Jones Newswires) Qatar unveiled a record budget for fiscal year 2008-09 which starts on 1 April, with total revenue projected to rise by 42.5% to QR103.3bn ($28.4bn) and total expenditure set to rise by 46.0% to QR95.9bn ($26.3bn) from the corresponding figuresfor2007-08.the budget surplus, however, will rise by 9.6% to QR7.4bn ($2.03bn) from the previous year. The budget is based on an oil price assumption of $55/b, which is 37.5% higher than last year s $40/b. (Source: MEES) Qatar has ranked 41st overall out of 118 countries in The Enabling Trade Index 2008 (ETI) released by the World Economic Forum (WEF). Published for the first time, the report presents a cross-country analysis of measures related to trade. For the GCC, Qatar was third behind the UAE (23) and Bahrain (37). (Source: The Peninsula) Qatar has been ranked 37th overall out of 181 countries for ease of doing business, according to Doing Business 2009, a report published by the International Finance Corporation (IFC) and the World Bank. Among other GCC states, Saudi Arabia was ranked 16th and Bahrain placed 18th. Qatar and Bahrain were ranked for the first time in the report, which has entered into its sixth year of publication. (Source: The Peninsula) The Board of ictqatar (Qatar s independent telecom regulator) has decided to award the second fixed telecommunications license to the Vodafone and Qatar Foundation Consortium. The license will permit Vodafone and the Qatar Foundation Consortium to compete with Qatar Telecom (Qtel) in both fixed and mobile telecom sectors. (Source: Press Release) The Monetary Authority of Singapore has signed a memorandum of understanding with the Qatar Financial Center Regulatory Authority, the independent regulator of all financial institutions in Qatar Financial Center for supervisory co-operation. The memorandum of understanding (MoU) provides a formal basis for supervisory co-operation between the Monetary Authority of Singapore (MAS) and the Qatar Financial Center Regulatory Authority in banking, insurance and capital markets. (Source: IFP Qatar) Qatar Petroleum and Norwegian Hydro Aluminum Company signed a final agreement for the establishment of an aluminum smelter in Mesaieed industrial area. The project cost is estimated at about US$3.5bn and the production of aluminum will be marketed in Asia, Europe and North America. (Source: IFP Qatar) Economic & Strategic Outlook June 2009
Qatar Petroleum, the state-run energy company in the world s largest producer of liquefied natural gas, aims to generate QR560bn (US$154bn) in total revenue through 2012 as new projects begin producing fuel. The QR560bn revenue forecast is cumulative for the period covered by a five-year company plan for 2008 through 2012. (Source: IFP Qatar) Qatar expects to shrug off the global financial crisis and post healthy economic growth of up to 9% this year, according to the country's central bank governor. Sheikh Abdullah Saud Al-Thani said the country's growth will be "between 7 percent to 9 percent" this year. (Source: The Peninsula) Qatar plans to allocate QR2bn (US$549.3mn) to support small and medium-sized projects, the Commerce and Business Minister stated. A government-owned company will be established to this end. (Source: Zawya Dow Jones Newswires) Vodafone Qatar launched its initial public offering (IPO) for Qatari retail and institutional investors on 12th April 2008. According to Qatar daily The Peninsula the starting price for the IPO is QR10 per share with an additional AED25 levied as service charges. (Source: Reuters) Qatar National Bank, the country's largest lender, made a first quarter 2009 net profit of QR1.0bn (US$275 million), 10 percent more than a year ago as the bank said it had effectively managed risk. Net income in the three months to March 31 compared with QR917.3mn in the first quarter of 2008. (Source: Forbes) Qatar's budget for fiscal year 2009-10 with its emphasis on public spending should help the country weather the adverse effects of the global financial crisis. A key challenge during the ongoing credit crunch relates to steady spending in order to attain desired economic growth rate. (Source: Gulf News) British Gas, the United Kingdom's largest gas supplier has welcomed the inauguration of Qatargas 2 as a significant moment in the history of energy supply for the United Kingdom. Qatargas 2 has the capability of supplying 20 percent of the UK's natural gas needs, which will provide a secure and reliable energy supply to the country. (Source: Zawya Dow Jones Newswire) Qatar has emerged as a country with the friendliest tax climate in the world. The annual global ranking, compiled by Forbes Asia after surveying 50 countries across the world, saw Qatar leaping to the prize winning position. With a "Misery Score" of the lowest 12 points, the Forbes put Qatar that only levies corporate income tax, as the most friendly tax climate in its 2009 Tax Misery & Reform Index. (Source: Zawya Dow Jones Newswire) Residential rental rates in Qatar are likely to dip by around 10 per cent in 2009 due to sliding oil prices and companies freezing new staff recruitment. Around 9,000 new apartments are likely to come into the Qatar market by 2010; however, the ongoing global economic turmoil has put a sudden halt to the property boom in the country. (Source: Zawya Dow Jones Newswire) June 2009 Economic & Strategic Outlook
Macroeconomic Profile Qatar s economy continued to be one of the fastest growing economies of the region for the last few years. Preliminary estimates from Qatar Statistics Authority revealed a nominal GDP growth rate of 44% for 2008 to surge to a new landmark of QR372.4bn (US$102.3bn). Consequently, GDP per capita was lifted to a record level of US$70,630 in 2008 from US$57,936in 2007. Thus, Qatar continued to be one of the top ten wealthiest countries in the world with its GDP per capita exceeding the US$70,000 level. Looking forward, Qatar s economic outlook remains positive despite the current financial turmoil and recessionary trend for the world economy. According to the Deputy Premier and Minister of Energy; Qatar s economy has enough ammunition required to tackle the extraordinary regional and global conditions emerging out of the economic slowdown. Moreover, the Central Bank Governor stated that Gas rich Qatar expects to shrug off the global financial crisis and post healthy economic growth in the range of 7%-9%. However, other estimates points to higher GDP growth rates to be registered for 2009. The IMF forecasts 2009 real GDP growth at 15% to 18%, while the Economist Intelligence Unit forecasts real GDP growth of 13.4%. According to such estimates, Qatar is on the way to report the highest economic growth in the world for 2009. Such sustainable growth of Qatar is expected to prevail based on pillars of diversification and prudent government policies whether, monetary or fiscal. This is in addition to policies aiming to support private sector participation in development in addition to supporting banking system. Thus, we foresee the Qatari economy to continue its growth journey whether for the hydrocarbon or non oil sectors of GDP. On the oil front, Qatar economy will benefit from the high levels of investment in hydrocarbon sector. Despite the current scenario of declining oil prices, Qatar dependence on LNG exports would be the main driver of growth for the hydrocarbons sector. This is mainly due to the planned increase in gas production of around 80% during 2009-2010. Qatar is pushing ahead with mega LNG projects to attain its production target of 77mn tons per year. Thus, Qatar inaugurated the world s largest LNG project, Qatargas 2 at Ras Laffan Industrial City. The US$13bn investment project is expected to provide prosperity to the economy for years to come. On the non-oil front, the ongoing government s diversification efforts will support the non-oil and gas sector to increase its contribution to the overall GDP over years. Consequently, major initiatives to diversify the economy will come to fruition in the coming years. Among these initiatives are Qatar Financial Centre, Education City, Qatar Science and Technology Park, Energy City Qatar, Tourism sector, Construction and Real Estate, Sports, Conferences etc. As for the monetary policy, Qatar s central bank expressed its support to the Qatari financial sector as it expressed its willingness to inject liquidity into the banking system if needed in response to the global credit crunch. Moreover, on the exchange rate front, the monetary policy is largely constrained by the Qatari riyal peg to the US$. Such peg will show a sort of support in a scenario of falling global commodity prices and a stronger US$. This is expected to have a good impact on price levels as inflation is expected to fall to one digit level by the end of 2009 after reporting record double digit levels, exceeding 16% during 2008. On the financial sector front, Qatar s banking sector appears to be well placed to ride out the global economic downturn supported by the sound economic performance of the country as Economic & Strategic Outlook June 2009
well as the state support for local banks and solid levels of liquidity. Moreover, in March 2009 the state announced it had completed the purchase of US$1.78bn worth of local bank investment portfolios listed on the Doha Stock Market. Finally, in an assurance that Qatar is pressing ahead full steam with growth plans despite a global recession, the country s prime minister said Qatar has set aside about $150 billion for various projects over the next four years and stands ready to inject funds into local companies hit by the global economic meltdown. Thus looking forward, Qatari banking and financial system is expected to continue its upward journey in line with the whole economy. On the fiscal front, Qatar s budget for 2009-2010 emphasized on public spending to help the country weather the adverse effects of the global financial crisis. This is mainly as the key challenge during the ongoing credit crunch is the availability of steady spending in order to attain desired economic growth rate. Thus, the announcement of the new expansionary budget revealed huge allocations for public projects despite the declining oil revenues, thus reflecting the country s keenness to realize the goals set as part of Qatar National Vision 2030. According to the vision, Qatar aims to be an advanced society capable of sustaining its development and providing a high standard of living for its population. Qatar has made huge allocations for strategic infrastructure development projects in its budgetary estimates for the new fiscal year 2009-10 to report the second highest expansionary budget of QR94.5bn. The budget is expecting a deficit of QR5.8bn due to the declining oil prices. Such expansionary budget is mainly to support the capital expenditure thus activating the economy and sustaining growth path. Finally, Qatar s outlook is very favorable, with continued strong growth expected to be driven by the hydrocarbon sector, as well as by diversification into higher value-added petrochemicals and other sectors such as real estate, financial and service sector related industries. June 2009 Economic & Strategic Outlook 9
Gross Domestic Product Qatar s economy is one of the fastest growing economies of the region for the last few years. The Qatari economy continued to report double digit growth rates over the period 2003-08. Nominal Gross Domestic Product (GDP) reported average growth rate of 32.2% over the period while real GDP reported 10.8% average growth. As for the year 2008, preliminary estimates from Qatar Statistics Authority revealed a steep growth of 44% for 2008. The country continued its stellar performance in 2008 on top of 25.1% of growth reported for 2007. Qatar s GDP measured at current prices surged to a new landmark of QR372.4bn (US$102.3bn) in 2008 as against QR258.6bn (US$71.04bn) recorded in the previous year. Such increase in GDP lifted GDP per capita to a record level of US$70,630 in 2008 from US$57,936 in 2007. Thus, Qatar continued to be one of the top ten wealthiest countries in the world with its GDP per capita exceeding the US$70,000 level. It is important to note that, the record growth rate was supported by both the oil boom during first half of the year 2008 as well as the ongoing diversification plans of Qatar away from oil sector. Such diversified economy helped Qatar to face looming recessionary threats due to the financial turmoil accompanied with downturn in oil prices during the second half of 2008. Table 01: Gross Domestic Product 2003 2004 2005 2006 2007 2008 CAGR 03-08 GDP at Current Prices (QR mn) 85,663 115,512 154,564 206,644 258,591 372,384* 34.2% GDP at Current Prices (US$ mn)** 23,534 31,734 42,463 56,770 71,041 102,303 34.2% Nominal GDP Growth (%) 21.5% 34.8% 33.8% 33.7% 25.1% 44.0% Real GDP Growth (%) 3.5% 20.8% 6.1% 12.2% 12.0% 10.4% GDP Per Capita (US$) 32,788 41,703 47,794 54,496 57,936 70,630 16.6% Production of Crude Oil (mn b/d) 0.75 0.77 0.79 0.82 0.81 0.84 2.3% OPEC Crude Oil Basket Price (US$/b) 28.10 36.05 50.64 61.08 69.10 94.45 27.4% * Preliminary data ** (1 US$ = 3.64 QR) Source: Qatar Central Bank, Planning Council, Qatar Statistic Authority, Global Research Historically, Qatar has recorded the highest growth rates among Arab countries over the last period mainly because of its LNG exports. This is mainly as Qatar controls the world s third largest recoverable gas resources after Russia and Iran. Thus, looking forward, driving the economy forward will continue to be the ever expanding natural gas sector and related industries, which continues to primarily lead the economic diversification efforts. However, in the coming years the non-oil and gas sector will contribute significantly to the overall GDP, as major initiatives (Qatar Financial Centre, Education City, Qatar Science and Technology Park, Energy City Qatar, Tourism, Construction and Real Estate, Sports, Conferences etc.) to diversify the economy come to fruition. Analyzing GDP data for 2008 revealed the huge contribution of oil & gas sector to GDP to stand at a record level of QR229.7bn up from QR146.5bn in 2007. As a result, the sector contribution surpassed the 60% mark for the first time to account for 61.7% of the GDP in 2008 up from 56.6% in 2007. However, it is important to note that oil & gas sector contribution 10 Economic & Strategic Outlook June 2009
to GDP has been declining for 2006 and 2007 in favor of non oil sectors due to the increasing role of diversification. Such trend was reversed in 2008 mainly due to the increasing exports of LNG as well as the huge increase in oil prices during the first half of 2008. On another side, non-oil sector surged to a new landmark of QR142.7bn. Thus, the sector contributed for 38.3% of 2008 GDP down from 43.4% in 2007. Figure 01: Oil versus Non Oil GDP Non Oil GDP 43.4% 2007 Oil & Gas GDP 56.6% Non Oil GDP 38.3% 2008 Source: Qatar Central Bank, Planning Council, Qatar Statistic Authority, Global Research Oil & Gas GDP 61.7% It is important to note that, both oil and non oil GDP sectors continued to report double digit growth rates over the period 2004-08. As a result both sectors reported high average growth rates of 36.0% and 32.8% respectively over the period. However, the growth rate of non oil & gas sector surpassed oil GDP growth rates for 2004, 2006 and 2007. This trend was reversed for 2008 as Oil GDP grew much more rapidly at 56.8% as compared with 27.2% of non oil GDP growth. Figure 02: Gross Domestic Product Growth Rates 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 49.8% 24.5% 46.3% 34.8% 33.8% 18.8% 41.1% 28.6% Source: Qatar Central Bank, Planning Council, Qatar Statistic Authority, Global Research The increase in oil and gas sector contribution to GDP was on account of the decline in all other sectors contributions to the GDP in 2008, with the exception of other services. Among the non-oil & gas sectors, finance, insurance, real estate & business services sector continued to be the major contributor to the non oil GDP in 2008 accounting for 26% followed by Other services at 21.6%. Manufacturing sector accounted for 17.8% of non oil GDP, while building & construction accounted for about 12.7%. Finally, trade, restaurants & hotels sector accounted for 9.3% of non oil GDP in 2008. 33.7% 27.1% 23.7% 25.1% 56.8% 2004 2005 2006 2007 2008 Oil & Gas Sector Total Non Oil & Gas GDP Total GDP 44.0% 27.2% June 2009 Economic & Strategic Outlook 11
Figure 03: Non Oil GDP by Sector Building & Const. 12.7% Trade & Hotels 9.3% Elec. & Water 3.8% Manufacturing 17.8% Agri. & Fishing 0.2% 2008 Transport & Comm 8.6% Finance, Insurance & RE 26.0% Oher Services 21.6% Source: Qatar Central Bank, Planning Council, Qatar Statistic Authority, Global Research On CAGR basis, oil & gas sector grew at a high rate of 35.4%, similarly, non-oil & gas sectors grew rapidly by 32.4% over the period 2003-08. Among the non-oil & gas sectors, the growth rate of Finance, insurance, real estate & business services sector was the highest at 41.8% during 2003-08. Electricity & water followed at 35.3% as the sector is witnessing increased activity mainly due to growing consumption of both utilities thanks to rising population and increased industrial as well as real estate activities in the country. Following ahead was transport & communications, Building and Construction and Manufacturing reporting 33.3%, 31.3% and 31.1% respectively. Other services sector which comprise of government services, imputed bank service charges, household services, social services, import tariffs, etc reported 28.5% of growth. Trade, restaurants & hotels services sector achieved CAGR of 25.1%. Activities in this sector will increase further as business events and conferences are gathering pace in Qatar. Finally, the only sector which registered a single digit CAGR was agriculture & fishing increasing by 5.9% during 2003-08. Table 02: GDP by Economic Activity QR mn 2003 2004 2005 2006 2007 2008* CAGR 03-08 Oil & Gas Sector 50,551 62,922 92,071 118,443 146,475 229,729 35.4% Agriculture & Fishing 201 210 216 233 250 268 5.9% Manufacturing 6,553 11,995 13,042 15,875 19,179 25,390 31.1% Electricity & Water 1,205 1,482 2,209 3,513 4,329 5,456 35.3% Building & Construction 4,654 6,425 8,744 11,991 14,634 18,166 31.3% Trade, Restaurants and Hotels 4,345 6,148 6,869 9,452 12,002 13,311 25.1% Transport & Communications 2,911 4,020 5,114 7,159 9,803 12,274 33.3% Finance, Insurance, Real Estate & Business Services 6,446 9,925 14,785 21,392 31,865 37,019 41.8% Other Services 8,797 12,385 11,514 18,586 20,054 30,771 28.5% Total Non Oil & Gas GDP 35,112 52,590 62,493 88,201 112,116 142,655 32.4% Total GDP 85,663 115,512 154,564 206,644 258,591 372,384 34.2% *Preliminary data Source: Qatar Central Bank, Planning Council, Qatar Statistic Authority, Global Research Analyzing GDP by type of expenditure revealed that Gross Fixed Investment (GFI) and Net exports contributed the most to the Qatari economy over years. Both expenditures accounted for more than 60% of GDP on average over the period 2004-08. On one hand, GFI is mainly seen as the most important type of expenditures as it is related to MEGA and Development 12 Economic & Strategic Outlook June 2009
projects that act as a stimulus for the whole economy. This is mainly as increasing capital expenditures are linked to increasing demand, creating new jobs and accelerating economic growth. That is why the stellar economic growth over past years was directly related to the major contribution of GFI to GDP accounting for 32.1% of GDP on average for the period 2004-08. On another hand, net exports accounted for 34.1% of GDP on average over the same period. It is important to note that Qatari economy is seen as a net exporter mainly due to Oil and LNG exports. Table 03: GDP by Type of Expenditure (% of GDP) % of GDP 2004 2005 2006 2007 2008 Private Consumption 17.5 15.0 23.0 19.2 18.8 Government Consumption 13.1 11.5 14.5 13.1 12.1 Gross Fixed Investment 30.1 33.6 29.7 34.1 33.2 Stock building 3.2 1.9 2.0 2.1 1.9 Net exports 36.1 38.0 30.8 31.5 34.0 Exports of goods & services 64.2 67.6 69.0 72.9 72.0 Imports of goods & services (28.1) (29.6) (38.2) (41.4) (38.0) Total 100.0 100.0 100.0 100.0 100.0 Source: EIU & Central Statistical Office Looking forward, we anticipate that Qatari economy will continue its growth path however at lower pace. We estimate real GDP to grow at a range of 7% to 10% for the year 2009. Such growth rate is considered one of the fastest growth rates during 2009 amid a period of recessionary pressures covering the world economies in general and GCC economies in particular. Major reasons backing such growth will be the increasing dependence on LNG exports rather than Oil as Qatar is pushing ahead with its mega LNG projects to attain its output target of 77mn tons by 2012. Moreover, the ongoing diversification plans will continue to play a major role in waiving the risks of declining oil prices and liquidity crunch facing financial sectors around the world. June 2009 Economic & Strategic Outlook 13
Public Finance Historical trends in Qatari Budget. Increasing actual surplus over years Historically, actual budget figures continued to report increasing surpluses over the period 2003-04 up to 2007-08. On CAGR basis, budget surplus grew rapidly at 83.2%, increasing form QR3.4bn in 2003-04 to stand at a record level of QR38.06bn in 2007-08. As a result, actual surplus as a percentage of GDP increased significantly from merely 3.9% to all times high of 14.7% during the period. Such rapid increase in surplus was supported by actual revenues increasing at a higher CAGR of 39.4% as compared with a CAGR of 29.9% for actual expenditures. Figure 04: Actual Budget surplus to GDP QR bn 40 35 30 25 20 15 10 5 0 16.4% 14.7% 9.2% 9.0% 3.9% 18.6 38.1 19.0 14.2 3.4 2003-04 (Actual) 2004-05 (Actual) 2005-06 (Actual) 2006-07 (Actual) 2007-08* (Actual) Surplus/ (Deficit) Surplus/ (Deficit)/ GDP 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% *Preliminary Source: Qatar Central Bank Table 04: Historical budget performance 2003-04 2004-05 2005-06 2005-06 2006-07 2006-07 2007-08 2007-08* CAGR (in QR mn) (Actual) (Actual) (Budget) (Actual) (Budget) (Actual) (Budget) (Actual) (2003-07) Total Revenue 30,563 55,064 38,028 64,984 56,900 84,998 72,457 115,460 39.4% Oil & Gas 19,593 36,319 N A 43,616 N A 54,919 N A 70,120 37.5% Non Oil & Gas 10,970 18,745 N A 21,368 N A 30,079 N A 45,340 42.6% Total Expenditure 27,187 36,102 37,810 50,833 54,600 66,356 65,712 77,405 29.9% Current expenditure 21,921 28,270 26,081 32,761 34,600 49,444 42,833 48,357 21.9% Capital expenditure 5,266 7,832 11,729 18,072 20,000 16,912 22,880 29,048 53.3% Surplus/ (Deficit) 3,376 18,962 218 14,151 2,300 18,642 6,745 38,055 83.2% *Preliminary, N A Not Available Source: Qatar Central Bank Moreover, it is important to note that comparing actual budget outcomes with budgeted figures for Qatar continued to report both actual revenues and expenditures surpassing budgeted figures significantly by more than 50% and 20% respectively on an average. Needless to mention; the major reason is the conservative government assumptions regarding oil prices and production levels when planning the budget. Similarly LNG production and exports increased significantly over the last few years and is still expected to increase more up to 2012 consequently increasing revenues. 14 Economic & Strategic Outlook June 2009
On the other side, both current and capital expenditures continued to surpass the budgeted figures due to the ongoing development projects aiming for diversification. This implies the increasing level of investment in the country to sustain growth. Generally, the increase in capital expenditure has positive impact on the overall economy with maximum impact on sectors like construction, real estate and infrastructure. This will have a trickle-down effect on other areas of economy as well by contributing to achievement of targeted rates of growth and creation of new jobs. Increasing contribution of non oil revenues Similar to other Oil economies, Oil and Gas sector plays a major role in Qatari budget. Generally, oil and LNG are the main sources of revenues, although the government s efforts to diversify Qatar s industrial base has resulted in the growth of other sources of revenue. Historically, the primary source of revenue for the national budget is from the oil and gas activities of Qatar Petroleum (QP). The Ministry of Finance receives royalties and tax revenues on export sales of crude oil, refined products and gas products. As a result, oil and gas revenues continued to account for more than 60% of actual revenues over the period 2003-04 up to 2007-08. However, it is important to note that oil revenues contribution is declining for the last couple of years in favor of increasing non oil revenues. Non-oil revenues maintained their share in total revenues at an average of 35.5% over the period. However, this share increased to account for 39.3% of total revenues by the end of 2007-08. The increase was mainly due to the ongoing diversification plans to maintain sustainable economic growth in the future. Generally, non oil revenues include custom duties and public utility fees. Figure 05: Actual Budget revenues by sector 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% *Preliminary Source: Qatar Central Bank 64.1% 66.0% 67.1% 35.9% 34.0% 32.9% 2003-04 (Actual) 2004-05 (Actual) Oil & Gas 2005-06 (Actual) 64.6% 35.4% 2006-07 (Actual) Non Oil & Gas 60.7% 39.3% 2007-08* (Actual) Increasing capital expenditures contribution. Analyzing actual expenditures by category over years revealed all categories reporting high growth rates. However, more importantly was the fact that capital expenditures continued to grow at higher rates as compared to current expenditures over the period 2004-05 to 2007-08. Capital expenditures reported an average growth rate of 61.2% over the period as compared to 23.4% average growth for current expenditures. Such trend helped capital expenditures to increase its share in total expenditures over years from 19.4% in 2003-04 to account for 37.5% of total expenditures at the end of 2007-08. June 2009 Economic & Strategic Outlook 15
Figure 06: Actual expenditure by type 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% *Preliminary Source: Qatar Central Bank 80.6% 78.3% 19.4% 21.7% 2003-04 (Actual) 64.4% 35.6% 2004-05 2005-06 (Actual) (Actual) Current expenditure 74.5% 25.5% 2006-07 (Actual) Capital expenditure 62.5% 37.5% 2007-08* (Actual) 2007-08 Actual As per the preliminary data released by the Qatar Central Bank, the country reported a huge surplus of QR38.06bn by the end of 2007-08. Such level is higher than previously recorded level of QR18.96bn reported for 2004-05. Moreover, this is the fifth surplus in a row since 2003-04. On annual basis, this surplus is 104.1% higher than QR18.64bn reported for 2006-07. The record surplus was a direct result of huge increase in revenues by 35.8% as compared to 16.7% increase in total expenditures. Total revenues surpassed the QR100bn mark for the first time to stand at QR115.46bn at the end of 2007-08 as compared with QR85.0bn in 2006-07. Oil revenues continued to account for more than 60% of total revenues standing at QR70.12bn. This represented 27.7% annual growth rate over QR54.92bn reported last year. Non-oil revenues grew more rapidly at 50.7% to a new record level of QR45.34bn. On another front, total expenditures grew in line with revenue growth at a rate of 16.7% to reach new peak of QR77.41bn. Capital expenditure rather than current expenditures accounted for the growth. It increased significantly reporting 71.8% of annual growth to stand at QR29.05bn. Current expenditures on the other side reported its first decline in four years, retreating by 2.2% to stand at QR48.36bn. As a result, capital expenditures contribution in total expenditures improved to account for 37.5%. The decline in current expenditures was traced back to the decline in interest payments and other current expenditures by 20% and 19.2% respectively. However, salaries & wages expenditures increased by 28.2% to reach QR13.6bn to account for 59.1% of total current expenditures. Table 05: Summary of Government Finance 2006-07 2007-08 2007-08* 2008-09 2009-10 (in QR mn) (Actual) (Budget) (Actual) (Budget) (Budget) Total Revenue 84,998 72,457 115,460 103,300 88,700 Oil & Gas 54,919 N A 70,120 N A N A Non Oil & Gas 30,079 N A 45,340 N A N A Total Expenditure 66,356 65,712 77,405 95,900 94,500 Current expenditure 49,444 42,833 48,357 55,900 56,600 Salaries & Wages 12,971 N A 13,613 N A N A Interest Payments 1,938 N A 1,550 N A N A Supplies & Services 1,076 N A 6,166 N A N A Others 33,459 N A 27,028 N A N A Capital expenditure 16,912 22,880 29,048 40,000 37,900 Surplus/ (Deficit) 18,642 6,745 38,055 7,400 (5,800) *Preliminary Data, N A Not Available Source: Qatar Central Bank 16 Economic & Strategic Outlook June 2009
2008-09 Budget Qatar announced a record budget for the year 2008-09 that is the largest in the country s history in terms of projected spending, income and surplus. Total revenue was projected to rise by 42.6% to a new record level of QR103.3bn. Similarly, total expenditure was set to rise to a new peak of QR95.9bn, or 45.9% of growth over the corresponding figures for 2007-08. As a result, budget surplus, was projected to peak to QR7.4bn to grow by 9.7%. However, we anticipate that actual surplus would be higher than budgeted figures. This is mainly as actual oil prices reached record levels surpassing the US$140/b during mid 2008 while the budget is based on an oil price assumption of US$55/b. Moreover, the year 2008 is estimated to have reported huge increase in LNG exports thus will push revenues much higher. On the other side, expenditures are still expected to surpass budgeted figures, however, not to the extent that will offset the increase in revenues. Therefore, the actual surplus for 2008-09 is expected to be much higher than the projected budget surplus, like previous years. 2009-10 Budget Qatar approved the new 2009-10 budget during April 2009. The new budget is seen as another expansionary one despite the current financial crisis facing the world economies. Similar to other GCC neighboring countries (Saudi Arabia and UAE), Qatar approved a huge expansionary budget to overcome economic slowdown. The new budget will suffer the first deficit since 2001 estimated to reach QR5.8bn. This deficit is to be compared to last year budgeted surplus of QR7.4bn. The new budget aims at supporting the economy against the pressure of the global financial crisis and low oil prices. According to officials from Ministry of Finance the new budget indicates the keenness of the country s leadership to be responsive to the demands of sustainable development and to achieve the targets set in the 2030 National Vision to support economic and social development. Consequently, the private sector hailed the new budget as higher allocations for public projects would help it to overcome the challenges posted by the global economic slowdown. As well it reflects the government s intention of keeping the private sector engaged in national development. The new budget is based on an oil price of US$40/b as compared with US$55/b estimated for previous budget. As a result, total revenues were slashed to QR88.7bn down from QR103.3bn estimated for 2008-09, a decline of 14.1%. Expenditures on the other hand are estimated to be high at QR94.5bn, slightly lower than its record budget of QR95.9bn for 2008-09. However, it is important to note that out of total expenditures 40% were allocated for strategic development projects mainly to keep the economy upbeat. According to Qatar News Agency, QR37.9bn were allocated for strategic infrastructure projects in some key areas like health, education and human resource development. Finally, it is important to note that the estimated QR5.8bn deficit almost 2% of GDP- is mainly due to estimating oil price at US$40/b thus the deficit can be offset if the crude rates improve. Moreover, the deficit is expected to be offset by a surge in the country s LNG output that is expected to keep the upward trend thus improving revenues. June 2009 Economic & Strategic Outlook 17
Current Account Qatar enjoyed a huge increase in oil and gas revenues that helped fuel strong trade surpluses for several years. Especially in 2008 when oil and gas trading activity was at an all time high, oil prices reaching US$147, this has helped Qatar accumulate huge surpluses. High oil prices throughout 2007 resulted in the exports value of the country increase by 23.4% in 2007 to reach QR152.9bn, which was about 59.1% of the country s GDP for the year. However, imports continued to increase at a faster pace than exports for the third year to report 33.8% of growth, standing at QR72.2bn. The year 2007 witnessed the current account registering yet another year of strong surplus. The surplus increased at a rate of 10.4% during 2007 reaching a new high of QR38.0bn. Such increase was on the back of a 15.4% increase in the trade balance, which reached QR80.8bn. It continued to be the soul positive contributor to current accounts surplus as all other categories continued to report deficits over years. Table 06: Balance of Payments (in QR mn) 2002 2003 2004 2005 2006 2007* Current Account 13,919 20,943 27,488 27,234 34,430 38,022 Balance of Trade 25,210 32,846 48,321 60,781 70,034 80,793 Exports (FOB) 39,960 48,711 68,012 93,773 123,945 152,951 Imports (FOB) -14,750-15,865-19,691-32,992-53,911-72,158 Services (Net) -3,966-4,380-4,468-3,362-10,059-13,562 Income -3,266-1,516-8,160-20,805-11,941-15,430 Transfers -5,522-6,007-8,205-9,380-13,604-13,779 Capital & Financial Accounts -6,233-2,754-4,861-4,321-20,339 1,980 Net Errors & Omissions -1,175-2,790-8,333-6,594 5,709 6,090 Overall Balance 6,511 15,399 14,294 16,319 19,800 46,092 Trade Balance as a % of GDP 37.8% 38.3% 41.8% 39.3% 33.9% 31.2% Current Account Balance as a % of GDP 19.7% 24.4% 23.8% 17.6% 16.7% 14.7% *Preliminary Estimates. Source: Qatar Central Bank Transfers account deficit increased slightly in 2007 to QR13.8bn, up 1.3% from 2006. Income account continued to contribute negatively to the current account over the period 2002-2007 reporting an increasing deficit at a CAGR of 36.4%. On annual basis, income account deficit increased by 29.2% to stand at QR15.4bn by the end of 2007. Table 07: Capital and Financial Account 2003 2004 2005 2006 2007 Capital Account (1,160) (2,004) (2,742) (3,608) (4,118) Financial Account (1,594) (2,857) (1,579) (16,731) 6,098 Capital and Financial Account (2,754) (4,861) (4,321) (20,339) 1,980 Source: Qatar Central Bank In addition to the strong current account, both the capital and financial accounts posted a surplus for the first time since 2002. The overall capital and financial account reversed its direction to report a record surplus of QR1.98bn as compared with last year deficit of QR20.3bn. 18 Economic & Strategic Outlook June 2009
It is important to note that, the reported capital and financial accounts surplus by the end of 2007 was mainly due to the positive contribution of financial account rather than capital account. Such financial account surplus was more than enough to offset the deficit in capital account. Historically, both accounts continued to report ongoing deficits over the period 2003-06. Entering 2007, financial account reversed this trend for the first time to report a huge surplus of QR6.1bn. This is to be compared with a record level deficit of QR16.7bn in 2006 up from merely QR1.58bn of deficit in 2005. As for capital account, it continued to contribute negatively since 2003 reaching a deficit of QR4.1bn by the end of 2007, 14.1% higher than previous year s deficit. External Trade Huge oil and gas demand and limited supply have helped earn Qatar huge revenues on exports. Trade balance reached QR70.9bn as of 2007. The external trade continued to report increasing surplus. On a CAGR basis the surplus of Qatar increased 23.5% during the period 2003-2007, it increased from QR30.7bn in 2003 to QR70.9 in 2007. On a Y-o-Y basis, the surplus increased 13.3% by the end of 2007. Total exports grew by 23.4% while total imports increased by 33.8%. Qatar benefited from the recent bull market that added more revenues from the oil and gas exports, which make up a 90.8% share of Qatar s total exports. Figure 07: Trade Balance Summary QRmn 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 2003 2004 2005 2006 2007 Total Exports Total Imports (Surplus/Deficit) Source: Qatar Statistics Authority Exports Analyzing exports composition by commodity revealed that in 2007, 90.8% of total exports are classified as mineral products, while 4.8% is the share of chemical products and 3.29% is plastics/rubber, these three categories hold a 98.84% share of Qatar s exports. Total mineral products exports reached QR137.0bn in 2007, up 23.2% from 2006. June 2009 Economic & Strategic Outlook 19
Table 08: Exports (QRmn) 2003 2004 2005 2006 2007 Live Animals/ Animal Products 28.2 25.4 59.1 26.3 39.8 Vegetable Products 1.6 3.3 4.4 4.3 2.3 Animal or Vegetable fats or oils 0.4 0.9 1.5 5.6 5.6 Prepared Foodstuff/Beverages 2.7 20.0 4.5 1.8 3.7 Mineral Products 44,381.6 58,917.5 83,330.5 111,292.1 137,080.9 Chemical Products 1,290.2 4,851.6 4,873.6 5,530.6 7,247.9 Plastics/Rubber 969.0 1,603.0 2,308.2 4,101.6 4,974.8 Raw Hides, Skin, Leather 5.3 3.4 5.0 2.5 1.2 Wood and articles of Wood 0.2 0.5 0.1 0.1 1.2 Pulp of Wood and Fibrous materials 8.3 37.1 16.3 15.2 20.2 Textile and Textile products 319.2 143.2 114.2 38.9 7.2 Clothing 333.1 184.1 135.5 56.6 29.8 Articles of stone, cement and iron ores 1.2 1.6 5.2 2.0 1.8 Natural or cultured pearls 0.0 0.2-0.0 - Base Metals 1,007.4 1,376.8 1,496.0 1,362.8 1,576.8 Machinery and mechanical Appliances 2.6 22.4 8.2 13.7 55.8 Vehicles and other transport equipments 1.0 152.4 1.7 1.3 0.6 Optical an Photographic Equipments 0.2 0.3 0.1 0.1 0.6 Arms and Ammunition - 0.0 - - - Other 1.1 2.0 1.5 0.8 2.8 Total Exports 48,353.5 67,345.7 92,365.4 122,456.3 151,053.0 Source: Qatar Statistics Authority As for the geographical distribution of exports, partners over the past years were Asian countries accounting for 84.9% of total exports in 2007. Exports to Asian countries reported a high CAGR of 34.0% during the period 2003-2007. Arab and European countries followed at 5.3% and 4.6% respectively. The year 2007, Japan, South Korea and Singapore captured the lion share in trade partnership with Qatar, they accounted for 40.5%, 17.4%, and 11.3% respectively of total exports. Figure 08: Export Partners 2007 Arab Countries, 5.3% Others, 2.6% Africa, 0.4% Pacifics, 1.1% American, 1.0% European, 4.6% Asia, 84.9% Source: Qatar Statistics Authority Imports Analyzing imports composition by commodity revealed that the categories of machinery, base metals and vehicles accounted 73.4% of the total imports of Qatar during 2007. Machinery and mechanical appliances imports stood at QR31.6bn or 40% of total imports to report a Y- o-y growth of 46.3%. Base metals followed with QR16.2bn or 20.2% of total imports, on a 20 Economic & Strategic Outlook June 2009
CAGR basis base metal imports increased 57.1% during the period 2003-2007, reporting the second highest growth among imports. Table 09: Imports (QR mn) 2003 2004 2005 2006 2007 Live Animals/ Animal Products 648.6 662.1 953.8 1,080.5 1,367.6 Vegetable Products 466.5 415.5 620.1 787.2 1,124.1 Animal or Vegetable fats or oils 62.6 65.9 92.5 115.3 135.1 Prepared Foodstuff/Beverages 578.8 511.9 906.8 1,197.0 1,305.5 Mineral Products 494.1 621.6 1,222.2 1,720.5 2,572.7 Chemical Products 1,030.5 1,011.6 2,053.7 2,517.6 3,255.1 Plastics/Rubber 444.2 516.9 913.1 1,337.2 1,724.4 Raw Hides, Skin, Leather 35.0 42.9 70.6 100.1 129.7 Wood and articles of Wood 184.8 159.1 436.2 585.1 845.5 Pulp of Wood and Fibrous materials 233.9 226.1 337.3 442.5 545.3 Textile and Textile products 644.9 646.1 958.0 1,283.8 1,328.9 Clothing 85.9 84.5 144.3 208.1 243.3 Articles of stone, cement and iron ores 447.5 351.6 822.4 1,346.3 1,775.7 Natural or cultured pearls 177.7 335.8 512.8 674.0 1,179.5 Base Metals 2,654.3 2,717.1 6,160.5 11,764.1 16,158.7 Machinery and mechanical Appliances 5,707.0 4,631.7 12,176.0 21,593.5 31,599.9 Vehicles and other transport equipments 2,721.3 7,647.2 5,808.6 9,448.7 11,027.0 Optical an Photographic Equipments 695.1 700.3 1,402.0 1,817.2 1,985.1 Arms and Ammunition 1.1 6.5 3.8 18.5 36.1 Other 512.7 501.9 1,026.3 1,804.4 1,757.9 Total Imports 17,826.3 21,856.2 36,621.0 59,841.4 80,097.0 Source: Qatar Statistics Authority As for the geographical distribution of imports, major import partners in 2007 were European, Asian and Arab countries. Together they accounted for 85.2% of the total imports. On CAGR basis, imports from Asian countries reported the highest growth of 51.6% during the period 2003-2007. European and Arab countries followed, growing at a CAGR of 43.4% and 43.0% during the same period. Figure 09: Imports by destination Arab Countries, 15.6% Asia, 33.8% Others, 0.1% Africa, 0.4% Pacifics, 1.2% Americas, 13.2% Europe, 35.9% Source: Qatar Statistics Authority On another front, the United States of America was the largest source of imports to Qatar. By the end of 207, Qatar imports from U.S.A stood at QR9.1bn to account for 11.3% of total imports. Followed by Italy, Japan and Germany, they accounted for 10.3%, 9.9% and 7.7% respectively. Among GCC countries Qatar is a major trading partner of U.A.E, which accounts for 77.6% for Qatari exports to the GCC and 49.6% of the total Qatari imports from the GCC. June 2009 Economic & Strategic Outlook 21
Monetary Policy Since its establishment in 1993, Qatar Central Bank (QCB) has inherited its monetary strategy of exchange rate targeting from Qatar Monetary Agency. The fixed parity between the United States Dollar (US$) and the Qatari Riyal (QR) at the rate of QR3.64 per dollar was inherited as nominal anchor, which is still effective. The de facto exchange rate targeting monetary policy regime as well as the target peg has been de jure authorized by an Amiri decree issued in July of 2001. Keeping in-line with this, the QCB will continue to adjust its discount rate in line with the US Federal Reserve rates. The GCC council is working on establishing the GCC Monetary Union in 2010, Qatar is alongside all other GCC countries in term of currency except Kuwait. Kuwait Dinar is not pegged with the US Dollar. To achieve a monetary union certain criteria s should be fulfilled, Inflation rates should not exceed the GCC weighted average inflation rates plus 2%, Foreign exchange reserves should cover at least four months of goods imports, Government annual fiscal deficit should not exceed 3% of the GDP, Interest rate parity, low public debt to GDP ratio and average short term interest rates should not exceed the average of the lowest three interest rates +2%. As of 2007, Qatar have passed all criteria except that of inflation. In 2007, the average GCC inflation rate was 7.26%, Qatar inflation was measured at 13.8% which is considered a complication a achieve a unified monetary policy. Commitment to the US Dollar peg until the formation of the monetary union is the best solution, also the US$ has gained strength amidst the global crisis, which will also strengthen the Qatari Riyal. Keeping in-line with this, the QCB will continue to adjust its discount rate in line with the US Federal Reserve rates. The QCB lending rate is the key rate used by QCB to convey signals to the market revealing adjustments to its monetary policy stance. Recently, Qatar Monetary Strategy has adjusted its key bench mark rates like, QCB reduced deposit rate twice from 4% to 3% and then by 75 basis points to 2.25% in March 2008 again by 25 basis points to 2% in May 2008. The Central Bank maintained its lending rate at 5.5% and repo rate at 5.55%. Going forward, the interest rates in Qatar will take cue from the movement in US Fed rates due to currency peg. Today the Qatar Central Bank will focus on calibrating the interest rate to contaminate inflation without affecting the growth of assets and credit of the banking system. The QCB did not reduce its policy rates on the last two occasions when the Federal Reserve cut its rates. At the same time, however, QCB increased the Required Reserve Ratio (RRR) by 2% and is issuing CDs with maturities ranging from a one-month to nine months, and is also planning to issue 14-day fixed rate CDs. Although the QCB sees not to change its policy, it intends to maintain the current standard, such as the limits to real estate lending, the loandeposit ratio, and the liquidity ratio. However, inflation is a major concern for Qatar, though it has been unstable since the last four years, and if it remains in high terrain the authorities may have to increase the domestic interest rates. Inflation is estimated at 15% in 2008, the highest in the GCC, this is due to the extreme lending spree, rising housing and food prices and robust economic growth. Qatar authorities are considering inflation as a high priority to solve. 22 Economic & Strategic Outlook June 2009
Money Supply As of Q2-2008 broad money supply M2 reached QR149.9bn up from QR100.7bn witnessed during the same period a year ago. M1 which consists of currency in circulation and demand deposits have increased to a new record level of QR55.9bn by the end of Q2-2008. Thus, it reported a high growth rate of 67% as above QR33.48bn reported during Q2-2007. Moreover, it is still higher than the annual growth rate of 26.9% reported for 2007. Generally, M1 growth during 2Q-2008 was mainly backed by the increase in demand deposits by 72.8% in addition to 26.8% growth in currency in circulation. Demand deposits increased from QR29.25bn in Q2-2007 to report a new record level of 50.55bn in Q2-2008. Similarly, currency in circulation increased to another record level of QR5.37bn up from QR4.24bn. On a CAGR basis, M1 increased 41.3% during the period 2002-2007 showing a strong level of consumption and the availability of a huge pool of cash. Table 10: Money Supply (in QR mn) 2002 2003 2004 2005 2006 2007 Q2-2007 Q2-2008 Currency in Circulation (1) 1,921.3 2,147.5 2,594.0 2,865.6 3,958.9 4,487.2 4,238.8 5,373.6 Demand Deposits (2) 4,367.7 9,130.2 12,004.4 19,496.6 23,924.2 30,887.3 29,245.9 50,548.2 Money Supply (M1) (3)=(1) + (2) 6,289.0 11,277.7 14,598.4 22,362.2 27,883.1 35,374.5 33,484.2 55,922.1 Time Deposits (4) 19,002.1 17,958.0 20,620.9 26,059.5 36,748.0 60,245.8 45,313.6 72,791.4 Deposit in Foreign Currencies (5) 6,855.9 7,987.3 9,645.7 15,849.2 24,027.4 22,013.8 21,950.2 21,249.3 Quasi Money (6)=(4) + (5) 25,858.0 25,945.3 30,266.6 41,908.7 60,775.4 82,259.6 67,263.8 94,040.7 Money Supply (M2) (7)=(3)+(6) 32,147.0 37,233.0 44,865.0 64,270.9 88,658.5 117,634.1 100,748.0 149,962.8 Source: Qatar Central Bank As for M2 -the broad definition of money supply- it has reached QR149.96bn as of Q2-2008, increasing by 48.8% over the same period last year. This reflects the level of credit abundance in Qatar. M2 increase was on the back of the growth in both M1 and Quasi Money by 67% and 39.8% respectively. Within Quasi Money, time deposits reached QR72.79bn in Q2-2008, up 60.6% from Q2-2007. Such growth was more than enough to offset the marginal decline in foreign currencies deposits from QR21.95bn in 2Q-2007 to QR21.25bn during 2Q-2008. As a result, Quasi Money continued its double digit growth since 2004. It stood at a new record level of QR94.04bn in Q2-2008 up from QR67.26bn for the same period last year. Qatar liquidity has been increasing greatly during the period 2002-2008. This has offered different sectors huge credit facilities for growth and expansion. Credit facilities totaled QR201.56bn as of Q2-2008, up 55.1% from the same period a year ago. This have helped the Qatari economy post healthy nominal growth rates of 44% and 10.4% on nominal and real terms respectively by the end of 2008. Thus as long as Qatar posted strong growth, credit facilities are needed to fulfill the economy s need. Qatar money supply will continue to increase but the inflation levels will be decreasing in 2009. Interest Rate Trend QCB interest rate framework embraces three policy rates: QCB Deposit Rate (QCBDR), QCB Lending Rate (QCBLR), and QCB Repurchase Rate (QCB Repo or QCBRR). QCBDR and June 2009 Economic & Strategic Outlook 23
QCBLR are the interest rates announced by QCB on overnight deposit and loan transactions between QCB and local banks through the Qatar Money Market Rate Standing Facility (QMR), respectively. Generally, the interest rates in Qatar followed closely those prevailing in the United States. However, such trend witness some changes by the end of 2007 and early 2008. Deposit rates continued to follow US Fed fund rtes as they witnessed a downward trend by late 2007 and early 2008. However, QCB lending rates did not follow US Fed Funds Rate especially during 2Q-2008. Lending rates sustained its level at 5.5% as compared with the US declining rates that reached 2% during 2Q-2008. Over years, QMR on lending continued to increase following the US Fed Fund rate to reach a peak of 5.5% by the end of 2007 up from 1.58% during 2002. US Fed Fund Rate continued to increase over the same period from 1% to stand at 4.25% by the end of 2007. Figure10: Qatar Central Bank Monetary Rates 6.5 5.5 4.5 % 3.5 2.5 1.5 0.5 2002 2003 Source: Qatar Central Bank 2004 2005 2006 2007 Q2-2007 Q3-2007 Q4-2007 Q1-2008 Repo Lending Deposits US Fed Fund Rate 2Q-2008 As for interest rates on credit facilities, almost all categories witnessed an upward trend over the period 2004-07. Entering the year 2008, this trend was reversed to witness a declining trend for 2Q-2008. Rates on bank overdraft witnessed an increasing trend over the period 2004-07 reaching 7.94% in December 2007 from 6.88% at the end of 2004. As for the year 2008, it started the year on a declining trend as overdraft rates declined by Q1-2008 to stand at 7.73% before retreating further to 7.63 by 2Q-2008. Interest on bills discounted followed the same general trend over the period 2004-07 increasing from 6.65% to 8.26%. Moving forward, it decreased to 7.88% in Q1-2008, however, it picked up slightly to stand at 7.91% by the end of Q2-2008. Similarly, interest rate on car loans picked up from 7.99% in 2004 to 8.18% by the end of 2007. However, on annual basis, it declined from 8.61% reported for 2006. Entering the year 2008, the rates increased again reaching 8.37% by the end of Q1-2008 before standing at 8.89% by the end of Q2-2008. Interest rate on credit cards moved up to 20.31% in Q2-2008 from 18.82% in Q2-2007, interest rates on credit cards have averaged 19.2% since 2004, but during the whole period Q2-2008 witnessed the highest interest rates on credit cards. 24 Economic & Strategic Outlook June 2009
Table 11: Qatar Central Bank Interest Rates on Credit Facilities % 2004 2005 2006 2007 Q2-2007 Q3-2007 Q4-2007 Q1-2008 2Q-2008 Overdraft 6.88 6.87 7.56 7.94 7.96 7.37 7.94 7.73 7.63 Bill Discounted 6.65 7.77 7.46 8.26 8.91 7.51 8.26 7.88 7.91 Loans < 1 year 4.94 6.35 7.33 7.57 7.60 7.30 7.57 6.66 6.60 Loans < 3 years 9.78 9.48 9.15 8.92 8.83 8.14 8.92 8.54 8.67 Loans > 3 years 8.02 8.32 8.52 8.76 8.40 8.28 8.76 8.50 8.38 Loans on Cars 7.99 7.44 8.61 8.18 9.77 8.23 8.18 8.37 8.89 Credit Cards 17.67 18.14 20.00 19.48 18.82 19.35 19.48 19.85 20.31 Source: Qatar Central Bank Finally, interest on personal loans, due in less than one year decreased from 7.57% in 2007 to 6.6% by Q2-2008. As for interest on medium term loans which are due in less than three years declined to 8.67% at the end of Q2-2008 from 8.92% at the end of 2007. In case of loans which are due for more than three years interest rate also moved down to 8.38% in Q2-2008 from 8.76% in 2007. June 2009 Economic & Strategic Outlook 25
Inflation Inflation in Qatar was never a big economic issue, not until the new millennium when oil prices started to take stage for pick up. In 2002, oil prices ended at US$31.21 which was considered high during that time. This trend continued in 2003 when oil prices averaged US$32.50. As for 2004, inflation was measured at 6.8%. Moving forward, inflation continued to pick up over the period 2005-2007 increasing from 8.8% to 13.8%. Entering the year 2008, inflation picked to a new record level of 15%. This was on the back of oil prices sky rocketing to reach an all-time high of US$147 during July 2008. This meant more oil and gas revenues for Qatari exports which resulted in increased liquidity and therefore inflationary pressure. Increase in oil prices played a big role in increasing prices of other goods and commodities as well. Moreover, new projects were unveiled, infrastructure plans were announced, and oil and gas refineries were in the process of being developed. Therefore, the rise in oil prices has increased the liquidity in the economy. This was coupled with increased government spending on mega projects. Such trend has created a booming domestic demand, increasing money supply, increasing food prices and hiking housing rates. On another front, the exchange rate regime which pegged the Qatari Riyal to the US$ over the last period had its impact on the imports bill due to any change of the US$ value against other major currencies. Generally, a rise in US dollar value will result in cheaper imports because the purchasing power of Qatar pegged currency appreciates against other world currencies. Therefore, Qatar can import more products at lower prices. On the contrary, if the dollar value declined then imports become more expensive. Since 2001, the dollar started to lose value against major currencies. From 2001 to 2008, the dollar lost an average of 40% against a basket of currency. In addition to the currency depreciation, Qatar increased civil service wages by 30%, this rise in disposable income fuelled inflation because people have more money to spend. Table 12: Inflation Y-o-Y Change Y-o-Y Change Y-o-Y Change Y-o-Y Change End of Period 2005 (%) 2006 (%) 2007 (%) 2008 (%) Food, Beverages & Tobacco 107.5 3.1% 115.4 7.3% 123.8 7.4% 148.5 20.0% Clothing & Footwear 101.8-2.7% 114.5 12.4% 128.9 12.6% 144.1 11.8% Rent, Fuel & Energy 176.2 26.3% 221.9 25.9% 287.0 29.4% 343.3 19.6% Furniture & Furnishing 106.7 4.7% 110.9 3.9% 116.9 5.4% 125.9 7.7% Medical Services 103.3 4.4% 104.6 1.2% 105.8 1.2% 110.3 4.3% Transport & Communication 99.7 3.9% 101.6 1.9% 104.0 2.4% 113.2 8.8% Education, Culture & Recreation 102.2-0.1% 104.5 2.3% 109.7 5.0% 120.5 9.9% Miscellaneous Goods & Services 114.9 4.1% 130.5 13.6% 136.5 4.6% 153.3 12.3% General Index 119.1 8.8% 133.2 11.8% 151.6 13.8% 174.4 15.0% Source: Qatar Central Bank Generally, rentals, fuel and energy category was the most important contributor to rising inflation over years. It grew at a steep rate of 25.9% in 2006, followed by a whopping 29.35% in 2007 from 221.91 to reach 287 at the end of 2007. Despite the rent cap by the government, property rents have grown at rapid pace much to the discomfort of government agencies. Finally, entering 2008 the rent, fuel and energy category continued to be a major contributor to the soaring inflation as it increased to a new record of 343.33 points, a 19.6% increase. 26 Economic & Strategic Outlook June 2009
Four segments namely, food, beverages & tobacco, rent, fuel & energy, miscellaneous goods & services and clothing & foot wear, sectors witnessed double digit growth rates in 2008. These segments witnessed a growth of 20%, 19.6%, 12.3% and 11.8% respectively. A major change during the year 2008 was for food and beverage category as it witnessed a double digit growth for the first time since 2005. This was mainly backed by the ongoing rising prices of food imports around the world. All other segments continued to report one digit growth rates, however, still growing at higher pace than 2007. The category of Education, culture & recreation reported 9.9% of growth, followed by transport & communication at 8.8%. Furniture & furnishing index stood at 125.9 points up from 116.9 points, or 7.7% of growth. Finally, medical services reported the lowest growth rate of 4.3%. Looking forward, we expect price levels to ease significantly during the course of 2009. This is expected to be a global trend not only for Qatar. This is mainly as the world witnessed a tremendous decline not only in equities and stock markets, but also in commodities prices in the last few months. Falling prices across international economies may lead to excessive deflation that could exacerbate the global economic condition even further. Factors that will help cool off inflation in Qatar is the sharp decrease in oil prices around the world, this will help ease prices of raw materials, but this could affect government expenditure. Secondly, Rental prices are also expected to cool down in the next year. Weighing heavily on the price indices for all GCC countries, rental increases will slow down in 2009. Prices had been skyrocketing in the past few years, which had been a major cause for higher consumer prices. Finally imported inflation is not seen as a major concern as prices of all material around the world have been declining. Also the dollar value has been improving during Q3-2008 up till Q1-2009. This directly appreciates Qatari Riyal due to its peg with the US dollar. Finally, we expect that inflation to ease much more during 2009 to report a one digit level of around 9% on the back of low food, raw material, rental, and oil prices. June 2009 Economic & Strategic Outlook 27
Population Population of Qatar has been increasing at a CAGR of 19.5% during the period 2004-2008 due to the continuing influx of expatriates to the booming economy, ongoing development plans, infrastructure & construction projects and the strong economic activity in the region. Qatari male population grew at a CAGR of 18.7% during 2004-2008, while female population grew by 14.0% during the same period. Generally, males play a bigger and a more important role in the labor market of Qatar due to the fact the 75% of the Qatari population are males, but with the huge spending on education and the more focused importance of the women role in the labor force we could witness an increase in the women s role in the State of Qatar. For 2008, Qatar continued to witness an increasing population in line with past years economic progress. Qatar s population reached 1.45mn in 2008, or 18.1% increase from 2007. This has shown a very fast population growth compared with previous four years when the average growth rates during 2004-2007 was 14.4%. Figure 11: Population in Qatar 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 2004 2005 2006 2007 2008 Female Population Male Population % Growth Source: Qatar Statistics Authority 25 20 15 % 10 5 0 Age Distribution and Gender As per latest figures of mid 2008, the female population accounted for 24.3% of the total population, while the male population amounted to 75.7%. This shows the dominance of the male population is Qatar. Within female population 50.7% are in the age bracket of 15-40 years which indicates a potential and a huge existing labor force. While the age bracket between 0-10 years have a 21.9% share of the total female population, as opposed to men of the age bracket 0-10 years who make up a 9.8% share of the total male population. Figure 12: Age Distribution and Population Pyramid (in thousands) 80-above 70-74 60-64 50-54 40-44 30-34 20-24 14-10 0-4 0 50,000 100,000 150,000 200,000 250,000 300,000 Male Female Total Source: Qatar Statistics Authority 28 Economic & Strategic Outlook June 2009
As for age distribution, Qatar continues to enjoy a growing population, where the largest age bracket lies between the ages 25-29 years old, accounting for 17.6% of total population. Moreover, it is important to note that, Qatar is seen as a nation with young population as youth the age bracket 20-40 years old-accounts for 57.3% of total population. This wide base augurs well for the economic growth if utilized efficiently. Among Qatari population, 32.0% are below the age of 25 years old; this shows the importance of the education sector in Qatar to provide the best learning for the upcoming potential employees. As mentioned in the Qatar Vision 2030 Education is one of the basic pillars of social progress. The state shall ensure, foster and endeavor to spread it. In addition Qatar plans to build a modern world-class educational system that provides students with a firstrate education, comparable to that offered anywhere in the world. Labor Force and Unemployment As per latest data, Qatar Labor force amounted to 832,105 of which Non-Qatari s make up a 92% standing at 768,349. On the other hand, Qatar nationals labor force reached 63,756. Generally, unemployment in Qatar was at a very low rate of 0.5%. Thus, total unemployed stood at 4,303 during 2007. However, unemployment was higher among Qataris than Non- Qataris, 3.31% versus 0.3%, respectively. Figure 13: Employed Population by Economic Activity 2008 Regional and International Organizations, 0.2% Domestic Services, 8.8% Other Community Services, 1.6% Health and Social Work, 2.6% Education, 3.2% Public Adminstration, 6.4% Real Estate, 3.4% Financial Intermediation, 1.1% Transport, Storage & Communication, 4.4% Hotels and Restaurants, 2.0% Whole Sale and Retail Trade, 12.3% Source: Qatar Statistics Authority Agriculture, 1.9% Fishing, 0.4% Mining and Quarrying, 5.3% Manufacturing, 8.7% Electricity Gas and Water Supply, 0.7% Construction, 37.2% Analyzing labor force by source of employment revealed that construction sector was the main source of employment during 2007 providing jobs for 307,780 people or 37.18% of job opportunities. This shows the government s focus on construction and developing the infrastructure in Qatar. Following ahead were the categories of Whole Sale & Retail Trade and Domestic Services that accounted for 21.1% of total employment. Other major source of employment was manufacturing sector employing 71,938 employees, or 8.7% of labor force. June 2009 Economic & Strategic Outlook 29
Sectoral Trends and Analysis of Domestic Economy 30 Economic & Strategic Outlook June 2009
Oil and Gas Commodities became the center of attention for all economies in 2008 and 2009. Oil prices enjoyed a huge rally in 2008, prices reached as high as US$147 during July 2008 thus oil exporting countries accumulated enormous surpluses that helped fuel their spending efforts. However, the second half of the year 2008 witnessed dramatic changes as commodities prices and especially oil prices deteriorated significantly amid a world recessionary pressures. Oil in 2008 The real world economy moved from good to bad during the year 2008. By late 2008, the global economy was slowing down faster than expected, which was reflected in downward revisions of forecasts for economic growth for 2009. Plunge in equity markets to an all-time low, despite a move by central banks around the world to safeguard the financial system, highlighted the deteriorating economic sentiment. Reports that some nations had moved into recession had triggered fears of further oil demand destruction. This have called the OPEC cartel to extraordinary meetings to combat the falling economy, during the 4Q-2008 OPEC cut more than 4.2mn b/d, this giving output capacity of 24.8mn b/d for the cartel. Qatar committed to only 83% to the output cut as opposed to 107.6% by Saudi Arabia, Qatar produced 20,000 excess b/d. Table 13: OPEC meetings and actions Date of Meeting Meeting Type Place of Meeting Action Taken February 1, 2008 Extraordinary Vienna, Austria Unchanged March 5, 2008 Extraordinary Vienna, Austria Unchanged September 9, & 10. 2008 Extraordinary Vienna, Austria Cut 520,000 bopd October 24, 2008 Extraordinary Vienna, Austria Cut 1.5mn bopd November 29, 2008 Consultative Cairo, Egypt Unchanged December 17, 2008 Extraordinary Oran, Algeria Cut 2.2mn bopd March 15, 2009 Consultative Vienna, Austria Unchanged May 28, 2009 Extraordinary Vienna, Austria Unchanged Source: Global Research, Reuters Qatar Marine was on an upward trajectory since 1998. Prices as measured by OPEC increased at a CAGR of 20.4% during the period 1998-2008. Average annual price increased from US$12.23/b in 1998 to US$69.30/b on average for 2007 and as high as US$94.48/b for 2008. Prices almost tripled in 2008, Qatar Marine reached an all time record high of US$132.37/b as an average for July 2008, owing to the continued strong demand emanating from emerging economies. Since reaching the all-time high, oil prices fell 68.93% reaching US$41.24 as an average for December 2008. The price surge during the first half of the year, have helped pile up huge surpluses for oil exporting countries which planned major spending to expand their economy, thus Qatar reported a 44% growth in GDP for 2008. Today s oil prices are equal to prices prevailed during 2005. Decreased oil prices have caused a major problem for oil exporting countries because they could face major current account deficits. June 2009 Economic & Strategic Outlook 31
Figure 14: Qatar Marine US$ 140.00 120.00 100.00 80.00 60.00 40.00 20.00 0.0 Source: OPEC 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Although Qatar has an abundant quantity of natural gas reserves, around 14.4% of world s total natural gas reserves, it is less fortunate with oil reserves. Qatar contains estimated proven oil reserves of 27.4 billion barrels acquiring a 3.6% share in terms of oil reserves among Middle East countries and 2.2% among GCC countries. Table 14: Qatar s Oil Reserves (bnb) 2001 2002 2003 2004 2005 2006 2007 Reserves 16.9 16.8 27.6 27.0 26.9 27.9 27.4 Share of Middle East 2.4% 2.3% 3.7% 3.6% 3.6% 3.7% 3.6% Share of World 1.5% 1.4% 2.3% 2.2% 2.2% 2.3% 2.2% Source: BP Statistical Review The majority of Qatar s oil reserves are contained in the onshore Dukhan field, which is the country s largest producing oil field. Dukhan field produces four different hydrocarbon products, crude oil, associated gas, condensate and non-associated gas. Its 60km long and 25km wide, Dukhan Field which is solely operated by Qatar petroleum can handle up to 335,000 b/d of oil and 800 million standard cubic feet (MMSCFD) per day of gas. Dukhan reserves are estimated at about 2.2 billion barrels. Qatar also has six offshore fields: Id Al- Shargi North Dome, Bul Hanine, Maydan Mahzam, Al-Shaheen, Al-Rayyan and Al-Khalij. According to OPEC, Qatar s crude oil production averaged 0.84mb/d in 2008, down 0.5% from 2007 s production. Table 15: Qatar s Oil Production 2002 2003 2004 2005 2006 2007 2008 Crude Oil Production ( 000 b/d) 568.9 676.0 755.3 765.9 802.9 845.3 792.0 Oil Exports ( 000 b/d) n/a 540.7 542.7 677.3 620.3 615.1 n/a Revenues of Oil Exports (US$mn) 6,885 8,814 11,694 17,585 24,290 27,801 n/a Source: OPEC Qatar s crude production and oil reserves were the lowest among OPEC member countries. State owned Qatar Petroleum (QP) controls all aspects of the country s oil sector, including exploration, production, refining, transport and storage. QP holds the rights to all petroleum resources in Qatar. However, QP often allows foreign participation in production activities in order to attract foreign investments and benefit from international expertise. In 2008, oil and 32 Economic & Strategic Outlook June 2009
gas sectors contribution to GDP is estimated at QR229.73bn, acquiring a 61.7% of the total GDP. Qatar mainly exports oil to U.S and Asia-Pacific, mainly Japan. There are three main export terminals in Qatar namely Umm Said, Halul Island and Ras Lafftan. Ras Lafftan is the newest of the three ports and is mainly used for Liquefied Natural Gas (LNG) exports. QP investment plan QP has in its new five-year plan (2007-2011), budgeted an overall investment of QR302.5bn for projects in crude oil, natural gas, gas-to-liquids, refining, petrochemicals, industrial cities and others. QP has embarked upon an investment programme with the intention of expanding oil production from its onshore and offshore fields from the current 841,000 b/d, to around 1,025,000 b/d by year-end 2010. Oil Refining. Currently, Qatar has refinery capacity of around 80,000 b/d. By 2009 Qatar is developing Ras-Laffan refinery that would produce 146,000 b/d. Ras laffan will be a joint venture between Qatar Petroleum owning 80% and Exxon Mobil and Total. Figure 15: Qatar s Output of Refined Products by Type Thousand b/d 50 45 40 35 30 25 20 15 10 5 0 Source: OPEC 2003 2004 2005 2006 2007 Gasoline Kerosene Distillates Residuals Others Gasoline is considered the major output of refined products. By 2007, 45.7 thousand b/d of gasoline were produced, however, the production grew at a low CAGR of 2.94% over the period 2003-2007. On another front, Kerosene production grew at a CAGR of 4.40% during the same period. Finally others category grew at a CAGR of 6.18% to stand at 33.3 thousand b/d by the end of 2007. Expansion projects Along with other GCC members, Qatar is undergoing several upstream and downstream expansion projects in order to capitalize on economic growth and rising oil demand in Asia. QP plans to invest US$80-100bn in upstream and downstream sectors over the medium-term, with much of this derived from partnership with global energy giants. June 2009 Economic & Strategic Outlook 33
Table 16: Qatar Oil Exploration Plans Exploration Project Capacity (thousand b/d) Due Date Estimated Cost (US$bn) Al-Shaheen Refinery 500 2013 5.0 Al-Shaheen Offshore Development 525 2009 5.0 Ras Laffan Condensate Refinery 146 2009 0.6 Ras Laffan Condensate Refinery Expansion 146 2011 1.0 Source: Zawya Al-Shaheen Refinery.. Located in Mesaieed Industrial City, Qatar Petroleum plans to produce additional 250,000 b/ d to the current 250,000 b/d of high quality products that include jet fuels, gasoline, bitumen and diesel oil. The refinery costs around US$5bn awarded to Axens of France to develop basic engineering design. While the deadline for commercial bids were delayed to 15th April, 2009 and the technical bids to June 2009, the refinery is expected to be completed by 2013 and operations to begin by 3Q 2009. Al Shaheen off-shore development Al-Shaheen Offshore Development, a.k.a. Block 5 Field Development Plan, is operated by Maersk under a production sharing deal with QP. The US$5.0bn expansion of the field is expected to boost its production to 525.0 thousand b/d by 2009 from the current 240.0 thousand b/d. The project is being carried out in several stages, which are at different Engineering Procurement Installation and Commissioning (EPIC) stages of implementation. In addition, Maersk is aiming to obtain an additional offshore storage capacity to store the oil pumped from Al-Shaheen field. From Big to Bigger. Located in Ras Laffan Industrial City, the condensate refinery will process 146,000 b/d to produce LPG, naphtha, kerosene and gas oil. It is a Joint Venture between Qatar Petroleum, Exxon Mobil and Total and scheduled to be completed on Q2-2009. On October 2007, QatarGas which operates the projects invited international companies to bid for the expansion of Ras Laffan Refinery and increase the capacity by another 146,000 to reach 292,000 b/d. The project is still under the study phase, contracts awards are expected to be announced by January 2010 and is expected to be completed by 2012. 34 Economic & Strategic Outlook June 2009
Natural Gas Natural Gas became a main source of energy supply in the world. It is considered one of the cleanest fossil fuel, safest, and one of the cheapest sources of energy. It s used for many things including power generation and hydrogen. Natural gas is increasingly becoming the fuel of choice for customers around the world due to its clean-burning and lower emission qualities. Liquefied Natural Gas (LNG) is a way of delivering natural gas to all corners of the globe, safely and reliably. World natural gas consumption increased at a CAGR of 2.66% during 2000-2007. Energy companies around the world are constructing LNG projects that could value more than US$100bn. Consequently, the 7th Doha Oil and Gas Conference during March 2009, witnessed OPEC secretary Abdullah Salem Al-Badri noting that natural gas is becoming increasingly vital to the overall global energy mix. With its steady growth and a share of world energy supply that is forecast to reach nearly 25 percent by 2030, natural gas has very bright prospects. In terms of both, reserves and production, OPEC member countries have significant shares of natural gas, he said, adding that in 2007, Member Countries had more than 88 trillion cubic meters (tcm) of proven gas reserves - almost half of total world reserves. The volume of marketed production was 471 billion cubic meters (bcm), with an export share approaching 20 percent of the world total. In addition, LNG exports alone were about 93 bcm. This is nearly 41 percent of the world total. Figure 16: Natural Gas Flow Source: EIA State of Qatar has the third largest natural gas reserves in the world after Russia and Iran, and is the world largest LNG exporter. Most of the Natural Gas in Qatar is located in the North Field Ras Laffan which holds more than 900 Tcf of proven natural gas. Reserves By the end of 2008, Qatar s estimated reserves of natural gas stood at 891.9 Tcf or (25.25Tcm). This represents 14.3% of total world s reserves and posed Qatar as holding the third largest natural gas reserve in the world. It is worth mentioning that the majority of Qatar reserves are present in its North Gas Field, which is jointly owned by Iran and Qatar. However, the remainder reserves of the country are located in the fields of Dukhan, which contain 5.5Tcf, in addition to other small fields. June 2009 Economic & Strategic Outlook 35