Funds Global examines the economic, social and cultural developments within Qatar and how they are helping to promote the country's asset management market.
The strong economic foundation of Qatar is undeniable. In 2010 Qatar was identified as the world’s fastest growing economy, expanding at a rate of 19.4%, and also had one of the highest GDP per capita at just under $80,000.
Much of this growth is due to the strength of its hydrocarbon industry. Qatar has the world’s largest per capita production and proven reserves of both oil and natural gas. The high levels of production and export of liquefied natural gas, oil, petrochemicals and other related industries are a huge contribution to the Qatari economy and also a significant target of international investment. More than $100 billion has been invested in the Qatar’s energy sector from abroad while Qatar plans to invest more than $120 billion in its energy sector over the next ten years.
Yet the energy sector is not the sole focus of Qatar’s economic development plans. Figures produced by the International Monetary Funds (IMF) show strong growth in a number of non-hydrocarbon-based sectors, such as transport and communications, trade and tourism, and the finance, insurance and real estate industries.
Of course the finance industry in Qatar suffered some negative implications from the financial crisis just like any other region did, however it has staged a rapid recovery, posting double figure percentage growth in both 2009 and 2010, something that was noted in a recent IMF Country Report.
“Qatar has weathered the global financial crisis exceptionally well, reflecting the swift and strong policy response by the authorities,” stated the report. “The sizeable enhancement of liquefied natural gas capacity; large government support to the banking system and increase in public spending helped sustain high growth rates through the global crisis.”
While noting that the country’s banking system “remains sound”, the IMF report recommends that Qatar’s economic policy should focus on “strengthening the efficiency of the domestic financial system and regulatory arrangements”. It notes that “the Qatar Central Bank (QCB) will have to rely increasingly on macroprudential instruments to manage the credit cycle and to counter potential surges in capital inflows”.
The report recommends the work being done at a regulatory level, noting that the QCB is closely monitoring potential risks to the banking system. “The QCB published its first Financial Stability Review and intends making this an ongoing process. The authorities’ commitment to establish a single financial regulatory authority under the umbrella of the central bank remains undiminished. They continue to align their supervisory and regulatory frameworks with best standards and practices, and plan to implement Basel III proposals early.”
The surge in capital inflow that the IMF refers to may well come from a change in status from the influential index compiler MSCI index, which could have a very positive impact on the country’s asset management industry. The change would see Qatar upgraded from a ‘frontier’ market to an ‘emerging’ market thus making it an eligible destination for investment for many institutional investors whose investment decisions are governed by strict exposure criteria. New foreign investment could consequently increase by anywhere between $2-4 billion.
MSCI is due to make its latest announcement in June and the upgrade is not a certainty. One of the outstanding issues relates to foreign ownership levels of Qatar equities. An MSCI review of Qatar identified the current limit of 25% as on that needs to be raised (by comparison the UAE has a limit of 49%). However the Qatar Exchange has stated that the 25% level will remain at least until the end of the year.
What is more certain though is that the strong economic growth of the country, the high standard of regulation within the financial services industry, the technologically sophisticated infrastructure at the Qatar Exchange and the work being done at the Qatar Financial Centre Authority to promote the asset management sector to an international audience will result in an MSCI upgrade sooner rather than later.
Another likely source of investment and economic growth for Qatar will be the Fifa World Cup in 2022, something also noted by the IMF in its country review. A substantial sum of resources had been earmarked for the major infrastructure upgrades that would be needed should the World cup come to Qatar, such as the integrated metro/rail systems, roads and airport. Ever since the vote was made in December 2010, this infrastructure investment has begun to flow in.
With just over ten years to go before the Fifa jamboree comes to Qatar, there is plenty of time for the infrastructure upgrades and various construction to be completed – as one asset manager in Qatar suggested, there is five years to complete the projects and five years to show them off.
Football is not the only international sport with a growing profile in Qatar. In addition to hosting the 2006 Asian Games, Qatar has more recently staged the IAAF World Indoor Athletics Championships (March 2010). The two Qatar Tennis Opens for men and women are regular stops on the professional tennis tour circuit and the Qatar Masters golf tournament has featured on the PGA European Tour schedule since 1998.
Qatar has also made a significant investment in expanding its cultural facilities. The government-sponsored Qatar Foundation is chaired by HH Sheikh Mozah Bint Nasser Al Missned and was established to promote cultural richness and preserve the country’s heritage Aside from the historical landmarks that feature in the area, such as the ancient village of Al-Zubarah, the nineteenth century mosques of Simaisma, and the residence of Sheikh Abdullah bin Thani Al-Thani, there are a growing number of museums and art galleries. The Museum of Islamic Art exhibits masterpieces spanning three continents and thirteen centuries. And there is also the Qatar National Museum and the Arab Modern Art Museum and the Waqif Art Centre which aims to preserve and promote both Qatari and Middle Eastern artistic traditions.
©2011 funds global