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Qatar - A Gas Fired Economy

Qatar - A Gas Fired Economy

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Published by Vivekanand
Qatar - A Gas Fired Economy
Qatar - A Gas Fired Economy

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Categories:Types, Brochures
Published by: Vivekanand on Jun 20, 2009
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ResearchSABB NotesMarch 2008
Qatar has the fastest-growingeconomy in the Middle East
The gas, construction and nancial
services industries continue to boomBut rent, food and wage rises are
fuelling double-digit ination
SABB Notes
a gas-red economy
13 March 2008Disclaimer
These Notes should beread in conjunction withthe concluding Disclosureappendix and Disclaimer,which form part of them.
Dr. John Sfakianakis
Chief EconomistTel: +966 1 276 4602Email: johnsfakianakis@sabb.comThis and other publications can bedownloaded from: www.sabb.com
High growth, high ination,big ambitions.
Prosperity brings pressures
No GCC country has a faster-expanding economy thanQatar, with real GDP growth expected to achieve 14.3%in 2008 and 13.5% in 2009. Indeed, the rate has beenclose to 10% for seven years now, during which timethe population of Qatar has risen to 950,000 – around25% of whom are Qatari citizens, with the rest a mix of expatriates from various countries.Qatar’s economy is expected to remain buoyant, asQatar’s liqueed natural gas (LNG) industry takes holdand additional oil capacity leads to increased exportvolumes. Output of associated natural gas condensateswill also increase, along with other gas-based industrialventures, particularly in petrochemicals. Furthereconomic growth is being fuelled by an ongoing risein domestic demand, mainly due to expansion in theconstruction and nancial services industries.Government expenditure will continue to grow stronglyin 2008, as capital programmes in education, healthand transport give the economy a boost. This additionalspending also triggers more private consumption, since96% of Qatari workers are employed by the state. As farahead as 2012, the economic outlook is very strong, withour forecast for real GDP growth projected to averageover 11% per annum. Fiscally, Qatar will register anothersurplus in 2008, even on an oil-price assumption of just$45 per barrel.But success comes at a price. Due to sustained expansion,as well as demand outpacing supply, serious constraintson capacity have created inationary pressures. The risein ination in 2007 was again due largely to escalatingrents as a result of housing shortages, as well as highaggregate demand, and rising wages for both nationalsand expatriates.
ResearchSABB NotesMarch 2008
Although supply-side pressures could subside in2008, ination is still expected to reach 11.5%. In2009, we expect the supply of housing to achieve adegree of equilibrium and more new infrastructureto come on stream. As a result, ination isexpected to fall into the high single digits.The introduction of a 10% cap on annual rentincreases for a two-year period was not especiallysuccessful in mitigating rental ination – and itwas phased out in February 2008. Similarly, bothAbu Dhabi and Dubai have been unable to controlrent rises through capping schemes. But theunderlying problem of real estate ination in Qatarwill be addressed when additional housing unitscome on to the market. The September 2007 pricefreeze on wheat our and wheat products mayeven add to ination, as price freezing
could increase demand from consumers, yetdiscourage suppliers.
Stability and security
Given that ination persists, the authorities inQatar and across the GCC could attempt to lowerdemand pressures by restricting wage increasesand phasing the implementation of large projectsover the medium term. Qatar can afford to slowdown project development as employmentgeneration is not the key goal, so much as creatinglabour incentives for Qatari nationals in the privatesector. But we still expect that, through 2010,Qatar will see construction projects totalling anestimated $82.5 bn – despite the measures it hastaken to reduce building costs by waiving customsduty on the import of steel, cement and gravelfrom outside the GCC.As a result of the construction boom, GCCproducers have been exporting building materialsto Qatar in search of higher prot margins – which
Economic Growth
Source: Central Bank of Qatar, SABB estimates
   (   U   S   D   b  n   )   %
2003 2004 2005 2006 2007e 2008f 2009f
020406080100Real GDP (left scale)Nominal GDP (right scale)
Inflation Basket
Source: Statistics Department of Qatar-10-5051015202530
Food,Beveragesand TobaccoClothing andFootwearRent, Fueland EnergyFurniture,Textiles andHome AppliancesMedical Careand MedicalServicesTransport andCommunicationsEntertainment,Recreationand Culture
Inflation and Money Supply
Source: Central Bank of Qatar, SABB estimatesInflation (left scale)Money Supply (right scale)0246810121420032004200520062007e2008f2009f01020304050
     % %
ResearchSABB NotesMarch 2008
has led to shortages and market distortion in
their own countries. A case in point is Saudiclinker exports to Qatar, which created price andquantity distortions in the Saudi clinker marketduring 2007.As is common across the GCC, recession in theUS economy should not adversely affect Qatar’sexpected growth in 2008. High oil prices willhelp the GCC remain decoupled, although we dobelieve that Qatar will retain its currency peg tothe US Dollar in the period leading up to GCCmonetary union.Regarding the exchange rate level, we do notexpect a change in 2008, despite forward-rate signals to the contrary. Qatari exports aresubstantially dependent on hydrocarbons, whichmakes the case for revaluation less convincing
at this juncture. The need for a continuing focus onthe US Dollar will be lessened by diversicationaway from hydrocarbons, by shifts in the relativestrengths of currencies, by changing trends in
the placement of nancial assets, and by the
wider geo-political and security situation acrossthe GCC.In 2006, hydrocarbons accounted for 89% of total exports and 64% of total export revenues.Downside risks to the robust growth scenariofor 2008 include lower oil and gas prices and/ora deterioration of geo-political conditions in theGulf. Qatar enjoys a solid defence partnershipwith the US, which serves to support the
country’s sovereignty in the face of regionalsecurity worries.In April 2003, the US Combat Air OperationsCentre for the Middle East was moved fromPrince Sultan Airbase in Saudi Arabia to Qatar’sAl Udeib Airbase, south of Doha. Al Udeib acts asa logistics hub for US operations in Afghanistan,as well as the key command centre for ongoingoperations in Iraq. The Qatar facility is the
world’s largest pre-positioning base for USmilitary equipment.
Growing markets forcleaner fuels
With 14% of all known reserves, Qatar is the
third most gas-rich nation, after Russia andIran, and is the world’s largest exporter of LNG.Indeed, most of the natural gas Qatar producesis exported in the form of LNG – the majoritycurrently destined for China, India, Korea andJapan. Through 2012, Qatar will invest more than$90 bn in the gas sector, which will result in atripling of LNG exports. The LNG programme isdriven by several joint-venture projects, involvingQatar Petroleum and a variety of major foreignenergy rms, headed by Qatar Liqueed GasCompany (Qatargas) and the Ras Laffan LiqueedNatural Gas Company (RasGas).Meanwhile, oil-production capacity is expected toreach 1.1 mbpd by 2010, after investments worth$5.5 bn in the Al-Shaheen eld. Qatar’s crude oilexports are mainly directed to Asia (97% in 2006),but the country’s reliance on crude oil exportsis expected to decline after oil production peaksaround 2010 and exports of condensates continue
Exports, Imports and Current Account
Source: IMF, SABB estimates
   (   U   S   D    b  n   )   (   U   S   D    b  n   )
01020304050607080902003 2004 2005 2006 2007e 2008f 2009f05101520253035
Exports(left scale)Imports(left scale)Current Account(right scale)
Projected Oil and Gas Exports
Source: Qatar Petroleum, SABB estimates
   (   U   S   D    b  n   )
Crude oil LNG Condensates Propane and butane Others

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