QATAR

Economic structure

Qatar’s annual per capita GDP is around USD70,000, one of the highest in the world. Recent economic development and policy initiatives have focused on diversification away from an oil-based economy, although production of liquefied natural gas (LNG), condensates and petrochemicals represents a move downstream, rather than away from hydrocarbons. Qatar’s oil reserves are substantial at 1.5% of the known global supply, capable of over 30 years of additional production at current rates of extraction, but its natural gas reserves are the third-largest in the world, behind only Iran and Russia. Qatar possesses 13% of global gas reserves (largely non-associated, or independent of oil production) and these will last in excess of 100 years at current rates of output. The oil and gas sector contributes over 55% of GDP, over 85% of export revenues and around 60% of (direct) government budget revenues. Such a narrow output base, with (still) little progress in diversification into other industries and services (other than downstream activities), leaves the economy vulnerable to world oil (and gas) price cycles – as has been seen over the past years.

Exploitation of the gas reserves has generated rapid, double-digit economic growth from 2004 to 2011, although foreign debt has been incurred to achieve this rapid development. Since 2012, growth has steadily decelerated while public and external debt levels have continued to rise. Nonetheless, repayment obligations are unlikely to present liquidity problems over the next five years or so (debt service ratio of around 13%). Financial resources remain strong, with a SWF and FX reserves representing well over 150% of annual GDP.

Structural business environment

The business climate in Qatar is generally adequate, ranking slightly above average in our assessment of 191 economies.

The World Bank’s Doing Business 2020 survey ranks Qatar 77th out of 190 economies in terms of the overall ease of conducting commercial operations, a slight improvement from rank 83 a year earlier. Marked advancements in the sub-components ‘Getting credit’ and ‘Registering property’ were the main contributors to that improvement. However, ‘Protecting minority investors’ (rank 157), ‘Enforcing contracts’ (rank 115) and ‘Resolving insolvency’ (rank 123) remain key weaknesses in Qatar. The latter takes longer and is costlier in Qatar compared to the MENA average, though the recovery rate is slightly higher.

The World Bank’s Worldwide Governance Indicators 2019 survey suggests that the regulatory and legal frameworks are generally business-friendly and the level of corruption is low. However, recently the rule of law has been tainted by allegations of corruption surrounding the 2022 World Cup bid and the regulatory environment inhibits SME growth.

With regard to environmental sustainability, Qatar scores badly, owing to the non-existence of renewable electricity output, a high level of water stress and a low recycling rate. It does better with regard to energy intensity, CO2 emissions and climate change vulnerability. Overall, however, Qatar ranks 182nd out of 210 economies in our proprietary environmental sustainability scoring.

Growth slowdown for longer

The political conflict with the GC3+1 had an immediate but short-lived impact on the Qatari economy. Thanks to a huge stock of assets in its sovereign wealth fund, the Qatar Investment Authority (QIA, currently estimated at USD328bn), Qatar has been able to avoid an economic crisis. A swift diversification of foreign trade relationships and trade routes was also helpful. Shipments of natural gas and oil, accounting for almost 85% of Qatar’s exports, have broadly continued despite the UAE’s ban on Qatari-linked vessels from its waters.

Nonetheless, real GDP growth fell to a 23-year low of +1.6% in 2017. The blockade by the GC3+1 certainly played a role. However, in part that weak performance also reflected a decline of -0.7% in mining and quarrying (accounting for 33% of GDP) as oil production cuts agreed under an OPEC deal from November 2016 curbed output in the hydrocarbon sector. In 2018, GDP growth fell further to +1.5% as the contraction in mining and quarrying accelerated to -2%, despite a temporary lifting of the oil production cuts in that year.

In the first half of 2019, the economic performance deteriorated further – even though Qatar withdrew from OPEC at the start of that year, thus not having to comply with any oil output cuts agreed by OPEC anymore. Real GDP grew by just +0.8% y/y in Q1 and contracted by -1.4% y/y in Q2. In that second quarter, continued weakness in the hydrocarbon sector (-1.9% y/y) was accompanied by a deep plunge in manufacturing (-7.4% y/y) and a drop in construction (-3.5% y/y), pulling the overall non-hydrocarbon sector to a decline of -1.1% y/y. Data for H2 2019 were not available as of end-January 2020, reflecting generally poor economic data provision.

But we expect that mining and quarrying has continued to contract in H2 2019 and will also do so in 2020 as a whole. The non-hydrocarbon sector should only gradually regain momentum in 2020 before picking up more rapidly in 2021 as construction activities in preparation for the FIFA World Cup 2022 enter the last stage. Overall, we forecast real GDP growth of +1.5% in 2020 and +2.5% in 2021.

More generally, Qatar's economy seems to have entered a new normal where the country will continue experiencing significantly slower growth rates. Beyond 2021, growth may even soften further, for two reasons. First, we do not expect global oil and gas prices to increase again to pre-2014 levels as global demand is likely to stagnate or fall against the background of rising climate change concerns. Second, growing fiscal pressures in Qatar may be raising the risk of contract re-negotiation or cancellation for medium- or low-profile projects, and thus also insolvency risks for subcontractors (high-profile contracts are less likely to be cancelled, though).