Qatar's modern port and airport infrastructure attracts international investment and facilitates trade

 

Qatar’s wealth of hydrocarbons puts it at the centre of global trade, with its liquefied natural gas (LNG) feeding factories in China and powers stations in Japan, while its helium is used in everything from MRI scanners to aircraft parts. The revenue that has flowed into Qatar in the two and a half decades since gas exports were first shipped from its ports has enabled the country to build an investment portfolio that includes prominent London landmarks, as well as significant stakes in a leading Swiss bank and one of the world’s most valuable car manufacturers. There are signs the country’s sovereign wealth fund is pursuing new global investment strategies aligned with technology and green infrastructure, while on the home front, investors are working to develop industrial segments that can draw on Qatar’s multiple economic strengths to make innovative products that can leverage its modern port and airport infrastructure to develop new overseas markets.

Trade Snapshot

As a seafaring nation, Qatar was a centre of trade long before oil and gas were first discovered in the 1930s. However, in 2020 the country finds itself in a position of greater regional isolation as a result of the blockade imposed on it in June 2017, while its trading capacity with Iran has been severely curtailed by US sanctions on the country. In addition, Qatar is dealing with the impact of the Covid-19 pandemic, which has put pressure on economic activity, including trade, and health care systems around the world. In the face of adversity, Qatar has become significantly more self-sufficient for some goods while ensuring continuity in other imports by swiftly switching trading lanes from Saudi Arabia, Bahrain and the UAE to Kuwait and Oman, which are not participating in the blockade.

The most recent data on Qatari trade, for the fourth quarter of 2019, includes a snapshot of key import and export partners and products that is representative of the bigger picture. That quarter, the five-most popular export destinations were Japan, with QR12.8bn ($3.5bn) worth of goods; South Korea (QR9.2bn; $2.5bn); China (QR8.9bn; $2.4bn); India (QR8.4bn; $2.3bn); and Singapore (QR5.4bn; $1.5bn). At the same time, the five countries Qatar imported the most goods from were the US, with QR5.3bn ($1.5bn) worth of imports; China (QR3.4bn; $933.2m); Germany (QR2.1bn; $576.4m); the UK (QR1.9bn; $521.5m); and India (QR1.3bn; $356.8m).

In December 2019 the three leading commodities for export were petroleum gases, at QR15bn ($4.1bn); crude oil, at QR4.1bn ($1.1bn); and refined oil, at QR1.4bn ($384.3m). Meanwhile, the largest import categories were telephones and telephone infrastructure equipment, at QR342m ($93.9m); cars and other vehicles, at QR321m ($88.1m); and aircraft spare parts, at QR315m ($86.5m).

Oil & Gas Influence

Fluctuating global prices for crude oil and LNG have a clear impact on Qatari trade figures and its overall balance of trade. Indeed, from 2018 to 2019 the average price of Brent crude fell by 9.25%, from $71.19 per barrel to $64.37 per barrel, while in Japan – Qatar’s most popular LNG destination market – spot prices for imports fell by over 30%, from $9.20 per 1m British thermal units (Btu) in December 2018 to $6.40 per 1m Btu in December 2019. At the same time, the total annual value of Qatari exports fell by 13.5%, from QR306.8bn ($84.2bn) in 2018 to QR266.5bn ($73.2bn) in 2019. The value of imports also fell by 8%, from QR115.4bn ($31.7bn) to QR106.2bn ($29.2bn), representing the first two full years following the blockade. Overall, the balance of trade fell by 16.2%, from a surplus of QR191.4bn ($52.5bn) in 2018 to a surplus of QR160.4bn ($44bn) in 2019. More recently, the fall in global oil prices in the first quarter of 2020 – with Brent crude trading at around $20 as of early April – is likely to impact Qatar's revenues and balance of trade for the year ahead.

Qatar’s export volume is expected to increase significantly this decade as Qatar Petroleum (QP) has commissioned six new LNG trains and a new petrochemical cracker capable of producing 1.9m tonnes of ethylene per year. These projects will boost LNG output by 64% by 2027 and polyethylene by 82% by 2025, according to QP estimates. There will also be implications for many of QP’s downstream subsidiaries and joint ventures, some of which are trading products that are not directly tied to the price of oil. The vast North Field contains only a 0.04% trace of helium, but the scale of the deposit means this could meet total global demand for the next 30 years.

The Ras Laffan Helium 1 and Ras Laffan Helium 2 plants were established in 2005 and 2013, respectively, as joint ventures between QP subsidiary Qatargas and international partners Air Liquide of France and Linde Gases of Germany, which receive helium from both plants, as well as Japan’s Iwatani Corporation, which takes 20% of sales from the second plant. At full capacity, the two plants supply between 25% and 30% of the world’s helium. A third plant is due to come on-line in mid- to late 2020.

Disruption to helium supply caused by the blockade contributed to a global shortage. Helium in its gas state is used by a range of industries, including aerospace, while liquid helium is a vital coolant used in cryogenics systems. In 2018 a US auction of helium saw prices rise by 135% year-on-year.

Space to Fill

In line with Qatar National Vision 2030, the government has been working to transform the economy to create export-focused manufacturing clusters that could ensure fewer planes and ships that import goods into Qatar leave comparatively empty. In 2020 QT erminals, the operator of Hamad Port, plans to double its container capacity at the facility, allowing it to handle an additional 2m twenty-foot equivalent units (TEUs) from 2021. However, this plan is likely to be stalled given the disruption caused by the Covid-19 crisis.

The Planning and Statistics Authority (PSA), which publishes data on the weight and value of cargo arriving by ship, and the number of TEUs unloaded, does not show how many empty containers leave Hamad Port. However, data on receipt and despatch of air cargo shows an imbalance in favour of imports. In 2016 Hamad International Airport handled around 855,000 tonnes of inbound cargo and 792,000 tonnes of outbound cargo, a difference of 62,000 tonnes. By 2018 imports had reached over 1.2m tonnes and exports nearly 980,000 tonnes, a difference of more than 220,000 tonnes.

Transport Systems

The spare outbound cargo capacity at the airport and main seaport can serve as an incentive to manufacturers that are considering Qatar as an operations base, but also illustrates an opportunity cost in the economic model of a country that exports liquids but imports container loads of consumer goods. The value proposition for manufacturers is strengthened by the array of transport companies operating from Doha. In FY 2018/19 Qatar Airways cemented its position as the world’s second-largest cargo airline, transporting over 1.4m tonnes globally, a 6.8% increase on FY 2017/18. During FY 2018/19 the airline operated 25 dedicated cargo aircraft, as well as 203 passenger aircraft and 22 executive jets. At the same time, its cargo fleet was enhanced with the delivery of three Boeing 777F aircraft. The airline as a whole has placed orders for 300 new aircraft with a combined value of $85bn. In early 2020 Qatar Airways Cargo was serving more than 60 freighter terminals, and delivering freight to 160 business and leisure destinations. Its freighter fleet included two Boeing 747-8s, 21 Boeing 777s and five Airbus A330 freighters. Air freight activity was disrupted in March 2020, however, as the Covid-19 crisis led to the grounding of a significant proportion of Qatar Airways' fleet.

Qatar’s homegrown shipping fleet has also expanded in the last two decades. Since 2004 Qatari-owned company Nakilat has developed a fleet of 69 LNG vessels and four liquefied petroleum gas carriers. In 2018 the company acquired four LNG carriers and its first floating storage and regasification unit, a vital move if Qatar is to deliver LNG to countries without existing regasification facilities. Through joint ventures, Nakilat has also invested in projects that will facilitate trade and help achieve the economic diversification targets of Qatar Vision 2030. In 2018 its joint venture Nakilat Damen Shipyards Qatar delivered the first two luxury yachts constructed at Erhama bin Jaber Al Jalahma in Ras Laffan, while Nakilat SvitzerWijsmuller, its marine services and towage joint venture for vessels at the Port of Ras Laffan and around Qatar’s Halul Island, has undertaken an average of 13,000 tug jobs per annum. In 2019 Nakilat as a whole recorded a 12.4% profit increase to a little over QR1bn ($274.5m) on the back of these performances. QP’s expansion plans also bode well for the shipping trade, as it announced in April 2019 that it would need a new fleet of more than 100 ships to deliver the additional supplies of LNG due to come on-line by 2027.

Free Zones

To leverage the strengths of its air and sea trade sectors, the Qatar Free Zones Authority (QFZA) was created in 2018. Its two flagship zones are Ras Bufontas, near Hamad International Airport, and Umm Alhoul, adjacent to Hamad Port. The authority’s chairman, Ahmad Al Sayed, said the zones will focus on sectors where Qatar has a strong value proposition and identified logistics, chemicals and new technologies as target growth areas. He also announced a QR3bn ($823.4m) investment to support small and medium-sized enterprises.

By March 2020 QFZA had approved projects worth more than QR3bn ($823.4m). In December 2019 the authority announced that seven new international investments would join more than 50 companies already aiming to operate from one of the two sites, representing a total investment of more than QR1.5bn ($411.7m). All seven businesses reported that the target markets for their products were in the MENA region. Malaysian firm Wasco Coatings Middle East said it would also use its Qatar base to serve the European market for the pipe coatings it makes for the energy sector. The other six companies all focus on innovative transport and power solutions. China’s Unistrong produces navigation, positioning and mobility solutions, while China Harbour Engineering Company has expressed an interest in manufacturing electric buses in Qatar. US-based Inventus Power specialises in battery technology and wiring, while French firm Gaussin plans to use its plant for the assembly of electric and autonomous vehicles. The French group Thales comprises multiple divisions but has mainly identified digital and electronic systems for its free zone business. The seventh business to invest in the free zone is a Volkswagen unit dedicated to automotive technologies. In December 2019 Volkswagen signed an agreement with the Qatar Investment Authority (QIA), the country’s sovereign wealth fund, to develop a new line of self-driving public transit vehicles in time for the 2022 FIFA World Cup in Doha. More recently, in early March 2020 QFZA announced that Google Cloud will launch a cloud region in Doha, which is expected to help develop the technological landscape in Qatar and attract international investment.

The country’s focus on diversification is providing food for thought for Qatari conglomerates. “Although we are currently focusing on our core businesses, we would like to create a division in the future with an annual investment fund to provide seed funding for technology start-ups,” AbdulSalam Abu-Issa, CEO of Salam International, told OBG. Creating manufacturing clusters in its free zones should also enable businesses establishing factories in the country to share related expertise.

Financial services companies already benefit from the Qatar Financial Centre (QFC), which has its own tax and regulatory infrastructure, including a legal system based on UK common law. Over 500 firms from 60 countries are based in the QFC, employing 3500 people with combined assets under management totalling more than $20bn.

Global Spotlight

With 1.5m visitors expected for the 2022 FIFA World Cup and 3.5bn having watched the previous tournament in 2018, both the government and investors realise there is an opportunity to display new technology and forge new partnerships during the tournament in 2022. “The 2022 FIFA World Cup will bring a lot of attention to the country, and beyond the tournament there is the possibility for sports academies to be developed with some of the biggest clubs in the world because we will have the stadium infrastructure and also the mild winter climate,” Ullatill Achu, general manager of Dyarco International Group, told OBG.

Investment

In harnessing capital from abroad, PSA data comparing 2017 and 2018 shows a 4.6% fall in the value of foreign direct investment (FDI), from QR129.3bn ($35.5bn) to QR123.3bn ($33.8bn). In both years 98% of inward FDI was concentrated in manufacturing, oil and gas, and financial services, with small fluctuations recorded in the shares of the three. Manufacturing accounted for 58.6% of total FDI in 2017, at QR75.8bn ($20.8bn), down QR5bn ($1.4bn) in 2018 to 57.4% of the total. Meanwhile, FDI in the oil and gas sector fell from QR38bn ($10.4bn) to QR37.4bn ($10.3bn), making up 30% of the total in each year, and FDI in financial and insurance services rose from QR12.9bn ($3.5bn) to QR13.1bn ($3.6bn), representing about 10% both years.

Incentives

A key move made by the government to attract more FDI was the introduction in January 2019 of Law No. 1 of 2019, allowing for the use of 100% foreign capital to establish businesses in Qatar. The Ministry of Commerce and Industry is the body considering applications, but the new law does not apply to investments in the banking and insurance sectors. The law’s purpose is to facilitate the diversification of the economy and aims to boost confidence in the country as an investment destination. Furthermore, in July 2019 the Investment Promotion Agency was launched to help connect investors to the country's various business and licensing platforms, and to liaise with government, domestic and international stakeholders.

Investor sentiment may also see a boost from the improvement of Qatar’s position on the World Bank’s 2020 ease of doing business index, rising from 83rd to 77th out of 190 countries, placing it among the top-20 reformers. Specifically, improvements were noted in obtaining credit and access to electricity, as well as for registering property.

QIA

The QIA was created in 2005 and over 15 years has made a number of high-profile international investments to ensure future generations can benefit from the financial surplus created by oil and gas. The QIA manages assets of around $320bn which have been focused heavily on London, with significant stakes in Canary Wharf Group and the Shard, outright ownership of Harrods, a 10.3% stake in the London Stock Exchange, a 21.99% stake in retailer Sainsburys and a 20% stake in Heathrow Airport. It has also invested in international oil companies and commodity firms, with a 9.17% stake in Glencore and a 5.21% stake in Credit Suisse. The QIA also had a 9.86% stake in New York jeweller Tiffany and Co, which it sold to luxury giant LVMH for $16.2bn – subject to regulatory approval – in November 2019. However, there are signs that under its new CEO, Mansour Al Mahmoud, some of the QIA’s focus may shift towards alternative investments in financial technology (fintech), education technology (edtech) and green energy. In May 2019 US fintech firm SoFi raised $500m in a funding round led by the QIA, and media reported that Al Mahmoud had praised SoFi’s approach to disrupting consumer finance. In July 2019 the QIA invested $150m in Indian edtech unicorn Byju, and in December it paid $450m for a 25.1% shareholding in Indian power distribution company Adani Electricity Mumbai.

There are synergies between QIA’s international investments and its activities in Qatar. For instance, since the QIA has a 14.6% stake in Volkswagen and 17% of the voting rights, it is no coincidence that the German car manufacturer has chosen Qatar’s new free zones to develop the autonomous ID Buzz vehicles, which are slated to be part of Doha’s public transport market in time for the 2022 FIFA World Cup as part of Project Qatar Mobility. “For our cities to progress, we need a new wave of innovation. Artificial intelligence-enabled and emissions-free transport technologies will help advance urban mobility, while diminishing congestion and improving energy efficiency,” Al Mahmoud said at the signing ceremony of the agreement.

Outlook

Qatar's rapid economic growth in the past two and a half decades should help the trade sector weather the challenges it faces in 2020. The country has also invested in education to help younger generations prosper from, and be a part of, its value proposition for future investors (see Education & Research chapter). “Authorities have done a good job in developing the economy. They have a population that is highly educated and aware of what is happening in the wider world,” Imran Chughtai, CFO of holding firm Aamal Company, told OBG.

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The Report: Qatar 2020

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