(This report was prepared in February 2007)

General

Qatar’s economy continues to grow from strength to strength.  Nominal GDP growth was at 33.8% in 2005 and estimated to have grown by a further 27.1 % in 2006 and by another 17.0% in 2007.  Final figure for 2005 show a real growth rate of 8.1% with a GDP reaching QR 154.6 bn or USD 42.47 bn.  Qatar’s rapid economic growth has enabled it to become one of the wealthiest countries in the world as measured by GDP per capita.  In 2005, Qatar’s GDP per capita reached QR 180,744 or USD 49,655.  It is estimated that in 2007, GDP per capita will reach as high as QR 234,761 or USD 64,495.

Oil and gas account for more than 60% of GDP and 70% of the government revenues.    Proven oil reserves of more than 15 billion barrels should ensure continued output at current levels of about 900,000 bpd for 25 years.  Qatar’s proven reserves of natural gas exceed 25 trillion cubic meters, more than 15% of the world total and third largest in the world.

Budget:

Qatar’s inflows for 2006/2007 are estimated at QR 81.936 bn or USD 22.51 bn. (at a conservative estimate of oil price of USD 27 pb.).  For 2006, an amount of QR 61.474 bn or USD 16.89 was allocated for expenditures, including capital expenditure of QR 8 bn or USD 2.2 bn .

The most dramatic feature of 2006/2007 budget is the growth in government spending.  Total expenditure is budgeted to jump to QR 54,600 million, a 44% rise on the 2005/2006 budget and double actual spending in fiscal 2004/05.  While current expenditure receives a 32% increase in its budget allocation, the rise is over-shadowed by the projected growth in capital spending, up by a 70.5% to QR. 20,000 million.

For 2006/2007 the government has forecast a drop in state revenue and a further rise in spending compared to 2005/2006.  Total state earnings are set at QR 56.9 bn down 5.5% on the preliminary figures for 2005/06.

Total treasury expenditure is meanwhile fixed at QR 54.6 bn.  Of this investment expenditure is set at some QR 20 bn, an increase of 23.8% showing the government intends to maintain its fast pace of infrastructure and investing spending.  Overall the government is expecting a budget surplus for 2006/2007 of QR 2.3 bn.  This would be a sharp decrease from 2005/06 , down 82.8%.

Considering the government’s track record, however, it appears likely that when final figures are released as in previous years, Qatar’s state finances will have once again surpassed expectations, largely thanks to higher actual oil prices.

Expected Capital spending is divided into 3 main categories:

• Public services and infrastructure allocation is budgeted to rise by 56.5% to QR 10,500 million;
• Social services and health care by 18.2% to QR 3.380 million;
• Education and youth welfare to rise by a massive 216%, to QR 5,700 million.

The Qatari government has lined-up plans to invest in five years a total of $ 133 billion by 2010.  Qatar Petroleum has in its new five year plan 2006-2010 budgeted an overall QR 204 billion for projects in crude oil, natural gas, gas to liquids, refining, petrochemicals, industrial cities and others.  Last year’s expenditures were QR 145.6 bn or USD 40 billion in gas and oil, and QR 254.8 bn or USD 70 bn more expected by 2012; ($23 bn in other sectors, lions’ share infrastructure, which comprises of a whole series of energy and general infrastructure projects).

Energy:          

USD 15 billion allocated for LNG expansion projects by 2010 and USD 60 billion for the

North Field  Development Project up to 2012, plus additional USD 15 billion for LNG tankers by 2010.

General Infrastructure projects:

USD 13 billion including USD 5.5 billion for the new airport, USD1.8 billion for the Qatar-Bahrain causeway, as well as $3.8 billion for a five year programme of public works that ends by 2009.

Electricity and Water:

USD 3 billion ( including USD 1.6 billion for the energy city and the

balance for major projects).

Public, Tourism and Culture projects: USD 12 bn.

Asian Games: USD 2.8 bn ( budgeted, but actual amount was at least USD 1 bn more);

Pearl Qatar: USD 2.5 bn reclaimed island property.

Diversification of the Economy

Qatar is looking to become the “gas capital” of the world by the end of the decade.  It has already overtaken Indonesia as the world’s largest supplier of liquefied natural gas ( LNG), (77 mtpa by 2012).  Most of the LNG has been allocated in long term contracts of up to 30 years, the export market being roughly 1/3 to Asia, Europe and America each.  At the same time, Qatar will also become the “gas to liquid (GTL) hub of the world” with important GTL projects, such as Shell’s Pearl GTL multi billion dollar project, expected to produce 400,000 bpd by 2012.  In an effort to assess the prudent rate of extraction of its gas reserves, the government has imposed a pause on new gas export projects, which at present appears set to remain in place until 2010 at least, awaiting results of a study that is being conducted on the effects of the extractions on the gas fields of the North Field.  The results of this study are expected to be ready by 2009.

Although the gas and oil sectors will remain the major economic sectors for the foreseeable future, the authorities are acutely aware of the need to build a sustainable economy, and are therefore actively diversifying in others sectors such as the petrochemical sector, power generation, water management, infrastructure, housing, medical care, high level tourism, conference center, to name a few.

In this context the government is not only preparing to invest huge amounts into said sectors but also seeking to encourage private and foreign investment into non-energy sectors.  With this in mind the Qatar Financial Centre was established in May 2005. In addition, two free trade zones are under construction to encourage economic diversification.  With a new investment law also planned, and the local and regional economy continuing to benefit from high oil prices, Qatar appears well placed to improve on its previously poor performance in attracting foreign investment into non-hydro-carbons sectors.

Non-Oil Sectors

In 2006, the non-oil sector contributed to 40.4 % of total GDP.  Main components of these sectors are the following:

• Manufacturing industry, contributing to QR13,042 million of the total budget, representing 8.4% of GDP;
• Other services ( government services, social services, household services and others) contributed to QR 11.514 million of the total budget and second largest and 7.41% of GDP;
• Building and Construction: The rapid pace of developments in the building and construction sector is quite evident in Doha over the last few years.  In 2005, the number of building permits issued increased by 23.4%.  Public expenditure is a very important factor affecting the prospects for the building and construction sector, and the realisation of budgetary surpluses in the last six fiscal years has increased the level of public spending.  Allocations for the major public projects in the 2006/07 budget increased by 70.5% to reach QR 20.0 bn, which covers that areas of public services, infrastructure, social and health services and education and youth welfare;
• Real estate and business services, QR 7,672 million and 5% of GDP;
• Finance and insurance, QR 7,113 million and 4.6% of total GDP;
• Trade, restaurants and hotels, QR 6,869 million and 4.4% of total GDP;
• Transport and communications, QR 5,114 million and 3% of GDP;
• Electricity and water, QR 2,209 million and 1.5% of the GDP;
• Agriculture and fisheries, play a minor role and contributes only 0.79% of GDP;

The Netherlands and Qatar

The bilateral relations and cooperation between the Netherlands and Qatar have been steadily gaining momentum, especially after opening of the respective Embassies in Doha and the Hague.  Tradeflows between Qatar and the Netherlands, although still modest in real terms, are starting to show significant growth rates with the latest figures (2005) showing Qatari imports from the Netherlands increasing by some 36% and Qatari exports to Holland

( excluding oil and gas) even by some 261% respectively.   At the same time more and more Dutch companies are showing an interest in setting up businesses in Qatar.

Latest estimate show a Dutch community of some 500 nationals in Qatar ( including families), and the number is expected to rise further in the future.  

Challenges

Qatar GDP per capita is already one of the highest in the world and is expected to rise still further in the coming years, with GDP reaching an estimated 100 bn by 2010.  The country is therefore far more likely to be facing the challenges of wealth, than to be grappling with shortages at any level.  These challenges could however, also be quite formidable.

Two of the main challenges that lie ahead concerns the labour market and the infrastructure:

a) Labour market: Labour is a major issue, as Qatar seeks to strike the right compromise between maintaining a comfortable local/expatriate population balance and finding the workers it needs to run an expanding economy and stimulate the demand for goods and services that should be key factors in the expansion of the private sector.  With a population of some 880,000, of which approximately 185,000 are Qataris, the number of non-Qataris exceed the nationals by almost five times.  Recent reports on Qatarisation facing challenges and most Qataris preferring to work at the public sector is also an added challenge to the labour market.

b) Infrastructure: Qatar has huge plans to expand its infrastructure with high rises,

high ways, causeways, ports, airports, residential complexes (such as the Pearl, Lusail, Al Waab), hotels and many other projects.  This is a real challenge for Qatar in view of increasing shortage of building materials and man power, and not being able to keep up with the pace.  One of the main problems is a severe cement shortage that is casting a shadow over the multi billion investment plans by the government.  Capacity constraints have been a feature of the Doha market over the past two years as the growing economy has placed strains on limited resources.  If the situation is not resolved, the construction boom will be affected.