Qatar: Risk Assessment
Country Rating1
Rating: A2
Business Climate Rating1
Rating: A3
Risk Assessment2
Fastest economic growth among Gulf countries, buoyed by increased LNG production capacity
In 2011, Qatar will likely continue to boast the highest economic growth in the region. The economy is set to make a new great leap forward based mainly on an increase in natural gas liquefaction capacity enabled by the production start-up of two new "mega facilities" by the end of the 2011 first quarter. Questions remain nonetheless posed as to the impact on global demand for LNG of the rapid development of non-conventional gas (shale gas) in the United States. Qatar's dominant position on the market, in conjunction with low production costs, is expected, however, to enable the country to sustain its export volumes albeit with tighter margins. In any case, a moratorium on concluding new gas export agreements will remain in effect until at least 2013, according to global forecasts of demand for gas. Another moratorium was decided in 2005 on new exploration projects in North Field, the main gas field. Only the Barzan gas development project remains topical since its purpose is to supply domestic gas.
And oil production will increase in 2011, thanks to exploitation of the Al Shaheen oil field, but it will remain limited by OPEC quotas. A small additional boost will result from the production start-up of the gas liquefaction factory "Pearl GTL" (Gas-To-Liquids), operated by Shell.
Qatar has continued its efforts on diversification. Installation of a second petrochemical factory, Qatar Chemical Company II, a joint venture between Qatar Petroleum and Chevron Phillips, was completed late 2010. And several major projects are under development or planned, like the new Doha international airport, a railway network, a bridge to Bahrain, and the development of Education City.
Solid twin surpluses that contribute to easing the foreign debt burden
After contracting sharply in 2009, the current account surplus will make a significant recovery in 2011, with the increase in exports driven mainly by the production start-up of new LNG and GTL facilities and the ongoing production of oil. The resulting strong growth will more than offset both the moderate growth of capital and consumer goods imports and the outflow of capital via transfers abroad by foreign workers and profit repatriation by foreign companies.
Hydrocarbons, which generate three-quarters of foreign exchange earnings and over half of fiscal revenues, will also enable Qatar to run a solid fiscal surplus despite the continuing policy focus on infrastructure investment spending.
The amount of foreign debt has been growing rapidly for several years, with Qatar financing development projects mainly by floating bond issues on international markets. Since the projects represent productive investments, however, the debt burden will ultimately ease as a result of the additional GDP growth and export sales they are expected to generate. And Qatar's massive financial holdings abroad (estimated at $85 billion), managed by the Qatar Investment Authority sovereign fund, will provide the means for cushioning any external shocks.
Since the Dubai World financial crisis and the payment defaults by two Saudi family groups of companies in 2009, commercial banks have become more selective in granting loans, which will likely foster greater transparency on the part of companies.
Strengths
- World’s third largest gas reserves and world leading exporter of liquefied natural gas (LNG)
- Per capita income among the world’s highest
- Advanced diversification (petroleum downstream, finance, education, tourism)
- Among the highest standards of living in the world
- Stability of the regime of Sheikh Hamad bin Khalifa al Thani and intent on playing a mediator role at the regional level
Weaknesses
- High foreign debt albeit largely secured by long-term export contracts
- Relative opacity of the economy
- Dependence on foreign human resources
- Uncertainties over the future of LNG in view of the development of non-conventional gas