Alexander Hartmann
Managing Partner
The Loft Bureau Real Estate LLC
At the end of the second quarter of 2021, the state energy company of Qatar, international market leader Qatar Petroleum, announced the completion of the biggest emerging market bond sale this year, selling $12.5 billion of dollar bonds as it seeks to raise output of liquefied natural gas and cement its domination of the market. Initially, investors placed around $40 billion worth of orders, according to information available to the public.
This huge success does not represent the general opinion of the leaders of the global investment markets when it comes to Qatar as an investment hub, but it shows the huge trust many global investors have in the flagship organization and the local government. The question is, will Qatar benefit in a wider sense from this record-breaking financial transaction and will the upcoming 2022 World Cup trigger an increase in foreign direct investment?
Well, to predict the development of FDI for the coming 18 months, and maybe beyond that, we should have a look at Qatar’s recent history first. Nobody in Qatar will ever forget the day when in June 2017 the neighbouring countries and other GCC members imposed an economic and political blockade on the country. On that day land, air and sea borders were suddenly closed separating families, stopping students from completing their university programs and creating issues for Qatari businessmen and women who owned assets in the blockading countries. On the other hand, many will agree with me that the blockade helped Qatar become more independent from its neighbours and build a strong local economy. One of the sectors which witnessed a massive positive change during this period was the food industry, e.g. the lack of dairy products in Qatar was the reason for one of the most prominent local business families to establish Baladna Food Industries, the local market leader for dairy products of today. Many other companies, including farms followed this success story and “Made in Qatar” became a strong brand.
Other positive consequences resulting from the blockade were that Qatari entrepreneurs found and established new trade routes. While many of them were used to buying their goods from traders in Jebel Ali prior to the blockade, they now learned to go directly to the source and import goods directly from their origin to Qatar. The Hamad Port was opened 48 hours after the blockade began and played a significant role in the economic recovery and growth of the country during that period. Qatar Airways quickly established new routes as they were not allowed to use the established routes anymore which would require passing through the airspace of the blockading countries. Financially, Qatar proved that its income from liquefied natural gas exports and the cash reserves of the Central Bank, Islamic and conventional retail banks and Qatar Investment Authority are sufficient to stabilize and support the gulf state’s economy even in most difficult times.
Keeping this in mind, it is interesting to look at the development of FDI flow in the two years after the four blockading countries enforced their economic and political embargo. According to data from the UN Conference on Trade and Development, FDI inflows to Qatar fell from $986m to -$2.8bn by 2019. Unfortunately, these numbers show that divestments from the country were almost $3bn greater in value than investments into the country in 2019. The total stock of FDI stood at $31 billion in the same year. Overall, FDI flows into the Gulf state have generally followed an upward trend in the past several years, mainly supported by Qatar’s political stability, a stable currency, high quality infrastructure, one of the highest GDP ratios per capita, a wealthy local community and one of the most attractive corporate tax rates in the world, at 10 percent. The largest contributors to FDI inflows are the United States, Japan, South Korea and Singapore, while the main sectors that attract foreign investments are oil and gas, construction, public works and financial services.
According to information published in UNCTAD’s Global Investment Trends Monitor from January 24, 2021 Global FDI flow fell 42 percent worldwide in 2020 compared to 2019. In the same period FDI in Qatar decreased by a cumulative $2.5 billion during the first three quarters of 2020. What shall we expect for the time between today and the 2022 World Cup?
There is no doubt that Qatar is an economic powerhouse and a leading state among all Arab countries. During the blockade, Qatar’s political elite managed to establish and strengthen political ties between Qatar and many of the leading countries of the free world. It is expected that these relationships will now help Qatar achieve its ambitious goal of becoming a leading country in terms of its business and foreign investment environment. Qatar has signed over 49 bilateral international investment agreements to benefit from these existing political ties. Those agreements will have a positive effect on the FDI flows into Qatar and help the local economy to diversify and grow.
As one of the big milestones on the way to position Qatar as an attractive business and investment hub for foreigners, the local government in May 2018 approved a draft law that allows non-Qatari investors to own 100 percent capital in almost all sectors, while many Qatar Stock Exchange listed companies have increased their foreign ownership limit to 49 percent. The introduction of a new real estate law around the same time and the cabinet decision to allow foreigners to own real estate across Doha can be considered another big step in the same direction. It is widely understood that Qatar’s 77th rank out of 190 economies in the 2020 Doing Business report issued by the World Bank, resulted from the latest changes in the real estate sector but is also a consequence of the strong FDI flows between Turkey and Qatar.
Last year, Qatar introduced a public-private partnership (PPP) law which strengthens the position of investors as genuine long-term partners for the government in its economic diversification strategy. Under the PPP law investors will co-own infrastructure assets which they have developed under long-term concessions. It is expected that this move alone will attract more than $1.5 billion in additional FDI inflows.
Other advantages that foreign investors may benefit from are the low cost of energy, inexpensive labour force provided by migrant workers and various incentives provided by the local government to local and foreign investors.
According to recent announcements from the local government, the country’s major investment targets are in fintech, advanced manufacturing, healthcare, smart cities, logistics and supply chains, education (supported by 10 percent of the 2020 state budget, or $6.1 billion), artificial intelligence (AI) and information and communications technology (ICT). In line with this ambitious strategy, Qatar Financial Centre’s CEO Yousef Al Jaida announced earlier this year that The Qatar Financial Centre is trying to attract a $ 25 billion inflow of foreign direct investment by 2022.
We know from other previous international events how beneficial these events can be for a local economy. Therefore, we can expect that the organization of the 2022 World Cup in Qatar will positively support the local government’s efforts to attract large amounts of foreign investors in the coming years. On one hand, the World Cup is the second largest sporting event in the world after the Olympic Games. Under normal circumstances, the event will attract tens of thousands of tourists. On the other hand, the event is a great stage for Qatar to present itself to the world as a beautiful country with loads of opportunities.
The stage for Qatar to present itself to the world will be the 2022 FIFA World Cup and yes, we will see an increase in foreign investment coming to the country soon. The local real estate market will definitely benefit from an increased interest by foreign investors. My recommendation for real estate developers and other market participants is: get ready for international investors!
This article was published as part of the sixth edition of Property Finder Qatar’s Trends Report.
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