State seeks leading role on world stage
By James Drummond
Published: December 8 2008 16:34 | Last updated: December 8 2008 16:34
The new Islamic Museum in Doha, the Qatari capital, has attracted near universal praise for the cleanliness of its lines and its blend of ancient and modern. Only recently fully open to the public, its ambition goes far beyond promoting Islamic culture.
The landmark centre is a crucial part of Qatar’s attempts to put itself on the global map.
Home to al-Jazeera, the Arab world’s most popular television channel, and to the Qatar Investment Authority (QIA), the super-active sovereign wealth fund that continues to invest in western institutions despite the global financial turmoil, Qatar has been gradually building up its reputation as a force on the world stage.
Sitting on the third-largest gas reserves in the world, and with a small population of 1.5m, only 200,000 of them nationals, Qatar has been able to afford its ambition: it is, after all, the richest country in the world on a per capita basis.
Since 1995 when the emir Hamad bin Khalifa Al Thani seized power from his father, it has been on an economic drive that includes $80bn in infrastructure development and real estate projects over the next five years. It is spending heavily to lift its gas exports from 31m tonnes a year to 77m tonnes.
Doha now boasts its own financial centre and is looking to rival Dubai as the region’s financial hub.
Its education city is home to a growing number of branches of foreign universities.
Doha has also exploited its wealth to pursue its diplomatic ambitions.
Though it lacks the regional weight of Egypt or Saudi Arabia, it has managed to succeed where others have failed, brokering this year an agreement among bickering Lebanese factions that pulled the country from the brink of civil war.
To deflect threats to its own existence in a troubled neighbourhood, it constantly hedges its bets, allowing the US to build a military base on its soil but also keeping open lines of communications with Iran. Doha befriends radical groups in the region, such as Hamas and Hizbollah, but is also one of the very few Arab capitals where Israeli officials are welcome.
As the global financial crisis pushes developed countries into recession and oil prices collapse, however, Qatar’s own ambitions, and its ability to finance them, may have to be reviewed.
The impact of the financial turmoil has been most starkly reflected on the stock market, which has fallen by 37 per cent in the year to date after being among the Arab world’s best performers.
Moreover, while investing £7bn ($10bn) in
Barclays last month alongside a member of Abu Dhabi’s royal family, the QIA has also been forced to take stakes in local banks to shore up liquidity and prevent a further erosion of confidence.
Qatari officials insist they can weather the crisis. Youssef Kamal, minister of finance and economy, says that in his near 30 years in his job, three periods – 1988, 1998, and 2001-2202 – were more difficult than the current global financial situation. At those points oil prices were much lower and Qatar had not established its LNG exports infrastructure.
“This time it is much easier for me to manage. I think this is because we had a lot of investment in oil and gas.”
To be sure, Qatar has a budgetary cushion that will help the government pursue its most strategic investments. In the current financial year, Mr Kamal has used an oil price assumption of $55 a barrel when economists say the Qatari oil is likely to average $95-$100, which would give Qatar a sizeable budget and current account surplus.
But with the oil price continuing to decline – it has gone from $147 a barrel in July to below $47 a barrel – Qatar’s budget surplus could substantially shrink next year. The Institute for International Finance, which forecasts average oil prices next year of $56, estimates that Doha needs around $40 a barrel to finance its budget. With credit tightening and the cost of borrowing rising, analysts also say Qatar will not be immune to the real estate slump, which is already having a significant impact in neighbouring Dubai. Analysts say that Doha could benefit from Dubai’s troubles, attracting expatriates who might have moved to the glitzier city. But if the global recession deepens, then fewer companies will have much appetite for expansion in the Gulf and elsewhere.
Until recently, the government’s biggest headache was inflation, which hit 14.5 per cent over the summer, the highest among Gulf states.
Over the summer, billions of dollars were parked in Gulf currency assets in the expectation that Qatar and other states would quit the peg to control rising prices. But the US dollar strengthened, inflationary pressures eased, and with them, the pressure on the riyal.
The main beneficiary of the emirate’s extraordinary wealth has been the QIA. The sovereign wealth fund, however, has come under criticism for buying fashionable assets at the top of the market.
A report by Samba Financial Group, the Saudi bank, last month said Gulf sovereign wealth funds may lose 15 per cent of their value this year.
John el-Khair of the QIA refuses to comment on losses and the value of the funds under management, usually estimated at around $60bn.
He says the fund has a 20-year-plus investment horizon. “Clearly the recession is going to be significant – the numbers have fallen off a cliff.
Credit risk is very much higher. But the QIA is a long-term investor. We don’t have to de-leverage.”
While Qatar remains determined to push ahead with its development plans, the sophistication that it has shown on the economic and foreign policy fronts have run ahead of local political reforms.
The country is run by a handful of people. Hamad bin Khalifa, the emir, is said to sign every cheque over $5m as well as exercising his duties as defence minister.
Tamim bin Hamad, the high-profile heir apparent, is responsible for internal security and chairs the QIA.
Sheikh Tamim’s mother, Sheikha Mooza, is an unusually high-profile woman in the Arab world and is de facto in charge of social policy.
Her focus has been to improve education and primary and secondary schools are being reformed.
Education is a challenge for not just the local population. Finding a good school is probably the main constraint for the growing number of expatriates who also have to contend with Doha’s choked roads and over-stretched infrastructure.
Those building this infrastructure have even more basic concerns.
In its annual survey of human trafficking, the US state department lists Qatar at Tier 3 – a state that “fails to make significant efforts to bring itself into compliance with the minimum standards for the elimination of trafficking in persons” – and in theory open to US sanctions.
The emirate requires expatriates to obtain an exit permit from their sponsor. The government says this is purely a financial matter but others view it as invasive and conducive to people-trafficking.
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