Doha – Decypha: Qatar, like many other countries of the GCC, has assumed a development strategy, dubbed Qatar National Vision 2030 (QNV 2030), that rests on several pillars, most importantly in this context on diversification of its economy. Now attracting foreign investors and companies to the country serves several roles in this context: it is a good way of attracting capital – important in the context of Qatar suffering from the drop in oil prices like similar gulf countries – and it brings in foreign know-how, which is likewise important when the goal is diversification of an economy based on mineral wealth.
Yet as the country’s economy is still largely based on mineral ressources, namely oil and liquefied natural gas (LNG), which account for around 85% of export earnings, Foreign Direct Investment (FDI) could be viewed as an easier road to further strengthen the country’s economy.
Indicators and indexes
FDI inflows to Qatar recorded around $1.1 billion with an FDI stock of around $34 billion, according to the World Bank. This puts Qatar at rank 63 of 117 recorded countries, somewhere between Tunisia and Greece in terms of stock, while in comparison Saudi Arabia and the UAE occupy the 25th and the 40th position respectively.
Inward FDI stock mainly comes from the EU with 33%, the US with 24%, and other American countries with 35%, according to a report by Qatar’s Ministry of Development, Planning and Statistics (MDPS). The report further highlighted that FDI stock amounts to 17.9% of the GDP, while the annual inflow amounts to 0.7%.
Furthermore, 53% of the country’s FDI was allocated to the sector of manufacturing, 35% to mining and quarrying, and 7% to financial and insurance activities.
However, according to recent Chinese figures, Chinese investment in Qatar has increased by 77.5% in 2016 to a total accumulated contracting revenue of $1.12 billion, indicating stronger Chinese involvement in the country's economy.
In a different matter, Qatar in 2017 ranked 83 out of 190 listed countries in the World Bank Group's Doing Business index that measures the protection of property rights, applied regulations, and other business-relevant factors. Especially interesting in this regard is that Qatar constantly dropped in this ranking over the past few years, coming in 68th in 2016 and 50th in 2015, pointing to a relative worsening of business conditions in the country, at least compared to its competitors.
In the index, Qatar ranked relatively well in terms of issuing construction permits and registering property, while even claiming the top spot in terms of taxes. However, it held a disastrous 183th place in terms of protecting minority investors – considering Qatari legislation one of the main spots to be in for foreign investors – and a 139th place in obtaining credit.
Despite that, Qatar ranked 29th in the 2017 Index of Economic Freedom, recording good figures in terms of government involvement, namely taxes, fiscal health, and government spending, as well as in the sectors of monetary freedom, trade freedom, and property rights. Less good were its grades in government integrity and judicial effectiveness, citing corruption cases and a lack of judicial independence along with a lack of protection for non-Qatari citizens, while problems were also recorded in the sectors of investment freedom and financial freedom due to state-owned companies distorting the economy and the cap on foreign investments, both in terms of size and available sectors. Nonetheless, the Economic Freedom index saw some improvements, most notably a 5% rise in investment freedom in 2017 after stagnation in this regards for the past 7 years.
Despite all of this though, Qatar still managed to occupy the first rank in terms of competitiveness of its economy among GCC countries for 2015/16, while ranking second in terms of infrastructure after the UAE, according to the Global Competitiveness Report, which also recorded good grades for Qatar in terms of innovation friendliness and the degree of financial development. Meanwhile, Transparency International's corruption ranking for 2015 found that Qatar is the GCC country suffering from the least amount of corruption with the emirates slightly trailing behind it.
Legal framework and the economic state
Qatar has a relatively small amount of nationals with barely over 310,000 in 2016, according to the Ministry of Development Planning and Statistics (MDPS). However, the majority of the population is made up of expatriates – roughly 2.3 million. This development, despite being persistent since the 1970s, has made Qatar vary of foreign dominance and the possible vanishing of its traditional roots. Therefore another point of QNV 2030 is the encouragement of traditional values and Islamic philosophy along with a policy of Qatarisation that aims to boost the percentage of Qatari nationals in the industry and energy sectors to 50%.
Furthermore, as stipulated by Law 13 of the Year 2000 on the Organization of Foreign Capital Investment in Economic Activity, 51% of the shares of each venture need to be held by a legal or natural Qatari person, with some activities – with the exception of free zones or under ministerial resolution – being excluded from foreign investment, such as banking, insurance, or commercial agencies.The percentage of Qatari ownership might be lowered to 50% if the other side is a legal or natural GCC entity. Also, Qatari legal entities must be wholly owned by a Qatari national.
Exceptions to foreign ownership rules can be granted by the Ministry of Business and Trade with the sectors eligible for such exceptions being agriculture, industry, health, education, tourism, energy, and culture, according to the Qatar Chamber, the country's chamber of commerce. Preference in this regard is given to enterprises that utilise local resources, including manpower, introduce new technologies, establish branches of global companies, and those that train Qatari nationals.
These laws and practices point towards two important things: firstly, they suggest that the country is highly interested in introducing new technologies and qualifying its workforce along with establishing stronger international trade ties, shifting away from the heavy reliance on exporting mineral resources. Secondly, it also shines a light on how public policies are very much adjusted to maintaining a large degree of Qatari national ownership in foreign enterprises to preserve national dominance in the ownership structure.
However, the low oil price might make the country more dependant on foreign investments in the mid-term, as Qatar in 2016 issued bonds worth $9 billion, the largest of its kind in Middle East history, to cover its first budget deficit in 15 years. This issue might lead the country to reconsider some restrictions to generate more capital through FDI, especially as its FDI figures are far from being overwhelming.
Challenges an opportunities
Overall, the aforementioned data rather clearly pictures the challenges: Qatar is still eager to maintain a high degree of national ownership and does not earn good grades with regards to the protection of minority investors, which can make investments from outside difficult, depending on the sector.
On the other hand, Qatar has a solid infrastructure in place, a competitive economy, and virtually no taxes for foreign enterprises in place, at least for the first 10 years of operations. It is in need of attracting foreign skills and concepts, not least to follow through with its policy of Qatarisation that requires intensive training of its nationals and the introduction of new innovations.
In the end, the future of FDI in Qatar largely depends on the leadership's reaction to current circumstances and how sincere it is about the diversification of its economy. Meanwhile, main incentives for investments remain the low taxes, the strong economy, and a good infrastructure.
While it is not directly dependant on the foreign capital due to its rather healthy state budget and a high GDP per capita, the country is much in need of innovations, market access, and foreign ideas that come with the involvement of foreign investors.
Therefore, even though the current climate for foreign investment is not exactly favourable, further improvements of investment policies, favouring the involvement of foreign investors and – most importantly – protecting and guaranteeing their rights could indicate a significant rise in FDI to the country as its economy is competitive, its taxes are low, and the infrastructure for most kinds of projects is already in place. However, as Qatar still can largely rely on itself in terms of financing, extensive measures to attract more than the existing FDI are not in sight as of now with the minor exemption of the tourism sector that has seen an increased lifting of restrictions on foreign ownership.
By Tim Nanns
