Cairo – Decypha: Deemed as one of the strongest economies in the Middle East, Qatar continues to embark on survival attempts following a blockade that occurred earlier in June. The conflict with GCC countries has disturbed trade, delayed projects is Qatar, affected supply chains, the flow of goods and services, and shaken investors’ trust in the country according to a report by Brookings; however the country has developed several alternative channels and solutions to presume with its economic activity that usually depended on the support of GCC countries.
UAE, Saudi Arabia, Egypt, and Bahrain have escalated crisis with Qatar and decided to cut off diplomatic ties with the country on accusation of supporting extremist groups, shutting down airspace, sea, and land routes, restricted entrance of Qatari citizens and gave them a 14-day notice to leave the country. Despite the hardships faced by expats, local residents in Qatar were more skeptical about their future in post-embargo Qatar, some lined up to pack off several goods to store until further notice.
Pre-Crisis Economic Performance of Qatar
Qatar is said to acquire important assets that is needed to ensure economic stability where it owns foreign investments worth over 250% of its GDP, according to Qatari Finance Minister Ali Shareef Al Emadi who told CNN Money. A strong neighbor to Saudi Arabia and UAE, Qatar imports 40% of its food through Saudi Arabia through shipping routes that pass by UAE ports, while on the other hand UAE is also reliant on Qatar for natural gas where its gets a third of its natural gas from Dolphin Energy Pipeline located in Qatar.
Qatar’s trade flow has amounted over $ 2 billion with Saudi Arabia along, $ 7 billion with UAE, and $ 500 million with Bahrain, according to Brookings that confirmed that the country exports from these countries more than it imports. UAE is the second largest biggest source of imports into Qatar in Q4 in 2016 while Saudi Arabia ranked eighth according to Bloomberg; both countries comprised a total of 15% of Qatari imports in the quarter.
The banking sector of Saudi Arabia own around $ 30 billion pumped by Qatar and approximately 70 flights between Qatar and all three countries took the sky daily. The country’s oil and gas revenues amount half of the GDP as current expenditure fell sharply 2016 amid redundancies in central government, public administrations, and government-owned companies such as Qatar Rail and Qatar Petroleum.
The country has achieved a 3.3% growth in 2017 that is expected to increase to 3.6% in 2018; the growth has been achieved mainly by the increasing inputs to Qatari economy, according to Focus Economics.
Economic Effect after Blockade
As Qatari citizens lined up to store food and foreign currency following the blockade, Saudi Arabia and UAE has closed its ports that were used to transfer goods, leading to shortages in many products. Despite the shortage the country has managed to find alternatives with Iran, Turkey, and Oman that emerges with a shipping route and other ports. Brookings report further mention that following stability a week later, natural gas exports have not been impacted, but transfer of other products such as Helium from Saudi Arabia has been affected. Qatar Airways were also affected due to the restrictions in airspace which will increase the cost of some imports. Air links suspended comprised a total of 25% of flights to the Arab countries.
The country’s stock exchange has dropped 10% in days after the announcement but commenced with good natural gas exports to other countries such as India. Qatar is India’s largest source of natural gas where it provides 8.5 million tons of Liquefied Natural Gas (LNG) per year to India, according to Economic Times.
Economists conducted a poll predicting that the country’s GDP may decrease to 2.3% according to Reuters. Despite the potential decrease, Qatar is said to be able to continue exporting natural gas and maintain huge foreign exchange reserves. Qatari banks heavily rely on foreign capital which indicates that the crisis will lead forward with interbank lending rates. The country may also witness a weak investment activity in 2018 due to delayed projects in the second half of 2017, Reuters reported.
The poll further predicted inflation to reach 2.4% in 2017 and will grow to reach 3.1%. Economists also forecasted that state finances will fall weak due to decrease of global oil prices, where Doha is currently expected to run a budget deficit of 4.9% of GDP in 2017 instead of the agreed upon 3.6% and should run 2.8% in 2018 instead of the agreed upon 1.7%. The country’s surplus however is predicted to reach 0.7% of GDP instead of 0.1%, promoting slower economic growth due to limited imports.
Qatar’s Adopted Alternative Solutions
In efforts of tackling the drawbacks that were a result of political blockade, Qatar has took the initiative in redefining alternative solutions and establishing new relations with potential geopolitical allies. It has announced earlier the launching of visa-free entry for citizens of 80 countries including India, China, Russia, and Lebanon, in efforts to make up for the shortage in flights that use to fly across GCC countries. The visa allows citizens of these nations to stay in Qatar for 90 days in aims to increase tourism and offset economic losses, according to a report by The National.
Hotels have been affected by the travel restrictions imposed by Arab countries and the visa free travel may alter this effect allowing some tourists to spend time in Doha whether on leisure or business trips. The visa may not have a direct impact at moment but the new residency rules permit permanent residency to children with Qatari mothers and foreign fathers and allow non-citizen permanent residents to access subsidized services such as education and health care which have been formerly permitted to Qataris only. The country has also found an alternative to its loss of flights to Arab countries that include 18 new destinations out of bounds that will witness 50 flights per day and plans to add 24 new destinations in the next 12 months
The country has embarked a delivery of 165 cows in July that were airlifted to tackle the milk shortage caused by the neighboring countries, according to CNN Money. The shipment is the first for local Qatari dairy company Baladna that was trying resolving dairy products shortages. The company stated that it plans to import a total of 4,000 cows to meet 30% to 35% of Qatar’s dairy demand. The first patch of cows was purchased from a German supplier while other cows are expected to be supplied from Netherlands, U.S, and Australia.
As the country was faced of a potential debacle due to its heavy reliance on food products from Saudi Arabia and UAE, it has managed to import foods from Turkish and Iranian products while increasing production of local factories. Approximately 1% of Qatari land is used to grow crops where the government has commissioned pilot projects to farm without soil by using hydroponics technology and its $ 335 billion sovereign wealth already includes rice, poultry, grain, and livestock producers located in Pakistan, Oman, and Australia who operate through the country’s Hassad Food Divison, according to Bloomberg. However food prices are set to increase due to new supply chains but the early food shortages were instantly subsidized by government. Iran is also planning to send 100 tons of fresh fruit and vegetables daily while Turkey vows to provide dairy products to major Qatari supermarkets.
Qatar has an offshore share of LNG with Iran and its other major crude and gas consumers include Japan, India, South Korea, and Singapore, according to an article by CNN Money.
Although the current conflict comes in parallel with severe economic slowdown due to a fall in global energy prices that fell from $ 100 per barrel since August 2014 to below $ 50 five months later, Qatar has chosen to embark this conflict as an opportunity to enhance the overall economic situation. Expectations are rising in regards to Qatar replacing the current ties to GCC countries with the new channels it has established with allies such as Iran and Turkey among others.
By Fatma Khaled
