After climbing to the top of the global wealth ladder via its gas sector, Qatar’s reshaping of its economy is offering new opportunities for financiers, writes Kevin Godier.


Qatar is rounding off one of the world’s most astonishing economic growth spurts. It has brought 14 huge liquefied natural gas (LNG) trains onstream since the early and mid-1990s by borrowing untold billions of dollars to monetise the massive gas reserves sitting in the North Field reservoirs beneath the Persian Gulf.

As its 20-year hydrocarbons investment programme comes to an end in 2012, Qatar is now established indisputably as the world’s largest LNG producer, with the capacity to produce 77 million tonnes a year of the fuel annually. The country has seen its rising gas production propel GDP growth to heights of over 16% in both 2008 and 2010, and possibly as high as 21% in 2011, according to a recent forecast from Qatar National Bank (QNB). Further bolstered by an average daily production of 820,000 barrels of crude oil, Qatar’s budget surplus is forecast by Saudi Arabia’s Samba Financial Group to grow to US$13.4bn in the current fiscal year, from US$5.3bn in the previous year that ended in March 2011.

These phenomenal numbers help to illustrate just how Qatar has evolved into the world’s richest nation in per capita income, which looks set to exceed US$100,000 within the next two years.

For members of the trade and project finance community that transact business in the Middle East, these landmark statistics provide some compelling reasons to continue taking Qatari risks.

“We don’t have concerns on the country,” says Ivan Giacoppo, head of oil and gas, infrastructure and steel at Italy’s Sace, which guaranteed a portion of an overall US$2.55bn of ECA support within the giant US$7.2bn project financing finalised in December 2011 for Qatar Petroleum’s (QP) Barzan gas project.

“In our view, Qatar currently has one of the lowest political risks of all Arab countries due to high GDP per capita level, a wise reinvestment of its hydrocarbon wealth and its good international relations with neighbourhood countries,” he underlines.

Giacoppo notes that Sace has been involved in many of the seemingly incessant string of gas, power and petrochemicals projects in the country since the mid-1990s, taking the agency’s aggregate commitment across these projects to over US$2bn.

Another export credit agency (ECA), the Jeddah-based Islamic Corporation for Insurance of Investments and Export Credits (ICIEC), considers political risk in Qatar to be “one of the lowest in the region”, says its chief executive officer Dr Abdel Rahman El-Tayeb Taha.

From its inception, ICIEC has covered requests totalling US$72mn from its policyholders on buyers and banks located in Qatar, mainly for deals involving chemicals, construction materials and cables, notes Dr Taha. During this period “we have not had any single claim in Qatar”, he points out.

ICIEC is also involved in Qatar’s efforts to launch its own national ECA, working closely with Qatar Development Bank (QDB) to provide the embryonic “Tasdeer” agency with technical support to help it reach its mandate. “In this model of cooperation, ICIEC will be playing the role of reinsurer, and will also help Tasdeer through joint marketing,” Taha adds.


Non-oil sector

Qatar’s next challenge – to bolster its economy outside of the hugely successful hydrocarbons sector under its long-term National Development Strategy – is mirrored by the universal prediction of a GDP fall in 2012, when the national accounts will no longer feel the benefits of large increases in hydrocarbons output and exports.

“Consensus forecasts are suggesting a fall in GDP growth from high double digit levels in 2011 to around the 6% level in 2012, largely a reflection of a peaking of LNG investments and production,” says Philip Patterson, senior research analyst at ABC International Bank, the London-based subsidiary of Bahrain’s Arab Banking Corporation.

Patterson believes that “returning to growth rates of nearer 6% is, perhaps, a far more sustainable long-term position for Qatar; one which is less likely to create bottlenecks or inflationary pressures in the economy”, and, moreover, by regional standards, would still represent a pretty robust performance.

He highlights that the performance of Qatar’s non-oil sector is realistically going to be “the long-term source of private sector employment generation and a major contributor to (much-needed) structural economic diversification”, citing estimates from the Institute of International Finance suggesting that the non-hydrocarbons sector is growing strongly at around 8.5% per annum.

This sector’s momentum includes the strong impact from the more than US$100bn worth of major infrastructure projects planned in the run-up to the 2022 Fifa
World Cup, which will inevitably require fresh support from foreign ECAs and banks. “We expect an increase in the number of requests to cover project finance deals in Qatar, especially those related to the infrastructure and superstructure sectors,” notes ICIEC’s Taha.

“Qatar’s wealth is being used to develop a large range of facilities for the economy and for the Qatari people – there are now a significant number of projects in place with a five to 10-year horizon,” stresses Fahad Abdulrahman Badar, executive general manager, government and international banking at Commercial Bank of Qatar (CBQ), the second largest bank and largest private bank in Qatar.

“There are some major attractions for contractors and sub-contractors in the infrastructure development planned over the next five years, which spans stadia, ports, a new international airport, hotels, real estate, transportation, new industrial cities, power and water,” he says.

To further Qatar’s social development, education and training has become a big concern, Fahad adds. “The government wants the younger generation to have the technological skills they need for employment opportunities, and Qatar’s senior leadership has become very involved in developing education opportunities through projects such as Education City, which is now being built. Big improvements are also needed in the quality of health, leading to a hospital building programme,” he emphasises.

Qatar unveiled the largest budget in its history for the 2011/12 fiscal year, targeting government spending at QR139.9bn (US$38.4bn), a 19% increase on the previous year. “All of these projects are bringing opportunities for local and foreign banks,” says Fahad.

For CBQ, one key aim is to team up with other banks for syndicated lending opportunities, as was demonstrated via its participation in the lending package for the Barzan gas project, where it was one of 31 banks that showed appetite for Qatari risk.

“The banking crisis has hit the project finance market, so there are growing opportunities for partnerships between local and foreign banks,” Fahad says. He suggests a template whereby CBQ and other Qatari banks can provide local presence and knowledge in tie-ups with foreign banks such as those housed in the Qatar Financial Centre. “Foreign players such as Citi, HSBC, Standard Chartered, Deutsche Bank and others can then bring their investment banking skills to the table,” he explains.


Trade finance play

One overseas bank now consolidating its presence in Qatar is RBS, which recently added a trade finance specialist to its office in Doha after having managed its Qatari trade business from Dubai for several years. “Qatar is a very strategic place in the Middle East, especially for trade finance,” says Louis Robinson, managing director and Emea trade sales head in RBS’ global transaction services division.

He comments: “The market for infrastructure is huge. Aside from the 2022 World Cup requirements, Qatar is bidding for the 2020 Olympic Games, and the government is now building the infrastructure to connect different parts of the country, including a rail network. We are already seeing enquiries where clients are bidding for contracts with government entities and local companies, especially in the construction sector, where various Chinese and Indian companies are
bidding to build stadia.”

Qatar’s exporting profile is also a big trade finance draw, according to Robinson. “Qatar is the world’s largest LNG exporter, particularly to the Far East, and also a big exporter of oil and steel. The buyers are often clients of RBS and regularly require financing, given that 30 to 45-day hydrocarbons shipments can involve payments of more than US$50mn. Even with Qatar’s reputation, buyers want to cover the risks with silent payment guarantees.”

On the import side, agricultural products, much of which are re-exported via Dubai from the US, are purchased by Qatari government entities on a repeating basis. “This risk is deemed very acceptable by us. We deal with commodity traders globally, and we have close links to the government,” Robinson observes.

At ABC International Bank, Charlotte Wiltshire, head of risk distribution and secondary markets, acknowledges that pricing for straightforward Qatari letter of credit confirmation business (short-term and unfunded) is tight at present, with Qatari risk perceptions benefitting from something of a ‘jewel in the crown’ status within the GCC. “We would certainly be looking to indicate confirmation fees in the sub-1% per annum range, with large and high-profile contracts attracting particularly tight levels.”

Wiltshire adds, however, that “the perceived strength of the Qatari sovereign and banking sector means that open account business is increasingly common, particularly for public sector importers”. As a result, some trade finance instruments, such as short-term import LCs, are perhaps less in evidence than elsewhere in the GCC. “Although in cases of larger and longer funding requirements, or where direct Qatari private sector risks are concerned, trade finance instruments still have a real role to play,” she says.


Skills upgrade

Inside the Qatari banking market, CBQ is pushing on with a comprehensive organisational revamp in order to access a bigger share of the forthcoming opportunities. “Before 2005, we employed just 200 to 300 staff engaged in plain vanilla activity, whereas we now have over 1,000 personnel with far higher skills, spread across 30 branches,” says Fahad.

The bank’s new group structure includes a regional footprint – via shareholdings in National Bank of Oman and UAB in the UAE – and several new business units. These comprise an investment banking arm, entitled Commercial Bank Capital, a bancassurance division in partnership with another company, and a fledgling unit set up to deal with smaller companies, aligning with Doha’s drive to grow local SMEs during the next decade to a stage where they will be able to participate strongly in the 2022 World Cup.

On the trade front, new products are under development, says Fahad. “We are undertaking some technical developments to get a better and bigger platform. We didn’t previously have the capability for forfaiting and receivables discounting but now want to do that as a product offering. Leasing is also being looked at.”

On the service side, CBQ now offers four dedicated branches for corporate services with all the trade facilities, Fahad adds. CBQ has also realised the need to become more involved with ECAs as new infrastructure projects loom larger. “We are currently talking to several ECAs to arrange credit guarantees to support our customers,” he notes.


Future risks

Qatar’s political structure seems stable with the Arab Spring events appearing to have had minimal impact on the country. Against the backdrop of its huge LNG
export revenues, the economy’s expansionary mode would appear to be facing few threats. “But given the recent geopolitical developments in some Arab countries, some foreign investors, banks and insurers might perceive the political risk in Qatar as higher than we perceive,” says ICIEC’s Taha.

But in the private insurance market, for now at least, there are no genuine concerns over Qatar, says Thomas Holmes at Miller Insurance Services. “Qatari risks could be included in multi-country policies for political violence under an extended Arab Spring scenario, although potential policyholders might find themselves bumping up against aggregate ceilings.”