Qatar aims high
There is a huge desire in Qatar to become the leading financial services centre in the region, despite rivals like dubai, bahrain and saudi arabia who are very close

Qatari authorities are uniquely ambitious with regards to the goal of rendering the hydrocarbons sector, which includes oil and gas, totally irrelevant to the local economy by the year 2020. Also, Qatar desires to become the leading financial services centre in the region notwithstanding rivaling places. Finance Minister Yousuf Kamal echoed these goals a few weeks ago. However, he acknowledged possible delay in attaining zero dependency on the hydrocarbons sector as a consequence of the global financial crisis.

Undoubtedly, Qatar is not required to make the hydrocarbons sector utterly insignificant to the local economy. However, Qatari officials are required to make the economy diversified enough with contributions generated from different sources excluding oil and gas. At the moment, the country is overly dependent on the petroleum sector, a reality that places Qatar’s economy at the mercy of developments in international oil market. The petroleum sector accounts for three quarters of the treasury income and about the same level of total exports plus a quarter of gross domestic product (GDP).

Trying harder
Somehow, the drop of oil prices provided Qatari authorities an opportunity to limit the significance of the hydrocarbons sector in the economy. The government prepared the budget for fiscal year 2009-2010 with an average price of $40 per barrel, down from $55 per barrel in 2008-09. Qatar’s fiscal year runs from April to March. Total budgetary income amounts to $24.4bn in 2009-10, down by some 15 per cent from the previous budget on the back of the lower oil price. Accordingly, the budget suffers from a projected deficit of $1.6bn. However, firmer oil prices over the past few months would most likely turn the projected shortfall into surplus.
 
To be sure, the Qatari government is trying vigorously to generate revenues from different sources partly though external investments. Qatar is a global investor through its state wealth fund (SWF). By one account, Qatar boasts of a $40bn SWF. Last month, Qatar gained a voting stake at Porsche after purchasing 10 per cent of the shares held by the family that controls the German carmaker. As part of the deal, Volkswagen and Porsche will merge by 2011, thereby paving the way for Qatar to emerge as the third biggest shareholder in the company.

Growing oil output and reserves
Ironically, Qatar steadily continues its efforts to expand oil production capacity notwithstanding talks about ending the significance of hydrocarbons. Sustained efforts by international oil companies notably from the US helped raise oil output from 701,000 barrels per day (bpd) in 1988 to more than 1 million bpd in 2005 and nearly 1.4 million bpd in 2008. According to BP Statistical Review of World Energy June 2009, Qatar’s 2008 output accounted for 1.5 per cent of global production.

BP statistics show Qatar has proven oil reserves amounting to 4.5 billion barrels in 1988 rising to 12.5 billion barrels in 1998 and 27.3 billion barrels in 2009 thanks to efforts by international oil firms. As such, Qatar controls 2.2 per cent of proven reserves in the world. By comparison, Saudi Arabia controls 21 per cent of proven oil reserves worldwide.
Largest LNG exporter
More importantly, Qatar produces some 39 million tonnes of liquefied natural gas (LNG). Over the past several years, Qatar expanded its energy business through joint production agreements with international oil firms. Currently, Qatar is the largest LNG exporter in the world, a position overtaken from Indonesia not long ago.

Still, Qatar’s LNG capacity is projected to reach 77 million tonnes a year by 2012. As in the case of oil, Qatar managed to develop its gas industry to extraordinary levels through joint production agreements with international oil firms. Sheikh Hamad bin Khalifa Al Thani opened the country’s energy sector to international oil firms ever since assuming power in his country in the mid 1990s.

Qatar’s extraordinary gas sector is supported by hard facts. According to BP Statistical Review of World Energy, Qatar’s natural gas reserves stood at 900 trillion cubic feet by year end-2008, representing nearly 14 per cent of proven global reserves. In fact, Qatar ranks number three worldwide with regards to proven gas reserves after only Russia and Iran. In many respects, Qatar’s position with regards to export of gas mirrors that of Saudi Arabia with respect to oil.

Financial hub
In the same interview, the Qatari minister expressed another utterly optimistic goal in the years to come, namely turning Qatar into a leading global financial centre. On a more regional level, Qatar must meet competition presented by Dubai and Bahrain. Yet, another rising rival for the crown of financial services hub will be Riyadh after the selection of Saudi capital as home of the monetary council for Gulf Cooperation Council (GCC). Of the six-member GCC, two countries namely Oman and the UAE opted not to join the monetary union project.

At any rate, Saudi authorities are determined to turn Riyadh into a major centre for financial services on a global level through King Abdullah Financial District (KAFD). Construction of KAFD started in 2007 with completion of the first phase likely in 2010, in time for launch of the planned monetary union project by all GCC states except Oman. The Sultanate decided to shun the project as a sovereign decision. In fact, Saudi officials are thinking big, comparing the project to that of Canary Wharf, London’s business and banking district. The project is being developed on a site comprising 1.6 million square metres in the northern part of Riyadh. In comparison, London’s Canary Wharf is built over an area of 345,000 square metres.

Nevertheless, Qatar stands the chance of making Doha a base for financial activities related to energy in general and gas in particular, rather than overall financial services. In short, it is easy to see the logic behind the 2020 plan to transform the Qatari economy. As suggested, the extraordinary reliance on oil and gas puts the economy subject to external shocks. However, Qatari authorities have to be realistic rather than idealistic.
 

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