Today I intend to take a look at the economy of one of the Gulf states Qatar. It hit the news earlier this month due to these events from Gulf News.
June 5: The UAE, Bahrain, Saudi Arabia, and Egypt cut diplomatic ties with Qatar, accusing Doha of supporting extremism, and giving the countries’ diplomats 48 hours to leave.
June 6: WAM, the UAE state news agency, announces that the country has closed its seaports, as well as its airspace, to all Qatari vessels and airplanes.
So it went into the bad boy/girl camp as diplomatic and economic sanctions were applied. Although in the topsy-turvy world in which we live this happened soon after.
Qatar will sign a deal to buy as many as 36 F-15 jets from the U.S. as the two countries navigate tensions over President Donald Trump’s backing for a Saudi-led coalition’s move to isolate the country for supporting terrorism.
Qatari Defense Minister Khalid Al-Attiyah and his U.S. counterpart, Jim Mattis, completed the $12 billion agreement on Wednesday in Washington, according to the Pentagon.
The sale “will give Qatar a state of the art capability and increase security cooperation and interoperability between the United States and Qatar,” the Defense Department said in a statement.
I do not know about you but if I thought that someone was indeed sponsoring terrorism I would not be selling them fighter jets! Still I suppose it does help achieve one of the Donald’s main aims which is to boost US manufacturing.
Also whilst we are on the subject of “Madness, they call it madness” there was of course the decision to award the 2022 football World Cup to a country with extraordinarily high temperatures. Also one could hardly claim that football was coming home!
How was the Qatari economy doing?
There was a time when it was party, party, party. From the Financial Times.
ministers used to boast about the economy expanding at one of the fastest rates in the world: in the decade to 2016, growth averaged 13 per cent.
Much of this was of course due to higher prices for crude oil and associated products which then changed.
The oil crash in 2014 hastened a spending review, with budget cuts and widespread redundancies across the energy and government sectors, including thousands at the state petroleum group. Jobs have been cut in museums and across education, media and health, with many projects cancelled or delayed.
There was something of a familiar feature to this.
In the West Bay business district, the impact of shrinking corporate and residential demand is stark. The flagship development boomed from 2004 to 2014 but the area is now littered with unoccupied and half-built skyscrapers.
The World Cup Boomlet
Work on this has turned out to be anti-cyclical and has provided a boost.
The Gulf state is building nine sports stadiums, “cooled” fan zones, hotels, sewage works and roads ahead of the football tournament……the government is spending $500m a week on World Cup-related infrastructure.
However there was a consequence.
Qatar, the world’s top exporter of liquefied natural gas, recorded its first budget deficit in 15 years in 2016 — a $12bn financing gap
This and its related products are the driver of the economy as OPEC notes.
Oil and natural gas account for about 55 per cent of the country’s gross domestic product. Petroleum has made Qatar one of the world’s fastest-growing and highest per-capita income countries.
There are various different measures but Global Finance puts it as the world’s highest per capita GDP in 2016. Of course this wealth mostly simply emerges from the ground mostly in the form of natural gas.
Of course the fact that the price of a barrel of Brent Crude Oil has fallen below US $45 is not welcome in Qatar as it reduces GDP, exports and government revenue. Also since May the price of natural gas has been falling with the NYMEX future dropping from US $3.42 to US $2.89. So bad times on both fronts as Qatar mulls the impact of the US shale oil producers.
You might have been wondering why there have not been reports of a crashing Qatari Rial. That is because of this. From the Qatar Central Bank.
QCB has adopted the exchange rate policy of its predecessor, Qatar Monetary Agency, through fixing the value of the Qatari Riyal (QR) against the US dollar (USD) at a rate of QR 3.64 per USD as a nominal anchor for its monetary policy.
So we have a type of fixed exchange rate or if you prefer a currency peg. This means that monetary policy is in effect imported from the United States which led to this.
Qatar Central Bank has decided to raise its QMR Deposit rate (QMRD) on Thursday June 15,2017 By 25 basis point from 1.25% to 1.50% .
Even in these times of low interest-rates one of 1.5% is hardly going to cut it in terms of currency support so minds immediately turn to the foreign exchange reserves. The QCB had 125.4 billion Riyals at the end of April. This was down on the recent peak of 158.3 billion Riyals of July 2015 presumably due to responses to the lower oil price. This meant that a balance of payments current account surplus of 50.1 billion Riyals of 2015 became a 30.3 billion deficit in 2016.
At a time like this people will also note that the external debt of the Qatari government rose from 73.4 billion Rials at the end of 2105 to 116.2 billion at the end of 2016. Also the banking sector has become more dependent on foreign cash according to Reuters.
Qatar’s banks became dependent on foreign funding during the last few years of strong economic growth. Their foreign liabilities increased to 451 billion riyals (97.90 billion pounds) in March from 310 billion riyals at the end of 2015.
Also if we look back to the 13th of this month I noticed this in the statement from the QCB saying that the banking sector was operating normally, which of course usually means it isn’t!
that QCB has sufficient foreign currencies reserves to meet all requirements.
So presumably it has been using them.
Qatar Investment Authority
The QIA manages a portfolio estimated at around US $335 billion and at a time like this investing abroad will look rather clever in foreign currency terms. Although the exact list may not be entirely inspiring.
Main assets include Volkswagen, Barclays, Canary Wharf, Harrods, Credit Suisse, Heathrow, Glencore, Tiffany & Co., Total.
There is speculation that there is pressure to use these assets. From Reuters.
Qatar’s sovereign wealth fund has transferred over $30 billion worth of its domestic equity holdings to the finance ministry and may sell other assets as part of a restructuring drive, people familiar with the matter told Reuters.
As someone who cycled past one of those assets – Chelsea Barracks – only yesterday that provides food for thought for the London property market I think.
The discussion so far has been about financial issues so let us look at a real economy one which could not be more Arabic.
Saudi blockade on Qatar sabotages multi-billion dollar camel ……….A rescue mission is underway in Qatar after thousands of camels were expelled from Saudi Arabia due to the ongoing blockade. each of them can be worth up to $75,000 ( Al Jazeera )
Also food is being sent from Turkey.
Turkey is sending food supplies to Qatar by sea on Wednesday to compensate for a recent embargo by Qatar’s neighbour states, according to Turkey’s economy minister. (Al Jazeera )
At least it is better than sending soldiers which is unlikely to improve anything. But if we move back to the financial impact we wait to see how much has been spent to support the currency. We can see from the forward rates that there must have been some and maybe a lot. Also is it a coincidence that the UK looks to be taking the investment in Barclays to court? On that subject this from The Spectator is quite extraordinary.
Why I’m sad to see Barclays in the dock, and astonished to see John Varley there
Apparently he should not be there because he was “impeccably well tailored and mannered, who always looked destined for the top — but was also universally liked by his colleagues” something which could have come straight from the satire and comedy about “nice chaps” in Yes Prime Minister.
Meanwhile with the UK weather and the subject of today it is time for some Glenn Frey.
The heat is on (yeah) the heat is on, the heat is on
(Burning, burning, burning)
It’s on the street, the heat is on
Me on TipTV Finance