18 months into Saudi boycott, Qatar is bouncing back
Eighteen months into the Saudi-led boycott of Qatar, new data from the IMF shows that Doha’s economy is defying any attempts at economic strangulation. The IMF report, which predicts that Qatar’s GDP growth will rise to 2.4% this year and exceed 3% in 2019, is just the latest in a series of good news stories around the emirate’s economy. Exports have jumped 18%, while the trade surplus is up 100% on the year and 2017’s budget deficit of 2.9% has been transformed into a 4.7% surplus.
As the IMF suggests in its report, this recovery is attributable to a prolonged rise in hydrocarbon prices (Qatar is currently the world’s leading liquefied natural gas supplier). The forthcoming 2022 World Cup, too, has created new investment opportunities in the Gulf state. Yet the economic resurgence is also a testament to Qatar’s resilience, the country’s ability to reinvent itself and turn adversity into opportunity. As the chief of the Qatar Financial Centre (QFC) recently suggested, the blockade has been “a catalyst for change for the entire nation.”
Uptick in foreign investment
In the immediate aftermath of the boycott, Doha officials moved to offset a flight on capital by injecting $40 billion from the country’s central bank and sovereign wealth fund into its lenders. This emergency action shored up the central banking system, and now the overseas capital is returning: in June, Qatar reported a 27% jump in foreign direct investment last year and a 66% increase in new trade registration.
In part, this rise in inbound investment is simply a by-product of the boycott. As the QFC has highlighted, many foreign multinationals have responded to the blockade by relocating their special purpose vehicles to Doha to get around the new restrictions. Yet Qatar has played an active role in the influx, revamping its approach to foreign companies as a means of persuading companies to set up shop in Doha.
Banking and foreign exchange regulations have been relaxed, and new legislation will allow 100% foreign ownership in nearly all sectors, something which was previously strictly off-limits. A pair of sprawling ‘free zones’ are nearing completion, visible symbols of the Qatari government’s attempt to pitch itself as a modern, tolerant place to do business.
The investment strategy is also part of a wider economic overhaul. The boycott has served as a watershed moment, a pretext to speed up the plans to diversify the Gulf state’s economy which were in place long before the Saudi blackballing. This commitment is visible everywhere, from the gleaming air-conditioned sheds holding cows flown over on Qatar Airways, to the fleet of new factories which have made Qatar one of the world’s fastest-growing manufacturing hubs.
It’s even evident in London’s glitzy Grosvenor Hotel, which was purchased by Qatar’s Investment Authority last month, one of the first deals sanctioned by new chief executive Mansoor bin Ebrahim Al Mahmoud. Analysts have taken this as a sign that Mahmoud, who is known for his aggressive approach to business, will adopt a bolder, more varied strategy for Qatar’s $300 billion sovereign wealth fund, which will soon be buttressed by a huge spike in gas production.
By contrast, Saudi Arabia’s own investment strategy has run into significant headwinds following the murder of journalist Jamal Khashoggi in the country’s embassy in Istanbul. Although Riyadh denies murdering the reporter, his death has prompted a global boycott of Saudi investment; Richard Branson and Elon Musk have both rejected the Kingdom’s Sovereign Wealth Fund, while the heads of Siemens, Uber and JPMorgan pulled out of October’s Saudi Future Investment Initiative, traditionally seen as a blue-riband event for big business. Young ruler Mohammed bin Salman (MbS) has strived to present the Kingdom as a modern, progressive place to do business, but the ongoing fallout from Khashoggi’s death has provided a blow to this PR offensive.
As a result of this turmoil, investors seeking to put their money into the Gulf now see Doha as a lower risk destination than Riyadh; Qatar has proved that its financial system can withstand seismic shocks, and its foreign policy isn’t as volatile as that pursued by MbS. Qatari stocks have already jumped at three times the rate of their Saudi counterparts this year, while credit default swaps on Saudi bonds, a measure of the risk associated with debt default, are now 20 basis points higher than Qatar’s – a reversal of the countries’ fortunes last year, when Qatar’s CDS price soared in the wake of the boycott.
For another, Saudi Arabia may now be more inclined to seek peace with Qatar as it negotiates its own international isolation. The United States has already urged Riyadh to loosen the blockade, and MbS himself has hinted at a possible move in this direction by praising the strength of Qatar’s economy and talking up its potential.
Perversely, the effect of any rapprochement, at least for Doha, might not be that significant. Analysts have said the Qatari economy would see only a small positive reaction, having already proven it can thrive without Saudi backing. Nonetheless, a cessation of hostilities would further enhance Qatar’s credentials among investors: Doha has already answered many of the economic questions surrounding the boycott, and a rapprochement would answer many of the political ones, too.
None of this is to say there is no chance of future turbulence: Qatar’s economy will suffer a dent if the recent drop in natural gas prices turns into a prolonged correction, and it’s unclear whether the recent investment boom will be sustained once the World Cup circus leaves town in 2022. Nonetheless, Qatar has galvanised its economy and laid the foundations for long-term sustainability. No wonder its government now says the boycott was a blessing in disguise.