How Can Qatar’s Booming Finance Sector Help The Oil And Gas Industry?
In December 2013, the Qatar Central Bank, Qatar Financial Markets Authority and the Regulatory Authority of Qatar Central Bank launched the regulatory and supervisory strategy for financial markets and services in Qatar. Prepared in line with Qatar National Vision (QNV) 2030, the strategy is a roadmap for the development of a strong national financial sector. “The development of a resilient financial sector will support the economic strategy envisaged in both the National Development Strategy (NDS) 2011-16 and the QNV 2030,” explains Abdullah Bin Saoud Al-Thani, governor of Qatar Central Bank. “At the core of this strategy is the development of a competitive and diversified economy – with less reliance on hydrocarbon revenues – in which the financial sector will have a predominant role.”
In the short-term, diversification means a push to infrastructure, with a reported USD 100 billion of projects being planned in Qatar in the run up to the 2022 Fifa World Cup. Much of this work will be financed by government bonds, which means Qatar must do all it can to make these bonds an attractive purchase. According to Deutsche Bank, Qatar’s debt increased to 77 percent of GDP in 2012. A report from the bank from 2013 states: “The increase, however, mainly reflects the government’s decision to finance investments through debt issuance and to develop an external yield curve, rather than any pressing need for external financing. The external debt is easily offset by Qatar’s external assets, largely those held by the Qatar Investment Authority, making Qatar a net external creditor.”
“The attractiveness of Qatari government bonds lies on the strong macroeconomic fundamentals and the robust growth outlook supported by economic diversification and a large public investment program,” explains Al-Thani. “As the world’s largest exporter of LNG, Qatar has turned into an important global financial investor, donor, and labor importer. The country enjoys a strong credit rating and has a very favorable tax regime. Cumulatively, these factors have resulted in the country enjoying a high level of international investor confidence as demonstrated by the recent upgrade of Qatar Exchange to MSCI Emerging Market.”
The ambitions for Qatar’s economy, and the role that the finance sector can play in it, do not just stop at building a strong bond market, however: the intention is to radically alter Qatar’s business make-up, creating a raft of new small- to mid-size enterprises. This process will be helped along by the financial services sector. At the heart of this activity is Qatar’s development bank, the QDB. “Our mandate reflects Qatar’s commitment to develop the private sector, as it strongly believes that SMEs constitute the very foundation of a diversified and sustainable economy,” explains Abdulaziz Al-Khalifa, the CEO of QDB.
According to Al-Khalifa, one of the biggest historical problems for SMEs in the Middle East has been a lack of access to financing. “Therefore, Qatar’s strategy to support SMEs is to embed entrepreneurs into international value chains, set national frameworks that help them to be part of upcoming mega-projects like the FIFA World Cup 2022 and boost the competitiveness of Qatar’s SMEs,” he explains. QDB is approaching this in a number of ways, including direct loan schemes, both conventional and Islamic, as well as advisory services to identify and nurture promising businesses.
Working with QDB in aiding SMEs is the Commercial Bank of Qatar. The group CEO, Andrew Stevens, explains the factors that have led to this need to boost SME activity. “The private sector was largely focused on supporting the oil and gas industry, and the real estate sector attracted the majority of private investment as demand for commercial and residential properties grew in tandem with the rapid growth of the population and influx of more expatriates in both white collar and blue collar jobs,” he explains. “There was also a reliance on importing whatever was needed. Entrepreneurs wishing to set up their own business in manufacturing and service sectors, had to also contend with high cost of financing and limited availability of medium and long-term finance. These challenges are now being addressed through various government-sponsored initiatives to promote private and SME sector growth, which include the Qatar Development Bank’s programs.”
One aspect of diversification laid out in the QNV is the renewed focus on downstream opportunities in the oil and gas sector: building a flourishing segment of companies capitalizing on domestic oil and gas production. Qatar’s banks are also helping to finance this angle of the strategy. “The focus of the government is on creating downstream capacities for value-added products in the oil and gas sector,” reveals Raghavan Seetharaman, the CEO of Doha Bank. “We have financed the Barzan project, which is to meet the gas requirements of the domestic industrial sector. The bank will look at every opportunity that is commensurate with its currency resources, with focus on domestic currency and favorable risk returns matrix, whether in project finance or EPC finance space.” Doha Bank was also one of the receiving banks for the IPO of Mesaieed Petrochemical Holding Company in January 2014, which holds interests in three well-established and profitable downstream ventures.
International banks also see the potential for contributing to the development of Qatar’s financial sector and the diversification of the economy. Deutsche Bank in Qatar focuses on verifying opportunities globally for the surpluses that Qatar wishes to invest, assisting in mergers and acquisitions, funding, evaluating and sourcing those deals, as its vice chairman for the MENA region and chief country officer for Qatar, Salah Jaidah, explains. “Qatar is keen to diversify its resources, and from that point of view, we have links to all kinds of mid-cap corporates in Europe, Southeast Asia, and North and South America; we can always advise on finding the best collaboration partners, and help to develop the mid-cap corporates.”
Article by Karim Meggaro