Marketplace Middle East - Blog
The Q Factor
During a drive down Doha’s seafront Corniche, one can begin to capture the scale of endeavour in Qatar. The concept that comes to mind this week is “The Q Factor,” something that is not quite tangible yet, but is unique to the Emirate of Qatar.

For those who follow prime-time British TV closely (and I am not one of them) “The X Factor” is a hugely popular talent show franchise. It brings forward raw musical talent to compete for a major prize. “The Q Factor” is not dissimilar, because Qatar is clearly in a competition with itself and neighboring states to build out infrastructure across the spectrum -- from financial services to a new rail network -- by 2016.

I got a glimpse of the future in a cabin tucked within the Qatari Diar real estate compound. A huge trailer, designed by the German railway group Deutsche Bahn, features a state-of-the-art 3D rendering produced by film director George Lucas of the futuristic railway station.

The station, according to today’s plans, will see a number of different rail services coming together at one hub, even inter-connecting to Bahrain and Saudi Arabia. Once you step into the heat of the Gulf, you see for yourself the service tunnels being built to house the cables and the rest to support the structures.

The first phase of the gigantic project -- if all goes according to plan -- will be completed by 2016. The entire network should be polished off a decade later. One could start to imagine what the Emir of Qatar and his tight knit team have planned. The population has doubled in the last decade from 800,000 to just over 1.6 million. Officials I spoke to say we are looking at baseline population growth of at least five percent a year for the next two decades.

Financing this giant scale nation building is not a problem due to the natural gas production coming online as I write. According to energy officials, LNG production was boosted 50 percent last year and another 25 percent will be added next year. The head of the Qatari Businessmen Association Issa Abu Issa said after $80 billion of total investment, the sector will be cash flow positive by 2012. The North Field has a shelf life of 200 years, I am told on the ground, which means for the 300 thousand or so people who were born there life is good -- make that very good.

Per capita income has risen by a factor of four in the last decade, to just under $100,000 and that is projected to keep growing. While the rest of the world was fretting about the worst downturn in six decades, the government saw it as an opportunity to regroup. Inflation, which was running in double digits before the downturn, is now a more manageable three to four percent. Growth projected at 8.5 percent this year is not what one would call a major slowdown.

On the sidelines of the Economist Roundtable, which I was helping to chair, I spoke to Florence Eid of Passport Capital who talked about Qatar being nearly recession proof due to its relatively small size and large resources. This is giving “Team Qatar” plenty of creative luxury to paint a giant canvas of the future. Eid said you have to go back a century to witness such wealth creation in such a short period of time within Europe or the United States.

This effort certainly is not without growing pains. One can see what I am talking about in the West Bay section of Doha. Many of the structures have been completed, but they are not collecting income, just a lot of dust. Other buildings look as if construction has been suspended. Businessmen say that the local property market is down 20-25 percent during this downturn. They point to a difficult 2010, but remain confident that beyond that the business climate looks promising.

A CFO of a large industrial group told me that Qatar has the same challenge that other businessmen complain of these days. The government has plenty of surplus capital -- less so after the downturn -- but banks are reluctant to lend, even though sovereign capital was injected when the market turned sour. Executives say that the government responded to the global downturn with right amount of financial force and with the correct speed.

The real test comes in the next decade as more projects develop. An updated master plan is expected in early 2010 to help map out the next quarter century. Most admit too much came on stream too fast in the last five years that the growing pains are evident today. Nearly 200 projects are on the books, totalling about $82 billion.

During these go-go days in Doha, most don’t look back to the late eighties or early nineties -- pre-LNG, shall we say -- when Qatar’s debt to GDP soared above 80 percent. Times were tough, but the government, in the midst of the debt challenges, put forth their energy master plan with natural gas at the heart of that strategy.

The Q Factor is paying huge dividends today and like The X Factor has millions of viewers watching with anticipation to see how this program will finish.
John Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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