THE PRI­VATE SEC­TOR AND THE BUD­GET

Qatar Today - - BUSINESS > VIEWPOINT -

In a coun­try known for its out­stand­ing eco­nomic and fi­nan­cial sta­tis­tics – enough nat­u­ral gas re­serves to last for 160 years; the world's high­est per capita in­come; 12% pop­u­la­tion ex­pan­sion in 2012-2013, to name a few – cre­at­ing a bud­get that man­ages to give even more im­pres­sive fig­ures is no mean feat.

Amongst the head­line grab­bing fig­ures was a solid com­mit­ment to en­cour­age lo­cal busi­nesses – and thus the lo­cal pri­vate sec­tor – to ben­e­fit from the state's largesse. This ticks some im­por­tant boxes, not only for en­trepreneurs, but for many an­a­lysts, busi­nesses and in­ter­na­tional or­gan­i­sa­tions too. Whilst the state will con­tinue to be a sig­nif­i­cant driver of growth, cre­at­ing an en­vi­ron­ment where en­trepreneur­ship can grow is critical to long-term sus­tain­able devel­op­ment, with the non-oil and gas sec­tor con­tin­u­ing its up­ward ex­pan­sion in terms of share of GDP.

Yet while the in­ten­tion has been widely ap­plauded, there is still some de­bate over the scale of the chal­lenges the lo­cal pri­vate sec­tor faces in tak­ing up the of­fer now be­ing made. Tack­ling is­sues such as ca­pac­ity is, how­ever, also part of the govern­ment's over­all plan, with much in the bud­get to ad­dress these fun­da­men­tal is­sues.

Adding up the num­bers

The 2014-2015 bud­get es­ti­mates that some QR664 bil­lion in projects will be im­ple­mented over the next five years, with QR87.5 bil­lion to spend on devel­op­ment alone this fi­nan­cial year. This in­cludes work across the econ­omy, in­clud­ing in­fra­struc­ture, trans­port, ed­u­ca­tion and health, but ex­cludes oil and gas projects. Thus the bud­get rep­re­sents, first and fore­most, a ma­jor boost for the non-hy­dro­car­bon sec­tor.

Add to this the fact that the bud­get also stip­u­lates that at least 30% of the QR87.5 bil­lion for FY14-15 should go to lo­cal com­pa­nies, and clearly, the op­por­tu­ni­ties for the Qatari pri­vate sec­tor are enor­mous. The govern­ment has made it com­pul­sory too for in­ter­na­tional cor­po­ra­tions – whose ex­per­tise, ac­cess to fi­nanc­ing and economies of scale tend to make them clear favourites for the ma­jor project work – to give at least 30% of their con­tracted busi­ness to lo­cals.

The bud­get re­serves space for lo­cal pri­vate sec­tor busi­nesses by declar­ing that it will work to pre­vent lo­cal en­trepreneurs hav­ing to com­pete with lo­cal state out­fits, while also say­ing that min­istries and other state bod­ies will be in­structed to favour pri­vate sec­tor com­pa­nies in set­ting con­tracts.

This was nat­u­rally wel­comed by lo­cal busi­nesses – in­deed, the Qatar Cham­ber of Com­merce and In­dus­try's Sheikh Ha­mad bin Ahmed Al Thani de­clared to Al Arab that “the pri­vate sec­tor share in the new bud­get is huge.”

The ques­tion then is, how well equipped are Qatar's lo­cal pri­vate sec­tor busi­nesses to take their share of this huge level of in­vest­ment?

Pre­par­ing the ground

Most ex­pect that the next few years will see eco­nomic growth driven by the im­ple­men­ta­tion of ma­jor in­fra­struc­ture projects such as the Doha metro, the ex­press­way net­work mod­erni­sa­tion and a range of other road projects, World Cup sta­dia, and the con­tin­u­ing work on Lu­sail. In all these, large in­ter­na­tional com­pa­nies al­ready have a ma­jor pres­ence. Mak­ing sure that lo­cals get their share is thus cen­tral if govern­ment aims – and spend­ing tar­gets – are to be ful­filled.

Qatar's au­thor­i­ties have long been aware of the chal­lenges lo­cal busi­nesses face in com­pet­ing for con­tracts with es­tab­lished in­ter­na­tion­als in such projects. Suc­ces­sive bud­gets have thus tar­geted so­cial in­fra­struc­ture as well as phys­i­cal in­fra­struc­ture. The 2014-2015 bud­get boosts spend­ing on ed­u­ca­tion, health and other pro­grammes that aim to em­pha­sise Qatar as a de­sir­able place to live.

At the same time, the Qatar Devel­op­ment Bank (QDB) has taken an im­por­tant lead in help­ing lo­cal SMEs, with pro­grammes to de­velop train­ing and ease ac­cess to fi­nance, one of the largest ob­sta­cles to pri­vate sec­tor in­volve­ment on large projects.

For many lo­cal busi­nesses though, the most lu­cra­tive line of in­volve­ment in re­la­tion to the ma­jor in­fra­struc­ture projects un­der­way or in the pipe­line is likely to be in the as­so­ci­ated in­dus­tries, rather than in the main event. For ex­am­ple, the mas­sive in­vest­ment in sta­di­ums for the 2022 World Cup also cre­ates the need for in­vest­ment in ho­tels, trans­port com­pa­nies, tour com­pa­nies, sou­venir and mer­chan­dise com­pa­nies, restau­rants and en­ter­tain­ment fa­cil­i­ties. All of these are likely to be ar­eas in which lo­cal pri­vate sec­tor com­pa­nies will have a ma­jor im­pact. These ser­vice-ori­ented busi­nesses are also likely to ben­e­fit from the size­able pop­u­la­tion growth that is be­ing fu­elled largely by the in­fra­struc­ture projects and their need for labour.

Ac­cord­ing to the lat­est Qatar Na­tional Bank (QNB) re­port, 2014 will see the num­ber of res­i­dents rise 10.4%, dip­ping to av­er­age 7.8% over the suc­ceed­ing two years. This cre­ates strong con­tin­ued de­mand for real es­tate, re­tail, en­ter­tain­ment and restau­rant fa­cil­i­ties, as well as other ser­vices. Again, the lo­cal pri­vate sec­tor stands well placed to ben­e­fit from all these de­vel­op­ments. “Whilst the govern­ment has a key role to play in in­fra­struc­ture devel­op­ment,” the QNB's April re­port states, “other sec­tors are mostly go­ing to ben­e­fit from pri­vate sec­tor in­vest­ments.”

In the longer term too, lo­cal busi­nesses are also likely to take a big­ger share of the large in­fra­struc­ture projects, as their ex­per­tise de­vel­ops – of­ten out of the close col­lab­o­ra­tion they al­ready have with in­ter­na­tional com­pa­nies op­er­at­ing both at home and over­seas.

The bud­get helps de­velop the ground for this, with many, both in­side and out­side Qatar, keen to see how lo­cal en­ter­prises will take ad­van­tage of the busy fu­ture now be­ing laid out be­fore them

BY OLIVER CORNOCK The au­thor is the Re­gional Edi­tor of Ox­ford Busi­ness Group.

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