THE PRIVATE SECTOR AND THE BUDGET
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.