DI­VER­SI­FI­CA­TION GIVES IM­PE­TUS TO IN­VESTORS

A strong out­look for cor­po­rate earn­ings and the broader econ­omy in Qatar, com­bined with an eas­ing of re­stric­tions on for­eign own­er­ship of firms, is point­ing to a pos­i­tive in­vest­ment en­vi­ron­ment this year.

Qatar Today - - CONTENTS -

A strong out­look for cor­po­rate earn­ings and the broader econ­omy in Qatar, com­bined with an eas­ing of re­stric­tions on for­eign own­er­ship of firms, is point­ing to a pos­i­tive in­vest­ment en­vi­ron­ment this year.

While many of the re­gion's larger oil-pro­duc­ing coun­tries will see GDP growth rates ease this year, Qatar's rel­a­tively lesser de­gree of re­liance on hy­dro­car­bons is giv­ing im­pe­tus to in­vestor con­fi­dence.

A re­cent re­port by Mas­raf Al Rayan bank fore­casts real GDP growth of 7.1% in 2015, in line with sim­i­lar es­ti­mates for cor­po­rate earn­ings. Although oil and gas prices are likely to re­main muted in the short term, high lev­els of public spend­ing on in­fra­struc­ture and in­vest­ment projects, un­der­pinned by sig­nif­i­cant cash re­serves built up over re­cent years, should help sus­tain growth and feed into pri­vate sec­tor ex­pan­sion, the re­port noted.

This fig­ure tal­lies with es­ti­mates of 7% GDP growth this year, from Qatar Na­tional Bank (QNB), with the econ­omy gain­ing fur­ther mo­men­tum in 2016 and 2017, where growth is fore­cast to rise by 7.5% and 7.9%, re­spec­tively.

“Qatar is well po­si­tioned to with­stand the tem­po­rary decline in oil prices due to its strong

macroe­co­nomic fun­da­men­tals,” QNB said in its lat­est “Eco­nomic In­sight” re­port, pub­lished in March. “With sub­stan­tial fi­nan­cial re­sources, Qatar has am­ple ex­ter­nal and fis­cal buf­fers to con­tinue im­ple­ment­ing its am­bi­tious in­vest­ment pro­gramme.”

Earn­ings in­crease

Qatar's cor­po­rate earn­ings are also ex­pected to out­per­form the re­gional av­er­age this year, ac­cord­ing to in­vest­ment man­age­ment firm Kuwait Fi­nan­cial Cen­tre (Markaz). This builds on strong mo­men­tum from Qatari listed com­pa­nies in 2014, which was marked by sev­eral sig­nif­i­cant events in­clud­ing a move in Au­gust to change the rules on for­eign own­er­ship whereby in­ter­na­tional in­vestors are able to ac­quire up to 49% of shares in traded Qatari cor­po­ra­tions. Pre­vi­ously this had been capped at 25%.

Ac­cord­ing to Markaz, cor­po­rate earn­ings are likely to rise by 7.8% this year, build­ing on the dou­ble-digit earn­ings growth recorded in the sec­ond half of 2014. This also rep­re­sents a solid im­prove­ment on the over­all 6% year-on-year growth rate for Qatar's com­pa­nies in 2014. In con­trast, re­gional growth will fall short of the 10% growth recorded in 2014, reach­ing a fore­cast av­er­age of 5%, the re­port noted.

In cap­i­tal mar­kets last year, the suc­cess­ful Me­saieed Petro­chem­i­cal Hold­ing Com­pany IPO raised around QR3.2 bil­lion ($881 mil­lion) for a 26% stake pre­vi­ously held by Qatar Petroleum - mak­ing this the coun­try's big­gest IPO in five years. In 2015, many in­vestors will be watch­ing to see if fur­ther of­fer­ings are made, with Barwa Bank and Qatar First Bank widely re­ported to be keen to list.

In ad­di­tion, Qatari banks are ex­pected to have the high­est re­turn on eq­uity (ROE) in the GCC this year ac­cord­ing to Kuwait­based in­vest­ment firm, Global In­vest­ment House. The ROE of the banks is es­ti­mated to reach about 18% in 2015, in com­par­i­son to a GCC av­er­age of 14%.

FDI sup­port

De­spite growth be­ing fu­elled by the non­hy­dro­car­bon sec­tor, more needs to be done to ex­pand ex­port di­ver­si­fi­ca­tion in the GCC coun­tries, in­clud­ing Qatar, ac­cord­ing to a re­cent re­port by the IMF. The fund noted that de­spite im­prove­ments in the en­vi­ron­ment for ex­porters in the GCC, in­trare­gional trade re­mains limited. Based on avail­able for­eign sec­tor di­rect in­vest­ment (FDI) data, only 4% (in 2011) of FDI in­flows to Qatar went to trade-re­lated ac­tiv­ity.

Ac­cord­ing to the lat­est of­fi­cial data, FDI in sev­eral ma­jor sec­tors ac­counted for 90% of all to­tal in­ward in­vest­ment at the end of De­cem­ber 2012. The Min­istry of Devel­op­ment Plan­ning and Statis­tics noted in a re­cent re­port that the min­ing and quar­ry­ing sec­tor at­tracted the largest pro­por­tion of in­ward in­vest­ment in 2012, fol­lowed by man­u­fac­tur­ing and con­struc­tion.

A re­port re­leased by the UN Con­fer­ence on Trade and Devel­op­ment at the end of March said that there had been a 4% year-on-year drop in FDI across the Mid­dle East in 2014, in part as a re­sult of in­creased re­gional in­sta­bil­ity, along with weaker oil prices. Qatar is no ex­cep­tion, with in­flows muted since the start of the decade, en­ter­ing into neg­a­tive ter­ri­tory in both 2011 and 2013, ac­cord­ing to the UN's “World In­vest­ment Re­port 2014”. Sim­i­lar trends are seen in other GCC coun­tries where per­sis­tent ten­sions in the re­gion are cited for the rea­son be­hind a down­ward trend ex­pe­ri­enced since 2009

“De­spite growth be­ing fu­elled by the non-hy­dro­car­bon sec­tor, more needs to be done to ex­pand ex­port di­ver­si­fi­ca­tion in the GCC coun­tries, in­clud­ing Qatar, ac­cord­ing to a re­cent

re­port by the IMF.”

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

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