Qatar: As the Gulf ends Doha rift, which sectors stand to gain?
The resumption of ties with Qatar by Saudi Arabia, the UAE, Bahrain and Egypt will boost the regional economy with certain sectors set to witness a significant impact
For the Gulf region, the year 2021 started on a positive note. On January 5, during the 41st GCC Summit held at Saudi Arabia’s ancient city of AlUla, the kingdom – along with the UAE, Bahrain and Egypt – signed an agreement to restore ties with Qatar, ending the dispute within the region. The four countries had sealed all land, sea and air borders with Qatar in June 2017, accusing Doha of supporting terrorism. Qatar denied the allegations.
The signing of the AlUla Declaration to restore relations “will be a strong and important foundation to the future of the region and its stability” Saudi Arabia’s Foreign Minister Prince Faisal bin Farhan told reporters at the time.
The move was hailed as a significant step for the region. The restoration of ties between Qatar and the four Arab countries will “improve political and economic cooperation” within the GCC region, S&P Global Ratings said in a note. “We expect that the resolution of the boycott will support improvement in the region’s broader business and investment environment,” it said.
During the embargo against Qatar, businesses operating throughout the Gulf faced disruptions to supply routes, transportation, recruitment, and scheduling obligations, law firm Wasel and Wasel’s Susan Bastress and Mahmoud Abuwasel said in a note.
“Parties have sought to accommodate the impacts of these disruptions through contractual provisions aimed at providing relief to harmed parties. These “workaround” provisions have resulted in increased costs to business operations, development projects, and ultimately the public at large, throughout the Gulf,” they wrote.
With the agreement now in place, businesses should consider reviewing current contract obligations and how they would be affected by the elimination of embargo related disruptions.
Companies that deferred bidding on projects in a particular GCC country due to political concerns can also revisit tender opportunities in these countries. “Businesses may also seek to re-establish relations with business partners in those countries where operations have been suspended,” the report added.
Nazar Musa, chief commercial officer of Pro Partner Group – which assists in company formation, agrees that regionally-based businesses can now realistically consider opening operations in Qatar.
“The opportunity also lies for Qatar-based organisations who wish to expand into other GCC jurisdictions. The movement of trade and services between Qatar and its regional neighbours has been significantly curtailed in the past few years and the opening builds overall confidence and creates opportunities across the board,” he says.
Looking at trade, the embargo negatively affected imports into Qatar from countries previously supplying goods and services, including Saudi Arabia, Germany, China and the United States. These disruptions to normal trade routes resulted in part from the closure of the border between Saudi Arabia and Qatar, the Wasel and Wasel report explained.
“For global exporters who utilise the Jebel Ali port as a single point-of-entry to the GCC market, the normalisation of GCC relations could result in reinstating efficient access to all markets within the GCC, as the Saudi-Qatar border reopens for sea-land transport. In addition, the ability to freely access all GCC ports would eliminate current port restrictions limiting imports from foreign markets such as India and China,” it added.
Looking ahead, regional events coming up including the Expo in the UAE this year and the 2022 FIFA World Cup in Qatar should allow regional and international trade to develop further
Another major impact will be on the travel industry, with GCC nationals and residents now able to move between the countries with ease.
“Over the past few years, even reaching Doha from the GCC involved hours of travel across multiple borders. At present there are still restrictions on arriving in Qatar since quarantine is required [due to Covid19]. So although the opportunities are great, they will certainly be delayed until meaningful business travel can be undertaken without quarantine,” says Musa.
“Clearly aviation and travel will benefit greatly as airlines restart operations into and out of Doha. This will in turn allow GCC-based hotels and attractions [outside Qatar] to benefit from high spending Qatari travellers again and Qatari hotels restarting both business and leisure travel from the other GCC states.”
He adds: “Looking ahead, regional events coming up including the Expo in the UAE this year and the 2022 FIFA World Cup in Qatar should allow regional and international trade to develop further and there’s every indication that by the time these events happen, vaccines will be distributed, and a level of normality achieved.”
While S&P also stressed that Qatar’s intraregional travel, tourism, and real estate sectors will benefit most, it anticipates the impact on bilateral trade to be marginal. “Trade between member states is relatively limited given the almost uniform concentration of GCC member states’ exports on hydrocarbons and the lack of strong agriculture or manufacturing sectors in the region,” it said.
Another major beneficiary from the agreement is poised to be Qatar’s banking sector. In a note, Fitch Ratings said the blockade led to the withdrawal of about $30bn of non-resident deposits from Qatari banks in June-October 2017, predominantly by Saudi Arabian depositors but also by some from the UAE, causing tightening of foreign-currency liquidity.
“We expect Saudi clients, who withdrew deposits from Qatari banks due to the blockade, to start shifting some of their funds back. This will provide Qatari banks with an additional pool of liquidity, which will diversify their funding base, reduce their reliance on price-sensitive government-related entity and corporate deposits, and cut their funding costs,” it stated.
“The end of the blockade should encourage GCC tourists back to Qatar when the pandemic eventually eases. This should help reduce the pressure on the country’s distressed real estate and hospitality sectors, which are the largest sources of asset-quality problems for banks,” it added.
Overall, the agreement will project a stronger and more united GCC front, helping the regional economy as a whole. As the UAE’s Minister of State for Foreign Affairs Anwar Gargash tweeted immediately after the signing of the agreement: “From the hall of mirrors in AlUla, a bright new page begins.”
World leaders have recognised the risk around climate change and are aggressively looking at ways to reduce the long-term risks. This gave birth to the Paris agreement in 2015, which was the world’s first legally binding global agreement aimed at limiting temperature by 2 degrees celsius. In the coming years, similar initiatives will be undertaken to mitigate and reduce the rising risk of climate change. It is equally important for industries and businesses to adapt and support such initiatives, which has led to the emergence of clean technology or cleantech.
Cleantech offers a vast and diverse range of sustainable technologies and solutions across clean energy (biomass, solar power and manufacturing, alternative power supplies), water (wastewater treatment, desalination, smart water, etc.), waste (conversion to energy, recycling, gasification, etc.), bioenergy, green buildings, electric vehicles, and more. In recent times, the ecological need for reducing, or to some extent eliminating the negative environmental impact of carbon emissions, has become the driving force for several investment and business decisions. Moreover, as rising industrialisation and urbanisation creates a structural carbon lock-in and increases the consequential threat of rapid climate change, overpowering masses of climate scientists are voicing the need to act immediately to reduce emissions, prompting corporates, businesses, and even governments to prioritise and implement action plans to this effect.
In recent years, major corporations have dedicated billions in funding towards cleantech innovation. Jeff Bezos’ $10bn climate fund, which was launched in 2020 to promote efforts towards preserving and protecting the natural world, stands as proof of this shift, as well as the steadily rising interest and investment within cleantech. Global organisations have also launched funds, such as the International Finance Corporation’s Clean Technology mission, and United Nations’ Global Cleantech Innovation Programme, among others. Most notably, big corporations have been widely adopting green mandates and investing heavily into clean technology to create not just sustainable, but also profitable business opportunities. Key global oil and gas majors are also recognising opportunities in the energy transition away from fossil fuels, evident by the combined $3.4bn invested by them into low-carbon technologies. This inclination has also reflected in capital market activity, especially the traction and investor interest in electric vehicle pacesetter Tesla, during the past one year. As the company continued to invest into its innovative technologies, Tesla’s stock price witnessed a share rise of over 740 per cent in 2020, and traded at a high trailing earnings multiple of 1,000x. Stock market interest has also been satiated by other cleantech companies such as Nikola Corporation, hinting at a strong outlook for the sector in the near future.
The global investment landscape is now seeing a synchronised shift towards an integrated ecosystem, with capital directed toward addressing diverse avenues with scope for innovation. Policymaking at the national and government level as well, has entailed a horde of initiatives aimed at promoting sustainability in business. Consequently, cleantech has become synonymous with opportunities to avail massive gains by remaining invested in the long term. With promising long-term benefits of improved environmental efficiency and productivity due to lower costs, inputs, waste and energy consumption, along with economic pluses via new job opportunities, cleantech as both a sector and investment avenue is appearing more lucrative.
In sync with this sentiment, the stock market has cherry-picked select cleantech stocks that exhibit the potential to create meaningful environmental impact, and has accredited them with strong valuations. For
instance, SolarEdge Technologies, a solar energy company providing power optimisers, solar inverters and monitoring systems, has boasted of strong fundamentals, with its quarterly revenue growing at an average rate of 38 per cent over the last five years. Despite revenues being hit in 2020, the company witnessed a 236 per cent surge in its market capitalisation during the year, to reach a valuation of $16bn. Meanwhile, Plug Power has proven to be a leader in the hydrogen fuel cell domain, moving rapidly with its proven technology to pursue strong market opportunities. With customers including Amazon and Walmart, it recently secured important partnerships, including a $1.5bn agreement with South Korea’s SK Group in exchange for a 10 per cent stake and expansion into the Korean and broader Asian markets; and another with French automaker Renault to enter the European light commercial vehicle market and build fuel cell vans in Europe.
These positive developments and earnings expectation led to a whopping 973 per cent surge in its stock price in 2020, and another 77 per cent in the first two weeks of
Over the next few years, cleantech offers huge promise to not just create sustainable impact, but also presents lucrative business and investment opportunities
2021. Clean Energy Fuels, on the other hand, offers natural gas fueling solutions, and holds promise in terms of contributing significantly to the evolving energy landscape transition. In December 2020, the company partnered with two firms to build carbon-negative renewable natural gas fuel facilities and infrastructure, pushing its stock price up 73 per cent in the month. The company’s stock price surged by 236 per cent in 2020, and added another 25 per cent at the end of January 15, 2021. Blink Charging Co. was another company that benefited from the wild market frenzy into electric vehicle charging infrastructure. Blink’s revenue nearly doubled y-o-y in 2020, and the rising appeal of its sector pushed its stock a mind-boggling 2,198 per cent in the year. While its fundamentals remain subdued, the company’s market appeal provides it with the required capital to plan ahead for expansion, and create a feasible strategy to become a standout long-term growth stock. Lastly, Enphase Energy is another solar stock that comes as the whole package. It boasts of strong operational fundamentals ($39.4m in net income, and a robust 41 per cent gross margin and 24 per cent operating income in Q3 2020), as well as notable business developments (partnerships with solar module manufacturers, providing micro-inverters to top European solar panel manufacturers, growth in its energy storage segment, and ramping up volumes of its new storage product). Accordingly, its stock rose 572 per cent in 2020, and continues to surge.
Over the next few years, cleantech offers huge promise to not just create sustainable impact, but also presents lucrative business and investment opportunities. Moreover, the global climate agreement, together with the backing of major world leaders such as US President Biden’s new stimulus blueprint that includes an emphasis on clean energy, are likely to firmly sustain this sentiment. In coming years, deployment and adoption of clean technologies and innovations will continue to expand. Bloomberg New Energy Finance experts suggested world renewables capacity investment could reach about $300bn in 2020, while the Global Commission on the Economy and Climate estimated global economic benefits from investing in climate solutions at $26 trillion by 2030 in its 2018 New Climate Economy report. Given the scalability, efficiency, and sustainability cleantech offers, and most importantly, the urgency of deploying this industry in full swing, the market appears as one definitely worth getting into.
Disclaimer: This column is purely for academic and educational purposes. Nothing mentioned here should be taken as solicitation to trade or a recommendation of a specific trade. The author has direct exposure in some of the recommended stocks.
The initial foray into workfrom-home in 2020 was forced – its permanence will be the result of more deliberate efforts. As the Covid-19 fog dissipates, the benefits of flexible work models are becoming all too apparent. Global companies such as Microsoft have said most roles will remain remote while Twitter and Square have said more of their workforce can work from home permanently. In May 2020, Facebook said it would eventually begin allowing most of its employees to request a permanent change in their jobs to let them work remotely.
The change of heart is because businesses soon realised they can attain even better productivity from a remote workforce, observes Aongus Hegarty, president, International Markets, Dell Technologies. Employees too are expressing their feelings, making it well known they prefer this hybrid mode of working. Although most employees do not necessarily want to work 100 per cent remotely, many prefer to be in the office a few days a week and work the rest of the week from home, he adds.
Businesses are simply looking at doing things differently, says Chris Cooper, director and general manager, Lenovo Data Centre Group MEA. “Businesses are not expecting to go back to as it was. As they continue down their digital transformation, there’s an acceptance that there will be a higher degree of mobile working.”
That is all well and good, but the permanence of hybrid work models will require businesses to re-evaluate their technology stack. IT systems in existence were largely designed for a predominantly office-bound workforce. Although the technology for the remote workforce such as virtual desktop infrastructure (VDI) has been in existence for a while, few organisations took an interest. There’s no fast rule for how to enable a remote workforce. A good place to start is to identify the job profile of your employees, says Hegarty. “Some employees are involved in transactional tasks so a VDI solution favours them. Some require mobility solutions as they will be required to operate from multiple locations. Others work with a lot of data, so they’ll need a powerful desktop or laptop.”
The second consideration is the IT management angle – how to deploy IT systems, how to maintain them, patch them, migrate them when shifting, install remote working tools, etc. Lastly is how to keep these systems secure within an expanded exposure landscape, says Hegarty.
Digital transformation
Many organisations had committed to some form of digital transformation, albeit at a much more leisurely pace. The coronavirus put those plans in the fast lane.
Digital was always important, but nobody understood how crucial until Covid-19 showed them, observes Mohamed Al Qubaisi, chief technology officer at Injazat Data Systems. “There were a lot of things that were not in place from a digital perspective to help with the sudden shift. So digital platforms had to be created on the fly.”
Injazat for instance released the Abu Dhabi Department of Health RemoteCare app for non-Covid patients to have access to physicians and medicine subscriptions during lockdowns.
“The need was there even before Covid19 for such platforms but there was no urgency. Covid-19 changed all that. This shows people that they need to be ready for disruptions in the future,” says Qubaisi.
He highlights the risk to other businesses with no digital plans in place. According to some statistics, 70 per cent of restaurants that closed or were affected by Covid-19 may never open again. They are instead being replaced by digital-first cloud kitchen concepts.
There was a risk businesses would hunker down and try to ride out the Covid mayhem. The opposite happened as organisations accelerate their digitalisation efforts. “As people realised that they have to move to mobile working, tools such as Microsoft Teams or Zoom soon became mainstream,” says Cooper.
Cloud
The initial demand when the pandemic struck was for computing devices such as laptops, as well as the applications and security tools that go with that. But as WFH models mature, businesses are pivoting towards infrastructure and cloud to empower their remote workforce says, Hegarty.
The major cloud providers have been winners in the Covid-19 era, as seen in their exploding customer base and stock valuations. “There’s a huge growth in new data outside of traditional data centres and cloud around edge computing, and the requirement there for new infrastructures and new ways of doing things,” says Cooper.
As new data is being generated outside of traditional data centres, it has to be computed outside that as well, or on the edge. And then there’s the explosion of the number of devices that are getting connected to the internet, estimated to be around 80 billion by 2025.
The pandemic has accelerated the gap between edge and cloud. “The edge computing environment, which has a degree of artificial intelligence and analytics is now being connected to existing data centres and cloud infrastructures,” says Cooper.
The shift to remote workplaces and the financial pressure emanating from Covid-19 is accelerating previous shifts towards as-aservice or pay-as-you-go delivery models.
Hegarty says Dell is shifting its technology stack towards an as-a-service model which will eventually be rolled out across its markets. Dell launched its financial services arm in the Gulf as a step towards enabling this model, he adds.
Related to this is the shift from CAPEX to OPEX models. “Technology is now a major part of investments companies make. Providing technology as a variable cost OPEX model means organisations do not need to tie up significant working capital in technology-related outlay,” says Hegarty.
Organisations initially struggled with cybersecurity as many lacked the tools to secure remote work environments.
Technology companies like Dell have responded with more aggressive cybersecurity architectures. “Today, data and protection of that data are built into the infrastructure solutions now. Security is now built into the workforce transformation solutions as well,” Hegarty says.
Injazat recently launched its Cyber Fusion Centre (CFC) cybersecurity offering which combines forensics, threat detection and response, vulnerability management, vendor and malware analysis, intelligence sharing and analysis, and APD Hunt. “We handle citizen data, so we need to make sure that is protected and managed in the right way,” says Qubaisi.
Business strategy
Businesses are still figuring out how to evolve their operations in this new era.
Qubaisi of Injazat says business models have to change in this new reality. He cites healthcare that continues to be reactive, i.e., you need to wait for someone to get sick then they need to report it. Transitioning from a reactive to proactive care strategy requires healthcare systems to embrace digital transformation and roll out new capabilities that tailor patient care to the individual.
“So, you’re now changing the business model and the impact becomes significant. And this is what digital transformation will do for healthcare as an example to disrupt the status quo, and to do things very differently in a modern way,” says Qubaisi.
Hindsight is indeed 20/20. While many business leaders wish they had paid heed to calls for digitisation, the pandemic has proven why transforming business processes through the latest digital technology is important.
When the next disruption hits, and it will, sooner or later, most will be more prepared next time around.
“As they continue down their digital transformation, there’s an acceptance that there will be a higher degree of mobile working”