A special relationship

20 October 2003
On 4 June, Air Force One flew in low over southern Qatar and touched down at Al-Udeid airbase. In the sweltering evening heat, George W Bush stepped off the Boeing 747 on to Qatari soil - the first serving US president to visit the Gulf state. Within hours he was back on board the aircraft, but the point had been made.

Bush arrived in Qatar on the last leg of a punishing tour that took in Russia, Europe and the Aqaba peace summit. Significantly, he stopped off nowhere else in the Gulf: a clear signal of Doha's favoured status.

Ostensibly, Bush's visit was to thank Doha for its support during the Iraq war, when Qatar hosted the US Central Command at Camp Saliyah and the US Air Force down the road at Al-Udeid. However, it was also recognition that in the US' campaign for change in the Middle East, Qatar is a beacon.

Political reform is being pursued: 2004 is expected to see the first national elections in the state's history when voting takes place for the new Shoura Council. Foreign investment is being energetically encouraged: in July, ConocoPhillips became the latest in a growing line of US majors to home in on the gas industry, when it signed an agreement to develop a 7.5 million-tonne-a-year (t/y) project to service the US market. Education reform is being carried out - on 13 October, the ambitious Education City development, home to branch campuses of four leading US universities, was inaugurated as a new centre for learning. And the empowerment of women is taking place: this year has seen the appointment of the first female cabinet minister.

The Qatar/US relationship is mutual and, for the Gulf state, the benefits extend well beyond recognition and investment. Most critically of all, Doha now falls under Washington's security umbrella. That insurance policy is priceless for a country in an unstable region, with a population of just 650,000 and the highest per capita income in the Middle East. The vast majority of Qataris recognise that and, as a result, animosity towards the US military presence is notable only by its absence.

With Qatar's security assured, Emir Sheikh Hamad bin Khalifa al-Thani has been able to press ahead with his reform programme. The draft permanent constitution was approved in late April by a landslide: 96.6 per cent of those voting in the referendum said yes. The next step in the democratic process will come in the first half of 2004, when elections are due to be held for the Shoura Council.

The constitution provides for separate executive, legislative and judicial powers. The legislative power will be vested in the 45-member council, two-thirds of whom will be elected, with the remaining 15 appointed by the emir. In addition to legislating, the body will also have the power to approve the budget and question ministers. 'The council does look as though it will have teeth and the fact that elected members will outnumber appointed ones two to one is encouraging,' says a senior local businessman. 'Most people view it as being a start, rather than the finished article, and we will see how it all progresses. But it is still a good start.'

The cautious assessment is in part borne out of recent history. On 7 April the second municipal council elections were held. In marked contrast with the excitement surrounding the ground-breaking election in 1999, the April poll passed off almost unnoticed. Voter turnout was low at about 25-30 per cent, while the results barely got a mention on the front pages of local newspapers. The apathy shown reflected voter disappointment with the body, which, unlike the new Shoura Council, has only advisory - and no legislative - powers.

The 150-article constitution enshrines basic principles such as freedom of speech, freedom of the press and freedom of religious expression, as well as setting education as a basic pillar of society. In each instance, the emir has over the years lent his support to such ideals. In 1996, the government abolished press censorship and set up the pioneering satellite broadcaster, Al-Jazeera Channel (see page 33). In April, Doha hosted a Muslim/Christian dialogue meeting, attended by leading clerics, including the Archbishop of Canterbury. And through the Qatar Foundation, education has been given a high profile (see page 50).

Approval of the constitution was not the only political development to take place in Doha during the summer. In August, Sheikh Tamim bin Khalifa al-Thani was confirmed as the new crown prince after his brother, Sheikh Jassim, stepped down. Six weeks later, Foreign Affairs Minister Sheikh Hamad bin Jassim bin Jabr al-Thani and Energy & Industry Minister Abdullah bin Hamad al-Attiya were appointed to the new posts of first and second deputy prime ministers.

The elevation of Sheikh Hamad and Al-Attiya was seen as recognition of the work both ministers have performed over the past decade. Sheikh Hamad is credited with giving Qatar a much-needed profile on the international stage and has been instrumental in nurturing relations with the US. As for Al-Attiya, he has overseen a transformation in Qatar's energy sector, resulting in a doubling in oil production capacity, the establishment of a rapidly-expanding liquefied natural gas (LNG) sector and the creation of a gas-to-liquids industry at Ras Laffan.


Qatar is today reaping handsome dividends from the estimated $30,000 million invested in the energy sector in the past 10 years.

The economy is going from strength to strength. In five years, exports have doubled, gross domestic product (GDP) has increased by 70 per cent and large budget and current account deficits have been replaced by healthy surpluses (see page 34).

The transformation from a deficit-laden to a surplus-generating economy has been felt far and wide. The government is now in a position to push ahead with the long-awaited upgrade of Doha's infrastructure.

Capital spending in the current budget has been raised by 40 per cent to $1,690 million. This represents a threefold increase on the amount actually spent in fiscal 1999/2000. Some loans secured to underwrite the energy investment programme have been paid off, while state reserves have been built up.

Investment in the energy sector will remain a strong feature for the foreseeable future. Qatar has now built up an impressive track record of successfully doing business with international energy companies and there is no shortage of investors attracted to the vast gas reserves of the North field. Over the coming five years, an estimated $24,000 million is to be invested by Qatar Petroleum (QP) and its partners in new LNG, GTL and petrochemical capacity, in a move that is expected to see a further doubling in the economy's size.

Driving force

To support the huge investment, new sources of finance are being considered. Export credits are likely to be tapped for the first time in years for both the Qatargas II and Q-Chem II projects. The Islamic market is also being assessed. The driving force behind the late-September launch of Doha's first sovereign sukuk was widely seen as the need to create an Islamic benchmark rather than a requirement to raise $700 million.

Rising government expenditure has helped to quell complaints in Doha that the local market has benefited little from the government's new-found riches. Land prices have risen strongly, while consumer spending is up. Among contractors, gripes may remain about project delays and intense competition, but there is consensus that the market has never been busier (see page 52).

Nevertheless, government officials have become increasingly aware that the proceeds from the gas revolution need to be more widely distributed. And in May, words were translated into action, when the initial public offering (IPO) in Industries of Qatar (IQ) was launched. Grouping together QP's interests in four gas-based ventures at Mesaieed, IQ was always going to be an attractive investment, being the first opportunity for nationals to participate in the downstream sector. With shares priced at just QR 16 each, Qataris flooded to buy their allocations. Such was the response - it was four times over-subscribed - that the government decided to double the size of the IPO to 30 per cent of IQ's share capital.

From the outset, the IQ offering was described as a gift to the nation from the emir. It has certainly proved to be a very generous one. By early October, the shares were trading on the Doha Securities Market (DSM) at QR 65 each. Their listing has also provided renewed momentum to the three-year bull run on the DSM. Since the start of the year, the DSM index has soared by 48 per cent, raising concerns that a hefty correction could be just around the corner.


Further privatisations are planned. An IPO was launched in September in a new slaughterhouse company, while a study is under way at Qatar General Electricity & Water Corporation (Kaharamaa) looking into the possible privatisation of the transmission and distribution sector. At QP, the possibility of creating two new companies is being assessed. The first, with a proposed capital of QR 2,000 million, would invest in medium-sized industries, downstream of the bulk petrochemical producers in Mesaieed. The other involves the establishment of an oil and gas service company to undertake activities such as drilling and fabrication. In both instances, private shareholders are being considered.

Private-sector companies are also looking to make their mark. United Development Company (UDC), formed through an IPO in 1999, and Dubai Aluminium Company (Dubal) are planning to start construction of a world-scale aluminium smelter at Ras Laffan in 2004. UDC is also nearing completion of a masterplan for a $2,000 million island development in West Bay, which will be the first opportunity for expatriates to own property in Qatar. 'The growth opportunities here are limitless and supported by very solid fundamentals,' says UDC managing director Khalil Sholy. 'What the Pearl of the Gulf island project will do is allow the foreign investor to participate in that growth.'

Growth and change have been the abiding features of Qatar in recent years. For some older residents and government departments, the rapid pace has been difficult to believe, let alone handle, coming as it does after a sustained period of inertia in the 1980s and early 1990s. But for a state that is not only looking to play catch-up but place itself at the forefront of regional development, that is a small price to pay.

Exchange rate: $1=QR 3.64

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