Special Report Contents

• Qatar: Facing a gas export crunch

• Doha needs measured spending

• Qatar faces a future of cheaper gas

• Qatar Exchange struggles to capitalise on emerging markets boost

• Smart transport systems planned to keep Qatar moving

Inflation is not a major issue in Qatar right now, with global food and commodity prices remaining low by recent historical standards.

There have been patches of upward price spikes, with housing rental prices an issue for many.

Under control

Property prices had increased by 29.6 per cent year-on-year as of April 2015, according to the country’s real estate price index. Yet a relatively rapid supply of units onto the market has kept the situation under control.

Inflation this year is unlikely to exceed 2 per cent, and as of July, it was only 1.6 per cent. Imported inflation will also be capped by the strengthening dollar, to which the riyal is pegged.

The lower oil prices are another important factor.

“Inflation will not be as high as was predicted maybe a year ago when the oil price was still over $100 a barrel and commodity pricing was stronger than we are seeing now,” says Christopher Seymour, regional development director at consultancy Arcadis.

Construction costs

There are residual concerns that Qatar will find it hard to avoid rising prices associated with its construction programme.

Despite low commodity prices, construction materials prices could surge in the run-up to the 2022 World Cup if bottlenecks are not effectively managed.  

There has been an expectation that materials inflation could surge well into double figures during the forecast 2017-2019 peak buildout period

“Construction material prime costs should remain reasonably stable across the region, including Qatar, as commodities are also forecast to stay low,” says Seymour. 

“The region can also supply its own cement and steel from local factories, which tends to moderate large swings in inflation for these key construction materials.”

Tender prices are, however, forecast to rise due to the huge demand not just from Qatar but also the other regional programmes – including Dubai Expo 2020 – creating a significant strain on the supply chain.

Inflationary pressures

“Some recent reports have suggested that these pressures may have eased somewhat due to the low oil price making local governments more selective about which programmes they actually pursue, but we have yet to see the evidence of this in the pricing forecasts,” says Seymour.  

The inflationary pressures are mainly logistical issues, labour demand and increased pressure on supply chain.

“It is true that some contracting companies have their own investors expecting a return to improved margin following several lean years and this will translate to higher tender prices,” says Seymour.

“Logistics also play a large part in the price set for construction and improvements in the local infrastructure will also have a positive effect on this but the effect will not be felt for some years to come.”

There are a variety of instruments available to the authorities to manage the process.

Bulk material purchasing programmes can ease inflationary pressures which have already been implemented together with a transition to a more sophisticated procurement approach.

“Better procurement can reduce risk for contractors enabling them to time material purchase and sub-contractor engagement/scope more precisely, leading to greater efficiency and hence lower costs,” says Seymour.