Doha looks to diversify exports

24 September 2014

Qatar’s trade surplus as a proportion of GDP is forecast to continue to decline in the coming years. The government is looking to reverse this trend with a stronger focus on non-oil exports and bilateral trade

As the world’s leading liquefied natural gas (LNG) exporter, with a 32 per cent market share, Qatar’s export muscle is widely known across the globe. The country is a key supplier for gas markets as diverse as Japan, South Korea, India and the UK.

‘Brand Qatar’ is also recognisable internationally through the high-profile acquisitions of sovereign wealth fund Qatar Investment Authority, the hosting of various international tennis and golf events, and the sponsorship of several sporting teams. Yet this prowess is firmly rooted in the country’s strength as an oil and gas exporter.

Growing oil exports

Rising exports of oil, gas and related products (fuels, petrochemicals and fertilisers) substantially outpaced imports last year, leaving a current account surplus equivalent to 30.9 per cent of GDP.

Qatar top five export destinations ($bn)
Source: QNB

The country’s current account surplus this year is projected at 25.2 per cent of GDP, which would make it the fifth-highest in the world, according to the Washington-based International Institute of Finance.

The latest figures confirm a healthy trade balance. Foreign merchandise trade showed a surplus of QR33.2bn ($9.1bn) in July this year, an increase of nearly 1 per cent on the previous year. Exports of QR41.5bn comfortably exceeded imports during the month.

However, the country’s trade surplus as a proportion of GDP is expected to continue to decline in the years ahead, according to the IIF. This is because of the rapidly increasing imports of goods and services needed to support the country’s development plan, a growing expatriate population and rising remittances, softer projected oil prices, and growth in the size of the economy.

Diversification focus

Aware that the dependence on hydrocarbons commodity exports leaves Qatar vulnerable to fluctuations in the global marketplace, the government wants to ensure a more diversified trade performance. Non-oil exports are therefore primed to play a much more significant role in driving economic growth.

“For oil and gas producers such as Qatar, which are dependent on a single prime export commodity, it is critical for them to diversify their non-oil exports,” says Giyas Gokkent, a senior IIF economist. “If they can facilitate this as other countries do by providing credit to prospective buyers, then that will be all to the good.”

Qatar top five import sources ($bn)
Saudi Arabia1.
Source: QNB

Doha has made some progress in lifting the share of non-hydrocarbons in the export basket in recent years. Non-oil exports by non-Qatar Petroleum companies grew by 36 per cent between 2006 and 2010, exceeding QR1bn that year.

By 2016, Qatar hopes to increase its non-oil exports to QR3.8bn, nearly four times the 2010 figure. Even so, this will still be substantially lower than its gargantuan oil and gas exports. Hydrocarbons sales accounted for $127.5bn, or 91.7 per cent of Qatar’s overall $139bn of exports in 2013, according to estimates from the Washington-based IMF. And of the remaining $11.5bn of non-hydrocarbons exports, more than half of this ($6bn) was accounted for by downstream petrochemicals exports. No matter how hard it tries, it is proving difficult for Doha to dilute its oil and gas dependent trade composition.

Trade imbalance

In another indication of the hydrocarbons sector’s export dominance, non-oil exports are not registering a significant impact on real non-hydrocarbons GDP growth. Last year, the largest contributors to non-hydrocarbons GDP growth were government services, financial services and construction, none of which are export sectors.

Imports of goods– which in 2013 reached $31.5bn, an increase of more than $10bn on 2010 – substantially outweigh the country’s non-hydrocarbons exports. That imbalance is unlikely to change much, given the strength of domestic demand for goods and services, underpinned by the lavish investment spending witnessed in the country in recent years. 

Within the hydrocarbons industry, it is natural gas that is driving export growth, rather than crude oil. Gas exports increased by 5.9 per cent last year to account for 64 per cent of total exports, according to the IIF. Oil exports, which comprise 24 per cent of the total, fell by 5.7 per cent. Non-oil export growth (mostly chemical products at 8 per cent of total exports) was stronger (also up 5.9 per cent). Petrochemicals exports, which constitute higher value-added exports, should continue to rise in the coming year as new downstream plants become operational, says the IIF.  

Asian links

The geographic focus of Doha’s trade relations is increasingly Asian-oriented, which reflects strong and persistent demand for hydrocarbons over the medium term. Qatar’s exports to Asia accounted for 71 per cent of the 2013 total, according to Qatar National Bank (QNB), and went mainly to Japan, South Korea and India.  These accounted for 26, 16 and 12 per cent of exports respectively. Asian economies are also among the largest exporters to the Gulf country, with China the second-largest (after the UAE) supplying 9 per cent of imports into Qatar, followed by the US with 8 per cent.

These trade relationships are unlikely to change in the near term, although Qatar’s LNG exports to Kuwait will result in a slight rebalancing of gas exports towards the Middle East and North Africa region. Another interesting development is the discussions Qatari officials are having with their Iranian counterparts, centered on trade opportunities across the narrow Gulf waterway. 

In early July, the Qatar Chamber of Commerce and Industry received an Iranian business delegation headed by Akbar Torkan, the influential economic adviser to President Hassan Rouhani. Talks focused on linking Al-Ruwais port to Bushehr port in the Islamic Republic. This, it is hoped, would facilitate the increased trade in construction materials, minerals and food products between the two countries.

The two sides also committed to establishing a private company that would build a shipping fleet to transport food and construction material between Iranian and Qatari ports. This could herald a substantial increase in bilateral trade, which currently only amounts to about $100m a year. Qatari exports to Iran are particularly small, with just $7.7m-worth of non-oil goods exported in the March 2013 to March 2014 period, according to Iranian government figures.

Bilateral trade

Boosting bilateral trade relationships is an important element in Qatar’s strategy to broaden its export potential. A more comprehensive approach is articulated in a government initiative set up in 2011 by Qatar Development Bank (QDB). Tasdeer, the export development agency, represents QDB’s export arm, with a mission to promote exports by providing export credit guarantees in addition to financial products and solutions designed to mitigate the risks imposed on local exporters.

Export development and promotion services include developing Qatar’s export strategies for non-oil products, identifying products and target markets, and providing trade information about foreign markets through a variety of tools and mechanisms.

All Qatari exporters are eligible for Tasdeer support. In November 2013, QDB signed a memorandum of understanding (MoU) with QNB to facilitate the exports of non-oil goods produced by local companies, by offering financial support to exporters through Tasdeer. Under the MoU, both lenders have committed to develop mutual plans to ensure more export-led Qatari companies and more foreign importers of Qatari non-oil products receive financial assistance.

QNB’s financial services teams overseas will promote Tasdeer’s financial facilities to foreign importers, while QDB will commit to offering financial services, facilities and discounts to foreign importers in partnership with QNB.  

Tasdeer is a critical link in a broader institutional apparatus designed to diversify exports and meet the country’s 2030 development plan goals, say analysts. “Any agency that supports export growth has to be a good idea, and most developed countries have these types of agencies,” says Gokkent.

Doing business

Qatar already scores highly on many international measurements for doing business, for example ranking 16th out of 144 countries in the 2014-15 World Economic Forum Global Competitiveness Index. The absence of import quotas makes it a country that companies will seek to trade with. In addition, as a member of the Greater Arab Free Trade Agreement (Gafta), 16 other Arab member countries can import from Qatar under custom-free trade exemptions. 

Sustained attempts to forge a strong manufacturing base in Qatar could also furnish a wider array of potential export-oriented sectors. Products include luxury interiors, plastic granules, paints, gaskets, aluminium panels, steel wire mesh and other products.

Such projects stand a chance of broadening the export range beyond its current hydrocarbons focus. With solid LNG contractual relationships firmly established with the largest Asian economies, Qatar has a platform to develop new sales channels that may ensure its downstream industries can make use of these marketing opportunities.

None of this means non-oil exports will be eating significantly into the market share overwhelmingly enjoyed by oil and gas sales; but Qatari strategists believe there is no harm in trying.

Key fact

By 2016, Qatar hopes to increase its non-oil exports to QR3.8bn, nearly four times the 2010 figure

Source: MEED

A MEED Subscription...

Subscribe or upgrade your current package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.

Get Notifications