The discovery of Qatar’s giant North gas field in the early 1970s was initially met with disappointment that it was not another oil reservoir. But strategic investments in developing and commercialising the field have turned it into the mainstay of the Qatari economy and transformed Qatar into one of the wealthiest nations on the planet.

In 2006, Qatar became the world’s largest exporter and trans-shipper of liquefied natural gas (LNG), with exports of up to 25 million tonnes a year (t/y), overtaking Indonesia, which had dominated the market for more than 30 years.

In 2008, Qatar’s gas revenues surpassed those from oil for the first time, contributing QR120bn ($33bn) to the economy. This year, income from LNG exports will be even larger as new capacity has been brought on stream through the start-up in May of the Qatargas II project at Ras Laffan.

While the economies of most other countries in the world, including the oil producers in the Middle East, will shrink in 2009, Qatar is expected to escape the global economic downturn largely unscathed, thanks to its enormous gas supplies and the relative strength of gas prices. Its gross domestic product (GDP) could rise by as much as 9 per cent this year.

Increasing output

More giant liquefaction trains are also set to start up in 2010, taking Qatar’s annual LNG output to more than 77 million t/y. Through long-term export deals with countries across the globe, Qatar has guaranteed itself a steady income stream for decades to come.

Combined, oil and gas revenues account for 62 per cent of Qatar’s GDP, but mindful of the fact that these natural resources are finite, the country’s leader, Emir Sheikh Hamad bin Khalifa al-Thani, has set himself the challenge of transforming the emirate into an advanced economy by 2030, one that is capable of both sustaining its own development and providing a high standard of living for all its citizens.

A visitor to Qatar will often be told that the country’s most valuable natural resource is its people, and it is this sentiment that is at the heart of Doha’s diversification plans. Whereas other Gulf states have opted to invest in tourism and service industries to broaden their economies, Qatar aims to develop a know-ledge-based economy that is well equipped to compete at a global level.

Knowledge economies are built around the four interlinked pillars of education, innovation, information technology and economic incentives. But the Qatari economy currently stands on the twin foundations of hydrocarbon revenues and imported labour, both of which are unsustainable over the long term.

Expatriate workers comprise close to 80 per cent of the population in Qatar. The majority of these are low-skilled labourers who work on the many construction sites around the country, but the remainder are white-collar executives from developed Western economies brought in to plug a severe skills shortage in the country. Over the years, the majority of Qatar’s industrial projects have had to be undertaken in partnership with international companies because of the lack of home-grown technology and expertise.

Although the government has set Qatarisation targets to boost the number of locals employed by the private sector, the foreign companies operating in the country often struggle to find suitable candidates as schools and universities are not producing sufficient graduates with the right skills set.

This situation is supported by the findings of a 2007 study of Qatar’s readiness for becoming a knowledge economy, led by the state Planning Council, which identifies a big disconnect between the education system and the labour market.

To assist the transformation to a knowledge economy, the government has drawn up a frame-work document, Qatar National Vision 2030, which outlines four key areas of development: human, social, economic and environmental.

The vision states that to ensure the right human development, Qatar must invest in world-class education and health systems, and that education needs to be tailored to the current and future needs of the labour market. It calls for the wise management of its exhaustible reserves, leveraging wealth by investing in infrastructure, and supporting the development of entrepreneurship and innovation through effective systems for funding research. It says economic progress must not be to the detriment of the environment and the private sector needs to be engaged to provide training and support to entrepreneurs.

This, the document says, will provide a platform for the diversification of the economy and positioning of Qatar as a regional hub for knowledge and high-value industrial activities.

Qatar has already begun looking beyond hydrocarbons. Over the past decade, it has been moving downstream, investing in petrochemicals production, and now entering the aluminium sector.

Foreign partners

A 585,000-t/y capacity smelter is due to start up by the end of this year at Mesaieed Industrial City, 40 kilometres south of Doha. Projects such as this are built on Qatar’s competitive advantage as a gas-rich country. But they always have to be undertaken with a foreign partner, which is able to provide the technology and expertise needed to execute the project. This has permitted the country to forge ahead without making greater investments in its human capital.

The aluminium smelter is a joint venture of Qatar Petroleum and Norway’s Norsk Hydro.

Qatar is home to 15 per cent of the world’s gas reserves and it is estimated they will last for at least 200 years. The country’s oil wells, meanwhile, are expected to continue pumping for another 95 years.

By acting so far in advance to develop a non-energy economy, Doha and the Qatar Foundation for Education, Science & Community Development, a non-profit organisation that was established by the emir in 1995 (see feature, pages 8-10), are acting responsibly and wisely. With so much more oil and gas yet to be exploited, Qatar is a desirable investment prospect for international oil companies, and is able to leverage this interest to its own advantage through the Qatar Science & Technology Park.

The national vision cautions against using the financial returns from hydrocarbon resources to fund trophy projects, as other Gulf states have done. Qatar, under the guidance of the Qatar Foundation, is doing its upmost to use its mineral wealth in areas with lasting value such as education, healthcare and technology development. It remains to be seen whether the country can manage to switch from being a net importer of technology to a net exporter, but the phrase ‘made in Qatar’ is likely to be more widely used in the future.

As an advanced economy, Qatar will be expected to have a well-educated and highly skilled local workforce, capable of developing proprietary technology.

To rise to this challenge, Qatar is addressing its shortcomings in each of the four core areas of the knowledge economy, and those reform efforts are being led by the Qatar Foundation.

The foundation has set up what it describes as models of academic excellence at a self-contained site in Doha named Education City (see feature, pages 12-13). It has opened new universities that deliver courses that dovetail with the needs of the labour market. It has triggered a wave of interest in technological innovation and research in Qatar by offering a range of funding to selected projects. And it has built a home where that technology can be commercialised - the Qatar Science & Technology Park (see feature, pages 16-19) - which is also located within the bounds of Education City.

These initiatives are benefiting not just Qatar. More than 50 per cent of the undergraduate students taking courses at Education City are non-Qatari and about 45 nationalities are represented across the six universities located there. Researchers and entrepreneurs the world over are allowed to apply for funding from Qatar, provided they work with a local partner or make a base at the science and technology park.

Although Qatar will remain reliant for many years yet on oil and gas revenues and expatriate workers, in time it hopes to be known as a centre of educational excellence and a hub for research in the Gulf.

To underline the state’s determination to achieve that goal, the government has pledged to allocate 2.8 per cent of the country’s GDP each year to support research. Based on a total GDP of $102bn in 2008, this amounts to $2.8bn.

The National Vision 2030 states that the rights of future generations will be threatened if the depletion of non-renewable resources is not compensated for by the creation of new sources of renewable wealth. But the Qatar Foundation, under the guidance of its president, Sheikha Mozah bint Nasser al-Missned, is doing its upmost to make sure this does not happen.