Yousef Hussein Kamal on tackling inflation in Qatar

16 December 2008

The long-standing Qatari minister discusses his plans to develop new industries and tackle rising inflation.

With Qatar now firmly established as one of the most prosperous countries in the world, it is little surprise to see Yousef Hussein Kamal in bullish mood as he takes in the view of Doha’s rapidly changing skyline from his sprawling office.

As one of the most respected finance ministers in the region, Kamal has overseen many ups and downs in the state’s energy-rich economy during his 20-year ministerial career.

In 1992, Qatar could not afford to pay government wages following years of ill-advised spending and low oil prices. Yet in just 15 years, the state has shrugged off heavy debt and a poor economic climate to become one of the most in-demand investment hotspots in the world.

Kamal’s steady fiscal control is often regarded as conservative, yet observers agree that he deserves credit as one of the architects of an economic platform that is now envied the world over.

Economic success

“We had a difficult time when our concentration was on oil and gas, and prices were low,” says Kamal. “But now we are generating good revenues and by 2012, the economy will be double the size of today [with] growth of 9-11 per cent a year. So I think we are managing our economy well.”

In Qatar, senior ministers are expected to share their expertise across all sectors, giving Kamal insights into almost every aspect of the state’s economy and operations. In addition to his role as finance minister, he is acting economy & commerce minister, chairman of the country’s largest lender, Qatar National Bank, a board member of the $60bn Qatar Investment Authority (QIA), deputy chairman of Qatar Petroleum, and chairman of the Doha Securities Market.

Kamal seems to relish the challenge of juggling so many influential positions, although he recognises that economic success can also bring unwanted side effects. His face noticeably tightens when the ‘I’ word is mentioned. Inflation is arguably the most pressing concern for the government, with annual price rises of nearly 15 per cent dampening the buoyant economic mood in Doha.

Kamal has at times seemed perplexed as to the best way to tackle the problem. Last year, he blamed external factors for artificially lifting the inflation rate, but it is a measure of the state’s maturity that the government has since recognised that much can be done domestically to ease the problem.

“We think a big portion of inflation is purely generated domestically, probably about 70 per cent,” says Kamal. “By the end of this year and heading into next year, I think inflation generated inside Qatar will cool down.”

The biggest local culprit has been soaring rents and property prices. Investment bank HSBC estimates that rents have risen by 30 per cent in each of the past two years. A new law, introduced in February, forbidding landlords from increasing rents for two years will help to fight the problem, according to Kamal, along with a new batch of low-cost housing.

The government has also tried to ease domestic pressures by fixing the price on selected construction materials and creating government-run firms to supply contractors.

Tackling inflation

“Some action has been taken by the government to reduce at least some pressure on the inflation rate itself by fixing some of the prices of raw materials that are generated in Qatar, like cement,” says Kamal. “They [domestic companies] do not have the right to increase the price because they are getting everything locally, so they do not have any excuse. The gas, the power, the raw materials and the water is all local.”

The creation of state-owned aggregate and steel companies will also foster competition, although Kamal refutes the idea it is in effect an artificial subsidy.

“It is not to subsidise but to balance between the demand and the supply,” he says. “If you do not create this company, there will be an imbalance between demand and supply. These [initiatives] are actually helping the contractor and the real estate developer to know what the future price is.”

Kamal will not be drawn on whether Qatar will revalue its currency, which is currently pegged to the dollar. However, he reiterates that GCC currency union is still on track for 2010, along with a new plan to consider a Gulf-wide corporate tax rate of 10 per cent.

Some measures to ease inflation have yet to be implemented. Earlier this year, Kamal raised the prospect of selling bonds to soak up excess liquidity in the economy, after money supply grew by almost one-third in the year to June 2007. However, he says that while the rate of growth is high, it does not follow that bonds provide the right answer, and none have yet been issued. “Of course you will see there is a lot of cash in the system but you have to know who this cash belongs to,” he says. “Is it institutions or the government, or companies owned by the government?”

Investing abroad

Kamal says much of the cash is invariably channelled out of the country. “Most of them [companies] have commitments and investments outside Qatar,” he says. “This means the cash you see in the system is temporary and is going to be invested outside, so you have to eliminate that portion.”

Ultimately, the issue of bonds will hinge on timing. “Yes, the alternative [for using bonds] is there,” says Kamal. “I obtained approval from the cabinet, I have the law, but then I have to use it when I think it is the right time.”

In the meantime, he points to a series of rights issues on the local stock market this year, including the listing of Qatar Petroleum subsidiary Gulf International Services.

“There have been tens of billions of [Qatari] riyals going into the system,” he says. “Now you see the stock market is up. Today it is 11,800, as it was in 2005. The price/earnings ratios are okay and at the same time inflation comes down to 13.7 per cent from 15 per cent.”

Despite his optimism, Kamal will need to keep a close eye on the inflationary situation. Over the coming four years, the state’s coffers will bulge even further, with oil production due to top the 1 million barrel-a-day (b/d) mark for the first time, gas-to-liquids output approaching 200,000 b/d and liquefied natural gas (LNG) production more than doubling to 77 million tonnes a year (t/y).

The numbers are impressive, particularly in an era of record oil prices. But Kamal veers on the side of caution, preferring to divert extra cash into the country’s oil stabilisation fund.

Managed by the QIA, the fund was created in 1999 to collect surplus hydrocarbon income and provide security if energy prices crash. Kamal gives his best innocent look and laughs when he says no one in Qatar, including himself, knows the true size of the fund, although he later agrees it is a “healthy” size.

The government conservatively forecast an oil price of $55 a barrel in its 2008 budget, a leap from $40 last year, but still easily less than half current crude prices. The difference between the budgeted price and traded prices is banked directly to the fund, according to Kamal.

“Today you are talking about the price we have in the budget and the prevailing price on the market is almost double, so the rest of the money actually goes there for the future,” he says.

Kamal is sticking to his plan of reducing dependence on energy revenues to zero by 2020, and has even set an interim target of a 75 per cent reduction within about a decade.

“In our plan, we do not want to depend on the income of the government coming from oil and gas,” he says. “In the future, say 10 years from today, then maybe the income that is generated from the stabilisation fund could cover two-thirds of the budget of Qatar. Whatever the price of oil or quantity of oil and gas, it will not affect the planned budget for that era.”

Despite the rosy outlook, Kamal acknow-ledges the difficulty in predicting Qatar’s economic performance into the next decade while the moratorium on development of the giant gas reservoir in the North field remains, let alone the fluctuating price of oil and gas on global markets.

“After 2012, it depends on the information we get in 2010 on the North gas field, and it also depends on the market [in terms of] the demand and supply of LNG,” he says. “Nobody knows what the price of these products will be in 2012.”

One of the government’s clear ambitions, however, is to build up new industries while keeping public spending under control. After pleading for high-quality investment from international oil companies just 15 years ago, Qatar has now all but shut its doors to oil majors, preferring to focus on luring cash and expertise in the fields of education, health, financial services and real estate.

“We think that the atmosphere we are creating for businesses [in terms of] legislation, services and infrastructure, along with the new airport, port and economic zone, will help to attract investors in different fields [rather] than just hydrocarbons,” he says. “We are putting the infrastructure in, which encourages others to come and build on it.”

Research focus

He eventually hopes the state’s newfound focus on research and technology will lead to a strong manufacturing base made up of small and medium-sized companies.

“If you can commercialise this research, make a product and sell it, [that] means you will have a new role of manufacturing, which is directly related to research,” says Kamal. “I think a good portion of our economy will benefit from this.”

Despite his hectic schedule manning one of the fastest-growing economies in the world, Kamal shows an admirable appetite for continuing to drive one of the most impressive financial turnarounds ever seen in the region.

“We need to keep moving ahead and providing good infrastructure for different sectors of the economy for after 2012,” he says. “This is the way we are planning for our future.”

Career history

  • 1973: Receives bachelor of business administration from Cairo University

  • 1988: Director of financial affairs at the Finance & Petroleum Ministry

  • 1993: Under-secretary at the Finance, Economy & Commerce Ministry

  • 1998: Minister of Finance, Economy & Commerce

  • 2002: Minister of Finance

  • 2006: Acting Minister of Economy & Commerce and chairman of the Qatar Financial Centre Authority

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