Posted on May 20, 2014

Falling oil prices will pose a challenge to Qatar unless the government steps up diversification efforts and develops its manufacturing sector, according to a new report by ICAEW. In its latest quarterly Economic Insight report, produced by its partner, the Centre for Economics and Business Research (Cebr), the accountancy and finance body says expanding competitiveness across a broader range of export industries will require improvements in education, skills and innovation to be successful.

According to Economic Insight: Middle East Q2 2014 the GCC economies are now more dependent on commodity exports than they were 10 years ago, despite the diversification agenda. Commodities account for 93% of Qatar’s total goods exports by value while manufacturing activities account for less than 10% of goods export revenues. “With global oil prices forecast to fall over the medium-term, the need to broaden the industrial base is becoming more pressing. While Qatar has the infrastructure and financial means to advance their manufacturing output and export potential, more attention needs to be paid to fostering innovation in order to compete more effectively in international markets,” said Vernon Soare, Executive Director, ICAEW.

Charles Davis, Cebr 1 [].jpgCurrently Qatar ranks in the top half of the World Bank’s Knowledge Index, a comparison of 145 countries and their ability to develop modern competitive industries, coming 61st on the list. However, with competition from other emerging markets intensifying, Qatar must now improve education, increase labour productivity and attract more foreign direct investment to progress its skill- and technology-intensive manufacturing sectors. While standards of education in Qatar fare slightly better according to World Bank measures, there remains a shortage of workers with suitable education in science, technology, engineering and mathematics (STEM subjects). However, the increasing number of students studying overseas is helping to address this skills shortage by creating new pathways for knowledge and skills development.

Improving the pace of labour productivity, or output per worker, will also help Qatar to prosper in the cut and thrust of international markets. Promisingly, labour productivity increased an average of 1.0% per worker between 2008 and 2012.

Charles Davis, Director, Cebr, said: “Strong investment will continue to see growth in Qatar outpace the rest of the world, but the prospect of falling oil prices due to increasing global supply, will put pressure on the Gulf state to diversify and grow its high-tech manufacturing industries. Fortunately, Qatar will remain a key destination for foreign direct investment flows over the coming years, providing a welcome boost to labour productivity by introducing domestic workforces to new technologies, production techniques and management procedures.”

The report also shows:

  • Sustained investment in infrastructure will support growth in Qatar over the next few years, with GDP expected to rise by 6.3% in 2014
  • The pace of expansion in Saudi Arabia is expected to remain strong with the economy forecast to grow 4.3% in 2014 thanks to ongoing investment in infrastructure
  • Economic growth of 4.5% is expected in the UAE in 2014, with indicators suggesting strong activity in the non-oil sector in in the first quarter and the market continuing to bounce from Dubai’s hosting of the 2020 World Expo
  • GDP growth in Oman is expected to fall 3.6% in 2014 as growth in oil production slows
  • Growth in Bahrain will dip slightly in 2014 as it suspends expansion of its main oil field
  • GDP growth in Kuwait is expected to reduce to 2.5% in 2014, down from 3.0% in 2013, due to weaker oil production

Economic Insight: Middle East is produced by Cebr (The Centre for Economics and Business Research), ICAEW’s partner and forecaster. The report provides ICAEW’s 142,000 members with a current snapshot of the region’s economic performance. The report undertakes a quarterly review of the Middle East focusing on the Gulf Cooperation Council (GCC) member countries (United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait), as well as Egypt, Iran, Iraq, Jordan and Lebanon (abbreviated to GCC+5).

The full Economic Insight: Middle East report can be found here [link]