Posted on February 06, 2011
Government capital expenditure continues to rise in Qatar with outstanding projects in the country currently totalling $209bn, UK-based Oriel Securities has said in a report.

Of this, about 40% is planned for infrastructure investment; Oriel said quoting Zawya Dow Jones estimates.
Total government capital expenditure, as a proportion of total revenues, has increased from 28% in 2005-06 to a budgeted 43% in 2009-10, it said.

Qatar’s government invests a large proportion of energy revenues in improving the country’s infrastructure, and diversifying and expanding its economic base.
Foreign and domestic private capital is encouraged through privatisation, outsourcing of public services and the development of industrial zones.

“Value is thus being created as Qatar builds its infrastructure,” Oriel said.

Compound growth of the non-oil and gas sectors (banking, services, industrial, and real estate) has exceeded that of the energy sector since 2006, and non-oil and gas activity is estimated to have accounted for 49% of total GDP in 2010.
Qatar’s nominal gross domestic product (GDP) growth averaged 27.2% over the past five years (2005-09) and is expected to have reached $126bn in 2010. The non-oil and gas sector has been predicted to account for 48.6% of GDP in 2010, up from 40.9% in 2006.

The gain in non-oil output included a 16% expansion in manufacturing sector activity but was dominated by a 34% year-on-year (y-o-y) increase in the value of government services, underscoring the pivotal role public spending plays in the domestic economy. Although the increase was driven primarily by a pronounced price-driven pick-up in the value of oil output, the non-oil sector grew by 8% y-o-y, a particularly strong performance given near zero domestic inflation.

Non-oil and gas earnings have been an increasing part of the whole as government seeks to broaden the economy. These earnings are sensitive to public spending. However, given the massive infrastructure spending that is now in train in the run up to the 2022 World Cup - on top of all the other mega projects currently planned or ongoing - and bearing in mind the total absence of a need to introduce austerity measures as in much of the rest of the world, the picture points to rising earnings in the non-oil sector.

The report said a falling price for oil would indirectly affect government revenue and therefore potentially government spending which in turn could affect non-oil earnings. Given the size of its natural gas reserves, investors in “Qatar need not be overly concerned with the price of natural gas in our view,” the report said.

The report said, “Overall, Qatar’s economy continues to weather the global downturn well, and should stand among the fastest growing economies worldwide in 2011. Real GDP is expected by the IMF to expand by 18% this year, thanks to ongoing investment in the liquefied natural gas industry, which will raise production to 77.4mn tonnes per year by 2012 (from 31mn tonnes in 2008) and boost export receipts.

This strong growth will have favourable repercussions on Qatar’s fiscal and external accounts. With liquidity and sentiment continuing to improve we can see a further re-rating of the Qatari market.”