Posted on October 08, 2017

Qatar’s economy remains one of the strongest in the Middle East and North Africa region despite the blockade by some neighbouring countries. Hydrocarbon exports have continued uninterrupted, new trade routes have been established and the authorities are eager to attain a higher degree of economic self-sufficiency.

While the blockade initially disrupted some economic activity, its impact has dissipated. Over the medium-term, we expect the Qatari economy will prove resilient. Domestic industries will benefit from increased self-reliance while the government’s plans to expand liquefied natural gas (LNG) production and a renewed drive to attract international tourists will drive future growth. 

The blockade has impacted two main sectors of the economy. The first and most direct impact has been through trade. In the immediate aftermath of the blockade, imports declined in June and remained subdued in July. But by August, the latest trade data available, imports rebounded 40%, almost returning to their pre-blockade level and reflecting the quick adjustment in finding new sources of imports and establishing new trade routes. The recent opening of Hamad port, already one of the largest ports in the region, has been critical to supporting imports through the blockade.

The banking sector is the second sector affected. Uncertainty in the immediate aftermath of the blockade triggered some deposit outflows from Qatar’s banking sector. However, these outflows have dissipated in subsequent months and as the IMF stated in a recent report, “The impact on banks’ balance sheets was mitigated by liquidity injections by the Qatar Central Bank and increased public sector deposits”.  Overall, the banking sector remains resilient with high asset quality and strong capitalisation. The government remains comfortably resourced with over 250% of GDP in public assets. In fact, compared to the other countries in the region, Qatar ranks second behind Kuwait in terms of total net foreign assets as a percentage of GDP, giving it one of the strongest balance sheets amongst its peers.

Hence, in the short term, the shock of the blockade is fading. In the medium term, we expect the blockade could actually be positive for Qatar. Certain domestic industries are set to benefit from the trade vacuum created by the blockade. For example, a number of private sector initiatives to make Qatar more self-dependent in food production have been launched, such as large-scale dairy and poultry farms. Local production of other goods is also likely to be encouraged by the blockade and by government support in response to the blockade. Transportation and logistics firms will gradually benefit through an increase in trade volumes arriving directly in Qatar at the new Hamad Port. Finally, as a result of the decline in visitors to Qatar from the blockade countries, the authorities have launched a renewed drive to attract international tourists. Visa restrictions have been lifted and new hotels and other tourism projects have been launched.

However, the most important factor supporting Qatar’s medium-term outlook is the government’s plans to expand LNG production. In July, after the blockade started, the authorities followed up on a previous commitment to raise gas production by announcing a second increase in LNG output. This brought the total expected increase in LNG production to 30% in five to seven years. Such a proposal will likely entail a multi-billion dollar investment in new pipeline and other infrastructure to extract the additional gas as well as large facilities to process the gas, such as liquefied natural gas trains. To ensure production is brought online in five to seven years time, the authorities will need to initiate this construction in the near future. This would have important spill over effects into the rest of the economy, drawing in foreign workers, which in turn, would raise demand for housing, goods and services. In short, a boost in gas production would likely herald a new phase in Qatar’s economic development.