Qatar Business Forecast Report Q1 2008

Another Good Year Ahead Emir Sheikh Hamad Bin Khalifa al-Thani will continue with his robust diplomatic initiatives, even though Qatar's stint on the UN Security Council concluded at end-2007 - removing a key platform for the Qatar leader's ambitious foreign policy sorties. Doha's frantic international networking has riled some of its closest neighbours, notably Saudi Arabia, but has been carefully crafted to provide for a greater level of security in an increasingly unstable region. We expect to see Qatar's diplomatic hand being played to strong effect, although there is less scope for making a difference on the biggest regional challenge - the looming confrontation between a nuclear Iran and a US-backed alliance. Fortuitously, a rapprochement of sorts between Riyadh and Doha should allow for a better modus vivendi with the biggest strategic player in the Gulf Co-operation Council (GCC). Meanwhile, Qatar remains a key strategic ally of the United States - a friendship that does not preclude it forming ties with some odd bedfellows.

Domestically, the biggest issue is the elections to the new Majlis al-Shura. Prime minister Hamad Bin Jassim is expected to announce elections to the consultative council in 2008. The body will have legislative authority and be able to vote on the state budget. However, there is little domestic grassroots political activity and the Emir retains ultimate power through an executive veto. Much of the focus of reform will be below the political level - boosting education standards and enhancing social change. Qatar looks likely to avoid security problems associated with Jihadist militancy, given raised security levels.

Qatar's economy is set to continue its expansionary path, posting real GDP growth of above 8% in 2009 and beyond, on the back of a massive increase in oil and gas revenues. On a positive note, Qatar is carefully tending its natural gas reserve base - the font of the country's future wealth - though rumours suggest increasing concern about the state of the prodigious North Field. These will have to be addressed in time. The country will raise its oil production in line with market demand, investing in new exploration and production (E&P) opportunities. High oil prices will sustain the high liquidity for the forecast period.

Outside the hydrocarbons sector, Qatar is planning a sustained effort to boost economic activity.

Large amounts of public expenditure have poured into the construction and real estate sectors, while new petrochemicals projects will boost the value-added from its oil and gas reserves (though gas-to-liquids projects have yet to deliver on their initial promise).

The biggest concern is the persistent inflation, which is exceeding regional norms. BMI anticipates average inflation of near 12% year-on-year (y-o-y) in 2008. Despite calls for drastic action on the US dollar peg, to help redress the situation, the monetary authorities may resist such blandishments for a while longer - though decisive GCC action on the currency issue is likely at some point.