For Qatar, a growing aviation sector is one of the key components of the country’s push for economic diversification. It’s providing revenues but, more importantly, access to tourists and investors. The sector is proving to be one of the success stories in the government’s attempts to move the economy away from an over-reliance on hydrocarbons to one in which the services industries play a much bigger role.
Efforts in other areas are struggling to get off the ground. While the will to change is there, some say a more defined strategy and better standard of delivery is required. “The priorities in most of our region are not very clear sometimes and that’s a problem. I mean infrastructure, I mean education, healthcare,” said Hamad bin Jassim bin Jaber Al Thani, the former prime minister and foreign minister of Qatar, at an event in London in November. “We need more planning, but more important than the planning, the implementation of the planning has to be done right. I think that’s what we are missing and this is a challenge.”
Despite these shortcomings, healthy progress has been made by Qatar in balancing its economy. Steffen Dyck, a senior analyst at Moody’s Investors Service, says the hydrocarbon industry’s share of the economy has fallen from 60 per cent of GDP in 2011 to 51 per cent in 2014 and that trend is continuing. “For the first half of 2015, real gross value added by the hydrocarbon sector declined by 0.6 per cent year-on-year, while the rest of the economy grew by 8.1 per cent, helping to sustain overall real GDP growth at 3.5 per cent,” he says.
We need more planning, but more important than the planning, the implementation of the planning has to be done right.”
For now the greatest strength of Qatar’s services industry is the government’s willingness to use oil and gas revenues to invest in other sectors. For example, the infrastructure build-out for the 2022 World Cup is providing a boost to construction, in particular. The workers and managers that are being drawn in by the industry ensure that the population continues to grow at a rapid pace, which in turn provides a bigger market for services companies.
In the long term, a challenge lies in carving out a distinct identity that will keep visitors coming after the football circus has moved on, rather than go to somewhere like Dubai. One specific danger for the hospitality sector is that of overcapacity. FIFA, the governing body of football, says Qatar will need to provide at least 60,000 hotel rooms for the tournament. The country has around 16,000 rooms at the moment. “Although the recent growth of the tourism industry in Qatar has been robust, it will be difficult for the country to achieve the level of visitor growth which will garner enough demand to match this expansion in the number of hotel rooms, particularly once the excitement of the 2022 World Cup has receded,” says Tom Simmons, an economist at Saudi bank Samba.
Another focus of diversification has been financial services. Data from QNB shows that financial services is making the greatest contribution to non-hydrocarbon growth in Qatar, accounting for almost a third of the total of 10.6 per cent last year. It has achieved similar growth so far this year, well ahead of other sectors such as construction, hospitality and manufacturing. Qatar Financial Centre has been the focus of the efforts to develop the country’s financial services sector, set up as a putative rival to the well-established Dubai International Financial Centre. Plenty of others are gunning for the same territory in the region, and it has proved hard at times for the QFC to establish a clear niche for itself.
If the services sector is to flourish, Qatar will need to develop a well-educated and highly skilled workforce that can provide it staff as well as customers. The country has invested heavily in the education sector, most notably by bringing numerous international universities to the Education City campus on the outskirts of Doha. While these institutions have improved educational standards in the coutry, former PM Hamad bin Jassim bin Jaber Al Thani said Qatar has still some way to go before it’s producing a workforce suited to its economy. “We have to improve our education in the region and do it in accordance with the market needs, and that’s not always happening.”
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