Qatar's economy faces headwinds in 2012

Since 2006, Qatar has been the fastest growing economy in the Middle East, and it and the UAE were the only Mena countries which were not hit by civil unrest, strikes or turmoil during the Arab spring. However, if the proverb "As January goes so goes the year" holds, then Qatar will face a rather tricky year in 2012.

In 2011, the local equity market Qatar Exchange or QE was the only Arab bourse to achieve a positive, albeit tiny, rate of return (up one per cent). But the QE Index dived 3.55% from the start of the year until January 19, as stocks were hit by profit taking and index provider MSCI's decision to postpone a possible upgrade of Qatar to the level of an 'emerging market' from the current 'frontier market' by another six months.

According to the International Monetary Fund (IMF), Qatari economic growth will slow to 6% in 2012 from 19% last year. "The Qatari growth rate was mostly driven by investments into hydro carbon production facilities, " said Masood Ahmed, the IMF Director for the Middle East and Central Asia region. "Because of the ongoing global economic challenges these investments are expected to slow down. In addition to that, non-oil investments have been quite steady in Qatar over the last years."

Steady non-oil investments?

Investments in infrastructure usually cannot mitigate the decline of investments in the oil and gas sector, and Qatar has faced some delays in its construction industry. The New Doha International Airport (NDIA) for example was scheduled to operate from 2011, but its earliest date of operation has now been pushed back to 2013.

The current airport is already operating at its maximum capacity as state-owned Qatar Airways constantly expands its network. With a fleet of 103 planes, the carrier flies to 109 destinations globally. At the bi-annual Dubai Air Show last November, the airline ordered 88 narrow-and wide-body aircraft: 50 of Airbus' new generation A320neo with a further 30 on option, and five additional A380 planes, known as super jumbos. At the Bahrain Air Show on January 19, Qatar Airways Akbar Al-Baker said he identified a European takeover candidate without elaborating.

New rivals at the door-step

While activity in the air is visible, things on the ground take more time. The Qatar Financial Centre (QFC) and the Al Jazeera news channel are important flagships in the non-hydrocarbon sector.

Contrary to Dubai's DIFC, the QFC is not a financial free zone but has nevertheless done well in attracting the big names in global banking and insurance to Doha. The separation of the Islamic and conventional banking, imposed by the Qatar Central Bank in February 2011, took effect on January 1st and will lead conventional banks to re-adjust their strategy.

Al Jazeera will soon face new competition from Saudi Prince Al-Waleed's news channel 'Al Arab', which the investor decided to establish in neighboring Bahrain.

Qatar has pledged some $75bn in infrastructure investments to upgrade the country until the FIFA event in 2022, a measure which is urgently needed not only to keep the state on the economic growth path but also to attract white-collar expats for long-term stays, as they still choose Dubai and Abu Dhabi as their first choices.