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Qatar update: future of GCC projects

The world is curiously watching the diplomatic crisis unfolding within the Gulf Cooperation Council (GCC).

Saudi Arabia, along with two other Gulf states – the UAE and Bahrain – have accused Qatar of destabilising the region and supporting terrorism.

Not only have these three countries severed diplomatic ties and withdrawn their ambassadors from Doha, they have also closed their borders, land, sea and airspace to Qatar.

Besides the three GCC states, eight other nations including Egypt, Libya, Mauritius, Yemen and the Maldives have followed Saudi and cut off diplomatic links with Qatar.

Question marks on future GCC projects

The Qatar issue has put a couple of question marks on projects within GCC countries, such as value added tax (VAT), the WorldExpo2020 in Dubai, the World Cup 2022 in Qatar and the GCC Railway.

VAT may hit first as the deadline to start a 5 per cent consumption tax in the Gulf countries is from January 1, 2018, and final policy guidelines were supposed to be issued in June.

The GCC Railway is another important project for the region as the 2177km rail network will connect all Gulf countries. The deadline was 2018, but there is no update regarding the completion of the project.

World Expo2020 in Dubai may also be impacted should the crisis prolong. This is because companies from Qatar will not be able to participate in the trade fair billed as the biggest such event to happen in the MENA region. An Expo 2020 Dubai team had travelled to Qatar last month as part of its ‘GCC Roadshow’ to urge businesses and SMEs in the tiny peninsular country to work directly with the Expo to create partnerships and to establish a lasting presence in the UAE.

More certainly, Doha will face issues with FIFA World Cup 2022 as the Gulf country is investing billions of dollars in building stadia for the big football event.

Experts say the diplomatic rift could potentially cause delays to World Cup preparations.

“The country is heavily reliant on imported goods, but the disruption of land, air and sea trade routes would force Qatar to look for alternative trade routes for their goods, resulting in a spike in inflation,” a recent BMI Research report said.

Moreover, BMI notes, Qatar will continue to “face infrastructure delivery challenges, including the sourcing of labour and materials, and local logistics that impact the pace of construction and development”.

Qatar faces economic issues

The immediate consequences of the crisis on Qatar are huge. Some 37 million passengers cross through Doha each year. But Qatar Airways now has to fly through Iranian, Iraqi and Turkish airspace to reach Europe. Half of the food in Qatar comes via Saudi Arabia through Qatar’s only land border. 600-800 trucks per day can no longer pass. The 19 flights per day between Doha and Dubai are called off.

Among other issues, the first impact was food shortage as the country was heavily dependent on imports, mainly from Saudi Arabia through land routes. To rescue Qatar, Iran has started sending cargo planes of food to the country that includes 100 tonnes of fruit and vegetables every day. Qatar has been in talks with Iran and Turkey to secure food and water supplies.

Trade will suffer the biggest impact in the prevailing situation. Qatar’s trade with Gulf nations reached $11 billion in 2016, constituting 86 per cent of Qatar’s trade with Arab countries and 12 per cent of its international trade. The UAE, Saudi Arabia and Bahrain account for 85 per cent of Qatar’s trade with the Gulf, while Kuwait and Oman account for only 15 per cent. Qatar’s export sector in particular will suffer the biggest losses as the GCC constitutes 80 per cent of Qatar’s exports to Arab countries.

It is reported that there is also shortage of US dollars at money exchange houses in Qatar.