Qatar’s Economics Growth and Development

Introduction

Over the years, there have been prevalent economic realities that have led to the rising and collapse of various economies all over the world. Qatar is one nation which has experienced economic changes in the past decade as a result of global demand for its products, social changes, and Qatari government policies. Most of the economic changes experienced by Qatar have been as a direct result of its vast natural resources.

This paper shall focus on the economic growth and development of Qatar and perform a critical analysis of the reasons that have resulted in the economic developments that Qatar has experienced in the past years. The paper shall also highlight some of the factors that have either improved or hindered the economic growth of Qatar in the past decade.

Brief History of the Qatar Economy

Qatar is a moderately sized country in the Persian Gulf which is a member of the Gulf Cooperation Council (GCC). Arguably the single main reason for Qatar’s prominence is the large reserves of oil and gas resources that are found in the country. The country has a significantly low population of about 1.8million people, most of whom are expatriates attracted to Qatar by the economic benefits (U.S. Department of State, 2010).

From an economic perspective, the history of Qatar can trace its roots to 1940 when oil was discovered in the country and its commercial exploitation subsequently implemented (Nyrop 2008). This led to a rapid economic restructuring as workers moved from the traditional commercial pursuits to the high paying oil industry. This resulted in an economy that was primarily based on oil revenue and as of the late 1970s, Qatar ranked among the world’s richest countries in terms of income per capita (Nyrop 2008).

Qatar’s GDP

The economic wellbeing of a country can be indicated using the gross domestic product (GDP) which is one of the tools used to monitor economy growth in various economies. According to Taylor (2006), gross domestic product refers to the monetary value of all goods and services produced by an economy within a specific period of time.

If the figures are high then it means that the individual productivity levels are high hence a better economic growth rate. Qatar’s real GDP growth for 2008 was reported to be at 9.5% making it one of the highest in the world (Oxford Business Group, 2009). This GDP is projected to rise even further as the country undertakes even more aggressive exploitation of its recently discovered Liquefied Natural Gas reserves.

Qatar’s Economic Growth

The economy of Qatar is closely pegged to the oil reserves of the country. Qatar has in the past decade exploited its oil and natural gas reserves extensively leading to a growth in its economy. An estimated 822,000 barrels per day were produced in 2006, a marked increase of over 200,000 barrels from the year 2000 (Blanchard, 2008).

This increase in production was undoubted as a result of the hiked prices of oil and the increase of the production quota imposed by OPEC. As a result of this, Qatar experienced significant growth in its economy in the year 2006 owing to the record high prices of oil and gas.

The political realities of a country can greatly impact its economic well being since politics directly influence foreign relations. Qatar has enjoyed a relatively stable government which is based on the hereditary rule. While Qatar did experience a coup in 1995 where Amir Khalifa was deposed as ruler, the coup was nonviolent and since then, Qatar has made positive steps towards democratic rule (U.S. Department of State, 2010). This stability has led to a safe environment for making investments in both industries and infrastructure.

Another factor that has resulted in the growth of the Qatari economy is the stability of the country’s currency. The WTO (2005) notes that the Qatari currency is pegged with the US dollar which leads to its relative stability since the US dollar is a universally trusted currency. This is an appealing trait especially to foreign investors who want to be assured of a return in their investment.

However, this reliance on the strength of the dollar can have a negative effect as was witnessed in 2006-2007 where the dollar weakened significantly compared to the European currencies. This led to increased inflation in Qatar as a result of the weakened dollar.

As has been noted, Qatar’s early day’s economic success was hugely pegged on its crude oil. Over the last decades, Qatar has been implementing strategies which are aimed at greatly reducing the high dependency on crude oil. Qatar’s government has also made significant investments in the hotel industry with large scale constructions of luxury hotels, resorts and other leisure facilities being done extensively from 2008 (Oxford Business Group, 2009).

These efforts at diversification have been made to try and decrease the country’s reliance on oil and gas revenue. Qatar has also made huge investments to ensure that its infrastructure is of high quality. A US$ 1.2 billion investment in the road network resulted in the upgrading of Qatar’s road network resulting in huge gains for the country (WTO, 2005). This has led to Qatar’s service industry making a bigger contribution to the country’s GDP.

While oil production is under the restriction of the Organization of Petroleum Exporting Countries (OPEC) which dictates quotas on oil production, LNG production is not subjected to such restrictions. Considering the fact that Qatar harbors the world’s 3rd largest gas reserves, its LNG productions are a key player in its economy. Over the last decade, Qatar has increased its production capacity so as to satisfy the rising demand for LNG in the world.

The U.S. Department of State (2010) notes that as of 2009, Qatar exported an excess of 31 million tons of LNG making it the world’s biggest LNG producer. The increased investment in the production and exportation of Liquefied Natural Gas (LNG) has resulted in not only significant economic growth but also an assurance of the continued economic prosperity of Qatar even in the face of the exhaustion of the oil reserves by 2030 (Sfakianakis, 2008).

The investment environment of a country has an effect on its economy. A conducive environment leads to more foreign investments which result in economic growth. Qatar has improved its trade and investment climate by undertaking such means as removing unnecessary restrictions and barriers to trade. This combined with the compliance with World Trade Organization obligations of reducing tariffs has led to a more favorable environment for foreign investors, therefore, leading to more opportunities and growth for Qatar (Ibp Usa, 2000).

While Qatar’s foreign investment laws prohibit foreigners from contributing more than 49% of the share capital needed in some investments, Qatar allows foreign investors to own 100% of the project capital in the agricultural, health and tourism industries (Nyrop, 2000). This has resulted in a boom in the foreign investments in this sector leading to an increase in economic growth as Qatar becomes a choice investment destination for American and European companies.

Inflation in Qatar

One of the factors that may affect the economic stability of a country is its inflation rates. Inflation, which negatively impacted on a country’s GDP level, is mostly as a result of demand outpacing supply among a county’s population. As a result of Qatar’s sustained expansion and growth, the last 5 years have witnessed significant rises in the inflation levels. Blanchard (2008) placed the inflation level at 10% in the year 2006 and 12% in 2007 indicating that inflation levels in Qatar are on a significant increase.

Inflation in Qatar has been as a result of a myriad of factors chief of which has been the rising rates in rent and the increase in expatriate population. This inflation has resulted in an increase in the cost of food imports which has subsequently necessitated the increase in the salaries and wages for the people of Qatar.

The Qatari government has undertaken measures that have at least retarded the annual average inflation rate in Qatar. Monetary policies taken up by the Qatar government which are aimed at price stability have especially contributed significantly to inflation control.

Conclusion

This paper set out to discuss the economic growth of Qatar and how the country has developed in the last few years. From this paper, we have seen the various factors that have affected the economic growth of Qatar. From the elaborate descriptions offered, it is clear that Qatar has, in deed experienced tremendous economic growth in the last decade. Government policy and the availability of vast natural resources have been seen to be the driving force behind these huge economic gains.

However, inflation and overreliance on natural resources have been observed to pose a significant threat to Qatar’s future success. This paper has documented how the government of Qatar proposes to offset this to ensure that Qatar remains an economic powerhouse in the Middle East.

References

Blanchard, C. M. (2008). Qatar: Background and U.S. Relations. CRS Report for Congress. Web.

Ibp Usa (2000). Qatar Business & Investment Opportunities Yearbook. Int’l Business Publications.

Nyrop, R. F. (2008). Area Handbook for the Persian Gulf States. Wildside Press LLC

Oxford Business Group. (2009). The Report: Qatar 2009. Oxford Business Group.

Sfakianakis, J. (2008). Qatar: a Gas-fired Economy. Web.

Taylor, B, J. (2006). Economics. Cengage Learning.

World Trade Organization. (2005). Trade Policy Review – Qatar 2005. Web.