When FIFA President Sepp Blatter announced in December last year that the 2022 football World Cup would be played in Qatar (to the astonishment of almost all observers), it was a victory for more than just the soccer fans of the tiny Arabian Gulf state. It also meant that for the next 12 years Qatar will receive a crescendo of publicity, putting its name in front of hundreds of millions, if not billions of people – and thus giving a massive, if indirect, advertising boost to all its institutions, financial and commercial, at a time when the country is fighting for attention against much better-known Gulf investment destinations such as Dubai, Abu Dhabi and Kuwait.
Before its successful World Cup bid, Qatar, which occupies a mostly-desert, 80 mile wide and 150 mile long peninsular sticking out into the Gulf from Saudi Arabia, was best-known for being the world’s largest exporter of liquified natural gas (LNG), and the owner of the third-largest natural gas reserves on the planet, after Russia and Iran. Even those westerners who have heard of the Al Jazeera television network, the Arab world’s most popular, probably fail to realise it is based in Qatar.
Until the 1930s, Qatar’s sources of income were restricted to activities such as pearl-fishing – a trade wrecked by the development in Japan of artificial pearls. However, the discovery and exploitation of oil and gas has propelled what was a previously impoverished Muslim emirate to the country with the second-highest GDP per head in the world.
Qatar’s economy grew 11 percent in 2009, and was predicted by the IMF to grow at 16 percent in real terms in 2010 and at 18.6 percent in 2011. The country’s population has leapt to almost 1.7 million people in 2010, from just 70,000 in the 1960s and only 500,000 in 1997. Qatari citizens make up less than a quarter of that total, as expat workers have flooded in from the rest of the Arab world, the West and, in particular, South Asia.
But Qatar’s oil is expected to run out in 2023, the year after the World Cup arrives, and while it has enough gas reserves to supply global demand for more than a century, like other economies in the Gulf, the country is looking to boost its non-oil and gas income and reduce its reliance on the energy sector. With the huge amounts of cash that the oil and gas industries have brought to the Gulf, there has been an increasing need for a locally based financial services industry to handle all that money. The Qatari government has announced it will be investing more than $130bn in an attempt to create a “modern, sustainable and industrialised economy,” while the entire Gulf Co-operation Council (GCC) area, which includes Kuwait, Qatar, the UAE, Saudi Arabia, Bahrain and Oman, has planned investments of more than $1.2trn.
At the same time, the Gulf’s geographical position, between Europe and Asia, give it an extra attraction, as a base for financiers looking to do business in both directions. In 2005 Qatar inaugurated the Qatar Financial Centre, prompted, perhaps, by the opening the previous year of the Dubai International Finance Centre in the neighbouring United Arab Emirates, which now contributes more than one percent of the GDP of the whole UAE.
Restrictive access
Gulf countries are generally surprisingly restrictive when it comes to letting foreign companies start businesses within their borders, insisting that the business has to be a partnership, at the least, with one of their own citizens. Some sectors are especially ring-fenced – Qatar’s retail banking sector, for example, remained closed to foreign financial institutions. In addition, rules covering foreign workers are often strict, with tight controls on working visas and limits on employees’ ability to move to new jobs once they get into the country.
However, recognising that the financial services industry is a special case, Gulf countries have taken pains to give investment banks, insurance firms and the like as liberal an environment as possible. The Dubai International Finance Centre, for example, is a 110-acre “free zone” in Dubai with its own laws, regulations and courts.
The Qatar Financial Centre likes to boast that, unlike its Dubai rival, it is “not a property development,” and that the laws that set up the QFC allow any buildings in Doha, Qatar’s capital, to be designated as QFC sites.
However, firms licensed by the QFC still enjoy advantages other companies operating in the emirate do not necessarily have. The QFC allows 100 percent ownership by foreign firms, while all profits can be remitted outside Qatar. It also has its own (more liberal) immigration and employment laws, and its own civil and commercial court. The QFC regulatory authority has brought in regulators from Europe and the US and closely modelled its legislation on other leading financial centres, such as the City of London.
Currently the QFC occupies two towers in the West Bay area of central Doha which are home to 120 or so licensed firms, local and international; the QFC Authority; the QFC Regulatory Authority; and the Qatar Finance and Business Academy, sponsored by Barclays Bank, which has five floors to itself providing courses in subjects such as Islamic finance, training and even a simulated dealing room.
The QFC has now attracted big investment banking names from around the world to open branches in Doha, including JP Morgan, Goldman Sachs, Rothschild, Barclays, RBS, Credit Suisse, Deutsche Bank, Industrial and Commercial Bank of China, State Bank of India, Nomura and Bank of Tokyo Mitsubishi. The number of people employed in the financial services sector had risen from just 6,200 in 2006 to an estimated 20,100 at the end of 2010, an increase of 35 percent every year.
Ironically, however, considering that Qatar’s economy and investments came through the global financial crisis of 2009 in a much better state than Dubai (overseas investment in Qatar rose from $3.63bn in 2008 to $20.75bn in 2009, while Dubai’s debt problems have still not been completely resolved), the QFC failed to wrestle much investment banking business from its UAE rival. Instead, last year, it announced a “new strategic phase,” focusing on asset management, captive insurance and reinsurance. To help boost those sectors, firms operating in them were exempted from all corporate income tax, already at a low 10 percent. In asset management in particular, the QFC Authority announced it was developing new regulations that would allow authorised firms to operate foreign funds, and establish a regime for QFC-registered retail funds, allowing foreign funds to be marketed to retail customers. At the same time, however, 100 QFC employees, a third of the total headcount, were made redundant as some of its functions were outsourced.
Despite claims by the QFC Authority of an investment of $2-3bn in the asset management sector to boost the country’s financial services industry, the QFC will not necessarily find it easy to make headway in the Gulf’s asset management world. The leader here, traditionally, has been the island state of Bahrain, just to the east of Qatar, which last year had 2,711 funds managing $8.55bn, according to the Central Bank of Bahrain. All the same, Doha is already attracting considerable interest from China, according to Shashank Srivastava, the QFC Authority’s acting CEO, who visited Beijing in November last year. There he announced that the authority was in talks with a dozen Chinese financial institutions, including state-owned banks, about them opening offices in the Qatari capital.
Mr Srivastava, who is also chief strategic development officer at the QFC Authority, is an evangelist for Qatar’s potential as a financial centre. In an interview last year, he declared: “It is our goal to build a world-class financial services marketplace where all participants, both domestic and international, will benefit from the considerable local market potential. They can use it not only as a springboard into other countries in the GCC, but also as a powerful regional base from which to tap into the broader growth markets of the Middle East, North and sub-Saharan Africa and the Indian subcontinent.”
Qatar, Mr Srivastava said, “is opening itself up to the world across many fields. These include culture, education and sport. We are also striving to become an attractive destination for international investment, one of the world’s leading locations for international business and finance and a pre-eminent financial services marketplace. Our goals may seem at first to be somewhat ambitious, but we have no doubt that we will achieve them.”
The country’s bid to stage the World Cup must have seemed wildly ambitious at first as well, until the victorious Emir of Qatar, Sheikh Hamad bin Khalifa al Thani, shook hands with Sepp Blatter in Zurich in December, as the world watched open-mouthed.
