Qatar’s successful bid to host the 2022 World Cup gives the green light to a wave of major infrastructure projects across the gas and oil-rich state, says Richard Thompson.
For many, Doha’s success in winning the rights to host the 2022 Fifa World Cup was a shock that thrust the tiny Gulf state into their consciousness for the first time. And next month’s Qatar Projects 2011 conference, which features Hassan al-Thawadi, chief executive officer of Qatar’s World Cup bid Committee, is the perfect place to find out more about opportunities in this booming market.
Doha’s success was not a surprise to anyone who has followed the rise of the small Gulf state over the past 10 years.
Fuelled by enormous gas reserves - Qatar sits on the world’s largest offshore gas field and is the world’s third biggest gas producer after Russia and Iran - the state has been the world’s fastest growing economy over the past decade. In that time, Doha has pushed forward with a massive infrastructure development programme by reinvesting its oil and gas export revenues to lay the foundations for a diversified economy that will sustain the nation once its hydrocarbons reserves have been exhausted.
This programme, which includes enormous industrial facilities, transport links, power and water plants, and a host of giant real estate developments, including a new financial district, has established Qatar as the Middle East’s third biggest major projects market.
The government is now ready to subsume everything to ensuring a smooth and successful 2022 World Cup.
But, even for a country with a gross domestic product (GDP) of some $130bn (£81.5bn), hosting the World Cup will be a huge commitment. Having won the bid against the odds, the government now has to meet a prodigious infrastructure challenge in building a series of stadiums that will mostly be located within a 30km radius of the capital city.
At least £2.5bn will be spent on building nine new stadiums, and refurbishing three existing ones, and these are the lowest-priced items in the shopping basket. The government will also have to invest upwards of £31.3bn in infrastructure over the next 11 years, including building metro and light rail systems and 65,000 new hotel rooms.
Much of the work is already underway. The country has earmarked a spend of £6.2bn for physical infrastructure in its 2010/11 budget, centred on completion of the New Doha International Airport, the New Doha Port, as well as roads, drainage, land reclamation projects, and expansion of the power and water network.
“Over the next five years, Qatar will invest more than £25bn on centrepiece projects”
Finance and economy minister Youssef Hussein Kamal is committed to maintaining this spending over following years, allocating 43% of the total budget to infrastructure spending through to 2014, a total of £87bn.
Over the next five years, Qatar will invest more than £25.1bn on centrepiece projects comprising the £15.6bn rail network, the £6.9bn new airport and the £3.4bn new deepwater seaport.
With the likely additional spend on World Cup-related infrastructure estimated at a cool £40.1bn, even cash-rich Qatar will have to think carefully how it will fund this commitment.
The government must also gauge how the preparations for the tournament will impinge on existing schemes intended to relieve the country of its infrastructure bottlenecks. NCE sister title MEED estimates that projects worth £34bn to £38bn that had been planned, will now go ahead.
The government says the World Cup won’t alter its commitment to strategic infrastructure schemes and the focus on smoothing out transport bottlenecks remains firm. The government last year committed £30bn towards building new roads, and upgrading the existing road network.
And as part of its World Cup bid requirements the government will have to deliver on the Metro project, which will stretch to 340km and be capable of moving 35,000 fans every three hours ahead of 2022.
“The IMF expects the economy to expand by about 18.6 per cent in 2011 and the public finances are in strong fettle”
Doha International airport is currently undergoing £5.6bn-worth of development work, which will see its capacity increase to 50m passengers by 2012 and boast one of the largest runways in the world.
Project managing this massive pipeline of infrastructure schemes could be the biggest short term challenge for the authorities. The government must simultaneously divert resources into the less glamorous, but essential, day-to-day activities - building wastewater networks and power and water capacity - while ensuring that the high-profile World Cup related projects maintain their momentum.
Rather than throw existing infrastructure projects off course, the World Cup could make some of Qatar’s more ambitious schemes, such as the Qatar-Bahrain landbridge, even more likely to get the green light. The £2.5bn Qatar-Bahrain 45km fixed link between Qatar and Bahrain was put on hold in June 2010, but as a core part of the World Cup bid in Fifa’s evaluation report, will now get renewed attention.
Up to the task
Analysts are confident that Qatar is up to the task. “The event is still 12 years away and by that time Qatar’s economy and hydrocarbon exports will have grown substantially. The ongoing ramp-up in gas exports provides the government with considerable financial flexibility, especially in light of its present fiscal surplus and the relatively modest public debt burden. In addition, the government states that it has a large stock of offshore financial assets at its disposal if needed,” says Tristan Cooper, Moody’s head analyst for Middle East sovereigns.
That is not to say that the World Cup won’t have a huge impact on Qatar’s economic future. Ratings agency Standard & Poor’s (S&P), in a 23 December report on the economic and financial impact of Qatar’s 2022 World Cup bid, puts the additional government infrastructure spending for the event at £40bn (equivalent to 47% of 2010 GDP).
Qatar has built up a large debt burden in the past three years. Total external debt was expected to have reached about £56.4bn at the end of 2010, which represents a threefold increase since 2006, according to an assessment by Samba Group. However, the debt burden is manageable. The debt-to-GDP ratio is expected to fall this year to 73%, from 81.4% in 2009, notes Samba.
Sustaining gas export revenues will be essential if Doha is to avoid incurring an excessive debt burden from its World Cup commitments. “How Qatar funds the World Cup will obviously be dependent on the gas price scenario over the next five-seven years. If gas prices subside, they will have to create some debt to pay for the competition. It’s manageable, but you have to keep in mind that it’s not always good to create debt,” says John Sfakiankais, chief economist at Banque Saudi-Fransi.
S&P does not expect a significant increase in the level of sovereign debt. “As in the past, we expect most of the infrastructure will be financed via revenues from the oil and gas sectors. In our opinion, this could lead to a lower, although still substantial, surplus in the government’s budget at above 7 per cent of GDP in 2011-2013,” says S&P credit analyst Luc Marchand.
Qatar’s economy is growing at a steady clip. The International Monetary Fund expects the economy to expand by about 18.6% in 2011 and the public finances are in strong fettle. The official budget surplus in 2010/11 is estimated at £10bn, around 12.1% of GDP, and this leaves out the bulk of LNG revenues, which are excluded from the official fiscal account.
The country’s sovereign wealth fund, Qatar Investment Authority (QIA), holds assets that exceed the highest price tag estimate for World Cup-related infrastructure, reported to have climbed from £41bn at the end of 2009 to nearly £56.5bn at the end of 2010.
Nevertheless, more clarity is needed before the full economic impact of the World Cup programme becomes evident. “We are awaiting an analysis from the government on the projected impact of World Cup-related spending on the public finances over the medium term. For example, it is unclear how much of the government’s previously budgeted infrastructure expenditure is included in the cost estimates for the event reported by the press,” says Cooper.
The big advantage of the World Cup is that not only will it galvanise investment in physical infrastructure, but also lay the foundations for a diversified economy that could provide a template for other resource-rich Gulf States.
Some commentators question whether Qatar really needs the World Cup. The issue then is whether the tournament is worth the £40.7bn price, or whether it could have been invested somewhere else more effectively.
“The question has to be asked: are they getting out of it as much as they are hoping to get and as much as they will get?” says Sfakianakis.
For ordinary Qataris, the promise of a prestigious world event may help to mitigate the possibility of having to spend the next 10 years living in the midst of a construction site.
- Richard Thompson is the editor of MEED. Its Qatar Projects 2011 conference is on 8-9 February at the Grand Hyatt Hotel, Doha. See www.qatarprojectsconference.com