Qatar's non-oil economy takes a hit as crisis lingers

Despite putting on a brave face during the crisis is taking a toll on the economy

The dispute between Qatar and other GCC countries is taking a mounting toll on the country’s economy, which is expected to slow this year as the stand-off enters into its second month. 

While Qatar, the world’s biggest exporter of liquefied natural gas, is still getting revenues from hydrocarbons and insists that it has enough reserves of cash and gold to weather the storm indefinitely, analysts say that a prolonged or permanent split between Qatar and the GCC nations opposing it would put a dent in the country’s plans for a diversified economy.  

“I think the major impact of the current crisis is confidence in the economy itself, investor confidence and I do worry the longer the crisis remains, the longer Qatar remains subject to economic sanctions that the impact will be on the non-oil economy,” said Mohamed Abdelmeguid, a London-based Middle East analyst at the Economist Intelligence Unit.  

“The collapse of hydrocarbons in general has given a strong imperative for economic diversification. What’s happening now does not bode well for economic diversification, especially if foreign investors become deterred by the growing operational risk and the rising cost of input. So all of this can hamper growth in the non-oil economy.”  

The UAE, Saudi Arabia, Bahrain and Egypt on June 5 broke diplomatic ties with Qatar and cut off air, sea and land access to the country over Doha’s support for “terrorist groups aiming to destabilise the region”. The dispute is the most serious between GCC members since the organisation’s creation in 1981.   

Monica Malik, chief economist at Abu Dhabi Commercial Bank, said that if the current sanctions against Qatar continue to the end of the year, Doha’s non-oil economic growth could slow to as much as 3.6 per cent in 2017 from about 5.6 per cent last year.

Mr Abdelmeguid had a forecast of 2.7 per cent for the overall economy before the crisis erupted but is revising that figure downwards.   

“So far the economic impact seems manageable with hydrocarbon exports – Qatar’s main source of export revenue – largely unaffected,” said Ms Malik. 

“Nevertheless, there will be a slowdown in real non-oil GDP growth, with the magnitude depending on the duration of the dispute and the scope of the measures.

“The latest developments suggest that a near-term resolution is unlikely with possible risk of further measures. 

The most visible impact on Qatar’s economy so far has been a drop in the value of publicly traded companies on the stock exchange as well as a drop in tourism, an industry that is heavily dependent on custom from GCC visitors.

The benchmark Doha Securities Market index, a measure of Qatari stocks, dropped as much as 10 per cent before recovering most of those losses. Since June 5, it is now down only 3.8 per cent. 

Rashid Aboobacker, an associate director at Tri Consulting, a hotels, leisure and real estate consultancy, noted that  of the 2.2 million visitors to Qatar in the first nine months of 2016, 50 per cent were from other GCC countries, while Saudi Arabian visitors accounted for 34 per cent, the single largest source of tourists for Qatar.   

“We expect the ongoing sanctions and travel ban imposed on Qatar by Saudi Arabia, UAE and Bahrain to cause [a] notable decline in hotel occupancy levels in Doha,” said Mr Aboobacker.

The Qatar government has put a brave face on the crisis, however, noting that occupancy rates during the Eid break were at over 95 per cent.  

With additional reporting by Alice Haine