Qatar shows how to work through a 'good' crisis

If there is such a thing as a "good" crisis, Qatar has had one. The gas-rich emirate - long in the shadow of its more high-profile neighbours to the east, Abu Dhabi and Dubai, as well as the regional behemoth, Saudi Arabia to the west - has emerged from the global financial hurricane with kudos, self-confidence and most of its expansion ambitions intact. Certainly, that was the impression I got last week on a three-day trip to Doha. It had been about 18 months since I last visited the country, and where I had previously detected a sleepy, small-town atmosphere - certainly in comparison to the boldness of Dubai or the solid affluence of Abu Dhabi - there is now a sense of maturity and progress.

From the vantage point of the stunning Museum of Islamic Art, built offshore but linked to the mainland via a short causeway, you see a distinct Manhattan-style skyline emerging from what was before a forest of cranes and scaffolding. The road system is no longer a jumble of construction works and diversions. The malls have lost that "just built" feel and the hotels and conference halls seem lived-in and well attended.

There is still plenty of development and work on some of the smaller private initiatives on the gigantic West Bay site may have slowed a little during the credit crunch. But the big prestige projects with government backing like the Pearl, Doha's version of the Palm Jumeirah, appear to be on schedule. Earlier this year, the IMF said the economy of the emirate was one of the least affected in the world by the global crisis and forecast that growth would remain in double figures this year, in contrast to other Gulf states, which will see declines in GDP growth or even contractions. The crisis could even be said to have had one beneficial effect: cutting inflation from a galloping 15 per cent to low single figures.

How has Qatar managed to negotiate the financial storm so successfully? It went into it in a strong position, with huge reserves of natural gas, which at 26 trillion cubic metres account for some 15 per cent of total global reserves. Revenues from these have helped Qataris gain the highest per capita income in the world and endowed their government with a US$62 billion (Dh227.72bn) sovereign wealth fund - small in comparison to Saudi Arabia or Abu Dhabi, perhaps, but an ample reserve for the 1.4 million who live and work there. Debt came to a modest 6 per cent of GDP.

Nonetheless, the crisis sent the Qatari government, led by the prime minister, Sheikh Hamad bin Jassim Al Thani, into accelerated economic interventionism. Late last year, the government spent some $5.3bn taking equity stakes in the country's big banks. That was followed by another multibillion-dollar move when Sheikh Hamad bought out virtually all the domestic equity investments of the banking sector, followed in June by the decision to buy $4.1bn worth of real estate investments owned by the banks.

In the face of a crisis that originated in the property and financial sectors, it was medicine of the most specific and immediate kind. It had the effect of stabilising Qatari markets and putting a floor under falling domestic property values. Some analysts have warned such massive intervention ran the risk of "moral hazard", especially if Qatar were to experience the "W-shaped" recession some predict. The Qataris obviously believe that risk is far outweighed by the benefits of a virtually debt-free economy, and more robust financial and real estate sectors.

Qatar has also proved itself to be a good citizen of the financial world by coming to the aid of Barclays when the British bank needed capital at the height of the crisis. The world crisis has not slowed Qatar's involvement in other international corporate situations. It has taken a 10 per cent stake in Porsche, the German car manufacturer, and is one of the financial backers of the rescue of the Canary Wharf development in London. Qatar's relationship with the British capital is long-standing and complex. It originally took a 14 per cent stake in the London Stock Exchange (LSE) in 2007, at around the same time as Borse Dubai also made a less welcome move on the exchange. Since then, Qatar has signed a definitive deal with America's New York Stock Exchange, which appears to make the London stake superfluous, while Dubai has also opted for a US alliance in the shape of NASDAQ Dubai.

In the long run, Qatar will probably unwind its LSE position. But it will do so in the same way it responded to the global crisis: responsibly, decisively and with its own long-term interests to the fore. [e-mail]