World Cup project to boost Qatari economy

Massive spending on infrastructure in Qatar in preparation to host the world cup in 2022 will give a strong push to the country’s economy while other Gulf oil producers will benefit, a Kuwaiti bank said on Monday.

Qatar had already planned to spend a staggering $100 billion on infrastructure and other development projects and its winning of the right to host the world’s most prestigious sport event will accelerate the implementation of some projects, the National Bank of Kuwait (NBK) said in a study.

While such huge expenditures will ensure sustained growth in Qatar’s economy, it could fuel inflation and put strong pressure on the country’s financial reserves.

NBK noted that the 2010 world cup held in South Africa drew around 500,000 visitors, almost a third of Qatar’s current population.

Qatar will also be the smallest economy to host the World Cup, implying that the event could have a relatively big impact, though of course, by 2022, Qatar’s economy will be much larger than it is now, the study said.

“Qatar is set to benefit enormously from currently planned spending in general, as well as from the impact of the World Cup,” NBK said.

“Continued economic growth would be the primary result, just when the fast-paced growth, induced by the large buildup in capacity in the hydrocarbon sector in recent years was set to come to an end. This vast spending program will also help diversify the economy away from hydrocarbons.”

The study also expected the country’s private sector to play a greater role in the coming stage, reducing the government’s contribution in the economy.

Investment in infrastructure will also help relieve some of the bottlenecks and shortages that have built up in many areas, because expansion in infrastructure had not kept up with the rapid growth of the economy or population, it said.

“The new investments will pull the economy back into balance and help set

the stage for further growth in the future. This also bodes well for Qatar’s plans to boost its tourism and become a pole of attraction in the region,” NBK said.

“Spending will also have tremendous repercussions for the financial sector. The banking and investment sector could be one of the main beneficiaries. Already, government backed projects have been very instrumental in 2010 in helping the banking sector’s quick recovery in the aftermath of the global financial crisis. Sustained future plans will help banks generate revenues through balance sheet growth and increased fee generating businesses.”

The study said the plan could also result in deeper stock markets with some companies likely to go public for their funding. This will improve Qatar’s competitiveness and its bid to become one of the financial hubs for the region.

“The whole region is set to gain from Qatar’s spillover effects. This is especially true for the many contractors in the region that have built up their stocks and operations in the region, prior to the crisis induced slowdown,” it said.

“Developments could also force some intra-regional integration between players. Intra-regional trade would also get a boost. A good deal of the raw materials

involved in the construction of many projects will be sourced from neighboring countries. Large regional financial institutions would also benefit by sharing in financing and servicing the plethora of projects.”

But the study noted that there are always risks to take into consideration when assessing such ambitious plans in a relatively small country.

“To begin with, planned spending runs the risk of placing some strong pressure on government finances in the short to medium term. The government has already issued several bonds in the past few years, and has increased its borrowing from local banks. Moreover, as is often the case, actual spending tends to exceed budgeted costs, and the ultimate bill might see some considerable upward revision over the years,” it said.

“Still, large foreign asset reserves and strong hydrocarbon revenues would cushion any sharp unforeseen spike in spending estimates. The increased activity from the planned projects will undoubtedly place significant upward pressure on prices of goods and services in Qatar. This could be a significant factor for the country, especially considering that inflation in Qatar has exceeded the GCC average in the years following the oil boom.”

According to the study, another consideration is the costly legacy assets that would remain after the world cup concludes.

It said the 12 stadiums that will be built for the event are excessive for a country of the size of Qatar, although it intends to get around this by dismantling and gifting some of the stadiums to other countries once the event is over.

“Also, the country runs the risk of building excess supply in certain sectors, mainly in hotel rooms. Still, as mentioned before, the bulk of the spending will see its way to needed projects and to build the proper infrastructure of Qatar regardless of the requirements of the World Cup. Also, the returns of

hosting the event should cover a good deal of the additional expenses.”

NBK said it believes the benefits of hosting the world cup should heavily outweigh any challenges that lie ahead.

It said Qatar does need to address structural issues following the phenomenal growth of recent years, and needs to pave the way for future growth.

“Hosting the World Cup will set tight deadlines, create extra spending, bring in new expertise, and present additional motivation and incentives to reach Qatar’s National Vision 2030,” the study added.

Citing government data, NBK noted that prior to FIFA’s announcement, Qatar had already outlined a plan to spend $100 billion on infrastructure, around 87 per cent of GDP, which is estimated at around $115 billion this year. This is part of its ambitious National Vision 2030, to modernize the country.

As part of the plan, the government will spend over $40 billion on projects, while the rest will come from government entities such as Qatar Petroleum.

The plan will include, among others, a number of high profile mega projects,

largely in the transportation and housing sectors.

The plan includes a $25 billion metro and rail network, which were initially slated for completion by 2025 – although some sections of the project were to be ready sooner.  Qatar is also well into the construction of the first phase of the new $10 billion airport, which will eventually replace the current airport.

Other prominent projects include a $seven billion deep water seaport and a $one billion crossing to link the new airport with projects in the northern part of Doha. An additional $20 billion will also be spent to build and expand roads.

Moreover, there are currently several housing projects underway and there are plans to start several more to accommodate Qatar’s ballooning population, which has leaped by 128 per cent since 2004 to reach 1.7 million.

“Hosting the World Cup foremost adds a sense of urgency and an ultimate hard deadline for the completion of projects critical to a successful hosting. As a first step, officials in Qatar have already announced the launch of a staggering 200

projects in different areas by the first quarter of 2011,” NBK said.

“Also, officials have pledged that preparations for the World Cup would push the metro and rail projects forward to accommodate the expected inflow of tourists.” It said the $four billion Qatar-Bahrain causeway, which had witnessed multiple delays since its announcement, could also finally receive the green light.

“While all the above projects were planned independently of 2022, Qatar would also benefit through additional spending on projects undertaken solely for the World Cup. Qatar will receive an unexpected boost from two primary areas. On the one hand, the actual bid outlines having 12 stadiums ready by 2022,” it said.

“Furthermore, Qatar plans to build 90,000 additional hotel rooms. Although under FIFA requirements Qatar would only need to build 65,000 rooms, Qatar has pledged to build an additional 25,000 rooms for assurance. Indeed, the resulting boost to the economy is not to be underestimated, and comes at a most opportune time. It coincides with Qatar reaching the targeted 77 million tons per year of LNG production and amid much speculation over Qatar’s ability to sustain its rapid growth after gas related projects are completed.”
 

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