QATAR

COUNTRY OVERVIEW

LOCATION AND SIZE.

Qatar is a tiny peninsula jutting into the Persian Gulf and bordering only Saudi Arabia. With an area of 11,437 square kilometers (4,416 square miles) and a short coastline of 563 kilometers (345 miles), Qatar is slightly smaller than the state of Connecticut. Qatar's capital city, Doha, is located in the east on the Persian Gulf and is home to 320,000 people. Other major cities include Umm Sa'id and al-Khawr.

POPULATION.

The population of Qatar was estimated at 769,152 in July of 2001, a marked increase from the 1990 population of about 486,000. Arabs make up 40 percent of the population, but there are also Pakistanis (18 percent), Indians (18 percent), Iranians (10 percent). Non-Qataris make up the largest proportion of the country's labor force. Since 1998, the population growth has slowed down, as evidenced in the 5.3 percent drop in the population in 1998. The slowdown is believed to come as a result of the government's "Qatarizing" movement—to encourage the employment of local workers—following the sharp decline in oil prices in 1997 and 1998.

Qatar's population growth has accelerated since the 1960s, mainly as the result of the influx of large numbers of expatriate workers into the country. Between the late 1960s and 1997, the population grew from 70,000 to 522,000, of whom only 160,000 are Qatari nationals. According to the Economist Intelligence Unit (EIU) Country Profile for 2000, the population growth rate reached 1.5 percent in 1999, and is projected to reach 1.8 percent in the coming decade. The expatriate worker community, which accounts for 70 percent of the population, is largely made up of Indians and Pakistanis.

Like most Arab countries, Qatar's population is mostly young; 27 percent of the population is younger than 15. Also like many developing countries, a majority of Qataris (90 percent) are concentrated in urban areas. Major cities have been growing at the rate of 2 percent annually. Almost 80 percent of the population is concentrated in the capital, Doha. Other major cities include Messaieed, an industrial township 124 kilometers (77 miles) south of Doha.

OVERVIEW OF ECONOMY

Qatar's domestic economy is heavily dependent on the hydrocarbons sector. Oil accounts for about 40 percent of gross domestic product (GDP) and about 63 percent of government revenues. Qatar's oil reserves are small relative to its Persian Gulf neighbors, although its output has tripled in recent years with the exploration of new fields. Other non-oil industries exist, but they are heavily dependent on the oil sector, which means that Qatar's dependence on oil is likely to continue for a long time to come.

More importantly, Qatar has the third-largest reserves of natural gas in the world. Its reserves are expected to last for 250 years at the current rate of production. The government has increased emphasis on the natural gas sector since 1990 with the goal of replacing oil as the main source of revenue. Several hydrocarbon-related industries, mainly petrochemicals, have also been set up since 1990. It is likely to take years before this diversification strategy begins to yield profit, however, largely because of the huge investments and heavy foreign borrowing that the government needed for the development of the natural gas sector. These loans would have to be paid before the government could show a profit.

Agriculture is not a major contributor to the economy. The state, which owns all agricultural land, has attempted to promote production by increasing the number of small farms. These efforts have been largely unsuccessful, mainly because of the lack of water for irrigation.

Qatar entered the 20th century as a tribal settlement on the peninsula nominally controlled by the al-Thani tribe, whose exact origins remain unknown. Real power, however, rested with the British, who effectively controlled the country's foreign relations. The al-Thani ruling family had signed a series of treaties with the British in the 19th century. In return the British promised protection against other powerful regional tribes, especially the Wahhabis from neighboring Saudi Arabia and against Bahrain, which claimed Qatar as its own. By the end of World War I, however, Qatar's importance had waned, largely due to the diversion of British trade routes to India after the opening of the Suez Canal. Unlike bigger oil producers in the Gulf region, oil was not discovered in Qatar until the 1950s. Until the 1970s, foreign companies, who owned and managed the oil industry in return for fees paid to the al-Thani family, dominated oil production. By the early 1990s, many of the foreign subsidiaries had become completely state-owned. After several Gulf sheikhdoms declared their independence from the British, Qatar followed suit on September 3, 1971, after securing continued support from the al-Saud tribe that ruled neighboring Saudi Arabia.

Since the early 1970s, increased oil revenue has allowed the government to embark on massive development projects that brought rapid material and social change. The state's role in the economy remains central, as the government controls the oil revenue. Income from oil fluctuates according to changes in world oil prices. The government's dependence on oil revenue and decades of government overspending have resulted in recurring budget deficits, especially during low oil prices, and a high external debt, which was estimated by the EIU to have reached US$12.2 billion in 1999.

Since 1997, at the recommendation of the International Monetary Fund (IMF), Qatar has embarked on a program to reduce subsidies on utilities, gasoline, wheat, and sugar and to introduce charges for health care and education for the purpose of stabilizing the exchange rate. As a result, the expatriate community in Qatar no longer enjoys free medical benefits. Services to Qataris, however, continue to be heavily subsidized by the state. In 1999, an official stock market was set up and the government issued 2 domestic bonds and 1 international bond as a means to develop alternative financing methods. In 2001, the government plans to privatize the generation, transmission, and distribution of utilities, and to continue its policy of encouraging locals to seek employment to reduce the country's dependence on foreign workers. The government is also expected to continue to encourage the private sector to play a bigger role in the economy.

POLITICS, GOVERNMENT, AND TAXATION

Qatar is an absolute monarchy that has been ruled by the al-Thani family since the mid-1800s. It is currently headed by Sheikh Hamad, who ousted his father, Sheikh Khalifa, in a bloodless coup d'etat (a takeover of a government) in June 1995. Although autocratic (ruling through absolute power), the ruling family has been committed to building the state and developing its resources. Since taking over, the widely popular Sheikh Hamad has embarked on an ambitious political and economic reform program to modernize the state and address the decline in economic performance that began in the early 1990s. In 1999, the first municipal elections in the country's history were held, followed by the establishment of a constituent assembly in mid-1999 entrusted with the task of drawing up a permanent constitution and providing for an elected parliament. Sheikh Hamad has also allowed greater political freedoms. Despite these efforts, however, ultimate authority continues to rest with him and his circle of advisors. The sheikh remains the source of absolute authority and enjoys the power to dissolve the Consultative Council (a 35-member advisory council appointed by the sheikh) and rule by decree, powers given to him by the 1970 provisional constitution.

Qatar is a welfare state, where health care and education are almost free. Since 1998, the government has moved to introduce small charges for these services, especially for health care, in an effort to boost the govern-ment's budget by reducing spending. However, most utilities in 2001 continue to be heavily subsidized by the government, and education remains entirely free. Qataris do not pay taxes and the government's budget continues to rely heavily on oil revenue.

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

Qatar enjoys an extensive and highly-developed infrastructure that has been built and developed with oil wealth since the 1950s. The country is served by a network of over 1,230 kilometers (764 miles) of primary and secondary roads, linking Doha with major industrial and oil producing areas. Most of these roads, some 1,107 kilometers (688 miles), are paved. The country has no railway system. Qatar has 4 airports, 2 of which have unpaved runways. Doha International Airport is the country's major airport. Twenty-eight airlines service Doha and bring in most of the country's tourists. Qatar has 3 ports and harbors: Doha, Halul Island, and Umm Sa'id.

Electrical power is provided to Qataris from the Ras Aby Aboud and Ras Abu Fontas power stations. In addition, there are 6 gas turbines and an estimated 5,000 diesel units spread across the country. Altogether, Qatar's total power capacity is estimated at 2,019 megawatts (MW). In 2000, the government drew up plans to build an independent power station with a capacity of 1,902 MW to meet the increasing demands of industrial projects and satisfy rising power demand, which peaks in the summer due to soaring temperatures. Several foreign companies, which are expected to own 60 percent of the project, have submitted bids, but the project's completion date remained unknown in 2001.

Telecommunications services in Qatar are thoroughly modern. Telephone service is provided by the Qatar Public Telecommunications Corporation (Q-Tel), which is 55 percent government owned. There are 430,000 landlines in the country, and in 2001, Q-Tel will be installing additional exchanges for Doha and Ras Laffan. Q-Tel also provides Internet and cable television access.

ECONOMIC SECTORS

Qatar's economic sectors reflect the small size of the country. Qatar relies heavily on the oil sector, exporting some 650,000 barrels a day, mostly to Europe and eastern Asia. The services sector is the country's second-largest economic sector and most important non-oil sector. According to the CIA World Factbook for 2001, the sector's contribution to GDP reached 50 percent in 1996. The industrial sector is also an important contributor to the economy, accounting for 49 percent of GDP in 1996. This sector is dominated by the oil industry, which accounts for a little over 40 percent of GDP. The non-oil manufacturing sector, on the other hand, accounts for only 8.8 percent, according to the EIU. Agriculture is an insignificant contributor to the economy, accounting for roughly 1 percent of GDP.

One of the greatest problems facing all of Qatar's economic sectors is the dependence on oil revenue and the adverse impact of the fluctuation of oil prices on the country's investment climate and fiscal deficit. Lower oil prices generally mean lower revenue for the government. Reduced government revenues in turn translate into lower government spending on economic projects, a situation that brings about an overall slowdown in the economy.

Recognizing these obstacles, Qatar has moved to diversify its sources of income by developing its liquefied natural gas (LNG) industry and expanding its industrial base. Qatar's efforts to diversify its economic base have not been very successful. Most economic activity continues to be centered on oil. Qatar has 2 natural gas plants that have been in existence since 1980. With the help of international oil companies, Qatar launched 2 LNG projects in 1992, the North Field development at Ras Laffan city. The first phase of the project was completed in 1992, and the second project is scheduled to start in 2001. According to the EIU Country Profile for 2000, once completed, the North Field will be "the largest single concentration of natural gas" in the world. The government invested some US$20 billion in the development of the North Field between 1995 and 2000. However, it is not expected to make a profit from these projects until its debts to the companies that financed the exploration projects are paid. Therefore, Qatar's dependence on oil is likely to continue.

AGRICULTURE

The government, which owns all agricultural land, has attempted to encourage agricultural production, accounting for only 1 percent of GDP. Given the scarcity of fresh surface water, however, most agricultural activity is dependent on wells. The government has also attempted to increase the number of small farms. As a result, the number of farms has increased from 338 in 1975 to 891 in 1995. Most farmers are absentee landlords, who are relatively uninterested in investing in agriculture, and the land is mostly cultivated by foreign workers.

Qatar's agricultural products are consumed locally, providing 70 percent and 40 percent of the consumption of summer and winter vegetables, respectively. In addition to vegetables, Qatar produces cereals, fruits and dates, eggs, poultry, and dairy products. Despite a noticeable increase in agricultural production in the course of the past 20 years, however, Qatar continues to rely on food imports, especially foodstuffs and live animals, which account for roughly 10 percent of total imports.

INDUSTRY

MINING.

Qatar's economy is heavily dependent on oil. Oil accounts for 40 percent of GDP and 63 percent of the state's income. The Qatar General Petroleum Corporation estimates that Qatar's total oil reserves have reached 12.2 billion barrels, up from 3.7 billion in 1995, due to the exploration of new oil fields by western companies since 1990. Oil production has risen consistently since 1994. Average production reached 854,000 barrels a day in May 2000, up from 410,000 barrels a day in 1994. Despite the increased production levels, Qatar's output is relatively low by regional standards.

In addition to oil, Qatar has been a producer and exporter of natural gas since 1980, when the first liquefied natural gas (LNG) plant was opened. Altogether, there are 3 LNG plants in the country, and a fourth is being constructed. The first plant was opened in 1980, producing up to 1,284 tons a day of propane, 851 tons a day of butane, 588 tons a day of condensate, and 1,350 tons a day of ethane-rich gas. A second LNG factory was opened in 1982, and it also produces large quantities of propane, butane, condensate, and other gases. The third LNG project was completed at Ras Laffan in 1992 as the first phase of the North Field Project. According to the EIU, the plant produces some 22.6 million cubic meters a day of gas and around 50,000 barrels a day of condensates. A fourth project, phase two of the Ras Laffan North Field project, is being constructed in 2001 to produce ethylene and polyethylene for use as feedstock (raw materials used for chemical and biological processes) by Qatar Chemical Complex. The project also aims to export 22 million cubic meters of gas a day to neighboring Persian Gulf states. LNG products are mostly exported to generate foreign exchange but are also used as feedstock for the emerging petrochemical industry.

MANUFACTURING.

Qatar's non-oil industrial base is relatively small. However, the contribution of the nonoil manufacturing sector to the economy has increased steadily since the 1970s, in large part thanks to the huge investments and efforts by the country to build a non-oil industrial base. Since 1992, the government has moved to establish the Ministry of Energy and Industry to encourage industrialization and to set up the Qatar Industrial Development Bank to provide loans with easy terms to would-be investors. In 2001, Qatar enacted a law allowing foreign companies a 100-percent ownership of projects in some sectors, including education, tourism, and health care. Despite these efforts, however, industrial output remains low. The sector's contribution to GDP reached 8.8 percent in 1999.

Qatar's industrial base is dominated by the petro-chemicals sector, which is controlled by the government. It is the biggest producer of low-density polyethylene and chemical fertilizers in the world. The sector has traditionally accounted for 40 percent of GDP. However, since 1998, the sector's contribution to GDP has been affected by the economic slowdown in Asia, the primary market for Qatar's oil products. Efforts are underway in 2001 to set up new petrochemical ventures that are expected to resume exports once the economic slump affecting Asia is over. In addition to petrochemicals, there is a small steel production operated by the 100-percent state-owned Qatar Steel Company. The sector produces 500,000 metric tons a year. Since 1998, the government has attempted to privatize the company by selling 49 percent of its shares on the Doha Securities Market to improve its profitability and as part of an overall scheme to reform the economy. The government, however, was forced to delay the partial privatization of the company as a result of the poor performance of the Doha Securities Market since 1998, which meant that the company's shares will be sold for much less than the government had hoped for.

SERVICES

TOURISM.

Tourism is a very negligible contributor to Qatar's economy. Since 1996, the government has attempted to establish a tourism industry and to turn Qatar into a major destination for international sporting events. The government has, as a result, invested heavily in the construction sector. These efforts came to a halt in the wake of the 1998 spending cuts, which were prompted by the sharp fall in world oil prices, but were revived in the 2001 budget, as oil prices rose again in 2000.

FINANCIAL SERVICES.

Qatar has a fledgling financial sector regulated by the Central Bank of Qatar. There are 14 banks operating in the country, including 5 locally-owned banks that hold 80 percent of the financial sector's assets. There are also 16 currency exchange companies. There are no investment banks. The Qatar National Bank, the country's largest bank, is the only bank involved in the government's hydrocarbon development program, and handles all the government's business. Other banks include the Qatar International Islamic Bank, Doha Bank, and the Commercial Bank of Qatar.

The government introduced new regulations in August 1995 to ease earlier restrictions placed on financial transactions. Despite these efforts, some restrictions continue to affect interest rates paid by banks on deposit accounts. Although the Central Bank requires banks to disclose accounts according to international standards, there is growing concern that some banks do not disclose their non-performing loans.

The Doha Securities Market (DSM) was established in 1997 with QR21 billion (US$5.8 billion) in assets. Nineteen companies are listed on the DSM, but trading has been generally weak, resulting in a 0.5 percent drop in the stock market index at the end of 1999.

RETAIL.

Lacking many large commercial centers other than Doha and its suburbs, Qatar has a relatively undeveloped retail sector. While Doha is home to a variety of retail stores, including fast food franchises such as Mc-Donald's, the majority of towns in the interior of the country have small family-owned shops, farmer's markets, and temporary roadside stands.

INTERNATIONAL TRADE

Over the past decade, Qatar has relied more and more on imports. The value of imports more than doubled since 1990, peaking to US$3.9 billion in 1999, up from US__BODY__.2 billion in 1989. Imports have traditionally varied from basic foodstuffs to consumer goods. Since the early 1990s, however, capital purchases for gas development projects have accounted for approximately 40 percent of imports. The volume of imports is expected to rise by

2002, largely because of revived government spending in the construction business.

Imports of foreign goods are dominated by Organization for Economic Development and Cooperation (OECD) suppliers, namely Japan, the United Kingdom, the United States, Italy, and Germany. (The OECD is a 30-member organization that provides governments with a forum to discuss and develop economic and social policy.) In 1998, Japan overtook the United Kingdom as Qatar's major supplier of machinery and manufactures, providing 15.4 percent of total imports. Imports from the United Kingdom accounted for 13.9 percent of total imports, followed by France, the United States, and Germany.

Qatar's exports are dominated by crude oil, although its importance has begun to decline in recent years due to the increase in the export of LNGs. As a result of its dependence on crude oil, which roughly accounts for 56 percent of exports, Qatar's export bill has fluctuated with world oil prices. Export revenue surged from US$4.36 billion in 1998 to US$6.6 billion in 1999. In 1998, Japan was also Qatar's largest export partner, accounting for 58.1 percent of the total export bill. South Korea came next at 11.0 percent, followed by Singapore, the United States, and Thailand.

The substantial oil revenue has allowed Qatar to maintain a trade surplus. However, the transfer of large amounts of money in remittances by the large expatriate workers community has consistently resulted in a deficit in the current account for most of the past decade. The deficit peaked to US__BODY__.6 billion in 1993, and the government's efforts to reduce the number of expatriate workers is expected to reverse the trend in the coming years. Similarly, the service balance has registered a deficit for much of the past decade, due to the government's heavy spending on defense and capital imports related to the LNG development. In 1999, the deficit in the service balance reached US__BODY__.5 billion. The income balance also has registered a deficit as a result of the interest on the country's mounting foreign debt.

MONEY

The value of the Qatari riyal has remained stable since it was first issued in 1969. The majority of Qatar's exports are denominated by the U.S. dollar. The Central Bank of Qatar has kept a fixed exchange rate of QR3.64: US__BODY__, despite a fall in the value of the dollar in 1995, mainly to prevent inflation.

POVERTY AND WEALTH

Qataris enjoy one of the highest living standards in the world. Per capita income is high by both regional and international standards. In 1999, per capita income was estimated at US$21,841, US__BODY__,803 higher than 1998. By contrast, per capita income in the United States is US$29,683.

The country's vast wealth from oil revenue and its relatively small population have allowed the government to invest heavily in education and in providing first-class health and educational services to its citizens since the 1970s. As a result, the literacy rate in the country is estimated by the United Nations to have reached 80 percent in 1995. Vast oil wealth has also allowed the government to offer heavily-subsidized or free services, such as public education.

No information is available about the distribution of wealth in Qatar, but poverty among Qataris is believed to be virtually non-existent.

WORKING CONDITIONS

Qataris have traditionally been uninterested in working at menial jobs and have instead relied on foreign workers in the administration of their country. Locals generally tend to occupy high positions in government ministries and private businesses, but the bulk of the manual labor is performed by Indians and Pakistanis. Unemployment among nationals is believed to be quite low (figures are unavailable). Since 1998, the government has launched a program to encourage Qataris to replace foreign-born laborers. This program also expanded labor training programs for Qatari nationals. No official statistics are available to assess its success.

The Ministry of Interior controls all transactions relating to foreign workers in the country. There is no minimum wage requirement. Salaries are negotiable. Expatriate workers pay for health care and are required to pay annual residency fees in the amount of US$275. According to the U.S. State Department Country Commercial Guide, 2001, the wives and children of expatriate workers are required to pay US$137 and US$82 respectively in residency fees. Qatar has no tradition of labor unions, although trade associations and labor unions are not forbidden by law.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

MID-1800s. Al Khalifa, Bahrain's ruling family, establish Qatar.

1915. Al Khalifa family expels the Turks from Qatar.

1916. Qatar signs treaty to receive protection from United Kingdom.

1949. Sheikh Abdullah abdicates in favor of his son Ali.

1950s. Oil is discovered in commercial quantities.

1971. Qatar declares independence from the British.

1973. World oil crisis. Qatar's oil revenue increases dramatically.

1981. Qatar, Kuwait, Bahrain, Saudi Arabia, Oman, and the United Arab Emirates form the Gulf Cooperation Council.

1995. Sheikh Hamad deposes his father, Sheikh Khalifa, in a bloodless coup.

1997. Economic reform program launched.

1999. The first municipal elections are held.

FUTURE TRENDS

Qatar entered the 21st century under a cloud of uncertainty. Despite the large sums of money that have entered the government's coffers from the sale of oil in the last 50 years, decades of government overspending and misuse have created serious financial constraints, mainly large foreign debt and recurring budget deficits. Despite the government's attempts to address these 2 problems by diversifying the country's economic base and introducing reform, Qatar's dependence on oil and the government's large role in the economy have meant that economic performance will continue to fluctuate according to oil prices. As a result, economic performance will be best when oil prices are high.

Given the structure of the economy, the government is expected to proceed with the "Qatarization" of its labor force. The government is also expected to forge ahead with the economic reform program started in 1997, which will seek to increase the role of the private sector, and to push for the privatization of more state-owned enterprises. Given that Qatar's budgetary problems are unlikely to be resolved until revenue from the sale of liquid natural gas exports begins to flow, the government will have no choice but to proceed with the promised democratization process and to engage the population politically to deflect the potentially disruptive impact of declining conditions. Political participation will engage citizens in the decision-making process by allowing them to elect their representatives through a popular vote, hence reducing the perception among the largest proportion of Qataris that they are outside the political process.

DEPENDENCIES

Qatar has no territories or colonies.

BIBLIOGRAPHY

Economist Intelligence Unit. Country Profile, Qatar. London: Economist Intelligence Unit, 2000.

U.S. Central Intelligence Agency. World Factbook 2000. <http:// www.odci.gov/cia/publications/factbook/index.html>. Accessed August 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Qatar. <http://www.state.gov/www/about_state/business/com_guides/ 2001/nea/index.html>. Accessed January 2001.

—Reem Nuseibeh

CAPITAL:

Doha (Ad-Dawhah).

MONETARY UNIT:

Qatari riyal (QR). One riyal equals 100 dirhams. Coins are in denominations of 50, 25, 10, 5, and 1 dirhams. Paper currency is in denominations of QR500, 100, 50, 10, 5, and 1.

CHIEF EXPORTS:

Petroleum products, fertilizers, and steel.

CHIEF IMPORTS:

Machinery and transport equipment, food, and chemicals.

GROSS DOMESTIC PRODUCT:

US$15.1 billion (purchasing power parity, 2000 est.).

BALANCE OF TRADE:

Exports: US$9.8 billion (f.o.b., 2000 est.). Imports: US$3.8 billion (f.o.b., 2000 est.).