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How will Qatar deliver on 2022 World Cup bid promises?

Qatar: Tuesday, May 24 - 2011 @ 12:15

It September 2010, a FIFA inspection team spent 74 hours in the tiny Gulf nation of Qatar. And what they saw during their time there has made history not just for Qatar, but for the entire Middle East: in December Qatar became the first Middle East country to claim one of the biggest prizes in sport, the right to host the 2022 World Cup finals.

Qatar commits to billions of dollars of LNG-funded spending

While heavyweight competitors including Australia and the US have been left licking their wounds, Qatar is now facing up to the reality of what it has achieved – and what it must deliver over the next decade. The smallest nation ever to host a World Cup, Qatar has committed to billions of dollars worth of spending on stadia, transport, accommodation and other infrastructure. It is also responsible for hosting a tournament that will be expected to do the entire Middle East proud.

Under that weight of expectation, at least finances shouldn’t be an issue. Qatar has a population of some 1.68 million, of whom more than 85% live within a 20km radius of the capital, Doha. It also boasts one of the world’s most lucrative Liquefied Natural Gas (LNG) fields, which has made it one of the wealthiest nations, per capita, on the planet.

“Qatar has tremendous income from LNG and oil exports, and is running a massive budget surplus every year,” says Samuel Ciszuk, senior energy analyst for the Middle East and North Africa, at IHS Global Insight.

“The huge [LNG] field off Qatar’s shore was always too deep for Qatar itself,” he continues. “They could have developed a small part of it to cover domestic demand, but that wouldn’t have paid its way for quite some time. Exporting the gas was really what was needed to be able to monetise such a massive field, and as soon as they realised the LNG market was big enough, they went for it.”

World Cup investment programme to hit $125bn over five years

With the backing of this immense hydrocarbon wealth and predicted GDP growth of 18% in 2011 alone, Qatar has outlined its vision for an ultra-compact, ultra-modern World Cup that will rely on the very latest in technological innovation. What’s more, it will be boosted by an investment programme that will see Qatar spend more than $125bn in the next five years on construction and hydrocarbon-related projects.

The 2022 World Cup will take place at 12 stadiums in seven ‘host cities’, all within a relatively compact radius of around 60km. Three of the 12 stadiums will be renovated from existing structures, and a stadium construction and renovation budget of approximately $3bn has been projected. In addition, Qatar submitted an estimated expenditure budget of more than $900m (inflation-adjusted) for the 2021 Confederations Cup and 2022 World Cup tournaments.

In all, Merrill Lynch estimates that the total cost of preparing to host the world’s most-watched sporting event could be as much as $65bn, or around $40,000 per head in Qatar, compared to the $11.4bn or $232 per person, that South Africa spent preparing for the 2010 World Cup. And costly though this might appear, policymakers in Doha are unlikely to find themselves having to cut back their ambitions.

“In order to execute these massive plans in a timely fashion, Qatar might resort to borrowing in the short- to medium-term,” suggests Ciszuk at IHS. “They borrowed to fund their LNG expansion but they’ve pretty much paid that debt off by now, and so the revenues that have previously gone towards servicing billions in project finance, are just now starting to add up into their sovereign wealth fund.

“They will have much more cash in their hands in the coming years, and if they need a little more, then they will again go to the debt markets,” he adds. “They have an outstanding rating.”

IMF forecasts 20% real GDP growth in 2011

Of course, it should be remembered that only 20% of Qatari residents are nationals: the country boasts a majority expatriate community comprising more than 100 nationalities, and attracted to Qatar by its rapid economic growth on the back of high oil and gas prices. And while Qatar is attempting to develop its non-energy sectors, the country is still dependent on oil and gas for more than 50% of its GDP, or roughly 85% of export earnings and 70% of government revenues.

The International Monetary Foundation said in March that it expects real GDP growth of 20% in Qatar in 2011, up from 16% last year, on the back of strong gas production and prices. Moreover, government investments will support an average growth of 9% in the non-hydrocarbon sectors in the years from 2012 to 2015, the group said. However, not all are convinced that the diversification of Qatar’s revenue streams, will be as easy as spending the money in the first place.

“In reality it is going to be very difficult to diversify successfully away from hydrocarbon revenues,” warns Ciszuk. “When you have such a small country with such a small indigenous population, sitting on such a massive resource, it’s very hard to create other industries which could rival that big income flow.

“It’s almost impossible: you’d have to make yourself into a genuine global hub for trading and banking and finance, but you already have places like Dubai and Bahrain which are making that niche very crowded in the Gulf.”

From whichever income stream it is sourced, some of this money will be required to equip each World Cup stadium with solar-powered air conditioning to fight temperatures that approach 50 degrees Celsius in the summer. It will also go towards a $25bn rail and metro network, as well as a seaport and a 40km bridge linking the country to neighbouring Bahrain. In all, according to a December 2010 report by National Bank of Kuwait (NBK), the winning bid is bringing renewed impetus to many infrastructure projects vital to growing Qatar’s tourism sector. NBK said Qatar plans to spend around 87% of GDP on constructing or upgrading infrastructure over the coming several years.

World Cup infrastructure spend to help diversify economy

“Qatar is set to benefit enormously from currently planned spending in general, as well as from the impact of the World Cup,” says Wajih Al Boustany, an economist at NBK.

“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,” he continues. “This vast spending programme will also help diversify the economy away from hydrocarbons. Moreover, the private sector will have a greater role to play, reducing the government’s contribution in the economy.”

According to NBK, the 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. The new investments will pull the economy back into balance and help set the stage for further growth in the future. Moreover, NBK estimates that Qatar’s spending could see the GCC region as a whole benefit from a spill-over effect, specifically with regards regional contractors, and financial institutions.

“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,” says Al Boustany. “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 neighbouring countries.

“Large regional financial institutions would also benefit by sharing in financing and servicing the plethora of projects,” he adds. “This would be especially the case as more and more regional companies take part in the execution of the different projects and look for local and regional financing.”

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Tuesday, May 24- 2011 @ 12:15 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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