Economy of Qatar and Industry Analysis (Essay Sample)

Economy of Qatar and Industry Analysis
Name:
Course:
Instructor:
Institution:
Date of Submission
Economy of Qatar and Industry Analysis
General Overview of the Economy
Petroleum has been the cornerstone of the country’s economy, accounting for more than 70% of its total national revenues. Moreover, the petroleum revenues have formed 85% of Qatar’s export earning, adding up to 60% of its Gross Domestic Product (GDP). According to current estimates, the country is endowed with 15 billion barrels of oil reserves, and it is assumed that the current output will be extracted at such levels for the next 23 years. Due to the vast petroleum, the country has been ranked among the highest countries in terms of per capita income. Apart from liquid oil products, the country has discovered natural gas whose reserve area exceed 7000km3. Therefore, export production of the natural gas is also becoming important. Nonetheless, Qatari’s future looks brighter as it seeks to diversify its economy and develop its offshore petroleum wells (General Secretariat for Development Planning, 2011).
Having a labor force of 1.32 million, the gulf country does not have any person below the poverty line; its record of unemployment stands at 0.4%. It has been ranked 40th globally, in terms of ease of doing businesses. With its growth rate per annum being 18.7%, it has managed to record a GDP of $102, 700 with a gross external debt of $82.05 billion. Importantly, it still maintains a credit rating of AA (both foreign and domestic) as accredited by Standards & Poor’s. The major industries participating in its economy are hydrocarbon, services, manufacturing, utilities, construction, and transport. Nonetheless, since it expects to host the 2022 FIFA world cup, the country’s GDP is likely to grow at a groundbreaking rate again (General Secretariat for Development Planning, 2011).
Factors Affecting Macroeconomics in Qatar
Growth in the Country’s Gross Domestic Product
The country has grown at a swifter average rate of 13.1% annually, with much of the expansions occurring between 2004 and 2011, when its GDP averaged at 15.9 every year. In the year 2010, the country emerged the first globally, among 182 nations when the GDP was expressed in terms of purchasing power parity. Apart from oils, the superb economic performance was also spurred by the country’s ventures in non-oil sectors (Ibrahim & Harrigan, 2012).
Expansion in Output
In the above graph, the Qatari country has been increasing its output by discovering more hydrocarbon wells, and diversifying in non-hydrocarbon industries. This has been increasing its total output potential as represented by the shift from supply curve AS to AS’ accompanied with the price PL1, which depict a rise in revenue, and therefore increasing GDP as shown in the chart below.
Source: Trading Economics (2014a)
Fiscal Position
While Qatar has been performing well in other sectors, it has also kept other yardsticks of its economic performances very impressive. In this regard, it has been consistently positing surpluses in the current and fiscal accounts, often exceeding 10% of its annual GDP. Moreover, while its savings have averaged 56% of its Gross Domestic Products, its investments have been over 33% over the same financial period. Recently, due to surpluses, the government has embarked on investing most of its 10% of the GDP on social and economic infrastructure (Ibrahim & Harrigan, 2012).
Currency
The country’s currency has remained accommodative, which has been mirrored with low exchange rates. Although broad money supply has continued to grow, loans to real estates investors have moderated. The currency, which is relatively strong with fewer fluctuations, is pegged to the US dollar at 3. 64 and therefore, USD 1= QAR 3.64(Ibrahim & Harrigan, 2012).
Inflation
The country has recorded an inflation rate of 2.6% as per the 2014 consumer price index calculation. Analysts predict that effects of inflations are likely to moderate, since commodity prices are softening. Although the country expects to pay public servants salary, it may only amount to an inflation rise by 0.5% (Ibrahim & Harrigan, 2012).
Inflation Due To GDP Increase and Expansion in Output
As aggregate demand increases from AD0 to AD1, prices will increase from r0 to r1. However, it is important to note that since Qatar is expanding its hydrocarbon output as it diversifies in other sectors that are not petroleum based, the inflation is likely to be moderated, in the long run. This can be depicted from the graph below: initially prices went up to 3.7 but they are now moderating at an average of 2.6%.
Source: Trading Economics (2014b)
External Accounts
For Qatar, its internal account is posting huge surpluses, by 38% of the total GDP, due to higher revenues from increased exports of products. The same trend is expected to continue through 2013-14 due to support from the rising oil prices. However, its capital accounts have continued to go negative, by -6.2 bn, as measured in US dollars (Ibrahim & Harrigan, 2012).
How Macroeconomics Factors Affect the Economy of Qatar
High economic growth rate will mean that unemployment is reduced in the country, and a greater number of people in the country will get opportunities to enjoy better living standards. However, Qataris should be prepared for externalities such as environmental degradation and congestions in cities. Moreover, high economic growth can become a cause of widening gap between the rich and the poor and inflation due to high economic activities. For fiscal policies, since the government has been gaining a stream of surpluses, since 2011, it has resorted to spend them in reducing the country’s public debt. This should continue until it attains a balanced budget. For the currency, it should be noted that it is relatively stable. The Qatari money has been relatively stable for a long time, and therefore, it is likely to instill confidence in its users. As money is supposed to be a measure of value, users will be confident to transact in it when they expect it to remain stable for a relatively long period (IMF, 2013).
For price levels, the country’s level of inflation is relatively small at 2.6%. According to analysts, its effects will depend on the reasons why price levels are falling; sometimes they may be falling due to reducing aggregate demand levels, which may even be harmful to the economy, as in the long-run there may be unemployment. These may also cause deflation, where prices fall without people willing to buy products on the market. However, if prices fall due to improved technology, it may mean that the country’s supply curve has shifted to the right due to increased productivity, just like the case of Qatar. External account, which espouses capital and current account, needs to be treated sparingly in special ways. The huge surplus on current accounts shows that the country’s citizens are exporting a lot. In this regard, Qatar will attract many foreign investors in the long-run, because, they will be confident that locals can run their economy, due to income from exports. Moreover, the government can easily borrow from the locals to finance its own deficits. However, the surplus current account should be offset by the negative account capital account to balance the amount of local and foreign currencies available in the country. In this case, the country and its citizens should invest a lot in overseas countries (IMF, 2013).
Qatari Industry Analysis
Qatari major participating industries are hydrocarbon production and refining, petrochemicals, fertilizers, ammonia, cement, steel reinforcing bars and commercial ship repair. Others have been financial, transport, and tourism industries. 80% of the country’s industrial revenue comes from the hydrocarbon industry, which oils the growth of its GDP; though analysts have noted that, the field may start being depleted from 2023.
Service and Consumer Goods Sectors
The country’s financial service industry has also been doing well, after it avoided the harsh impacts of the last recession. Qatari tourism industry is still under development. The government has put aside money for five-year development, aiming to boost the number of foreign visitors from 960,000 to 1.5 m. In this regard, the sector has received $17 bn for its development throughout 2014. The government is also planning to increase hotel capacity by 400% to cope up with increasing number of visitors per annum. Furthermore, It seeks to ease business regulations so that there can be inflows of foreign investments. The New Doha International Airport will be much helpful to aid the tourism sectors. The Qatari government has also been venturing in conference and art exhibition and sports tourism to attract more customers.
The other sector is the transport sector, which is expanding very fast due to the rising population that needs extensive and reliable transport networks (Ibrahim & Harrigan, 2012). The country has asserted itself on expanding road network since driving has been the primary mode of transport for many Qataris. There are ongoing projects, such as building the Qatar Bahrain Causeway to enable transportation between the two countries. This will also include the country’s interconnectivity with Saudi Arabia. Furthermore, there are mass transportat...