Qatar emerging as a key financial center in the Gulf
The Arabian Gulf is witnessing some regional theater as Dubai’s erstwhile economic miracle staggers and stumbles towards debt Armageddon. Along the Gulf coast, the State of Qatar is quietly emerging from its close neighbor’s economic shadow to position itself as a rapidly diversifying and dynamic economy.
The International Monetary Fund (IMF) in its most recent assessment of the economic outlook for the Gulf said that Qatar’s economy would grow by 18 percent in 2009 and would be the only member of the Gulf Cooperation Council to record double-digit growth. GDP in Qatar has increased on average 11.8 percent annually over the last three years, with per capita income reaching an astonishing $103,500 in 2008, the second highest in the world, according to the CIA World Factbook.
Qatar sits atop huge quantities of natural gas that at current extraction rates provide it with more than 150 years of reserves. Once an almost untradeable commodity, gas is now exported around the world in liquefied form thanks to relatively recent technological advancements. And Qatar, as an open, stable, reliable supplier, has become the world’s largest exporter of liquefied natural gas (LNG).
Qatar is also on course to be the regional financial center of choice. At least that is the opinion of the Qatar Financial Center (QFC) – but it is a compelling one. With access to a mouthwatering array of energy and infrastructure related projects, Qatar is likely to be an attractive proposition for investors, a point that the QFC is keen to exploit.
QFC has so far licensed more than 100 firms since its inception, with banking, asset management, and insurance underpinning the regulated sector. Lawyers and accountants make up the bulk of the rapidly expanding non-regulated sector as demand for financial services increases.
One of QFC’s major differences from Bahrain or Dubai is the fact that it is ‘onshore’ and an integral part of the Qatari economy. Once licensed, firms can opt to operate outside the QFC’s immediate vicinity, subject to approval of the Council of Ministers.
“That is what makes us very different to Dubai – more and more people tell us this is different,” Stuart Pearce, Chief Executive Officer and Director General of QFC commented.
Around 20 percent of the firms licensed by the QFC are Qatari companies, in stark contrast to Dubai, an offshore free zone. As QFC is an onshore entity more Qatari companies are likely to establish businesses, lured by the attraction of 100 percent ownership, Pearce added.
Like Dubai, the QFC regulatory system is based on English Common Law. Through the QFC Authority, civil and commercial disputes are dealt with by the QFC Court, presided over by Lord Woolf, the former Chief Justice of England and Wales. Sir William Blair, brother of former British Prime Minister Tony Blair, chairs the regulatory tribunal.
Qatar leads push into insurance sector
QFC has developed a technology-based platform to service the insurance and reinsurance market, which also includes Sharia-compliant Takaful. “We have identified that insurance represents a gap in the market as a lot of insurance premiums go elsewhere in the world, so there is scope to keep them in the region,” said Steve Martin, Director of Marketing and Corporate Communications at QFC.
Qatar Insurance Services (QIS) is an online hub that companies can use to manage risk and exchange information. Many firms currently use a similar system by eReinsure in the United States, but, according to Martin, Qatar’s is the first time a system has been used on a sovereign basis.
Creating a regional market for insurance will attract brokerages to the QFC and could lead to Qatar becoming a regional force. As it is new to the market, Qatar can sidestep legacy processes and outdated technology. The QIS platform is due to be launched in 2010, according to the QFC.
Islamic Finance
QFC has licensed a few Islamic financial services companies as the sector grows in importance. The regulatory authority at the QFC applies its own rulebooks to the firms. “It is and will remain a significant element in the financial structures that Qatar uses in the future. There are elements of Islamic finance that have been needed for some time and are now competitively priced,” Martin added.
Last year, United Development Company (UDC), a company listed on the Doha Securities Market, raised $600 million in debt and equity on a matching basis for the first fully Sharia-compliant closed-ended real estate development fund. The fund has invested exclusively in Qanat Quartier, a residential and retail development at The Pearl-Qatar.
Boosting training in financial services
Developing and nurturing talent to support the growth in the financial services sector has resulted in the formation of the Qatar Finance and Business Academy by the QFC. According to Pearce, the academy will offer a range of vocational and academic programs that will also stimulate interest in careers in financial services for home-grown talent.
The QFC is building an 11,000 square foot teaching facility in Doha for partner organizations that currently include the Institute of Cost and Management Accountants and the Chartered Insurance Institute, both from Britain.
As a direct result of all the resources Qatar has devoted to further developing the QFC, the country is on track to become a much bigger player in regional financial services as well as a more formidable competitor in global financial services.