III. FOREIGN ECONOMIC TRENDS REPORT: Key Economic Indicators - Qatar: Unless otherwise noted, all figures represent values in millions of U.S. dollars. The exchange rate of US$ 1.00 for Qatari Riyal (QR) 3.64 was set by the Government of Qatar in June, 1980, and has remained unchanged to date. Percent Change 1990 1991 1992 1992/1991 Total Imports from U.S.A. 160.5 200 230.5 15.3 Balance of Payments 1. Balance of Trade: 2195.6 1489.8 1825.2 22.5 A. Exports (f.o.b.) including Oil: 3890.3 3209.8 3815.2 18.9 B. Imports 1694.8 1720 2023.6 17.7 2. Services and Private Transfers (Net):1889.2 1415.6 1841.4 30.1 3. Current Account Balance: 306.3 100 16.2 -83.8 4. Capital and Official Transfers: 39.0 69.9 109.8 57.1 5. Overall Balance of Payments: 267.3 162.9 126.1 -22.6 Gross Domestic Product 1. GDP at Current Prices: 7380.5 6883.5 7473 8.6 2. Per Capita GDP (US$): 18400 18600 18700 0.5 Government Budget (Excluding Defense) 1. Budgeted Revenues: 2138.7 2318.0 2638.5 13.8 Actual Revenues: 3298.9 2848.6 N/A N/A 2. Budgeted Expenditures: 3261.7 3216.0 3406.3 5.9 Actual Expenditures: 3128.8 3234.3 N/A N/A Monetary Survey 1. Money Supply 1113.8 996.4 1096.1 10.0 Demand Deposits 743.2 646.0 733.3 13.5 Currency in Circulation: 370.6 350.4 362.8 3.5 2. Estimated Annual Inflation Rate (Base year: 1988) 106.4 111.1 114.5 3.1 Industrial Sector 1. Crude Oil Production (mn brls): 146.7 142.5 152.5 7.0 2. Gas Production: 246.3 240.1 412.8 71.9 3. Electric Power (mn. kwh.): 4818.0 4830.0 5153.0 6.7 4. Electricity Peak Demand (megawatts): 987.0 997.0 1056.0 5.9 5. Steel Production (thou. mtc. tons): 560 560 588 5.0 6. Fertilizer Production (thou. mtc. tons): Urea 780 798 825 3.4 Ammonia 760 692 756 9.2 7. Cement Production (thou. mtc. tons): Ordinary (Portland): 167.0 183.7 170 -7.4 Sulphate-resisting: 100.0 100.0 100.0 0 8. Petrochemical Production (thou. mtc. tons): Polyethylene (low density): 185 160 180 12.5 Ethylene 285 240 235 -2.1 Sulphur 50 40 60 50.0 Sources: Government of Qatar, private firms, banks and oil industry. Economic Performance According to official provisional data, Qatar's 1992 Gross Domestic Product (GDP) reached QR 27,202 million (US$ 7,473 million), an increase of 8.6 percent above the 1991 level. This growth of 8.6 percent is the highest since the end of the earlier oil boom of the 1970s and early 1980s. The 1991 GDP was low, having declined 6 percent below GDP in 1990, considered a good year. Qatar's GDP is sensitive to fluctuations in oil prices in international markets and related OPEC mandated production ceilings. Oil exports including oil by-products have at all times enjoyed a lion's share of GDP, ranging from 40-50 percent of the country's overall income. Other sectors of the economy which registered some growth include building/construction, trade, and transport/communications. These three sectors registered growth in 1992 ranging from 2 percent to 5 percent over their corresponding 1991 levels. GDP in 1991 was about 6 percent below 1990 GDP. The disruption since 1991 of overland transport of goods from U.A.E. ports through Saudi Arabia, because of border differences between Qatar and Saudi Arabia, has accelerated inflation. The higher cost of shipping via other routes, plus insurance and transhipment expenses, have acted together to escalate inflation. Therefore, the official estimates of real GDP growth (8.6 percent) in 1992 are expected to show a growth of no more than 4 or 5 percent, if adjusted for inflation. Bank sources are of the opinion that there will be little increase in GDP levels throughout 1997 and 1998, when Qatar is expected to be in a position to start exporting 4 million metric tons of LNG to Japan and twice this amount to other world markets as of the year 2000. Sectors other than oil and gas are expected to maintain current levels of contribution to Qatar's GDP until the end of 1998. The performance of other sectors of the economy is in many ways linked to the country's revenue from oil and gas. The possibility of oil prices remaining low throughout 1994, and perhaps beyond, will have a negative impact on Qatar's hard currency earnings. Consequently, a substantial cut in GOQ spending will affect development of projects, and procurement of new products and services. Balance of Payments Unlike 1990, Qatar's 1992 balance of payments (latest available figures) showed a deficit of QR 459 million (US$ 126 million) against QR 593 million (US$ 162 million) in 1991 and a trade balance surplus of QR 973 million (US$ 267 million) in 1990. There are four components to Qatar's balance of payments. First, Qatar's balance of payments is directly linked to its trade balance surplus. The decline in the balance of payments deficit to QR 459 million (US$ 126 million) in 1992 from QR 593 million (US$ 162 million) in 1991 is primarily due to a trade balance surplus of QR 6,644 million (US$ 1,820 million) in that year, against a trade balance surplus of QR 5,423 million (US$ 1,486 million) in 1991. The 1992 balance of payments declined by about 22.5 percent, which is almost equal to the increase in the trade balance surplus for the same year. The increase in the trade balance surplus in 1992 was attributed to the increase of about 19.7 percent in the country's exports above the 1991 level of QR 11,684 million (US$ 3,201 million). Meanwhile, the country's imports increased by 17.2 percent above the 1991 level of QR 6,261 million (US$ 1,715 million). As such, the increase in the country's ratio of exports was higher than that of imports. A second component of Qatar's balance of payments is net computation of services and private transfers. This factor represents invisible transactions, including investment revenues, current revenue transfers of the Government, as well as revenue transfers of expatriate communities to foreign markets. This component registered a deficit of QR 6,703 million (US$ 1,836 million)in 1992, an increase of 15.8 percent above the 1991 deficit of QR 5,787 million (US$ 1,585 million). The breakdown of 1992 computation of services and private transfers is not publicly available. A third component of Qatar's balance of payments is the current account item, which represents the difference between the nation's trade balance on one hand and its services/private transfers on the other. Qatar's current account posted a deficit of QR 59 million (US$ 16 million) in 1992, after absorbing all of the trade balance surplus. A fourth component of the balance of payments is capital transfers, which represents foreign borrowing and repayments, together with both official and private investments. This item, in 1992, posted a remarkable increase in net capital outflow. The deficit under this item reached QR 400 million (US$ 110 million), against QR 229 million (US$ 63 million) in 1991 and QR 142 million (US$ 39 million) in 1990. The jump in net capital outflow resulted from settlement of foreign debts by Qatar in 1992. The Central Bank of Qatar does not provide, for public dissemination, a breakdown of such debt. However, in the late 1980s and early 1990s, Qatar resorted to foreign loans in order to launch the first phase of development of its huge natural gas reserves in the North Gas Field, off the north coast of the Qatari peninsula. Phase I was inaugurated in 1991 to meet domestic requirements for gas at an estimated cost of US$ 1.5 billion, of which an amount of US$ 400 million was provided through foreign loans. These borrowings are in contrast to Phase II development, in which the State-owned Qatar General Petroleum Corporation (QGPC) set up the Qatar Gas and Ras Laffan projects with foreign partners. There was no foreign equity partner in the first phase. The increase in 1992 capital outflow may reflect Qatar's partial settlement of Phase I loans. In its computation of the country's balance of payments, the Central Bank of Qatar views all such debt settlement as official capital outflow, whether charged to the State budget or to the QGPC budget. As illustrated in the table of key economic indicators, net capital transfers, private and official, have accounted for 87 percent of the entire deficit of the balance of payments. The above mentioned fluctuations in the major components of Qatar's balance of payments have contributed to a monetary deficit of QR 459 million (US$ 126 million) in 1992, against QR 593 million (US$ 162 million) in 1991. This deficit reflects a decrease in net foreign assets held by commercial banks, as well as a drop in the Government's foreign assets. Trade and Investment Barriers The Government of Qatar encourages foreign investments. One Method of foreign investment is through joint ventures with Qatari firms. Although wholly foreign-owned firms are permitted to operate in Qatar, they must have a local sponsor. However, there is a clear local hierarchy of privileges and preferences that favor Qatari firms and joint ventures with foreign participation. Foreign-owned banks and foreign-owned portions of joint ventures are subject to corporate income tax, which can range from 5 percent to 35 percent of net profits. Until early 1994, the higher limit had been 55 percent. Only nationals of Gulf Cooperation Council (GCC) countries are treated on par with Qataris. Foreign investors entering into a joint venture with Qatari partners are allowed a maximum of 49 percent of shares of the business. Importers are required by law to have an import license for almost all products. Import licenses are issued only to Qatari nationals. Even in the case of a joint venture between Qatari and foreign partners, the import licenses are issued only to the Qatari partner. Similarly, agency and dealership agreements with foreign suppliers can only be registered with the Commercial Registration Department of the Ministry of Finance, Economy and Commerce, under the name of Qatari nationals. In Qatar, the Government is the main end-user of a wide range of products and services. The Government's procurement strategy is based on standard tender procedures. In order for foreign firms to participate in those tenders, they must first have a local agent. In evaluating tenders, products of national Qatari origin are given 10 percent preference, and products of GCC origin 5 percent. Officially, foreign firms placed on the Arab Boycott of Israel list are not allowed to do business in Qatar. However, the GOQ has unilaterally deleted in recent years some giant foreign firms, including some U.S. corporations, from the blacklist. Moreover, Qatar has moved unofficially to ease the secondary and tertiary aspects of the boycott. Further action will be linked to progress in Middle East negotiations. Various entities in Qatar continue to make boycott requests in commercial documents which place U.S. firms in the position of having to act affirmatively to stay within the requirement of U.S. law. In many instances, these terms will be deleted or disregarded to enable exporters to transact business. Except for income tax, there are no exemptions from the above rules and regulations governing business in Qatar. In certain cases, Qatar has provided some incentives to firms operating in Qatar. Such incentives, provided on project to project basis, include some infrastructure works, storage land, exemption from custom duties and water/electricity at cost price. Except for steel and tobacco/cigarettes, all general merchandise is subject to 4 percent customs duties. The current rate of customs duties for steel is 20 percent, 10 percent for hi-fi equipment and 50 percent for tobacco/cigarettes. Qatar produces steel bars for construction purposes, and exports more than 500,000 metric tons to nearby GCC countries each year. GCC products are not subject to custom duties, according to a reciprocity agreement among the six GCC member states of Saudi Arabia, Kuwait, Bahrain, U.A.E., Oman and Qatar. In Qatar, investment in major industries, such as steel, chemical fertilizers, petrochemicals and other heavy oil/natural gas based industries, has been restricted to the Government through the State-owned Qatar General Petroleum Corporation (QGPC) and specialized international firms. The Government, as major shareholder, holds 80 percent through QGPC while foreign equity participants, as minor shareholders, hold about 20 percent equity. Labor Force The majority of Qatar's labor force consists of expatriate workers. With a total estimated population of 400,000, and Qataris constituting no more than one fourth of this number, the role of expatriates in different sectors of the economy is very important. The Ministry of Interior and the Ministry of Labor and Social Affairs regulate recruitment of expatriate labor. The largest group of foreign workers now come from India, Pakistan, and Sri Lanka. Restrictions on entry into Qatar of some Arab nationalities, following the second Gulf War (liberation of Kuwait), are still in effect. Yet exceptions to these restrictions exist. Internally, Qatar's plan to develop its own manpower resources has continued to receive attention at all government levels. However, the country is still far from being self-sufficient in labor needs. The Ministry of Interior must approve all transfers of sponsorship from one national or firm to another. By law, an expatriate is only entitled to two sponsorship transfers throughout his/her stay in the country. Official fees for each transfer are about US$ 275. Approval of both old and new sponsors is necessary. It is common practice in Qatar for expatriate workers and staff to be given accommodation along with salaries, end of service benefits and return tickets to fly home every one or two years. There are no minimum wage regulations. While salaries and wages are negotiable, end of service benefits are subject to three different laws. The most rewarding is that of State- owned QGPC, then the Civil Service, and finally, Qatar Labor Law, which applies mainly to unskilled workers and servants. Local and Third Country Competitors Traditionally, Japan has been the number one supplier to the Qatari market. The United Kingdom has occupied the number 2 position, the United States number 3, and France or Germany numbers 4 or 5. However, in 1992, for the first time in more than 20 years, the United States occupied position 2 and the United Kingdom number 3 among world-wide suppliers of goods to the Qatari market. U.S. exports of goods to Qatar in 1992 reached a record of US$ 230 million or about 12 percent of the market. in the same year, U.S. exports of services to Qatar reached about US$ 100 million. Due to continual rise in the Japanese yen exchange rate, the once huge difference between the top three suppliers to the Qatari market has become marginal. The U.S. share of the 1991 phase one development of the North Gas Field was estimated at US$ 450 million, including products and services. However, Japan appears to be leading in Phase II development of the North Gas Field which establishes Qatar's first entry to the LNG export industry. Japan, through Chubu Electric Company, is the buyer and end- user of LNG to be produced by Qatar's LNG project known as Qatar Gas. Consequently, leading Japanese firms were given sizeable contracts to build both an LNG plant and seven tankers for the project and Japan has presented a finance package estimated at US$ 3 billion to cover costs. Subsequent projects including the "Ras Laffan" partnership between QGPC and Mobil, aim at a steady increase in production of LNG for export that could reach 20 million metric tons annually in the early years of the next century, depending mainly on market developments. In competing for participation in Qatar's gas exploitation, U.S. firms should be aggressive and persistent and should have finance packages to support their project offers. Except for defense capital goods and some oil and gas equipment, French firms are no competitors. French technology is very well acknowledged in the market. Some Qatari merchants claim that they find it much easier to deal with the French market, because it is relatively closer to Qatar and also because the procurement procedure does not require lengthy routine paper work. Qatar is now negotiating a major deal with the French for the purchase of Mirage fighters/interceptors. Despite local, regional, and international competition, U.S. automobiles, automotive spares and accessories, medical and pharmaceutical products, computers and foodstuffs will continue to offer good opportunities for expansion. With a good finance package, the U.S. share in the oil and natural gas industry will also be expected to expand. Major Infrastructure Projects Underway A. Doha Container Service Port and Qatar Flour Mills Port: A contract worth US$ 120 million was awarded to the U.S. firm Great Lakes Dredge and Dock Co. early 1993. The contract calls for conducting the necessary dredging works and use the mud for reclaiming a nearby area at Doha International Airport. The reclaimed area is scheduled to become the new offshore runway of the proposed new Doha International Airport. B. Ras Laffan LNG Port: Well ahead of schedule, this port is being built by the Italian firm Condotte and Partners, at a cost of US$ 800 million. Located on Qatar's east coast, north of Doha, this port will handle the export to Japan of Qatar's first LNG shipment in early 1997. C. Ras Laffan Industrial Area Infrastructure: Apart from the Ras Laffan LNG Port facility and related LNG industrial projects, the infrastructure of the Ras Laffan area will be developed at a cost of about US$ 2 billion. The project will include construction of roads, residential facilities, schools, electricity and water distribution systems and other facilities. D. Upstream/downstream projects in the North Gas Field area, as well as Ras Laffan Port location for Qatar LNG Company Inc.: With regard to the initial Qatar Gas project, the upstream contracts, controlled by Total of France, an equity participant in this project, call for production of 800 million cubic feet of natural gas per day; for gas stripping and distillation plants, as well as a dual pipeline 60 miles long to bring gas onshore to the Ras Laffan Industrial area. Downstream contracts of Qatar LNG Company call for establishment of a gas liquefaction plant, at a cost of about US$ 2 billion. Other contracts include construction of gas tanks, LNG port installations and seven LNG tankers. The overall estimated cost of the Qatar Gas project is US$ 4.5 billion. The "Ras Laffan" project will also involve major projects of similar scope, as will subsequent projects in future years. E. Ras Abu Fontas Power Generation and Water Desalination Station - Phase B Expansion: This power and water station is designed to have production capacity of 600 megawatts of electricity, extendable to 1,500 megawatts, and 50 million gallons of water per day, extendable to 100 million gallons per day. The project contract, worth about US$ 1.5 billion, was awarded to the European firm Asea Brown Boveri. The U.K. firm Ewbank Preece is the consultant for this project. F. Airbase in Khor Al-Udaid, south of Doha, is now under construction. Local and foreign contractors have been awarded key contracts. G. Al-Ahli private hospital and six additional health care clinics in different suburbs of Doha are in the planning stage. H. West Bay Lagoon Project: The Ministry of Municipal Affairs and Agriculture is developing an area for housing and marine recreation next to Doha's Diplomatic Enclave. Under this project, beach plots will be developed and offered for private ownership. Several plots have already been sold. The project is scheduled to be completed by the end of 1996 and will cost US$ 27.5 million. The U.S. firm Great Lakes Dredge and Dock Co. was recently awarded a contract worth US$ 33 million for channel dredging and landscaping related to this project. I. New premises for the State-owned Qatar Telecommunications Corporation (Q-Tel): This project, now in the design stage, is to be located in the West Bay area. The estimated cost of this project is US$ 20 million. J. Ministry of Foreign Affairs building extension: The estimated cost of the extension is QR 45 million (US$ 12 million). The project includes construction of a concrete structure tower. K. Three thousand homes at Saliyah: Located 12 miles from Doha to the south of Salwa Road, the first phase of this project includes construction of a dual motorway (5 miles long) and 780 houses. The client is the Ministry of Municipal Affairs and Agriculture. The contract for this project was awarded to the Qatari firm Teyseer Contracting Company in mid- 1992. L. Umm Said Beach Hotel: Nearing completion, the client is the State-owned Qatar National Hotels Company. The hotel is located about 30 miles south of Doha, near Umm Said Industrial Area. M. Amusement Park Project: Phase I development of this project extends over an area of 138,000 square meter in the West Bay sector of Doha. This phase includes about 19 attractions in addition to restaurants and a shopping arcade. The diversions include rides, giant wheel, carousals, paddle boats, Derby race day, coin machines, bumper cars, camel and pony rides, horror house and a scale model train. N. Golf Course: The Ministry of Municipal Affairs and Agriculture is the client for this project which will be funded by the State-owned Qatar National Hotels company. The 27-hole grass golf course will conform to international competition standards. The project includes a club house and family leisure facilities, among other things. Located near the Qatar University, north of Doha, this project is scheduled to be completed by mid-1995. A second golf course for the State- owned Qatar National Hotels Company in Umm Said Industrial area is under consideration. O. Horse Race Course: The Government of Qatar has plans to build a 2,000 capacity grandstand at the Rayyan Race Course, to the west of Doha. P. Formula One Race Course Project: Now in the design stage, the project cost is estimated at QR 100 million (US$ 27 million). The client is Qatar Motor Sports Association, and project engineering design consultant is the German firm Schlegel Spiekermann. Project location: Al Wakrah, south of Doha. Project finances: Qatar Motor Sports Association is currently contacting local and international banks, to arrange partial or complete finance package.