The Gulf nation is already the 22nd safest investor destination worldwide. The question is whether or not hosting such a prestigious event will have lasting effects.
The World Cup lights the way in Doha. Photo: Reuters
In the shadow of corruption allegations, poor human rights, and a questionable fan experience, FIFA’s World Cup 2022 is about to get under way in the tiny Gulf state of Qatar, starting on Sunday, November 20, and running through to the final on December 18.
With domestic leagues suspended, the world glued to its television sets, and players that are at optimum match preparedness compared with an end-of-season tournament, the spectacle will surely rise to the fore, as it usually does. But will the excitement last?
Qatari officials had been hoping to put the country at the forefront of everyone’s minds for all the right reasons, elevating the tiny state in a region of powerful neighbours and embellishing its status among investors.
It is already a fairly low risk option after all, courtesy of its stability and substantial hydrocarbon wealth, with a conducive business environment.
That fact is underlined by Qatar's position of 22 in Euromoney’s global risk rankings of 174 countries.
Its risk score has been improving this year, in contrast to countries downgraded as a result of the shaky post-pandemic global economy precipitated by an energy crisis spewing forth from Russia’s invasion of Ukraine – an energy crisis that invariably has positive spin-offs for Qatar.
Yet the positive picture that Qatar is trying to send out by hosting the World Cup is threatened by its human rights record, says ECR survey contributor and country and financial institutions risk analyst, Rafah Toubia Farah.
“The country has come under intense criticism and investigation for the way it treats migrant workers hired to build the stadiums and other World-Cup related projects,” she says, before going on to mention that, despite the reforms the country introduced in order to improve the working conditions of most foreign workers, “this crucial problem is expected to remain the world's interest during the finals.”
It will be seen as a viable destination for global sports events (it already has a good track record on this) and, more importantly, as a credible destination for expatriates to work and live in- Omar al-Nakib
Omar al-Nakib, senior economist and ECR contributor, says that it would be surprising if ‘brand Qatar’ had not taken a bit of a knock amid the negative publicity, but once the tournament is over and the dust settles, the country shouldn’t have any problems moving on from the experience and re-applying itself to the pursuit of its development goals, through attracting international business, foreign direct investment, technology and skills.
If the tournament were to be run badly at the operational level, however, he says this would not reflect well on the country. It would raise questions about capacity issues and the robustness of infrastructure, processes, decision-making, deployment of capital and the broader business environment – but he does not believe this will be the case.
For Nakib, it is important to acknowledge that Qatar is systemically important to the global economy as a big supplier of liquefied natural gas (LNG).
That importance will be even greater once the additional 51 million tonnes of LNG capacity (to 128 million tonnes a year) is fully on-line by 2028, he says, amid expectations that many countries, especially in Europe, will be looking to Qatar and others for supplies of natural gas to replace, perhaps permanently, the volumes no longer imported from Russia.
Of course, the World Cup has been supporting the economy, not least when oil prices were lower during the construction phase, and it will continue to do so given the influx of foreign fans bolstering the retail and hospitality sector.
There is also the legacy impact of running a smooth tournament and of successfully marketing Qatar to the world.
“It will be seen as a viable destination for global sports events (it already has a good track record on this) and, more importantly,” says Nakib, "as a credible destination for expatriates to work and live in, and for international businesses to move to, which would ultimately be positive for the country as it looks to develop a more economically rounded business model that is based on higher skills, technology and capital."
It will also be a good advertisement for the GCC region as a whole, he adds.
Farah and Nakib both recognise there will be a surplus of sporting stadia in such a small country.
Farah says their maintenance will continue to produce emissions, too, contributing to climate change.
However, as Nakib points out, many of the other projects associated with the World Cup, such as the road, metro, ports and entertainment facilities, are development projects that were always designed to outlast the tournament and better prepare Qatar for the socio-economic challenges in the years ahead.
Hydrocarbons prices are also greatly benefiting the country, with Qatari gas in great demand following Russia’s invasion of Ukraine, says Farah, but the country remains vulnerable to fluctuations in oil and gas prices.
The hydrocarbons sector accounts for around 44% of GDP.
In the coming years, public spending will significantly decline, since major infrastructure and construction projects are now finalised- Rafah Toubia Farah
Fortunately, as Nakib points out, the country has expanded its non-oil sectors, such as financial services, real estate and wholesale and retail trade. With the authorities' $30 billion LNG expansion program (to 2028), the hydrocarbons sector will gain in prominence.
Farah also states that the potential risk arising from any reduction in hydrocarbons prices is mitigated by important capital spending reductions.
“In the coming years, public spending will significantly decline, since major infrastructure and construction projects are now finalised,” she says.
This will strengthen the government finances, but she goes on to note that since the banking sector has accumulated foreign liabilities, the external debt has risen over the past few years, “amplifying the country's external vulnerability compared to its peers.”
In addition, she says the economy is vulnerable to Iran's threats to close the Strait of Hormuz as well as the pressure surrounding Iran's nuclear programme, since most of the country's hydrocarbon exports and imports cross the Strait.
Nakib also notes that inflation is accelerating (it reached 6% year on year in September) thanks to World Cup procurements, related preparations, supply-chain issues and the impact of robust demand.
“It should ease next year as the demand-boosting impact of the World Cup fades and amid continued global monetary tightening and expectations of slower global growth," he says. "Given that the World Cup and associated projects have been 12 years in the making, with activity accelerating this year in time for the event, there is bound to be a lull in 2023 as the local economy comes off its highs.”
Forecasts published by the IMF in its World Economic Outlook in October endorse this opinion, showing GDP growth slowing in real terms to 2.4% in 2023 from 3.4% in 2022, while consumer price inflation is expected to ease to 3.3% from 4.5% on a year-average basis.
The hydrocarbons-fuelled balance of payments should also ensure a whopping current account surplus of more than 20% of GDP.
Qatar should perhaps be even higher in the country risk league table, but the fact it is not is largely due to its political risks.
It has government stability, but a low score for information access/transparency, while geopolitical tensions in the region have always been elevated, not least because of relations with Iran and Israel, often splitting the Gulf’s Sunni and Shia sympathies.
This was underlined by a spat with Gulf neighbours five years ago that led to its partners severing diplomatic relations.
Farah says that despite the reconciliation with Saudi Arabia, Bahrain, Egypt and the UAE announced in January 2021, differences in foreign policy towards Turkey and Iran “remain generally unsettled and are expected to persist, leading to future tensions.”
In light of these conflicts, she says a return to Qatar's role as regional mediator is unlikely. That is a contrast with Nakib, who says that Qatar will want to continue efforts in this sphere because they bring regional and international security dividends for a tiny country in a volatile region.
Qatar will be hoping the World Cup can act as the lynchpin to its many desires. After all, its football team stands very little chance of winning the tournament. What will be more important is the legacy.