The COVID-19 pandemic has had a significant impact on the Qatari economy. Economic and diplomatic developments involving neighbouring countries, as well as significant investments in liquefied natural gas production, have renewed optimism for a strong recovery.
Background
In February 2021, data released by the Qatar Planning and Statistics Authority showed the country’s most recent foreign merchandise trade statistics for the final quarter of 2020. The recent lifting of the embargo placed on Qatar by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt has renewed optimism that trade with the Gulf Co-Operation Council (GCC) countries will improve in 2021 and beyond. A significant investment in the future of liquefied natural gas (LNG) production, as well as the implementation of a value-added tax (VAT) will both also affect the economy in the short to medium-term.
Comment
The beginning of the COVID-19 pandemic in late 2019 had a significant impact on all countries’ trade activity, and Qatar was no exception. Since the first quarter of 2019, the trade balance of Qatar was steadily declining, before suffering a significant drop at the end of Quarter 1, 2020 and into Q2. Trade has been slowly recovering, but still only sits at just over half the level of Q1, 2019.
Asia continues to remain both the principal destination for Qatari exports as well as the main origin of imports into Qatar. The Asian region accounted for 80.7% of Qatari exports, and was the source of 41.7% of its imports. After Asia, the European Union was the second-most significant trading partner (the destination for 7.6% of Qatari exports and source of 29.9% of Qatari imports), followed by the GCC (5.8% and 3.3%) and the United States (2.0% and 14.1%).
The Qatari authorities will be hoping that Qatar’s trade volume with the GCC countries will improve in 2021 and beyond, with the lifting of the embargo placed upon it in June 2017 by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt. Leaders of the GCC signed a declaration on 5 January lifting the blockades, thereby freeing Qatar to re-establish lost trade links and routes. In exchange for lifting the embargo, the other Gulf states made a list of thirteen demands to be met by Qatar. Despite the reconciliation agreement, Qatar has yet to meet those demands, and it will be interesting to observe how it may affect the still-fragile relationship between Doha and the other four countries. Qatar managed to weather the diplomatic rift by finding new import and export markets (and air routes) during the embargo, but the return of previously unavailable markets and routes will only enhance its position.
In November 2016, Qatar signed the GCC value-added tax (VAT) Framework Agreement with the five other GCC states. With the expected implementation of VAT in Qatar in 2021, Qatari businesses are being urged to prepare by conducting VAT impact assessments even before the government issues the final legislation. The VAT will require some adaptation from the business community in otherwise low-taxing Qatar, but a study completed by the National Bureau of Economic Research in 2019 concluded that indirect consumption-based taxes such as VAT (and GST) have ‘very little effect on imports or exports’. For those businesses in Qatar which are concerned that they will be negatively affected by the new tax, the empirical evidence shown by the study supports the claim that the introduction of a VAT does not distort trade.
Qatar’s hydrocarbon resources are the country’s economic engine, and Qatar is currently the world’s leading exporter of liquefied natural gas (LNG). In 2021, Doha plans to invest billions of dollars more into expanding its LNG capacity by more than 50 per cent to continue its lead over such rival producers as Australia and the US for at least the next two decades. According to the Qatari Minister of State for Energy Affairs, Sherida Al-Kaabi, the ‘project will generate substantial revenues for the state of Qatar and will have significant benefits to all sectors of the Qatari economy during the construction phase and beyond.’
If Qatar can manage to preserve a healthy working relationship with its fellow GCC countries, as well as ensuring a successful adoption of the new VAT, there is no reason why the country should not be well-placed for a strong recovery from the COVID pandemic.