EC Harris Research | International Focus on Qatar | Summer 2012

THE 2022 WORLD CUP PROVIDES QATAR WITH AN INVESTMENT LEGACY FOR THE FUTURE
The State of Qatar occupies a small Peninsula on the north-easterly coast of the Arabian Peninsula. Its sole land border is with Saudi Arabia to the south, with the rest of its territory surrounded by the Persian Gulf. Often cited as being only half the size of Wales, this tiny nation has a population of just 1.7 million inhabitants, of whom only around 300,000 are Qatari citizens.
In addition to some 15 billion barrels of proven oil reserves, Qatar has proven natural gas reserves of nearly 26 trillion cubic metres, about 14% of the world total and the third largest in the world. These reserves have put Qatar at the top of the list of per-capita income countries in the world, at $90,000 per capita according to the IMF. On 2nd December 2010, FIFA announced that Qatar was successful in their bid to host the 2022 FIFA World Cup. 16 months have passed since that historic moment, and the focus has now firmly shifted to the enormous challenge of delivering to the promise.

The decision by FIFA to award the 2022 World Cup to Qatar has certainly helped to place Qatar firmly on the world stage. Qatars leadership recognise that their significant hydrocarbon reserves, whilst providing abundant wealth, will not last forever and the government has set in place its framework for delivering long-term outcomes for the country. Qatar is expected to invest heavily in both capital projects and infrastructure over the next decade.
Paul Needler - Commission Manager, Qatar

The vision
The successful World Cup bid has certainly helped to place Qatar firmly on the world stage, but hosting one of the worlds most important sporting events is part of a much wider strategy: Qatars leadership recognise that their significant hydrocarbon reserves, whilst providing abundant wealth, will not last forever. The Qatari government has set in place its framework for delivering long-term outcomes for the country, in their Qatar National Vision. By 2030, Qatar aims to be an advanced society, capable of sustaining its development and providing

An ARCADIS company

EC Harris Research | International Focus on Qatar | Summer 2012

a high standard of living for its people for generations to come. Achievement of this vision will complete the journey from a hydro-carbon economy to a knowledge economy, through the four pillars of Human Development; Social Development; Economic Development and Environmental Development. When considered in the context of the above, the 2022 FIFA World Cup provides a catalyst for delivery of the Qatar National Vision. But its not just about the tournament itself, the World Cup will provide a unique opportunity to deliver a great legacy, as long as it is carefully planned to ensure an appropriate balance between the requirements of the tournament itself and the future use of the wider facilities. As well as setting the framework and scale to facilitate development, the World Cup also provides one thing rarely encountered in the Middle East: a fixed, unchangeable deadline!

Indicative costs per m in Qatar (US$ per m)

A/C High rise ofces
1,850 3,772

A/C Medium rise ofces

1,349 2,652

Ofce Fit outs

684 1,284

Multi-storey Car Parks - per space (costs x10)

1,060 2,640

Underground Car parks - per space (costs x10)

1,270 4,500

Shopping Centre - Mall

900 1,700

Restaurant / Food - Court t out

Size of the Prize - Scale of the likely investment, existing projects plus pipeline forecast
In order to deliver both the World Cup and the National Vision, Qatar is expected to invest heavily in both capital projects and infrastructure over the next decade. Estimates of the investment vary in the press from $60 billion up to $220 billion (although the reality is probably somewhere in the middle). The Qatari government has reportedly allocated 40% of its budget between now and 2016 to infrastructure projects alone, and many significant programmes of work are already in the planning or construction stages (See box). It is anticipated that the 2012 Qatar Budget (to be published shortly) will see a continuation of this trend. Key Infrastructure Projects New Doha Port - value US$7 billion * New Doha International Airport value US$11 billion * National rail project - value US$37 billion * Road Network upgrades - value US$20 billion * Doha Metro - value US$41 billion * Doha Bay Crossing Other Significant Developments Lusail City Downtown Doha Education City Doha Festival City The Pearl - Qatar
* Note. Scheme values taken from local media

1,737

2,362

Private Housing - High Quality Detached

1,857 3,482

Apartments - Private High Quality

1,509 2,095

Apartments - Private Luxury

1,917 3,534

Note: The costs shown above are based on the Study of International Building Costs which EC Harris carried out during the 1st Quarter of 2012. The figures represent typical guideline ranges of built costs that a client could expect to pay and are based on cost per m data provided by EC Harris sources on the ground in Qatar. Costs are given in US$ per m of gross floor area, measured to the internal face of the external walls. Note that the figures exclude land costs, professional and legal fees, etc and VAT, which should be added to the costs in this study. There is currently no VAT in Qatar.

The 2022 World Cup will provide Qatar with an important catalyst for ongoing investment.

EC Harris Research | International Focus on Qatar | Summer 2012

The government has reportedly allocated 40% of its budget between now and 2016 to infrastructure projects. Economic Overview
Qatar has continued to prosper over the last few years with continued growth in GDP , despite the global economic downturn. During the financial crisis, Qatari authorities protected the local banking sector with direct investments into domestic banks, and despite an 11% decrease in GDP growth in 2009, the country rebounded in 2010 largely due to higher oil prices while the growth of 20% in 2011 was supported by Qatars investment in expanding its gas sector. In accordance with the National Vision, Qatars Economic policy is focused on developing non-associated natural gas reserves and increasing private and foreign investment in non-energy sectors, but oil and gas still account for more than 50% of GDP , roughly 85% of export earnings, and 70% of government revenues. (CIA world factbook). existing supply chain. Although many of the existing Qatar construction firms are currently reporting capacity in their order books (some have 50% spare), this will not be sufficient for the volume of construction that is forecast. This provides an opportunity for local companies and international contractors to combine their different skills of global expertise and local market knowledge to expand their capability in order to deliver these complex and technically challenging projects. Increasing numbers of large international contractors are already looking to enter the market, including significant players from the far east. It is anticipated that the increase in the construction supply chain will need to ramp up quickly, and Qatar will need to monitor barriers to entry for new companies, to ensure that these do not become a limiting factor. Close monitoring of the supply chain will also be required to ensure that companies do not become overstretched and fail to deliver. Another consideration will be the structuring of contract arrangements for some of the mega-projects and programmes of work forecast; local contractors who are accustomed to $100 million projects will need to consider carefully how they shape themselves to be able to deliver these large programmes. As with the rest of the global construction industry, contractors will remain very reliant on their supply chain, and building strong relationships with reliable sub-contractors will be key. Logistics, Materials and Labour availability With such a large development programme, how will Qatar contend with the supply chain and logistics demands of these large programmes of work? It is already widely recognised that availability of sufficient materials and labour, and the logistics of getting them to the right place at the right time is likely to be a significant challenge. The cost of building materials can be estimated at around a third of the total cost of a construction project. If the forecasts of the scale of investment are correct, this relates to a construction materials market of between US$20 billion and US$75 billion. At these figures, the infrastructure investment in Qatar is likely to drive the demand for building construction material industries throughout the GCC region and beyond. According to recent research by analyst Frost & Sullivan, Qatar and Saudi Arabia are forecast to consume some 50% of the GCCs building materials over the next decade or so. In order to guarantee certainty of delivery, a strategic approach to supply chain management will be essential.

Structure of the industry

Due to the strong focus on large infrastructure projects in Qatar, much of the capital investment forecast for the next decade is funded by governmental (or quasi-governmental) entities. Although there continue to be a significant number of commercial/residential projects under development with private investors, a significant proportion of the non-hydrocarbon investment is being funded by a small number of key stakeholders, including Qatar Foundation (Education City / Downtown Doha); Qatari Diar (Doha Convention Centre, Lusail & others); Barwa (various commercial/residential developments); KAHRAMAA (Power & Water), Qatar Rail Company (Metro, National Rail, LRT) and Ashghal (Roads, Public Works)

Key Challenges
In order to deliver the Qatar National Vision 2030 (and the World Cup in 2022), there are a number of challenges for Qatar to overcome. Within the Qatar National Vision, it is recognised that such rapid growth could deplete resources, and overstrain its economy leading to deterioration in the quality of public services, low and stagnant labour productivity; deterioration in project quality and completion; and widening social cleavages and tensions There are, then, a number of areas where particular focus will be required to ensure that Qatars vision can be delivered in a managed and efficient way. These include: Capability of the existing supply chain Clearly with such a large pipeline of construction, a key constraint is both the capacity and the capability of the

EC Harris Research | International Focus on Qatar | Summer 2012

As Qatar has limited locally developed resources other than hydrocarbons, most construction materials need to be imported. The limited capacity of gateways into the country (road, air and sea) has the potential to create bottlenecks in the supply chain. As an example: on April 3rd 2012, it was reported by Gulf News that some 4,000 trucks were queuing at Al Ghuwaifat in Saudi Arabia, waiting to complete customs procedures necessary for them to cross the border into the UAE. Due to the number of vehicles queuing, truck drivers were anticipating a six day wait to cross the border. If similar difficulties are encountered for goods entering Qatar, this could be a key factor for the availability of materials in the country. Whilst the Compact FIFA World Cup is a compelling proposition to FIFA, the players and their fans, it also presents a number of logistical challenges for the movement of materials, labour and plant within Qatar itself. There will need to be a careful balance between construction vehicles and general traffic to avoid gridlock on the streets of Doha. This is particularly relevant, bearing in mind the level of investment in improving the existing roads themselves, creating the likelihood of further disruption. A centrally managed logistics strategy may become essential. Construction Inflation It is clear from the above that the availability of key materials such as steel, reinforcement, aggregate and cement will require a co-ordinated approach to supply chain and logistics issues at a national level to avoid local competition for scarce commodities driving inflation. During the peak of the building boom in 2006-2008, developers in the UAE experienced levels of inflation of 1.5%-2% per month in some instances. This was driven by a combination of competing local demand, compounded by scarcity of available resources in the global market. Since 2006, EC Harris has tracked 16 key construction commodities from the Middle East market on a monthly basis. This valuable data allows us to monitor trends in the market and provide clients with valuable insight into potential pressures on said commodities. Although the global financial crisis has meant that materials, plant and machinery are now more widely available, careful planning will be required to allow the supply chain to ramp up be it in the sourcing and provision of plant and materials or the construction of new facilities in Qatar to meet the additional demand Labour - availability and welfare In addition to the requirement for plant and materials, availability of sufficient construction labour is crucial to the delivery of Qatars National Vision.

Economy and construction - Qatar at a glance

2010 Economy generally 2011 20.0% 4.2% 0.6% 2012 7.1% 4.1%

GDP growth (%) Consumer price inflation Unemployment rates % Exports Imports Current Account Deficit

16.6% 6.9% 0.5% 55.1% -6.7% 2.9%

According to the Qatar Census of 2010, only approximately 300,000 of the population of 1.7 million are Qatari citizens. Although 40% of the total employed population were in the construction sector, only 0.85% of employed Qataris work in construction, most in senior management positions. To this extent the industry remains heavily reliant on its migrant workforce, which is expected to continue to grow in order to meet the increasing demands of the forthcoming capital investment. The eyes of the world will be on Qatar as it builds the facilities and infrastructure necessary to host the 2022 FIFA World Cup. It is anticipated that particular focus will be on the welfare of those thousands of migrant workers who flood into Qatar to provide the swathes of construction labour. Human development is one of the four pillars of Qatars National Vision, and this includes the welfare of its migrant workers. A holistic approach to worker welfare will be required to demonstrate Qatars commitment to its Vision, but is also likely to help improve productivity and reduce systemic costs.

Outlook
At a time when many countries are still wrestling with the implications of the global financial crisis and in some cases the additional burden of political uprisings, the outlook for Qatar remains positive. With the financial stability provided by virtue of its oil and gas reserves, Qatar is striving toward its vision for 2030. The 2022 FIFA World Cup will provide an important catalyst for ongoing investment, and it is likely Qatar will be a key player with a growing influence in the wider economy of the Middle East for the next decade. With strategic planning and a combination of global expertise and local knowledge, Qatar can look forward to the successful delivery of its National Vision, and expect an amazing 2022 FIFA World Cup!

Contact
Paul Needler Commission Manager, Qatar e paul.needler@echarris.com w echarris.com/research
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