We all know that economy is a complete structure of economic life in a country. But under this article, we are going to know about the Open Economy, which means free trade with the other economies of different countries to meet economic and social goals. It links the domestic economy with the entire international market through trade, tourism, investment, and banking. And, in turn, promoted the exchange between two or more economies, which creates mutual economic strength between trade partners. In this appraisal, we will look at the economy of Qatar and how the open economy system helps their country grow its economic growth. Qatar is a peninsular Arab country whose terrain comprises an arid desert and a long Persian Gulf shoreline of beaches and dunes. It is one of the wealthiest countries with the highest per capita income. Its economic prosperity is derived from the extraction and export of petroleum and natural gas. Before World War II, Qatar’s population engaged in pearling, fishing, and some trade and was one of the poorest in the world. But by 1970, native Qataris enjoyed one of the highest per capita incomes globally, despite subsequent declines in income due to fluctuations in world oil prices. Qatar’s original oil concession was granted to the Iraq Petroleum Company (IPC), a European and American firms consortium, which later nationalized in the 1970s. While state-owned Qatar Petroleum oversees oil and gas operations, private corporations continue to play an essential role as service companies and become the world’s most prosperous country.
Roadmap to Qatar’s Open Economy
Since 2013, it has started showing improvements in infrastructure, health care, education, manufacturing, construction, and financial services sect. But on June 5, 2017, the governments of Saudi Arabia, the United Arab Emirates, Bahrain, and Egypt severed diplomatic relations with the State of Qatar and imposed a series of economic restrictions, including shuttering the Saudi-Qatar land border, closing airspace to Qatari-registered aircraft, and limiting certain maritime traffic. Thus far, the impact on regional travel has been significant. Qatar Airways was forced to suspend all flights to the prohibiting countries, and their governments blocked many regional airlines from flying to and from Qatar. However, the U.S Companies largely continued to use diverted routes established after the onset of the embargo and are advised to confirm with Emirati authorities before onloading U.S. goods for shipment to Qatar directly from UAE ports. Post-embargo, Qatar moved quickly to establish other sources of imports and has counterbalanced the loss of its former Gulf Cooperation Council (GCC) trading partners by increasing trade with regional partners, notably Turkey, Oman, Kuwait, China, Japan, Singapore, and India.
Now, Qatar has established strong partnerships and solid economic and investment relations with many world economies, contributing to the embodiment of the open economy vision and knowledge-based economic diversification plans away from oil and gas revenues. The State of Qatar adopts an open economy, and its prosperity depends largely on international trade, the economies of globalization, and interdependence. It has become the most open destination in the Middle East and the eighth in terms of visa facilities. One of the most prominent of these facilities was Exemption for citizens of 88 countries worldwide from entry visas to Qatar. In these recent years, it was evident in many industrial, commercial, agricultural, and financial achievements and leaps in energy and gas activities and the expansion of internal and external investments. On the other hand, Qatar Airways, the national carrier of the State of Qatar, is the world’s fastest-growing airline increasing the trade and tourism of the country, leading to more employment opportunities for the people by increasing more international relations. And now that the state is preparing to host the World Cup in Doha in 2022, the event will change the image of the Middle East and create an atmosphere of positive interaction between the region and the World, leading to more economic development.
Pre-COVID-19 Macroeconomic Indicators
With the help of macroeconomic indicators like export and import earnings, the balance of payment (BOP), exchange rate, etc., we can keep track of the economy’s profit and loss in an open economy. According to the data from the Central bank of Qatar- Bank Audi’s Group Research Department, the exports of Qatar reached a total of US$ 72.9 billion in 2019, a decline from US$ 84.3 billion in 2018 where the exports of mineral fuels and lubricants, making up the highest share of 85.6% of total exports.
Whereas at the level of imports, a total of US$ 31.4 billion was registered in 2019, compared to US$ 33.3 billion in 2018, registering a decline of 5.9% year-on-year. Imports of machinery and transport equipment posted the highest share of 40.0% of total imports, followed by manufactured goods and miscellaneous manufactured articles, food and live animals, etc
The Balance of Payments in Qatar showed net deficits in its balances of services, income, and transfers in 2019, at a higher trend compared to 2018, amounting to US$ 16.3 billion (+14.8%), US$ 4.4 billion (+7.7%), and US$ 16.6 billion (+1.6%), respectively. However, the overall Balance of Payments recorded a surplus of US$ 9.4 billion in 2019, against a surplus of US$ 15.9 billion in 2018, a drop of 40.8% year-on-year.
Thus, by deteriorating export and import values and a surplus Balance of Payments (BOP) in 2019, we could determine that the economy was decelerating. The global GDP growth during 2019 contracted slightly by 0.3%, with a broad-based weakening witnessed in the majority of economies. The industrial sector led the growth slowdown, mainly the non-hydrocarbon sector involving construction, manufacturing, wholesale and retail trade, intensified trade-related tensions, and a sharp fall in the global trade. But on the other many service sectors like the finance and insurance sector, public admiration, and transport and storage activities recorded healthy growth. And by the end of 2019, positive macroeconomic developments and sentiments from the US-China trade deal restored market confidence as GDP growth increased to 0.8%.
Different Shades of Outcome in COVID-19 Pandemic
More than 200,000 people in Qatar have tested positive for the coronavirus since the start of the pandemic last year. The country has also reported 428 deaths as of April 26, including 150 in the last 30 days, following a spike in the daily cases and a number of casualties. The Covid-19 pandemic has triggered the most profound economic recession in nearly a century, threatening health, disrupting economic activity, and hurting well-being and jobs worldwide. According to the International Monetary Fund (IMF), the global economy shrunk by 4.4% in 2020, according to the IMF.
Like every other country, the economy of Qatar also faced a lot of problems. Still, there were some positive events that took place during this pandemic, which helped the economy recover from the crisis. After three years of strict economic restrictions due to diplomatic relations with GCC, Egypt reopened its airspace to Qatari planes, opening the door to return their regular diplomatic, political, and trade ties. This development opens up vast economic opportunities for Egypt and Qatar. Due to this virus, to maintain social distancing, Qatar’s rising demand for contactless payment has created opportunities for growth for the FinTech sector. FinTech companies in the payments and remittance space could capitalize on the opportunity brought about by the pandemic and gain market share from existing competition in the exchange house space. While in the first nine months of this year, China’s exports to Qatar increased by 10% year-on-year, and it became the largest trading partner of Qatar. They have signed a contract worth $3bn for the construction of LNG ships. And in the future, China is willing to work with Qatar to strengthen the synergies between the “Belt and Road” initiative and Qatar’s “2030 National Vision”, to expand traditional cooperation in the fields of energy, infrastructure, investment, the high-tech industry, as well as new industries and new industries such as digital economy and E-commerce.
On the other hand, they faced a massive loss in their petroleum market because there was less demand for oil during the pandemic as the world was on complete lockdown. With that, the oil prices crashed, which led the oil producers to a deplorable situation to take debt. With this, Qatar Airways reported revenue losses of $1.9 billion for the past year and holding over 50,000 employees on its payroll, blaming the coronavirus pandemic for the ban of flights. And because of the ban on traveling, more than 2 million migrant workers in Qatar confined living quarters and lack access to health care, proper sanitation, and nutritious food imperils harming their health and leading to many deaths. By seeing all this, the State of Qatar affirmed it has several measures to address the economic and social impact of the Coronavirus pandemic, especially on expatriate workers, by adopting a package of incentives to support the private sector and ensure the sustainability of employment and the protection of wages.
What Policy Did Qatar Adopt to Overcome the Crisis?
Qatar adopted an economic diversification policy, stimulating the participation and role of the private sector, developing national industries and exports, attracting investment in non-energy sectors, increasing the market’s liquidity, reducing rent and utility bills, and removing tariffs on food and medicine.
Qatar has worked to enhance the flow of commodities and support maintaining regular supply operations by strengthening its cooperation with countries and trade partners, providing raw materials for various industrial sectors, and adopting a series of economic measures and incentives. They have contributed to protecting the private sector and enhancing companies’ ability to adapt to the current economic situation and pay their employees. To attract and encourage investment, they included the law regulating the Public-Private Partnership (PPP), which contributed to enhancing investment prospects in the country and providing the appropriate legislative framework to improve governance, risk management, and enhance competition and innovation. This law provided investors with the opportunity to finance, develop, and operate projects in various priority sectors, including food security, sports, tourism, health, education, and logistics. And in recent times, Qatar Petroleum plans to issue around $10 billion of bonds to fund the Gulf state’s ambitious North Field expansion. The project will likely trigger a rise in oil prices and energy projects worth about $100 billion in 2021 and raise Qatar’s liquefaction capacity to 110 million tons per year out of the global total of 600 million tonnes per year, 18% of the world’s annual supply.
In light of the current exceptional circumstances, they had succeeded in dealing with the consequences of the crisis and taking effective and efficient measures to reduce its negative impact on the social and economic levels. The IMF predicts Qatar’s economic performance will be the best one among the GCC countries this year as the oil stocks are in focus after gasoline prices got a jolt from the shutdown. The world’s largest LNG fleet is ready for a journey. Qatar Airways has fully restored its operation to more than 145 destinations worldwide. Qatar’s trade surplus in the 3rd quarter rose by 26.4%, and its foreign exchange reserves repeatedly hit record highs. We can see a vibrant Qatar returning and becoming a highlight of economic recovery in the region. And we cannot deny it is because of its good terms with other countries through trade, tourism, sports, and investment. Especially after being free from the economic restrictions in 2017, Qatar is better positioned and will develop a more efficient economy.
– Aishwarya Soman (Student of MA in Applied Economics at Christ University, Bengaluru)
Picture Credits: AP / FT.com