Weaker gas prices will not deter Qatar from heavy infrastructure build up for World Cup 2022

Qatar’s heavy levels of investment on infrastructure is likely to continue despite long-term challenges to the country’s finances because of lower gas prices, according to Standard & Poor’s.

The credit ratings agency said the collapse in oil and gas prices and the government’s continued investment in projects would mean that Qatar is likely to declare a fiscal deficit of 4.5 per cent next year, from a “modest” surplus in 2015.

But that “public spending will continue as the investment programme advances” in the run-up to the Fifa World Cup in 2022.


S&P said the government had begun prioritising projects and was “focusing funding on the highest priority and strategic investments”, but said the government “plans to award about US$220 billion of large-scale investment projects over the next 10 years”.

“The programme will focus on infrastructure, education, and health, and we expect the majority of these projects to be completed ahead of the football World Cup in 2022,” S&P said.

Despite being likely to run a fiscal deficit next year, Qatar has built substantial foreign exchange reserves that would allow it to continue spending for a long time.

Not only does the country have the third-largest reserves of natural gas in the world, which should provide sustained returns for “decades”, it has also built a large base of foreign assets that are equivalent to 100 per cent of its GDP.

Vasanth Kumar, the group chief executive of Al Malki Holding, which owns the contracting firm Arabian MEP, said the current market sentiment was shaky, which was “due to sad lessons many have learnt from the recent past” regarding overuns for contract awards.

He said many companies had been waiting for years for project opportunities, and although contracts have been awarded these have not come to market at the pace many were expecting.

“The end result is many new companies have already perished as they have already spent a lot and failed to secure any income to sustain [themselves],” said Mr Kumar.

Despite this, there have been new tenders announced, but Mr Kumar said he expected the construction market to remain “highly unpredictable” for the coming years.

“It’s an irony that even though many new tenders are announced, it scares contractors away due to high-risk contract conditions and negative cash flow schedules,” he said.

Recruitment, a bugbear of many Qatari construction firms in recent years, had become easier, said Mr Kumar. And a recent advertisement for professional staff gained “huge responses” from people in neighbouring countries such as the UAE, Saudi Arabia and Oman – many of whom said their current employers were downsizing because of declining workloads.

However, Mr Kumar said the market for skilled workers remained as tight as ever because of Qatari visa restrictions on hiring workers from certain markets.

Cynthia Corby, the Middle East construction industry leader at the consultancy Deloitte, said the government had been investing heavily to upgrade infrastructure such as roads, rail and the new airport to facilitate the projected growth in tourism for the 2022 World Cup.

Writing in Deloitte’s recent Middle East Points of View guide, Ms Corby said that more spending on hospitality and leisure attractions were likely “to avoid the risk of hotel rooms oversupply after the event”.

Qatar also has the highest construction costs of any country in the Middle East. It ranked 16th on a list of the world’s most expensive countries in which to build, just below Japan and the United States.

Ms Corby said that projects “will need to be carefully planned and controlled so as not to exceed budgets and appropriately structured to achieve the necessary debt and capital funding”.

“The whole life cost of these assets should be assessed to ensure they have the intended economic impact, they deliver value for money and that the day-to-day operation and maintenance costs are reduced to sustainable levels,” she said.

mfahy@thenational.ae

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