Like many hydrocarbon producing nations, Qatar’s diversification efforts have taken a front seat in recent times as oil revenues through 2015 slumped because of low oil prices. Through the Qatar […]
Like many hydrocarbon producing nations, Qatar’s diversification efforts have taken a front seat in recent times as oil revenues through 2015 slumped because of low oil prices. Through the Qatar National Vision 2030 (QNV2030), the government hopes to create a sustainable future for the country by using varied sources for its income, while also creating added value for more traditional sources.
Through a series of strategies, the QNV2030 will build a framework through which the national strategy can turn Qatar into an advanced country by 2030. The government wants to provide a higher standard of living for all its citizens for generations, and the diversification of the economy is one of the key ways of doing that. One of the main goals the government has set is to turn Qatar into the manufacturing hub for the GCC. If it were to act as a regional hub, activity in the sector would be stimulated. By establishing more Qatar-based assembly or manufacturing plants, much of the sector would benefit greatly from the reduction in transport costs, especially the automobile sector. Specifically, if Qatar were to enhance its plastics manufacturing, it would be of great benefit to the country and the automobile sector. With its already well-established hydrocarbons sector, the development of petrochemicals seems like a natural step. Still, while it may seem like the obvious step, it is not necessarily an easy step to take. It is a competitive sector, and the ethane-fed petrochemical industry in Qatar is struggling due to the sustained low cost of naphtha used by its competitors as well as an oversupply in key markets, which is driving product prices down. Because of the conditions, in early 2015 Qatar announced a shift in strategy away from petrochemicals for the time being and most expansions were either suspended or abandoned. As a result, the petrochemical production capacity in the country has reached a self-imposed plateau as the companies examine the economic viability of any expansions and the country redefines its macro-economic strategy. Locally, infrastructure limitations have led to a rise in the fixed costs of petrochemical production, while regionally tensions with members of the GCC have fueled delays; however, this has largely passed for now but the possibility of something igniting again remains a possibility. In regard to the fixed costs, it is largely due to infrastructure bottlenecks, such as the current port system being overstretched causing delays. Such delays and costs look set to continue to at least 2017, which is when a massive port expansion is set to be complete.
Because of the extra costs and highly competitive market conditions, Qatar will instead look to add value to its portfolio, which must be done sooner rather than later. With the relief on Iran sanctions brings new players to the market. While Qatar’s petrochemical industry is more advanced and doesn’t have the bureaucratic issues of Iran, it is likely that it will emerge as Qatar’s main competitor. China and India represent the largest export markets for Qatar’s polyethylene industry, and the introduction of a new player will likely put more pressure on the already slim profit margins. Finding ways to cut costs and add value to protect those margins will be the main topics of board meetings for many months to come.
While just a fledgling industry, Qatar’s automobile construction sector is hoping to get up and running in 2016. Announced in March 2015, the CEO of Gulf Automobile Industry Corp, Dr. Nasser al Hajri, said that one of its affiliates would be opening a vehicle manufacturing plant in 2016. The plant will cost QAR80million to build and will add to its small production line in the Industrial Area of a limited number of forklifts and vehicle bodies. The CEO stated to the media that the plant would produce 1,000 vehicles after its third year of operation and would focus on light trucks, forklifts, and vehicle bodies. The plan is to supply the Saudi market as well as other countries in the region. While the plant is small and its production capacity limited, it is hoped that more will follow suit over time. The aim of the plant is to introduce a state-run industry to promote confidence in the manufacturers and the products they produce. By 2020, the number of cars in Qatar is expected to reach 3.5 million and by starting vehicle production in the country it is hoped that other companies will follow and try to capitalize on the potential opportunities available.
Another way Qatar is looking to promote and diversify its offering is through its industrial cities. These cities operate as single site hubs where resources are pooled to help integrate upstream and downstream industries. Ras Laffan, Mesaieed, and Dukhan industrial cities are centered around processing, refining and liquefaction of gas, or the manufacturing of goods that require gas as a feedstock or energy. Ras Laffan Industrial City is located 80km north of Doha and is Qatar’s main site for the production of LNG. The site is 4,500ha and hosts the largest artificial harbor in the world as well as the world’s largest LNG export facility. Ras Laffan has access to Mesaieed Port and Ras Laffan Port and offers waste water treatment, desalination, hazardous and non-hazardous water treatment, accommodation, security, schools, recreational clubs, and public transport. A whole host of companies have established themselves in the city, including Qatargas, RasGas, Dolphin Energy, and many more. Ras Laffan is managed by Qatar Petroleum, as long with Mesaieed Industrial, which is located 50km south of Doha. During the 20th Century, Mesaieed was seen as one of the most important cities in Qatar after gaining recognition as a prime industrial zone. Mesaieed has specialized more in industry and petrochemicals with companies such as Qatar Fertilizer, Qatar Steel, Qatar Vinyl, and Qatalum establishing themselves in the city. One of the newest cities to open is Labour City. Located just 14km outside of Doha, Labour City can accommodate 70,000 foreign workers. The Special Engineering Office officially presented $825 million to the project, which will house 68,640 workers. The city covers 1.1 million sqm and is just one of seven that the government is planning to build. The city will have residential apartments as well as entertainment, a market with 200 shops, four cinemas, a cricket field, and a commercial center. Housing its workers will be a key part of ensuring the country runs smoothly in the run up to World Cup in 2022.
Through the development of the industrial cities and the intended diversification of its industries, Qatar is looking to create a more sustainable economy that can weather events such as low oil prices much more smoothly.
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