Qatar needs to attract businesses that provide long-term employment to sustain the population level that is required to further develop the economy, Samba Financial Group has said in its “GCC consumer health check” report.
With expatriates accounting for 80-90% of the population in Qatar and the UAE, their presence essentially provides the bulk of aggregate demand in the economy.
These two countries also need to address the more sensitive issues of legal and residency status of expatriates, Samba said.
Managing the needed transition to lower inflows of more skilled labour will be a “tricky task” for all GCC states, particularly as migrant labour is still needed to drive the region’s necessarily ambitious infrastructure and development programmes.
Expanding populations have clearly played a large part in the growth and development of Gulf economies over the last decade, particularly in Qatar and the UAE, Samba said.
But to ensure that they continue to reap the potential benefits, including the oft cited “demographic dividend”, the report said GCC states face a number of more local challenges.
Job creation for nationals is a key issue given the region’s young and rapidly growing population, particularly in Saudi Arabia, which has the region’s largest population and economy.
Currently, unemployment rates among GCC nationals are relatively high at over 10%, while the youth (ages 15 – 24) unemployment rate is often double that.
However, the issue is not a lack of jobs. The GCC has created plenty of jobs over the last decade. It is a question of low participation rates by the national labour force in the private sector, which has meant these jobs have largely been filled by expatriates often prepared to work for low salaries.
There are a number of complex issues at play here including a basic shortage of labour (particularly in the smaller GCC states); the ease and attractiveness of employing low cost expatriate labour, the perceived unsuitability of many jobs; skills and qualifications mismatches between nationals and private sector needs, and GCC nationals’ preference for public sector jobs, which tend to be better paid, less demanding, and more secure than those in the private sector.
In addition, given the nature of GCC political systems, the authorities are inclined to share their nation’s oil wealth through the provision of generous welfare systems and public sector employment, which absorbs between 35-90% of national work forces in each state.
The GCC’s young and rapidly growing population provides both opportunities and challenges, Samba said. Growing populations are key drivers for economic growth both in terms of providing final demand (for goods, services, real estate, infrastructure etc) and to provide the labour needed for their production.
However, the normally observed relationships between demography and economic development are somewhat distorted in the GCC due to the region’s reliance on expatriate labour who remit a large proportion of salaries to their homelands with associated negative impact on non-oil sector growth and the balance of payments.
Also, the wealth generated by the capital intensive and dominant hydrocarbon sectors has excluded the need for an income tax, Samba said.
Qatar’s net external asset position to remain strong, exceeding current account receipts in 2014: S&P
Qatar’s net external assets will be sufficiently higher than the current account receipts in 2014 with government expenditure set to weaken in the next four years to maintain a relatively “strong” fiscal surplus, according to global credit rating agency Standard and Poor’s (S&P).
“We assume Qatar’s net external asset position will remain strong, exceeding 150% of current account receipts in 2014,” the rating agency said.
Qatar, which now has an ‘AA’ stable rating, will have to wait for another two years to see whether it’s sovereign rating will be revised or not, S&P senior director (Sovereign Ratings) Christian Esters had earlier told Gulf Times in an interview.
Energy-rich Qatar, which sits on a 900trn cubic feet reservoir of natural gas at its North Field, has accumulated considerable foreign assets over the past decade as a result of its resource development; even as it continues with the moratorium on further gas development of the field.
“We forecast that the general government net asset position will remain strong, averaging about 95% of GDP (gross domestic product) during 2014-2017,” it said.
However, the pace of asset accumulation will depend on how hydrocarbon production and prices develop, the rating agency cautioned.
“We expect Qatar’s assets to provide many decades of production at current levels. This balances the risk arising from concentration in the economy because oil and gas directly account for about 60% of nominal GDP and government revenues,” S&P said.
Given the oil and gas production assumptions, the rating agency expects general government revenues to fall to about 35% of GDP by 2017 from about 42% in 2014. It also observed that the government’s budget for 2014 and 2015 indicates expenditure growth of 3.7% compared with the previous year. By contrast, during the five years to 2012, government expenditure rose by an average of 20% a year.
“We expect government spending to slow to an average of 6% for 2014-2017 to enable the government to maintain a relatively strong fiscal surplus averaging about 5% of GDP over the period. We no longer include an estimate of government investment income from the Qatar Investment Authority in the government balance,” the rating agency said.
Nevertheless, Qatar plans to implement significant capital investment of about 15% of GDP over the next five years as part of its national development strategy, largely funded through the budget. As a result, slowing growth in government expenditure to such a significant extent could prove difficult to achieve, it said.
Alongside government investments funded through the budget, public enterprise and private-sector spending on the national development strategy is likely to be funded by borrowing from domestic financial institutions, it said, adding this may cause banks’ net external liability positions to widen and their loan-to-deposit ratios to rise.
That said, in 2014, increased public-sector deposits on banks’ balance sheets have reduced banks’ reliance on external funding, and the loan-to-deposit ratio has stabilised at about 105%.
“We expect the national development strategy projects to improve the economy’s productive capacity and strengthen Qatar’s competitive position. However, there is a risk that an investment agenda of this scale could weaken the government’s strong balance sheet, reduce the stability of the banking system, or increase leverage in the corporate sector,” it said. Source: Gulf Times