CNBC Business | Worlds apart

Worlds apart

With development continuing apace, Qatar appears immune to the global credit crunch. Richard Lofthouse finds out why

"Venice is now Qatar" states a giant purple billboard near the soon-to-be-replaced Doha airport. A demure, burkha'd woman smiles through a Venetian mask that cleverly balances Islamic sensitivities with European luxury.

The Venice in question is not to be confused with the already popular Villagio Mall, which offers canals, gondola rides and a Sistine chapel-esque blue sky, air-conditioned, of course, and accompanied by the obligatory ice skating rink, plonked down in the desert as if to prove that energy costs don't even register in the land of 50oC heat.

To find the real Venice you have to double back across town to the waterfront until you reach Qanat Quartier, a section of Qatar's extraordinary, 41,000-residence real estate development called The Pearl. Not only will this Venice have Prada stores and Big Macs, but wealthy expats and Qataris will live there.

When Qanat Quartier was 'released' on January 19, the developers booked a cool QR1.6bn in 60 minutes, selling almost every unit. As well as prompting comparisons to a Steve McQueen getaway, the episode suggested that Qatar may beat the credit crunch in some style, if indeed it knows about it.

Questions are being asked about this bull run, of course. Qatar's central bank is tightening mortgage controls, inflation in the Emirate recently crested 15% and such is the demand for expatriate labour, concrete, steel and plate glass that Doha now has the highest rental costs in the Gulf.

Yet everything has to be seen in light of annual GDP growth, which in 2008 will reach 38.4% in Qatar according to bankers ING. Such a phenomenal, unheard of figure rests on tearaway hydrocarbon prices and the biggest stock of natural gas after Russia and Iran. The discovery of that gas ten years ago has completely transformed Qatar from the "sleepy hollow" of the Gulf, as the general manager of the Four Seasons Simon Casson puts it, to "first among equals and a serious if small contender on the world stage."

If you include infrastructure, Qatar has just shy of €100bn of spending earmarked for the next five years. Broken down, approximately one-third is infrastructure related, some of it connected to the oil and gas sector, the rest divided between transport and real estate.

There is a shiny new natural gas pipeline to send Qatari gas down to Abu Dhabi, called the Dolphin Project, not to mention a €3.5bn project to extend Qatar's Liquefied Natural Gas (LNG) infrastructure at Ras Laffan in the north, the plan being to produce 77m tonnes annually by 2012.

On the transport front, it is still being reported that a 40km 'friendship' causeway will be built to Bahrain, by-passing Saudi Arabia completely, while Doha's brand new international airport will open by 2011.

But the most extravagant and visible face of Qatar's coming of age is its real estate sector. Whether it's IM Pei's iconic design for the Museum of Islamic Art, which opens in November or the light-clad, 52-storey Tornado Tower designed by Munich-based architects SIAT Robinson Pourroy, due to open the same month, Doha's skyline bristles with skyscrapers that simply weren't there three years ago. Think Manhattan in c.1905 and you'd be spot on - except that everything is happening much faster.

Around the harbour of The Pearl as the sun recedes, humidity nudging 90%, you can see nothing except cranes and Indian workers. A four-year reclamation project has seen developer United Development Corporation (UDC) generate a 32km long shoreline out of the sea, elaborately styled as two central, circular harbours augmented by a thin ribbon of private islands reminiscent of the Florida Keys.

One of Qatar's leading listed companies, UDC only came into existence in 1999 yet has spearheaded a virtual rebranding of the emirate, echoing Dubai's enormous success with the Burj al Arab hotel. As with all such mega projects, it is coming into existence in stages, the first residents moving in this year, to be rapidly followed by others.

Whether taking up residence at the main gate, where a causeway connects the development to the mainland by two Arabesque tower blocks, or in any of a dozen fully fledged neighbourhoods complete with enormous marinas, the only question is whether this luxurious development aimed at westerners and local investors meets the real needs of Qataris, quite apart from the armies of guest workers whose lot is a tiny, stifling portakabin kept far away from the public gaze.

Qatar's answer is Lusail, an entire city of 171,000 residents that is being developed from scratch just to the north of The Pearl. It is masterminded by Qatari Diar, the government-funded real estate company that impresses with its careful blend of commercial prudence and social conscience.

Executive director Magdy Youssef estimates total infrastructure costs at €5bn for the 35km2 development, "whose central characteristic is 8km of waterfront," he says. The city will have clever touches, such as a central maintenance tunnel so that wiring upgrades can take place without the roads

being dug up. Youssef adds: "The most important thing is that it is not just a construction project. It is a fully conceived city with different precincts interacting socially and spatially. Of course every development claims as much, but how many of them actually deliver?"

Instead of computer-generated images of large-breasted, long-haired women flanked by Ferraris and Bentleys (the stock imagery of The Pearl), Qatari Diar instead offers an immaculate scale model of the city.

Perhaps the contrast is overstated, since, defying its profligate image, The Pearl will have advanced, so-called District Cooling, a recirculating source of chilled water from a central district cooling plant via a network of insulated, underground pipes, somewhat reducing energy demand for air conditioning, currently 70% of energy use in Qatar.

Meanwhile Lusail will have the Gulf's largest marina, with 1,400 berths, not exactly a sustainable lifestyle so much as a carbon-footprint-no-object Qatari dream in which the Indian workers will magically disappear, their portakabins dismantled and forgotten.

Currently a cleared but empty site, Youssef says that the first residents of Lusail will move in by late-2009, with city completion due by 2016, including no fewer than 22 mosques.

So is the real estate boom assured? While demand outstrips supply in the face of a population that has doubled in the past five years to 1.5 million, rents will stay sky high. But according to Tristan Cooper, senior analyst for Moody's, the credit rating agency, reliance on hydrocarbons makes for a roller-coaster ride, while strong government spending is exacerbating inflation. With banks heavily wrapped up in real estate, it is no surprise that the government is so keen to diversify the economy away from gas and property.

Qatar's big plans - by Justin Keay

Qatar hardly looks like it needs to diversify its economy. With global oil and gas prices at record highs, a recent CIA estimate suggested this tiny state of 1.5 million (of whom only 180,000 are indigenous) now has a per capita income of over $80,000 - the world's highest. It plans to overtake the UAE within the next seven years to become the Gulf's second largest economy after Saudi Arabia. It also has no concerns about its reserves running out: home to the largest proven reserves of natural gas after Russia and Iran, it's the biggest producer of LNG.

Despite this, Qatar has plans to become the Gulf's leading financial centre, overtaking rivals Bahrain (with its Financial Harbour) and Dubai's DIFC. In 2005, it established the Qatar Financial Centre (QFC), managed by the Qatar Financial Centre Regulatory Authority (QFCRA); Doha recognising that a Western-style financial centre can only flourish if attention is paid to regulation.

To demonstrate intent, it appointed regulator Phillip Thorpe to head up the QFCRA. (Managing director of Britain's Financial Services Authority until 2001, Thorpe was chief executive of the Dubai Financial Services Authority or DFSA until leaving in 2004 over differences about corporate governance.) Now Doha has gone a step further, turning the QFCRA into a single financial regulator for the whole country; by contrast, the DFSA only operates within the free zone of the DIFC.

Thorpe says the move is significant: "It only took 12-18 months for the government to realise that if high standards were good for the QFC then they must be good too for Qatar as a whole. If you want the economy to grow 15-20% a year, you need the infrastructure of a strong financial services sector. We are getting to that point."

Indeed, Thorpe believes Doha's policy of adopting Western regulatory standards was one big reason why NYSE Euronext agreed to take a $250m, 25% stake in the QFC in June 2008: "Everyone is aware of the importance of capital market growth here and the investment must be seen in that context. They know they will get a high-quality regulatory environment underpinned by strong official support."

The regulator will begin operating in January 2009, when all Qatari financial institutions must work to Western regulatory standards. Thorpe expects the transition to last two to three years.

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October 2008

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