Can World Cup Frenzy Keep Qatar Growing After Gas Momentum Fades?

It’s a very big day for Qatar. As a long-time watcher of Russia and Qatar, among other hydrocarbon rich countries, the news that the countries will host consecutive world cups is really quite exciting. The decision is a leap of faith for FIFA, as the WSJ’s Matthew Futterman put it earlier today, as both countries still need a lot of infrastructure development.  As David Roberts notes, Qatar is set to be even more in the spotlight, including in some ways it may not like. Though, these are after all events that are eight and twelve years in the future.

Such announcements also spark a debate on the economic impacts of events, a topic we’ve often addressed at RGE (clients can check out the Critical Issues on Economics of sporting events). On net, the effects tend to be relatively limited, loaded in the years immediately preceeding the Olympics and concentrated in construction and related infrastructure development. With respect to China in the 2008 Olympics, the effects were much muted given the size of the national economy and the large ongoing infrastructure spree both in Beijing and elsewhere in the country.

In Russia’s case, the 2018 games will come only four years after the Winter Olympics and collectively the events could well be an opportunity to offset Russia’s extended period of underinvestment, particularly in infrastructure. The World Cup, unlike the Olympics could have a greater effect on construction and infrastructure build-out given that the games will take place across the country. Of course, many caveats remain – most similar to the concerns about Russia’s modernization plan.

The smaller the country, the more significant the effect on growth (and inflation given the supply bottlenecks that could materialize) and the greater the potential increase in tourism from the event as there is less risk of displacing other tourists. Both might affect Qatar, particularly since the population, infrastructure, transportation links and accommodation are concentrated in Doha, its capital.

These sectors are largely the ones that drove growth in Qatar’s non-hydrocarbon sector in recent years.  It also implies that the construction boom in Doha and the rest of Qatar could have more years to run – even if it needs to take an extended breather given the lack of demand. Perhaps the prospect of more projects could give the boom more years to run – or it could increase the chance of a bubble. The requisite additional stadiums due seem over the top for such a small country. Qatari officials will need to tread cautiously.

Needless to say, 2022 is a long way ahead and much can change in that time frame, but in a region where the national plans extend 20 years into the future, perhaps this will anchor Qatar’s goals including the economic diversification agenda, focus on human capital development, and increase investment in innovation (including in those carbon-neutral air conditioning units that they promised FIFA) needed to help sustain the economy after the stunning increase in natural gas output eases. Although Qatar’s growth has been eye-popping in the last half decade (growth more than halved to 9% last year and has returned to double digits this year) much of this has been driven by natural gas output increases and government-led investment. After the natural gas output stabilizes in the coming years, Qatar will continue to have significant wealth; it is already one of the world’s richest countries, but growth rates are set to fall sharply in the mid-term. The potential for over- and less productive investment seems to be a risk that Qatar’s leaders are willing to take.

Qatar, somewhat like Abu Dhabi, has been a key proponent of deploying its sovereign wealth in companies that are key to domestic economic development goals and for seeking out partnerships with target companies.  Stand by for more foreign investments and partnerships with infrastructure companies, especially those with the strongest technology – some of these will come at high prices. Qatar will have some flashy logistics, hotels and other toys.  It should be a quite a show and quite a celebration in Doha this weekend!

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