Qatar's Economy: Almeria and Qatar Telecom - Research Paper Example

?INTRODUCTION Qatar has been widely considered a major dominant nation in its region, and in light of its relevant natural resources and workers skills, is considered by many experts as an outstanding and important example in his geographical region. This work will shed light on Quatar’s economy, with particular focus on the major factors that are believed to play an important role in assessing the dominance of its economic model in the region, from a mediudemographic, sociological and financial perspective. The economic growth of this nation, that has initially been fed by the presence of large oil and natural gas reserves, has been growing consistently during recent years especially in light of the major improvements on an administrative, financial and industrial basis. Aim of this work will be then to analyze into details the success factors of this nation on an economic basis, together with a comprehensive analysis of the growth of Qatari market, and the major characteristics of two corporations, Almeera and Qatar Telecom, according to the following factors: Assets analysis Profit and return analysis Growth in shares Market analysis Risk analysis QATAR ECONOMY AND THE FINANCIAL SECTOR For hundreds of years it’s believed by many experts on an academic perspective that Qatar will be a nation where hydrocarbon exports will be the major export driver1, mainly due to the high consistency of the ongoing reserve, despite the geographical limits and relative small size of the country, and due to the increasing trend of oil prices. In this perspective it’s therefore believed that Qatar is and will continue to be a country where oil production and refinery will be a major contributor for the growth of the economy. Oil and Gas sectors, through all the production chain, from the extraction to the refinery and distribution (with the innovative presence of gas liquid transformation sites on the major cities) counts approximately for around 50 percent of the national GDP, according to many experts2. In addition to this, evidence has been found on the fact that oil counts for approximately 85% of export earnings, and 70% of government revenues. The revenues stemming from this sector and industry are very high, and count for the major part of gross national product. Meantime, the Governmental Intervention has recently deeply focused on the development, through appropriate and well -designed incentivizing schemes, the growth of the so called “knowledge economy”, so that the capability to increase the other sectors of the economy can be made possible on a larger perspective3. With the exception of Oil, other primary industries that are receiving major consideration in this sense are the following: Manufacturing industry (which can properly leverage on Health and Educational services: the central government has deeply incentivized the development of a proper net of educational institutions, so that skilled students can enter the labor market and improve the economic condition of the country also by competing with knowledge intensive industries as well. On an economic perspective the growth and the well - designed incentives for the economy have been deeply investigated, and their effectiveness has been already proved. On the other side, however, a major area of concern is related to the administrative and bureaucratic side, due to the fact that on a major and broader perspective a main limitation for foreign investors within the country and for internal entrepreneurs to grow and to expand their business Is highly dependent on the capability to adequately guarantee the administrative speed and accuracy of the operational activity of the companies operanting in this country: on a more precise basis, it’s widely believed that a necessary limit for further growth is related to the governmental authority increasing regulations that may pose a limit to the further development of small medium enterprises, which are the real engine of growth. The financial sector in this field is also increasing its role and sophistication, due mainly to these factors: The availability of large capital stakes, mainly as profits from oil and natural gas sale to foreign clients The willingness of the major national stakeholder to develop a competitive financial field Business regulations favoring a corporate and financial friendly approach toward investment management The necessity of a solid, well capitalized and well – functioning financial market in order to make possible for corporations to receive loans and invest on a growth perspective. Islamic banks and Islamic finance are therefore catching the attention of financial banks on an extensive basis4. The willingness to compete and the paralleling availability of the millions stemming from the sale of securities has therefore made possible to improve the weight of the financial sector on a business perspective, although also in this field many efforts are still to be carried out properly. THE GROWTH OF THE QATARI MARKET On a wide perspective, Qatar has deeply protected its core businesses from the presence of foreign competitors, and has incentivized internal national business in order to make them compete on a widely basis with foreign competitors5. Rules in this sense are occasionally lacking, and a deeper understanding of the incentivization scheme is therefore needed on an economic and theoretical basis. Despite this, recent evidence shows how Islamic banks tend not to be completing their social role in accordance with the prescriptions of Islam since they are disclosing less sensible information than the other natural competitors in this industry6. On a WTO perspective, Qatar has shown a prominent role for his geographical region during recent times, although it’s widely believed that many efforts have to be carried out in this sense, so that existing international policies are widely adopted and completely enforced, and on a wider basis corporations and government aren’t involved in anti - competitive behaviors and practices7. On a monetary perspective, growth is widely believed to play a future more prominent and primary role, since it will be dependent on the positive externalities that are based on the decisions of the Gulf Cooperation Council (GCC), and on its capacity to set a comprehensive body of law that is consistent with the international recommendations and with the ongoing convergence on regulatory Bodies of law8. Trade and growth are also evident if we look at recent statistics: A major partner of Qatar are the United States: the relationships between the United States and Qatar have been expanding at a rapid pace over the previous five years. During this period trade volumes have been growing by more than 340%, from $738 million in 2003 to $3.2 billion in 20099. COMPANIES COMPARISON Two major important economic players in the Qatar industry are Almeera and Qatar Telecom: the first operating in the consumer goods retailer industry, and the other one in the telecommunication industry. Assets analysis Almeera: the company owns many facilities within national borders and is active in the neighborhood (such as Oman). In this sense it owns several important stores, together with comprehensive and relevant assets in this sense. Qatar telecom: the company owns authorizations, license rights, intellectual property rights, buildings, franchise rights and the clientele, operating in a highly loyal market in continuous expansion. Profit and return analysis Almeera: the holding company shows increasing and important trends in revenue and profitability levels, together with a comprehensive important investments in physical assets. Variable costs are still a major element of concern although deeply controlled. P/E ratio is high, confirming the profitability of the company, that shows important levels of returns for shareholders in light of the cash dividend given10. Here below the major aspects: Qatar telecom: the company shows important and higher profitability levels; the market capitalization is high, and the business shows low P/E ratio and higher proportional earnings per share Growth in shares Below important indications are collected for both companies in a graphical representation of share prices: Almeera: the share is less volatile than its market, and shows moderate but positive trends of growth as here below is synthetized (through the share chart), although a decline has recently leveled the share prices: Qatar telecom: the chart shows a more volatile share price trend, especially in light of the risk to which the company’s activity is subject, since it operates in the telecommunication sector. Market analysis Almeera: the company shows consistent returns in its operating market, and is therefore believed to be a solid investment and a solid player in its market, as many statistics suggest in this sense. The fact that the company itself is opening new Qatar telecom: the company has deeply invested in policies and marketing campaign with the aim of improving the market visibility in this sense: major efforts have been conducted therefore due to the fact that a strong market positioning of the company in this operating field is highly dependent on the capacity to leverage on the ongoing skills and loyal clientele. Risk analysis Almeera: the company operates in a solid and strong consumer retail market, where there is vast potential for growth. The revenue indicators, on the other side, confirm the low risk level for this company. The correlation coefficients with the market of Almeera= 0.469 Qatar telecom: the company shows a higher risk level, mainly due to the fact that it is not completely able to leverage on its potential, and due to the fact that a further internationalization of the market may allow foreign more organized competitors to enter the market. The correlation coefficients with the market of QT =0.75 The correlation BETWEEN the two companies, that is 0.767 according to the CAPM model. As both companies, that’s Qatar telecom and Al meera are less correlated, as seen by the value of correlation being 0.767 investing in both of the companies is a good idea. This will lead to diversification, which is believed to be a root to success. RECOMMENDATIONS In light of the five points on which the previous analysis is designed, we recommend to invest moderately in both companies, due to the strong performances in a financial and strategic perspective: both should be considered for the investment. The two players operate in different heterogeneous industries, something that makes possible to diversify the investment, since both companies are less correlated: I suggest a 60:40 percent weight in favor of Qatar telecom, since this company shows a moderately high economic performance in this sense, and lower volatility. Both companies are recommendable for investment, although Qatar telecom should be given slightly more weight in light of the economic cited data. REFERENCES Shachmurove, Yochanan, Entrepreneurship in Qatar (July 20, 2009). PIER Working Paper No. 09-025. Available at SSRN: http://ssrn.com/abstract=1436434 or http://dx.doi.org/10.2139/ssrn.1436434 Hoekman, Bernard and Mavroidis, Petros C., Economic Development, Competition Policy, and the World Trade Organization (October 2002). World Bank Policy Research Working Paper No. 2917. Available at SSRN: http://ssrn.com/abstract=636279 Sturm, Michael and Siegfried, Nikolaus, Regional Monetary Integration in the Member States of the Gulf Cooperation Council (June 2005). ECB Occasional Paper No. 31. Available at SSRN: http://ssrn.com/abstract=752091 MERS:Qatar Stock Quote - Al Meera Consumer Goods Co - Bloomberg. 2013. MERS:Qatar Stock Quote - Al Meera Consumer Goods Co - Bloomberg. [ONLINE] Available at: http://www.bloomberg.com/quote/MERS:QD. [Accessed 04 April 2013] Read More