Analysis of Importance of Lebanon to the Qatar Airways Future Prospects - Case Study Example

Running Head: LEBANON IMPORTANCE TO QATAR AIRWAYS Analysis of Importance of the Lebanon to the Qatar airways future prospects Mr. XYZ XYZ College May27, 2014 Table of Contents Executive Summary 7 Executive Summary 7 1. Introduction 7 1. Introduction 7 2. Nature of importance 9 2. Nature of importance 9 2.1. Strategic Importance of Lebanon 9 2.2. Trade 11 2.3. Resources 11 3. Structure of Lebanon economy 13 3. Structure of Lebanon economy 13 3.1. Comparison of Qatari and Lebanese Economy 13 3.2. GDP Growth of Lebanon 13 3.3. Lebanon Current account balance 17 3.4. Inflation in Lebanon 19 3.5. FDI in Lebanon 23 3.6. Unemployment in Lebanon 25 3.7. Interest rates in Lebanon 29 3.8. Exchange rates in Lebanon 31 4. Future developments in macroeconomic policy of Lebanon 35 4. Future developments in macroeconomic policy of Lebanon 35 5. Conclusions 35 5. Conclusions 35 References 37 References 37 List of Tables and Figures Table 3.1. Lebanon GDP growth and forecasts for 2008-2016 15 Graph 3.1. GDP growth of Lebanon for 2008-2016 15 Table 3.2. Lebanon CAB as % of GDP for 2008-2016 17 Graph 3.2. Rise in CAB deficit of Lebanon for 2008-2016 19 Table 3.3. Lebanon inflation for 2008-2016 21 Graph 3.3. Rise in inflation of Lebanon for 2008-2016 21 Table 3.4. Lebanon FDI growth for 2008-2016 23 Graph 3.4. FDI as a percent of GDP of Lebanon for 2008-2016 25 Table 3.5. Lebanon Unemployment rate 2004-2013 27 Graph 3.5. Unemployment rate of Lebanon for 2004-2013 27 Table 3.6. Lebanon Repo rate 2004-2014 29 Graph 3.6. Repo rate of Lebanon for 2004-2013 31 Table 3.7. Lebanon exchange rate 2004-2014 33 Graph 3.7. Lebanese exchange rate for 2004-2014 33 Executive Summary The paper examines important economic indicators of Qatar to evaluate the prospects for Qatar Airways Company, which began operations in the country. The evaluation indicates that GDP has shown a consistent increase from 2008, and the forecasts indicate a steady growth until 2016. While unemployment shows a decrease, inflation is a cause for worry since it is rising rapidly. Overall, the suggestion is that Qatar Airways can continue its operations and expansion since the economic indicators forecast growth. 1. Introduction Qatar Airways Company - G.C.S.C., the state owned carrier of Qatar, has emerged as a leading carrier in the Gulf region. With more than 100 modern aircraft supported by 30,000 employees, the carrier operates flights to more than 125 destinations across North and South America, Europe, Africa and Asia. Qatar Airways has a number of subsidiaries such as Doha International Airport, United Media Int, Qatar Aircraft Catering Company, Qatar Executive, and Qatar Distribution Company. The airway provides a full range of airway services needed by other airlines, passengers, and businesses, and it provides freight delivery services. Qatar Airways is a member of Oneworld Alliance, the codesharing service that allows members to share seats on their flights (Qatar Airways, 2014). Codesharing helps aircrafts to fill empty seats and transfer passengers from one carrier to another so that the aircraft flies with fuller load, thus increasing the revenue per passenger (Bazargan, 2010). Lebanon, situated in Western Asia, is a developing country and has strong cultural roots with Qatar. While the recent war engulfed the country and drove away business, the country has emerged from its war and it now has a stable government that supports trade and growth (CIA World Fact Book, 2014). Qatar and the other oil producing nations look at Qatar as a trading partner and as a tourist destination. Qatar Airways began its services to the country a couple of years ago. This paper analyses the importance of the Lebanese economy to Qatar Airways and evaluates the future prospects of remaining in Lebanon and the impact on carrier. 2. Nature of importance Many attributes are considered when a nation decides on developing business relations with another country. Some of these attributes include the strategic importance of the country, its military affiliations, regional importance, cultural ties that exist among nations with the same religion and language, and the potential for economy and trade (Schindler, 2009). 2.1. Strategic Importance of Lebanon Qatar has taken a strong interest in rebuilding Lebanon, and in resolving several crises that Lebanon faces. Qatar Airways opened a sales and reservation office in Beirut, the capital of Lebanon, and this indicates the importance that Qatar extends to Lebanon. The two nations have strong ties that go back many centuries. Lebanon has Israel on its south and Syria on its north, and this gives the nation a strategic location (CIRS, 2012). 2.2. Trade In 2013, Qatar exported goods worth 6.203 million Qatari Riyal to Lebanon, and during the same period, it imported goods worth 106.9 million Qatari Riyal. While these volumes are less than 0.1 percent of Qatari imports and exports, the significant part is that trade between the two nations has increased by 354 percent over the last five years. Qatar has a large Lebanese population that works in different sectors, and many business houses from Qatar have started operations in Lebanon, mainly in sectors such as construction, food processing, and infrastructure building (QNA, 2010). 2.3. Resources Lebanon exports precious stones, metals and agricultural products, however, tourism is one of the main pillars of the economy, and in 2013, tourism contributed 12 percent to the GDP. Lebanon is called the Switzerland of the East due to its picturesque mountains. Thousands of tourists from the Gulf region, and from Europe visit the country, to enjoy the beaches and other historic sites. However, unrest and instability in the area keeps tourists away. Many international firms such as Microsoft, Dell, Oracle, and automobile firms such as Toyota, have set up sales and service offices in the country (Johnson, 2012). From the discussions, the assessment is that Lebanon has much to offer to Qatar in terms of labour, business, and tourism opportunities. Its strategic location and the fact that Lebanon is an Islamic country, enhances its appeal to Qatar and other Arabic nations. 3. Structure of Lebanon economy The chapter analyses important economic variables that indicate the health of Lebanese economy. Datasets from IMF are analysed to determine the importance of Lebanon to Qatar and QCSC. 3.1. Comparison of Qatari and Lebanese Economy The focus of the chapter is the Lebanese economy and Qatar with a GDP of $ 2.131 trillion in 2013, overwhelms the Lebanon that had a GDP of $ 41.484 billion for the same period. The GDP per capita of Qatar in 2013 was $ 102,100, while Lebanon had a GDP per capita of $ 10,746. Qatar is an oil and natural gas resources rich country, and the oil sector contributes about 50 percent to the GDP. Lebanon does not have any oil reserves. These points indicate that Lebanon is not a rival to Qatar (IMF, 2014). 3.2. GDP Growth of Lebanon The Gross Domestic Product - GDP of a country represents the sum of all economic activities from different sectors. The GDP is considered as a standard indicator for growth. The GDP of Lebanon has shown a constant growth from 2012-2013, and the economy grew by 62.02 percent for this period. Estimates of GDP growth until 2016 indicate a constant growth. Please refer to the following table, which illustrates the GDP values form 2008-2016 (IMF, 2014). Table 3.1. Lebanon GDP growth and forecasts for 2008-2016 Year Gross domestic product, current prices in Billion USD 2008 30.08 2009 34.925 2010 39.248 2011 42.539 2012 45.934 2013 48.736 2014 51.787 2015 55.058 2016 58.511 Following graph illustrates the growth of GDP of Lebanon for 2008-2016. Graph 3.1. GDP growth of Lebanon for 2008-2016 The overall assessment is that with stable GDP growth, QCSC can expect a healthy growth from its Lebanese operations. 3.3. Lebanon Current account balance The current account balance - CAB, is the sum of all transactions, except those from capital items, and from financial trading. It represents the balance of payments between the national economy and other countries, in terms of income, services, and goods. Following table presents the CAB as a percentage of GDP for 2008-2016. It is clear that the nation has insufficient revenue generation to meet its CAB commitments. However, projections until 2016 indicate that the BOP deficit is reducing (IMF, 2014). Table 3.2. Lebanon CAB as % of GDP for 2008-2016 Year Current account balance as % of GDP 2008 -9.197 2009 -9.406 2010 -10.201 2011 -12.889 2012 -12.818 2013 -12.065 2014 -11.465 2015 -10.688 2016 -9.764 Following graph illustrates the rise in CAB deficit of Lebanon for 2008-2016. Graph 3.2. Rise in CAB deficit of Lebanon for 2008-2016 The overall assessment is, Lebanon must increase its revenue to reduce the deficit. However, if the GDP growth continues to increase, as seen in Graph 3.1, the CAB deficit will reduce. 3.4. Inflation in Lebanon Inflation index is calculated by considering the year 2000 as a base with a value of 100, and computing all other values with this index. Increased inflation is reflected in price rise of consumer goods and food products. Following table presents the inflation at average consumer prices with year 2000 = 100 for the years 2008-2016. From the values, it is apparent that inflation is rapidly increasing, and it is a cause for worry for the government (IMF, 2014). Table 3.3. Lebanon inflation for 2008-2016 Year Inflation, average consumer prices with 2000 = 100 2008 105.008 2009 106.275 2010 111.057 2011 118.276 2012 121.824 2013 124.452 2014 127.181 2015 129.968 2016 132.805 Following graph illustrates the rise in inflation for 2008-2016. Graph 3.3. Rise in inflation of Lebanon for 2008-2016 The overall assessment is that rising inflation will increase the cost of living for citizens, and increase the costs for businesses. The Government needs to bring in measures to control inflation. 3.5. FDI in Lebanon Foreign Direct Investment - FDI represents the direct investment made by foreign entities and individuals, who wish to set up business ventures. An increase in FDI inflows indicates that foreign businesses are confident about the growth prospects in the target country. Following table presents the FDI inflows for 2008-2016. An analysis of the values, shows that FDI inflows into Lebanon have remained at 28-31 percentages, with some peaks and dips. This trend indicates that foreign investors are confident about the Lebanese economy (IMF, 2014). Table 3.4. Lebanon FDI growth for 2008-2016 Year FDI as a percent of GDP 2008 29.862 2009 33.664 2010 30.188 2011 27.486 2012 28.833 2013 30.41 2014 31.15 2015 31.486 2016 31.451 Following graph illustrates the FDI inflow patterns in Lebanon for 2008-2016. Graph 3.4. FDI as a percent of GDP of Lebanon for 2008-2016 The overall assessment is that FDI inflow in Lebanon is stagnating, and estimates from 2016 indicates a further decrease in GDP growth. Since, FDI makes up about 30 percent of the GDP, the country will face financial crises if FDI reduces. Therefore, the government must find ways to boost the economy and find other ways to bolster the GDP. 3.6. Unemployment in Lebanon Unemployment rate is a ratio of the number of qualified people seeking a job to the total qualified workforce. The term qualified refers to the basic qualifications, in terms of skills, education, and experience. Following table presents the unemployment rate for 2004-2013. An analysis of the values shows that unemployment has reducing trend, and while it was the highest in 2008, the rate for 2013 has reduced by 50 percent over the 2008 value (Trading Economics Unemployment, 2014). Table 3.5. Lebanon Unemployment rate 2004-2013 Year Unemployment rate 2004 8.9 2005 7.85 2006 7.21 2007 6.47 2008 8.98 2009 5.36 2010 6.02 2011 5.83 2012 5.47 2013 5.11 Following graph illustrates the unemployment rate in Lebanon for 2004-2013. Graph 3.5. Unemployment rate of Lebanon for 2004-2013 The overall assessment is that unemployment rate is reducing in Lebanon. However, with rising inflation as seen in Graph 3.3, the cost of living is also increasing, making it difficult for citizens to enjoy a stable lifestyle. 3.7. Interest rates in Lebanon The interest rate considered is the repo rate, and this is the interest charged by the Banque Du Liban, when it lends funds to other banks. The actual rate for customers by the banks is usually 3-4 percent higher than the repo rate. Following table presents the repo rate for 2004-2014. An analysis of the values indicates that interest rates are kept at a stable value of 10 percent from 2011 (Trading Economics Interest, 2014). Table 3.6. Lebanon Repo rate 2004-2014 Year Repo Rate % 2004 20 2005 12 2006 12 2007 12 2008 12 2009 12 2010 12 2011 10 2012 10 2013 10 2014 10 Following graph illustrates the repo rate in Lebanon for 2004-2013. Graph 3.6. Repo rate of Lebanon for 2004-2013 The overall assessment is that borrowing rates are high in Lebanon at 10 percent and this situation makes it expensive for small businesses. 3.8. Exchange rates in Lebanon Exchange rate refers to the value of the local currency, with reference to the USD spot value at any given point. Following table gives the exchange rates for Lebanese Pound vs. the USD exchange rate for 2004-2014. An analysis indicates that the Lebanese Pound has remained stable over the decade (Trading Economics Currency, 2014). Table 3.7. Lebanon exchange rate 2004-2014 Year Lebanese Pound Rate vs. USD 2004 1517 2005 1514 2006 1505 2007 1513 2008 1513 2009 1507 2010 1503 2011 1505 2012 1505 2013 1505 2014 1505 Following graph illustrates the exchange rate for Lebanese Pound for 2004-2014. Graph 3.7. Lebanese exchange rate for 2004-2014 4. Future developments in macroeconomic policy of Lebanon The current Lebanese policy is reactive, in the sense that the government reacts to any changes in the market conditions. The economic policies are linked with the international and local political environment. A few firms dominate the market and the government tries to bolster their growth through subsidies. The government has not drafted any policies to boost the growth of small industries. Some level of misspending on low priority projects is evident. High interest rates stunts the growth of small industries, and the economy depends on FDI for revenue generation. There is excessive dependence on tourism and this places Lebanon in a precarious position, given the unrest and war in the region. Lebanon needs policies that will encourage setting of large enterprises that hire more people, and small industries to sustain its growth. These features are not seen in the current policy formation (Sassine, 2013; Atallah, 2012). 5. Conclusions Important macro indicators of Lebanon indicate that the nation has as stable GDP growth with steady FDI and a high but stable interest rate. Inflation is however increasing, while unemployment indicates a decrease. The currency exchange rate is stable and all factors indicate that QCSC can expect a steady growth. References Atallah, S., (2012). Reconstruction and peace in Lebanon - post-war economic policy: a conversation with Sami Atallah. Retrieved 27 May 2014 from http://www.c-r.org/accord-article/reconstruction-and-peace-lebanon-post-war-economic-policy-conversation-sami-atallah Bazargan, M. (2010). Airline Operations and Scheduling, 2nd Edition. NY: Ashgate CIA World Fact Book, (2014). Lebanon Country Profile. Retrieved 27 May 2014, from https://www.cia.gov/library/publications/the-world-factbook/geos/le.html CIRS, (2012). Food security and food sovereignty in the Middle East. Retrieved 27 May 2014 from http://www12.georgetown.edu/sfs/qatar/cirs/FoodSecuritySummaryReport.pdf IMF, (2014). Lebanon Economic Profile and dataset. Retrieved 27 May 2014, from http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/weoselgr.aspx Johnson, A. (2012). Lebanon hopes for stability so tourism industry can rebound. Retrieved 27 May 2014 from http://www.chron.com/default/article/Lebanon-hopes-for-stability-so-tourism-industry-1895818.php Sassine, G. P., 2013. New Economic Policy to Adapt to a Changing World. Retrieved 27 May 2014 from http://www.georgessassine.com/economic-policy-foreign-policy-lebanon/ Schindler, M. (2009). Measuring Financial Integration: A New Data Set. IMF Staff Papers, 56(1), 63-69 Trading Economics Unemployment, (2014). Unemployment rate in Lebanon. Retrieved 27 May 2014 from http://www.tradingeconomics.com/lebanon/unemployment-rate Trading Economics Interest, (2014). Interest repo rate in Lebanon. Retrieved 27 May 2014 from http://www.tradingeconomics.com/lebanon/interest-rate Trading Economics Currency, 2014. Exchange rate of Lebanese Pound vs. USD. Retrieved 28 May 2014 from http://www.tradingeconomics.com/lebanon/currency Qatar Airways, (2014). About Qatar Airways. Retrieved 27 May 2014, from http://www.qatarairways.com/qa/en/ceo-message.page QNA, (2010). Qatar committed to Lebanon’s development: PM. Retrieved 27 May 2014 from http://thepeninsulaqatar.com/news/middle-east/1456/qatar-committed-to-lebanons-development-pm Read More