Changes in Composition of Goods Traded by Qatar from 1998-2014 - Research Paper Example

Changes in Composition of Goods Traded by Qatar from 1998 al Affiliation) Contents Contents 2 3 Introduction 3 Data and Analysis 4 Discussion of Results 7 Conclusion 11 References 12 Abstract The paper takes a look at the current changes in the balance of payments of Qatar from 1998 to present times in order to compare the changes that have occurred in that period. Focus is heavily placed on the oil and gas industries and their contribution to the overall economy of the country. Introduction According to Mclachlan et.,al, Qatar, just like other countries in the Middle East, is heavily reliant on natural gas and oil which are important parts of its trade revenue. It is estimated that around 85% of Qatar’s earnings from exports, are facilitated by the natural gas and oil industries. The revenue from the exports is then reinvested towards purchasing food stuff and machinery in order to sustain the rapidly growing economy of Qatar (Mclachlan, 2010). The current high oil prices are responsible for making sure that Qatar has a favorable balance of payment. It should however be noted that, the country’s dependence is not sustainable and its oil reserves are expected to be completely used up by the year 2023. This has led to the government of Qatar shifting its focus towards the development of the natural gas industry. The government has embarked on a plan to increase its production of liquid natural gas that has been attributed as being the major driving force in Qatar’s rapid growth levels in recent years. There are ongoing plans to expand the production of (LNG) exponentially, which according to estimates, will make the country the biggest exporter of LNG in the world. Data and Analysis In 2010, Qatar’s major partner in import trade was the US and it accounted for 11.8% of all imports of Qatar marking a shift from Japan, which had been the main trade partner in exports and imports with Qatar. The country’s foreign trade has grown rapidly in recent years because of developments in the oil, gas industries and related infrastructure undertakings. In 2009 for example, the rate balance for goods rose from $ 25,555million in 2009 to $ 53,863million in 2010 which was an increase of 110.8%.I n 2010, the exports of goods including ere exports was estimated to be $95,736 million which was 75% of the overall nominal GDP. The total imports into Qatar between 2006 and 2010 increased by 41.4 % due to the improvement in, economic activities coupled with Qatar’s hydrocarbon increase in production and extension. A significant portion of the imported items included metal and machinery that are necessary for the development of the hydrocarbon industry of Qatar. Additionally, there were increases in expenditure on non-oil materials for construction and the import of consumer durable goods also increased. In 2010, there were only two manufacturing product classes that recorded export values of more than 100 million in Qatari currency. The overall export value of all hydrocarbons at the same period was pegged at 290 billion in Qatari currency. Recent studies indicate that, less than 50% of the new exports are eliminated after one year when introduced in the market however, some items such as motor parts and valves have begun to be profitable but the profit margins are still very small. In 1998, oil was the sole pillar of the economy and accounted for more than 30% of the GDP, 65% of the total government revenue and almost 70% of the earnings from export trade and a GDP growth rate of -3%.The GDP composition of the country was as follows-the agricultural sector contributed to 1%, the industrial sector was at 49% and the service sector was at 50%. Additionally, the industries were comprised of sectors that dealt with, fertilizers, petrochemicals, cement, steel reinforcing bars and crude oil refining and production. Commodities that were imported included food, chemicals, consumer goods, machinery, equipment and its main importing partners were UK which constituted 25% of the total, France at 13%, Japan at 10%, USA at 9% and Italy at 6%.Currently, France is no longer in that list. Its main exports were fertilizers, steel and petroleum products and its major exporting partners were Japan at 49%, Singapore at 12%, South Korea at 12%, Thailand at 4 % and the US at 3%. Currently, the country is using the downstream advantages related with the hydrocarbons through adopting activities that increase the value of feedstock via more processing. It is seen as a way of increasing the benefits enjoyed by the government of Qatar. The state is able to gain through production and equity sharing. Following years of impediments to its economy, Qatar became an open economy since the late 1990s which has been aided and improved gradually over the years, by progress in institutional and policy reform. The country currently levies low tariffs on imports with a majority of the tariff rates set at 5% and below. At the beginning of 2000, the country instituted policy changes in order to reduce restrictions on foreign direct investments falling outside the category of the oil and gas industries. Even though a majority leadership by a Qatari national is mandated by the government, in certain industries, some have allowed full foreign ownership such as in the mining, education, service, agriculture, tourism and health sectors. In recent years, Qatar has become a destination for the export goods of countries in Europe and America and in 2013, goods exports to Qatar totaled $5 billion dollars which was a marked increase of almost 39% and almost 1,120 % from 2003, which shows diversification of the Qatar government. The top export categories in 2013 were electrical machinery, vehicles, precious stone and aircraft. The exports of agricultural products from the US to Qatar amounted to $ 75 million. The biggest categories of agricultural products exports were poultry meat which was valued at around $22 million and beef products and beef totaling to an estimated $14 million. In the same year, Qatar was the 71st biggest of supplier of imported goods to the US with a total worth of $1.4 billion. In 2012,the value was $ 340 million which was 33% lower than in 2013 and a further 313% reduction in import value in 2003.The biggest import categories as of 2013, are liquefied natural gas(Mineral Fuel),fertilizers, special items, aluminum and chemicals. On a national level, the top most 5 products exported by Qatar are petroleum gas constituting for 47% of the total exports, crude petroleum at 39%,refined petroleum at 7.1 %,ethylene polymers at 2.1 % and nitrogenous fertilizers at 1.3%.Additionally,the 5 most imported products are cars at 16 %,jewellery at 5%,aircraft at 5%,gas turbines at 4.6 % and iron ore at 2.7%.Most of the country’s exports are to Japan, South Korea, India, Singapore and China while it imports most of its products from the UK, US, Japan, Germany and Italy. Commodity Value of Exports (QR billion) % LNG 85.2 0.321388 Crude oil 73.6 0.277631 Condensates 42.8 0.161449 Liquefied propane 12.5 0.047152 Naphtha 9.2 0.034704 Liquefied butane 8.1 0.030555 Kerosene 5.7 0.021501 Polyethylene 5.1 0.019238 Urea 3.1 0.011694 Iron bars 2.2 0.008299 Aluminum 1.3 0.004904 Others 16.3 0.061486 Total 265.1 1 Discussion of Results Oil was the main factor contributing to the level of the economy of Qatar in the 1990s and as of 2000, it formed 70% of the government’s total revenue. The production of oil in Qatar in 1973, has been attributed as a major factor that triggered the shift from the country being one of the poorest countries in the globe to one of the countries with the largest per capita income. Around 1994-1997, the country began experiencing a downturn in its economy which was due to OPEC’s imposed quotas on crude oil, reduced oil earnings in the international market and the resultant low prices of oil, which made the country cut down government expenditure in order to meet lower incomes, which led to the decline of local industries. In the late 1990s, following many years of trying to break the barriers that restricted its export of LNG, it began exporting LNG between 1997 and 1998.Around that period, crucial infrastructure was developed coupled and with political will from the government, they facilitated the creation of market openings for the sale of its gas supplies in previously unexplored areas towards the Far East such as Japan. Rumaihi et.,al argues that, the new developments allowed Qatar to export gas supplies in Japan at a profitable price to Chubu Electric. Qatar began creating a competitive value chain of LNG in order to obtain global recognition, which was achieved by integrating downstream, scaling up and developing the brand (LNG) as a flexible partner and supplier with a reliable product. The government had to look for alternative sources of export revenue and it was boosted by the discovery of natural gas reserves in the north east cost of Qatar which were the third highest in the world in 2000.The completion of North Field gas project (Phase 1) in 1991, marked a shift from total dependence on oil export revenue to natural gas and oil export revenue (Rumaihi, 2001). After the Qatar government entered into the export market of LNG, it began to strategize how it would extend its opportunities in the market of fuel transportation. From 1998, it started to expand its activities towards converting lean gas to gas-to-liquid fuels which are clean burning. At the time, the oil prices were low and the commercial prospects for gas-to liquid fuels were low, but the government broke new ground with the help of other joint investors. In 2003, the Qatar government established the first plant, on a commercial scale, known as the Oryx GTL, with production beginning in 2007.Additionally, the government constructed a second plant, Pearl GTL that began its operations in 2011. The keen emphasis on the natural gas industry in Qatar has led to the slow abandonment of the oil sector due to the dip in prices and the depletement of its oil reserves which began in the 1980s.Currently, the government is developing new industries such as polythene which are for the purpose of adding value to the oil industry’s low cost feedstock. It should however be noted that, the country is still reliant on its oil industry, which contributes significantly to fiscal revenues and exports. Das implies that, big financial dividends have been experienced by the country due to its investments on the oil and gas industries, which are evidenced by impressive macroeconomic achievements. Since 2000, the government has continually recorded high per capita rates which is attributed to the growth of its oil and natural gas industries. The effects of the high per capita income include, an increase in the standards of living and higher purchasing power capabilities by the citizens of Qatar (Das, 2005). From 1998 to present times, the government of Qatar has been pursuing an intensive program-Qatarisation, which is a joint venture between government departments and industries aimed towards empowering the nationals of Qatar to fill in positions of authority. Other sectors of the economy have also grown as well, as evidenced by the fact that, between 2004 and 2011, on average, the non-gas and oil economy has grown by 20%. However, the significant growth rates could not have been achieved in the absence of the hydrocarbons. Downstream transport services, utilities and construction have grown in response to the rapid growth of the oil and natural gas industry as well. The growth in energy intensive activities and the petrochemical sector, is as a result of the margins from LNG shipment and cheap feedstock availability. The country’s integrated LNG model is responsible for managing the gas reserve which facilitate the production and liquefication aspects of the industry. The model is also inclusive of the terminal developments and shipping in order to reduce the gap between customers and the reservoir ensuring that the supplies are cheap and reliable. Before the late 1990s, Qatar was wasting around 80% of the gas that was created as a by-product in the production of oil and in the early 1990s, the government began using the flared gas to create heavy industries and petrochemicals. In the early 1990s, the government began using the ethane rich gas to feed the ethylene cracker used in the steel plants and cemetery industries. The emergence of the North Field gas facilitated the growth of the petrochemical industry coupled with the surplus supplies of methane. Additionally, they were used to increase the capacity of the production of ammonia and fertilizers. Those developments further led to the manufacture of products such as melamine. Increase in volume of investments and the production of ethane led to the manufacture of high and low density polyethylene, normal alpha olefin, and vinyl chloride monomer and ethylene dichloride. Currently, there are projects underway geared towards diversifying the country’s feedstock which will enable the country to manufacture butadiene and propylene for the first time in Qatar’s history. It is estimated that by 2020, the country’s petrochemical industry will be improved in terms of production capacity, depth and scale. The government will use a similar approach as in LNG, in order to make it a global brand by selecting its joint partners by virtue of expertise in marketing distinct products. Increase in revenue income as a result of the hydrocarbons has not improved all sectors of the economy as some parts of the economy have failed to enjoy the associated benefits such as industrial activity that does not gain any advantage due to the inexpensive energy available or the availability of feedstock. However, on a macroeconomic level, the percentage of such activities are negligible. Even though the government has developed stimulus for investing in the economy of Qatar through production and investment in the hydrocarbon industry, diversification in the economy is still lacking. It has been noted that, the economy in 2011 is only marginally diverse than it was in 2004 attributed mainly to the increase in output share of hydrocarbons, establishment of the Pearl GTL Plant and the complementation of investments of LNG. Conclusion Many indicators confirm the fact that, Qatar has experienced economic progress since the late 1990s. However, the achievements have been a joint effort of the shift from complete reliance on the oil industry to diversifying in the natural gas industry coupled with improvements in institutional framework and policy change. Additionally, the significant growth levels in the last 15 years at the macro level, have not been matched by changes at the micro and structural level where the economy has been slow to adapt to change. References Das, D. (2005). The Doha Round of multilateral trade negotiations arduous issues and strategic responses. Houndmills, Basingstoke, Hampshire, England: Palgrave Macmillan. Mclachlan, K., & Mallakh, R. (2010). Qatar: Development of an Oil Economy. International Affairs (Royal Institute of International Affairs 1944- ), 357-357. Rumaihi, F., & Hindi, N. (2001). The transformation of Qatar economy into industrialisation era. International Journal of Economic Policy in Emerging Economies, 245-245. http://www.qsa.gov.qa Read More