Hope and risk in Qatar’s investment environment

by | Jul 16, 2021 | Economics, Qatar, Trade | 0 comments

Launched in June 2017, the so-called ‘blockade’ of Qatar by the ‘Anti-Terror Quartet’—comprising Saudi Arabia, the United Arab Emirates, Bahrain, and Egypt—appeared to finally come to an end on 5 January 2021. Ostensibly agreeing at the 41st annual summit of the Gulf Cooperation Council to forgo their thirteen original demands—which were mostly aimed at curtailing Qatar’s logistical, financial, and media support for the Muslim Brotherhood and other such Islamist organisations—the Quartet seemed willing to bury the hatchet. In exchange, Qatar has since dropped its World Trade Organization law suits and scaled back Al-Jazeera’s historically critical coverage of the Saudi and UAE governments, and even Abdel Fattah el-Sisi’s more stratocratic Egyptian regime.

Buoyed by the prospects of immediately re-opening air and land routes as well as the full restoration of diplomatic relations, Qatari officials unsurprisingly began to reference not only the political benefits of the apparent reconciliation, but also the likely economic boost. After all, Qatar’s GDP per capita growth declined markedly under the blockade, as it had effectively been cut off from all trade and investment opportunities in Saudi Arabia and the UAE, two of the largest Arab economies.

Moreover, there was a palpable sense that Qatar’s foreign direct investment environment might quickly improve. Indeed, despite Qatar’s FIFA World Cup hosting rights (scheduled for 2022, pandemics notwithstanding), its medium-term diversification plans are dependent on the rise of non-oil and gas foreign direct investment—especially in logistics, financial services, healthcare, touristic, and ‘knowledge economy’ sectors—and the emirate has experienced negative FDI, with outflows exceeding inflows.

Notably, even under the supposedly stalemate-like conditions of the blockade, Qatar’s FDI had dropped from between 0.5 and 0.6 percent of GDP down to -1.2 percent in 2018 and then -1.6 in 2019. In contrast, over the same period the UAE’s had risen 2.7 to 3.3 percent and Bahrain’s from 1.5 percent to 2.4. Remarkably, even Saudi Arabia’s had risen from 0.2 to 0.6 percent, regardless of the international condemnation of its crown prince, Muhammad bin Salman Al-Saud, in the wake of the 2018 assassination of the prominent dissident journalist Jamal Khashoggi.

In this context, regardless of the probable dampening effect of lingering COVID-19 restrictions (which are likely to be felt by all the Gulf states), post-blockade Qatar will indisputably make it a priority to turn around its FDI flows and will at the very least be aiming to claw back some of the ground it feels it has lost to its fellow FDI-seeking neighbours. In particular, as well as being able to make more confident ‘back to business’ claims, its officials will be better positioned to court those multinationals with interests spanning the region that had been keen to avoid ‘taking sides’ during the crisis, and of course simply those that shied away from a potentially turbulent situation.

Furthermore, Qatar’s FDI profile has indisputably improved following Joe Biden’s US presidential election victory. Seemingly already spurring the Quartet to come to the table and re-position themselves as cooperative US regional partners, rather than as quarrelsome spoilers driving a wedge between the US military’s various Gulf hosts, Biden’s expectedly more even-handed administration will undeniably reassure foreign investors. After all, anything will be seen as more favourable to Qatar than Trump’s team, which at one point appeared to explicitly back the Quartet’s measures and had entered into a number of transaction-like diplomatic and economic relationships with Saudi Arabia and the UAE.

On the flip side, however, there are several tail risks that could still stall or perhaps even reverse Qatar’s likely new FDI trajectory. From an economic perspective, for example, the hopes being pinned on the World Cup could easily evaporate, especially if the ‘bubble’ bursts and Qatar ends up with dozens of unfinished or underutilised projects. After all, there are a string of ‘white elephants’ in former World Cup hosts, including of course Brazil, where its most expensive stadium is now a parking lot.

In terms of its international relations, while Qatar can probably rest easier under Biden’s presidency, there is no guarantee he will win a second term, and if the price is right, his successor could well resume the sort of transactional Gulf politics seen under Trump. Thus, even if Qatar gets upgraded to ‘major non-NATO ally’ status—an idea already floated by senior US officials—much could change if the Quartet members one day feel they have a more sympathetic ear in the White House.

Perhaps most worrying for foreign investors though, is the sincerity of the individual Quartet members’ willingness to reconcile. On the one hand, there is much to indicate that the Saudi and Egyptian administrations see the Muslim Brotherhood issue, and by extension Qatar, through a realpolitik lens—on the basis that Islamist organisations and their backers probably pose the greatest present threat to their regimes. Meanwhile, there is much to suggest that Bahrain has primarily been ‘along for the ride’—having little option but to support its more powerful allies and having initially been reluctant to demonise Sunni Islamist groups that had historically supported its royal family.

For the UAE, on the other hand, there are strong indications that its ruling elite—unquestionably dominated by the Abu Dhabi ruling family, and in particular Crown Prince Muhammad bin Zayed Al-Nahyan—have long viewed the Brotherhood, Qatar, and Al-Jazeera as fundamentally existential threats. Indeed, throughout his career, Muhammad bin Zayed has repeatedly warned of the Brotherhood-Qatar nexus as not only an enemy of his regime, but also more broadly as menace to secular or ‘moderate’ society across the region and even internationally. In this context, regardless of whether the UAE makes the right noises in front of the Biden administration, it is not inconceivable that it may still attempt to disrupt Qatar’s plans and destabilise its investment environment. This time, however, it may be done more carefully, with a greater emphasis on third party intermediaries—banks, hedge funds, or even mercenary outfits—and thus ensuring greater plausible deniability.

The views expressed in the Near East Policy Forum are those of the authors and do not represent the views of the Near East Policy Forum or any of its partner organisations.

About the author

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Christopher M. Davidson is a former reader in Middle East politics at Durham University (UK), a former assistant professor at Zayed University (UAE), and a former visiting associate professor at Kyoto University (Japan). His publications include Dubai: The Vulnerability of Success; Shadow Wars: The Secret Struggle for the Middle East; and, most recently, From Sheikhs to Sultanism: Statecraft and Authority in Saudi Arabia and the UAE.


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