Notable is the continuing high proportion of income that is derived directly from exports of oil and gas. The data shows that this accounted for 93% of revenues. This reflects the rising commodity prices this year, principally triggered by the conflict in Ukraine. It disguises the extent to which there has been diversification of the economy; there may be significant diversification of activity, but this remains hidden by the scale of income when the global oil price touches the $100 mark. Just over two years ago, during the pandemic, it dipped as low as $10. The Government statistics show that, for the first two quarters of 2022, income from oil and gas was 67% higher than for the same period in 2021.
There is both an opportunity, and a responsibility, to invest the proceeds wisely. Elevated inflation around the world, including in advanced economies, means that holding cash is unprofitable as the rise in interest rates has not yet compensated. US Treasury bonds, traditionally a safe haven, may result in negative returns – they may pay you 4% or 4.5% but inflation is currently higher at around 6%.
In the case of Qatar, there is limited scope for internal investments. It is a good problem to have: most of the infrastructure for the World Cup has been largely completed, although there are some projects that the government is planning for 2023. Surpluses are likely to continue in quarter one and quarter two next year because the oil prices are set to remain at or near the same level, given the demand for gas and oil during the northern hemisphere winter and spring. Also, it is likely that the higher profile and reputation of Qatar as a tourism destination as a result of the World Cup will spill over into 2023, especially as the weather is attractive in the early months of the year.
The investment focus ought to be on overseas investment opportunities. Qatar’s sovereign wealth fund has the benefit of being free to take a long-term perspective. A sensible portfolio involves a mix – real estate, equities, managed funds, passive funds – comprising a blend of safe and potentially stable cash-generating investments, and this may be a time to shift a proportion towards the latter.
Blue chip equities will come under consideration, and while growth is sluggish across much of the world, there are usually growth stocks. There are some that are either recession-proof or counter-cyclical, such as budget supermarket chains or fast-food outlets. Pharmaceutical and other specialist manufacturing sectors are also worthy of consideration. Moreover, the rise in interest rates and economic downturn in the western world have caused asset prices to fall, boosting affordability.
For Qatar, while the very high surpluses may not last, the right investment decisions help ensure long-term benefits from temporary gains.
