Qatar Economic And Strategic Outlook 2009

Qatar

Global Research

Economic

Qatar Economic & Strategic Outlook “Prudent policies targeting sustainability of growth” June 2009

Growth Challenges

Global Investment House KSCC Global Tower, P.O. Box 28807 Safat 13149 Kuwait Tel: (965) 22951000 Fax: (965) 22951299 Email: [email protected] http://www.globalinv.net Global Investment House stock market indices can be accessed from the Bloomberg page GLOH and from Reuters Page GLOB

Faisal Hasan, CFA Head of Research [email protected] Phone No:(965) 22951270

Chandresh S. Bhatt Assistant Vice President [email protected] Phone No:(965) 22951282

Walid S. Mohamed Senior Financial Analyst [email protected] Phone No: (965) 22951277

Turki O.AlYaqout Assistant Financial Analyst [email protected] Phone No:(965) 22951295

Table of Contents Summary

1

Annual Indicators

5

Economic News Flow

6

Macroeconomic Profile

8

Gross Domestic Product

10

Public Finance

14

Current Account

18

Monetary Policy

22

Inflation

26

Population

28

Sector Performance Oil and Gas

31

Banking

39

Industry & Services

45

Infrastructure

48

Real Estate

51

Doha Securities Market Performance Corporate Earnings

58 61

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Summary Qatar’s economy continued to be one of the fastest growing economies of the region for the last few years. Preliminary estimates from Qatar Statistics Authority revealed a nominal GDP growth rate of 44% for 2008 to surge to a new landmark of QR372.4bn (US$102.3bn). Consequently, GDP per capita was lifted to a record level of US$70,630 in 2008 from US$57,936in 2007. Thus, Qatar continued to be one of the top ten wealthiest countries in the world with its GDP per capita exceeding the US$70,000 level. Analyzing GDP data for 2008 revealed the huge contribution of oil & gas sector to GDP to stand at a record level of QR229.7bn up from QR146.5bn in 2007. As a result, the sector contribution surpassed the 60% mark for the first time to account for 61.7% of the GDP in 2008 up from 56.6% in 2007. Non-oil sector, on the other side, surged to a new landmark of QR142.7bn. Thus, the sector contributed for 38.3% of 2008 GDP down from 43.4% in 2007. Looking forward, we anticipate that Qatari economy will continue its growth path however at lower pace. We estimate real GDP to grow at a range of 7% to 10% for the year 2009. Such growth rate is considered one of the fastest growth rates during 2009 amid a period of recessionary pressures covering the world economies in general and GCC economies in particular. Major reasons backing such growth will be the increasing dependence on LNG exports rather than Oil as Qatar is pushing ahead with its mega LNG projects to attain its output target of 77mn tons by 2012. Moreover, the ongoing diversification plans will continue to play a major role in waiving the risks of declining oil prices and liquidity crunch facing financial sectors around the world. On the budget front, Qatar approved the new 2009-10 budget during April 2009. The new budget is seen as another expansionary one despite the current financial crisis facing the world economies. Similar to other GCC neighboring countries (Saudi Arabia and UAE), Qatar approved a huge expansionary budget to overcome economic slowdown. The new budget will suffer the first deficit since 2001 estimated to reach QR5.8bn. The new budget is based on an oil price of US$40/b as compared with US$55/b estimated for previous budget. As a result, total revenues were slashed to QR88.7bn down from QR103.3bn estimated for 2008-09, a decline of 14.1%. Expenditures on the other hand are estimated to be high at QR94.5bn, slightly lower than its record budget of QR95.9bn for 2008-09. However, it is important to note that out of total expenditures 40% were allocated for strategic development projects mainly to keep the economy upbeat. On the foreign trade front, Qatar trade balance reached QR70.9bn as of 2007. The external trade continued to report increasing surplus. On a CAGR basis the surplus of Qatar increased 23.5% during the period 2003-2007, it increased from QR30.7bn in 2003 to QR70.9 in 2007. On a Y-o-Y basis, the surplus increased 13.3% by the end of 2007. Total exports grew by 23.4% while total imports increased by 33.8%. As for money supply, Qatar liquidity has been increasing greatly during the period 20022008. This has offered different sectors huge credit facilities for growth and expansion.

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Credit facilities totaled QR201.56bn as of Q2-2008, up 55.1% from the same period a year ago. This have helped the Qatari economy post healthy nominal growth rates of 44% and 10.4% on nominal and real terms respectively by the end of 2008. Money supply as measured by M2-the broad definition of money- reached QR149.96bn as of Q2-2008, increasing by 48.8% over the same period last year. This reflects the level of credit abundance in Qatar. M2 increase was on the back of the growth in both M1 and Quasi Money by 67% and 39.8% respectively. Within Quasi Money, time deposits reached QR72.79bn in Q2-2008, up 60.6% from Q2-2007. Such growth was more than enough to offset the marginal decline in foreign currencies deposits from QR21.95bn in 2Q-2007 to QR21.25bn during 2Q-2008. As a result, Quasi Money stood at a new record level of QR94.04bn in Q22008 up from QR67.26bn for the same period last year. On another front, inflation in Qatar continued to pick up over the period 2005-2007 increasing from 8.8% to 13.8%. Entering the year 2008, inflation picked to a new record level of 15%. This was on the back of oil prices sky rocketing to surpass the US$140/b level during July 2008. This meant more oil and gas revenues for Qatari exports which resulted in increased liquidity and therefore inflationary pressure. Increase in oil prices played a big role in increasing prices of other goods and commodities as well. Moreover, new projects were unveiled, infrastructure plans were announced, and oil and gas refineries were in the process of being developed. Therefore, the rise in oil prices has increased the liquidity in the economy. This was coupled with increased government spending on mega projects. Such trend has created a booming domestic demand, increasing money supply, increasing food prices and hiking housing rates. Looking forward, we expect price levels to ease significantly during the course of 2009. This is expected to be a global trend not only for Qatar. This is mainly as the world witnessed a tremendous decline not only in equities and stock markets, but also in commodities prices in the last few months. Factors that will help cool off inflation in Qatar is the sharp decrease in oil prices around the world, this will help ease prices of raw materials, but this could affect government expenditure. Secondly, Rental prices are also expected to cool down in the next year. Weighing heavily on the price indices for all GCC countries, rental increases will slow down in 2009. Prices had been skyrocketing in the past few years, which had been a major cause for higher consumer prices. Finally imported inflation is not seen as a major concern as prices of all material around the world have been declining. Finally, we expect that inflation to ease much more during 2009 to report a one digit level of around 9% on the back of low food, raw material, rental, and oil prices. Qatar population has been increasing at a CAGR of 19.5% during the period 2004-2008 due to the continuing influx of expatriates to the booming economy, ongoing development plans, infrastructure & construction projects and the strong economic activity in the region. For 2008, Qatar continued to witness an increasing population in line with past years economic progress. Qatar’s population reached 1.45mn in 2008, or 18.1% increase from 2007. This has shown a very fast population growth compared with previous four years when the average growth rates during 2004-2007 was 14.4%. On the hydrocarbon sector front, Qatar has an abundant quantity of natural gas reserves; however, it is less fortunate with oil reserves. Qatar contains estimated proven oil reserves



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June 2009

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of 27.4 billion barrels acquiring a 3.6% share in terms of oil reserves among Middle East countries and 2.2% among GCC countries. Generally, state owned Qatar Petroleum (QP) controls all aspects of the country’s oil sector, including exploration, production, refining, transport and storage. In 2008, oil and gas sectors contribution to GDP was estimated at QR229.73bn, acquiring a 61.7% of the total GDP. Along with other GCC members, Qatar is undergoing several upstream and downstream expansion projects in order to capitalize on economic growth and rising oil demand in Asia. QP plans to invest US$80-100bn in upstream and downstream sectors over the medium-term, with much of this derived from partnership with global energy giants. As for Natural Gas, State of Qatar has the third largest natural gas reserves in the world after Russia and Iran, and is the world largest LNG exporter. Most of the Natural Gas in Qatar is located in the North Field “Ras Laffan” which holds more than 900 Tcf of proven natural gas. By the end of 2008, Qatar’s estimated reserves of natural gas stood at 891.9 Tcf or (25.25Tcm). This represents 14.3% of total world’s reserves and posed Qatar as holding the third largest natural gas reserve in the world. In order to maintain the export of gas, the government of Qatar has undergone for massive expansion in the production of gas, along with the development and expansion of LNG handling capacity. As per the expansion plan the government of Qatar is planning to make massive increase in the production of gas in North Gas Field to 25 Bcf/d by 2010. In addition, two phases expansion is planned in the field of Barzan, which will produce 6.2Bcf/d in country’s gas production by 2013. Looking forward, natural gas sector will play a major role in the Qatari development path and will be a crucial contributor to its economic growth. Qatar banking sector have reported a significant growth in balance sheet size during 2008. The aggregate balance sheet of all the listed banks grew by 73% in 2008 to QR345.7 from QR252.4bn in 2007. Al Khalij Commercial Bank recorded the highest growth in its balance sheet among its peers as it grew by 142.7% in 2008. The sector’s largest bank, Qatar National Bank’s assets grew by 32.9% in 2008. Among others, Masraf Al Rayan’s assets grew by 58.9% followed by Qatar Islamic Bank 57.2%, Commercial Bank 35.0%, Doha Bank 29.6%, Qatar International Islamic Bank 29.1% and Ahli Bank 14.3%. Among efforts to support its banking sector, the month of March 2009 witnessed Qatar government announced plans to buy banks’ investment portfolios in a bid to revive lending and support the economy. The government offered to buy part or all of the DSM investment portfolios of local banks with a provision of any dividends received on such equity portfolios for the year 2008 to be provided to the banks and for subsequent years to be provided to QIA. Qatar industrial sector makes up 6.8% of the estimated GDP of Qatar in 2008. It grew on a Y-o-Y basis of 32.4%. Industrial sector is estimated to have reached QR25.39bn in 2008. Due to the credit crisis, Industrial sector fell 30.39% in Q4-2008 from Q3-2008. On another hand, services sector is compromised mainly in the telecommunication, education and health sectors. Collectively, the sector accounts for 4.38% of total GDP. Telecommunication sector contribution reached QR12.27bn, while social services stood at QR2.4bn. As per the data from the Planning Council, the real estate and construction sector contribution to the GDP was 10.4% in 2007 as compared to 10.0% recorded in the previous year. The

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sector’s growth rate was about 30.3% in 2007 as compared to the growth rate of 41.6% recorded in the previous year. Generally, the booming economy is the key factor underpinning the real estate, construction and housing demand in Qatar. High growth in population, very high per capita GDP and abundant resources entailing rapid industrial expansion have all been vital to the growth of the real estate sector in Qatar. As for stock market, Global DSM Index posted annual losses of 24.57% closing at 515.96 by the end of December 2008. The four major sector indices in the DSM ended the year in negative. Global’s insurance sector index declined the most retreating by 35.8% to close at 513.51 points. Industry index followed with 28.1% of losses to end the year at 435 points. Finally, Banking and Services indices declined the least retreating by 25.5% and 19% respectively. However, entering the year 2009, the market started to pick up slightly with Global General index reporting monthly gains of 11.1% to close at 386.97 points by the end of 1Q-2009. Finally, considering the economic fundamentals, Qatar is better-placed in the region. In fact Qatar is expected to post one of the highest economic growths in 2009 in the world, though there will be slowdown from 2008. Thus, looking forward, the recent upturn in the market may signal that investors’ confidence might be returning, especially after the government’s backing which gave strong support to the market. Therefore there is a strong case of market gain in the medium-term. In addition, the surge in oil prices and improving macro-economic environment coupled with positive signs of credit growth will be helping the market to remain in positive territory. Moreover, positive sentiment in other GCC markets especially Saudi market will have some impact on Doha market. Thus, we anticipate the market to remain stable as positive signals are received from other GCC and international markets. Finally, we expect that as the economic environment and oil prices gets more stable; the market will continue to show positive momentum.



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June 2009

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Annual Indicators Calendar Year Gross Domestic Product GDP Growth Oil & Gas Sector cont. to GDP Non-Oil Sector cont. to GDP Population Per Capita GDP   Crude oil prices OPEC Basket Brent Crude oil production   Financial Indicators Exchange Rate (end-period) QCB Rate -Deposits QCB Rate -Loans Repo Rate   Money Supply & Inflation M1 (end-period) M2 (end-period) Inflation   Banking System Foreign Assets (net) Total Deposits Private Deposits Total Credit Private Credit   Foreign trade Exports Imports Trade balance   Capital Markets Market Capitalization Number of Shares Traded Value of Trading “Global” General Qatari Index (base year 1999)

  (QR mn) (%) (%) (%) (mn) (US$)     (US$/b) (US$/b) (mn b/d)     (QR:US$) (%) (%) (%)     (QR mn) (QR mn) (%)     (QR mn) (QR mn) (QR mn) (QR mn) (QR mn)     (QR mn) (QR mn) (QR mn)     (QR mn) (mn) (QR bn) (Points)

2003 85,663 21.5 59.0 41.0 0.72 32,788     28.10 28.70 0.75     3.64 1.23 1.33 1.53     11,278.0 37,223.0 2.3     25,821 52,964 35,076 43,346 23,415     48,353.5 17,826.3 30,527.1     97,200.0 190.0 11.7 287.8

2004 115,512 34.8 54.5 45.5 0.76 41,703     36.05 38.13 0.77     3.64 2.50 2.60 3.15     14,598.0 44,865.0 6.8     31,812 60,264 42,271 48,294 29,824     67,345.7 21,856.2 45,489.4     147,200.0 305.3 23.1 424.7

2005 154,564 33.8 59.6 40.4 0.89 47,794     50.64 54.30 0.79     3.64 4.40 4.50 5.10     22,362.0 64,271.0 8.8     47,820 84,631 61,405 67,366 48,716     92,365.4 36,621.0 55,744.4     317,202.0 1,033.4 102.8 779.2

2006 206,644 33.7 57.3 42.7 1.04 54,496     61.08 65.16 0.82     3.64 5.15 5.50 5.55     27,883.0 88,659.0 11.8     61,251 119,304 84,700 94,773 73,236     122,456.3 59,841.4 62,615.0     221,729.0 1,865.4 74.9 487.2

* Preliminary data, ^ As of Q2-2008 Source: Qatar Central Bank, DSM, OPEC, Global Research

June 2009

Economic & Strategic Outlook



2007 2008 258,591 372,384* 25.1 44.0 56.6 61.7 43.4 38.3 1.22 1.45 57,936 70,630         69.10 94.45 72.55 97.37 0.81 0.84         3.64 3.64 2.00 2.00^ 5.50 5.50^ 5.55 5.55^         35,374.5 55,922.1^ 117,634.1 149,962.8^ 13.8 15.0         61,312 79,315^ 162,841 207,280^ 113,147 144,589^ 146,329 182,038^ 110,427 139,725^         151,053.0 80,097.0 70,956.0         347,695.0 279,042.0 3,411.1 3,337.8 108.9 153.7 684.0 516.0

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Economic News Flow • The Washington-based Heritage Foundation think-tank has rated Qatar’s economy as being 62.2% free in its assessment for the current year. This makes it the world’s 66th freest economy, among the 162 countries that were taken into account by the organization. The country has been ranked 8th out of 17 states in the MENA region. (Source: The Peninsula) • Standard & Poor’s affirmed AA-/A-1+ sovereign credit ratings on the State of Qatar with a stable outlook. “The ratings on Qatar are supported primarily by strong fiscal surpluses, substantial external liquidity, healthy economic prospects driven largely by the gas industry, and high per capita income”. However, ratings remain constrained primarily by the geopolitical risks facing countries in the Gulf region. (Source: Zawya Dow Jones Newswires) • Qatar unveiled a record budget for fiscal year 2008-09 which starts on 1 April, with total revenue projected to rise by 42.5% to QR103.3bn ($28.4bn) and total expenditure set to rise by 46.0% to QR95.9bn ($26.3bn) from the corresponding figuresfor2007-08.The budget surplus, however, will rise by 9.6% to QR7.4bn ($2.03bn) from the previous year. The budget is based on an oil price assumption of $55/b, which is 37.5% higher than last year’s $40/b. (Source: MEES) • Qatar has ranked 41st overall out of 118 countries in ‘The Enabling Trade Index 2008’ (ETI) released by the World Economic Forum (WEF). Published for the first time, the report presents a cross-country analysis of measures related to trade. For the GCC, Qatar was third behind the UAE (23) and Bahrain (37). (Source: The Peninsula) • Qatar has been ranked 37th overall out of 181 countries for ease of doing business, according to ‘Doing Business 2009’, a report published by the International Finance Corporation (IFC) and the World Bank. Among other GCC states, Saudi Arabia was ranked 16th and Bahrain placed 18th. Qatar and Bahrain were ranked for the first time in the report, which has entered into its sixth year of publication. (Source: The Peninsula) • The Board of ictQatar (Qatar’s independent telecom regulator) has decided to award the second fixed telecommunications license to the Vodafone and Qatar Foundation Consortium. The license will permit Vodafone and the Qatar Foundation Consortium to compete with Qatar Telecom (Qtel) in both fixed and mobile telecom sectors. (Source: Press Release) • The Monetary Authority of Singapore has signed a memorandum of understanding with the Qatar Financial Center Regulatory Authority, the independent regulator of all financial institutions in Qatar Financial Center for supervisory co-operation. The memorandum of understanding (MoU) provides a formal basis for supervisory co-operation between the Monetary Authority of Singapore (MAS) and the Qatar Financial Center Regulatory Authority in banking, insurance and capital markets. (Source: IFP Qatar) • Qatar Petroleum and Norwegian Hydro Aluminum Company signed a final agreement for the establishment of an aluminum smelter in Mesaieed industrial area. The project cost is estimated at about US$3.5bn and the production of aluminum will be marketed in Asia, Europe and North America. (Source: IFP Qatar)



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• Qatar Petroleum, the state-run energy company in the world’s largest producer of liquefied natural gas, aims to generate QR560bn (US$154bn) in total revenue through 2012 as new projects begin producing fuel. The QR560bn revenue forecast is cumulative for the period covered by a five-year company plan for 2008 through 2012. (Source: IFP Qatar) • Qatar expects to shrug off the global financial crisis and post healthy economic growth of up to 9% this year, according to the country's central bank governor. Sheikh Abdullah Saud Al-Thani said the country's growth will be "between 7 percent to 9 percent" this year. (Source: The Peninsula) • Qatar plans to allocate QR2bn (US$549.3mn) to support small and medium-sized projects, the Commerce and Business Minister stated. A government-owned company will be established to this end. (Source: Zawya Dow Jones Newswires) • Vodafone Qatar launched its initial public offering (IPO) for Qatari retail and institutional investors on 12th April 2008. According to Qatar daily The Peninsula the starting price for the IPO is QR10 per share with an additional AED25 levied as service charges. (Source: Reuters) • Qatar National Bank, the country's largest lender, made a first quarter 2009 net profit of QR1.0bn (US$275 million), 10 percent more than a year ago as the bank said it had effectively managed risk. Net income in the three months to March 31 compared with QR917.3mn in the first quarter of 2008. (Source: Forbes) • Qatar's budget for fiscal year 2009-10 with its emphasis on public spending should help the country weather the adverse effects of the global financial crisis. A key challenge during the ongoing credit crunch relates to steady spending in order to attain desired economic growth rate. (Source: Gulf News) • British Gas, the United Kingdom's largest gas supplier has welcomed the inauguration of Qatargas 2 as a significant moment in the history of energy supply for the United Kingdom. Qatargas 2 has the capability of supplying 20 percent of the UK's natural gas needs, which will provide a secure and reliable energy supply to the country. (Source: Zawya Dow Jones Newswire) • Qatar has emerged as a country with the friendliest tax climate in the world. The annual global ranking, compiled by Forbes Asia after surveying 50 countries across the world, saw Qatar leaping to the prize winning position. With a "Misery Score" of the lowest 12 points, the Forbes put Qatar that only levies corporate income tax, as the most friendly tax climate in its 2009 Tax Misery & Reform Index. (Source: Zawya Dow Jones Newswire) • Residential rental rates in Qatar are likely to dip by around 10 per cent in 2009 due to sliding oil prices and companies freezing new staff recruitment. Around 9,000 new apartments are likely to come into the Qatar market by 2010; however, the ongoing global economic turmoil has put a sudden halt to the property boom in the country. (Source: Zawya Dow Jones Newswire)

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Macroeconomic Profile Qatar’s economy continued to be one of the fastest growing economies of the region for the last few years. Preliminary estimates from Qatar Statistics Authority revealed a nominal GDP growth rate of 44% for 2008 to surge to a new landmark of QR372.4bn (US$102.3bn). Consequently, GDP per capita was lifted to a record level of US$70,630 in 2008 from US$57,936in 2007. Thus, Qatar continued to be one of the top ten wealthiest countries in the world with its GDP per capita exceeding the US$70,000 level. Looking forward, Qatar’s economic outlook remains positive despite the current financial turmoil and recessionary trend for the world economy. According to the Deputy Premier and Minister of Energy; “Qatar’s economy has enough ammunition required to tackle the extraordinary regional and global conditions emerging out of the economic slowdown”. Moreover, the Central Bank Governor stated that “Gas rich Qatar expects to shrug off the global financial crisis and post healthy economic growth in the range of 7%-9%”. However, other estimates points to higher GDP growth rates to be registered for 2009. The IMF forecasts 2009 real GDP growth at 15% to 18%, while the Economist Intelligence Unit forecasts real GDP growth of 13.4%. According to such estimates, Qatar is on the way to report the highest economic growth in the world for 2009. Such sustainable growth of Qatar is expected to prevail based on pillars of diversification and prudent government policies whether, monetary or fiscal. This is in addition to policies aiming to support private sector participation in development in addition to supporting banking system. Thus, we foresee the Qatari economy to continue its growth journey whether for the hydrocarbon or non oil sectors of GDP. On the oil front, Qatar economy will benefit from the high levels of investment in hydrocarbon sector. Despite the current scenario of declining oil prices, Qatar dependence on LNG exports would be the main driver of growth for the hydrocarbons sector. This is mainly due to the planned increase in gas production of around 80% during 2009-2010. Qatar is pushing ahead with mega LNG projects to attain its production target of 77mn tons per year. Thus, Qatar inaugurated the world’s largest LNG project, Qatargas 2 at Ras Laffan Industrial City. The US$13bn investment project is expected to provide prosperity to the economy for years to come. On the non-oil front, the ongoing government’s diversification efforts will support the non-oil and gas sector to increase its contribution to the overall GDP over years. Consequently, major initiatives to diversify the economy will come to fruition in the coming years. Among these initiatives are Qatar Financial Centre, Education City, Qatar Science and Technology Park, Energy City Qatar, Tourism sector, Construction and Real Estate, Sports, Conferences etc. As for the monetary policy, Qatar’s central bank expressed its support to the Qatari financial sector as it expressed its willingness to inject liquidity into the banking system if needed in response to the global credit crunch. Moreover, on the exchange rate front, the monetary policy is largely constrained by the Qatari riyal peg to the US$. Such peg will show a sort of support in a scenario of falling global commodity prices and a stronger US$. This is expected to have a good impact on price levels as inflation is expected to fall to one digit level by the end of 2009 after reporting record double digit levels, exceeding 16% during 2008. On the financial sector front, Qatar’s banking sector appears to be well placed to ride out the global economic downturn supported by the sound economic performance of the country as



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well as the state support for local banks and solid levels of liquidity. Moreover, in March 2009 the state announced it had completed the purchase of US$1.78bn worth of local bank investment portfolios listed on the Doha Stock Market. Finally, in an assurance that Qatar is pressing ahead full steam with growth plans despite a global recession, the country’s prime minister said “Qatar has set aside about $150 billion for various projects over the next four years and stands ready to inject funds into local companies hit by the global economic meltdown”. Thus looking forward, Qatari banking and financial system is expected to continue its upward journey in line with the whole economy. On the fiscal front, Qatar’s budget for 2009-2010 emphasized on public spending to help the country weather the adverse effects of the global financial crisis. This is mainly as the key challenge during the ongoing credit crunch is the availability of steady spending in order to attain desired economic growth rate. Thus, the announcement of the new expansionary budget revealed huge allocations for public projects despite the declining oil revenues, thus reflecting the country’s keenness to realize the goals set as part of Qatar National Vision 2030. According to the vision, Qatar aims to be an advanced society capable of sustaining its development and providing a high standard of living for its population. Qatar has made huge allocations for strategic infrastructure development projects in its budgetary estimates for the new fiscal year 2009-10 to report the second highest expansionary budget of QR94.5bn. The budget is expecting a deficit of QR5.8bn due to the declining oil prices. Such expansionary budget is mainly to support the capital expenditure thus activating the economy and sustaining growth path. Finally, Qatar’s outlook is very favorable, with continued strong growth expected to be driven by the hydrocarbon sector, as well as by diversification into higher value-added petrochemicals and other sectors such as real estate, financial and service sector related industries.

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Gross Domestic Product Qatar’s economy is one of the fastest growing economies of the region for the last few years. The Qatari economy continued to report double digit growth rates over the period 2003-08. Nominal Gross Domestic Product (GDP) reported average growth rate of 32.2% over the period while real GDP reported 10.8% average growth. As for the year 2008, preliminary estimates from Qatar Statistics Authority revealed a steep growth of 44% for 2008. The country continued its stellar performance in 2008 on top of 25.1% of growth reported for 2007. Qatar’s GDP measured at current prices surged to a new landmark of QR372.4bn (US$102.3bn) in 2008 as against QR258.6bn (US$71.04bn) recorded in the previous year. Such increase in GDP lifted GDP per capita to a record level of US$70,630 in 2008 from US$57,936 in 2007. Thus, Qatar continued to be one of the top ten wealthiest countries in the world with its GDP per capita exceeding the US$70,000 level. It is important to note that, the record growth rate was supported by both the oil boom during first half of the year 2008 as well as the ongoing diversification plans of Qatar away from oil sector. Such diversified economy helped Qatar to face looming recessionary threats due to the financial turmoil accompanied with downturn in oil prices during the second half of 2008. Table 01: Gross Domestic Product   GDP at Current Prices (QR mn) GDP at Current Prices (US$ mn)** Nominal GDP Growth (%) Real GDP Growth (%) GDP Per Capita (US$) Production of Crude Oil (mn b/d) OPEC Crude Oil Basket Price (US$/b)

2003 85,663 23,534 21.5% 3.5% 32,788 0.75 28.10

2004 115,512 31,734 34.8% 20.8% 41,703 0.77 36.05

2005 154,564 42,463 33.8% 6.1% 47,794 0.79 50.64

2006 206,644 56,770 33.7% 12.2% 54,496 0.82 61.08

2007 2008 258,591 372,384* 71,041 102,303 25.1% 44.0% 12.0% 10.4% 57,936 70,630 0.81 0.84 69.10 94.45

* Preliminary data ** (1 US$ = 3.64 QR) Source: Qatar Central Bank, Planning Council, Qatar Statistic Authority, Global Research

Historically, Qatar has recorded the highest growth rates among Arab countries over the last period mainly because of its LNG exports. This is mainly as Qatar controls the world’s third largest recoverable gas resources after Russia and Iran. Thus, looking forward, driving the economy forward will continue to be the ever expanding natural gas sector and related industries, which continues to primarily lead the economic diversification efforts. However, in the coming years the non-oil and gas sector will contribute significantly to the overall GDP, as major initiatives (Qatar Financial Centre, Education City, Qatar Science and Technology Park, Energy City Qatar, Tourism, Construction and Real Estate, Sports, Conferences etc.) to diversify the economy come to fruition. Analyzing GDP data for 2008 revealed the huge contribution of oil & gas sector to GDP to stand at a record level of QR229.7bn up from QR146.5bn in 2007. As a result, the sector contribution surpassed the 60% mark for the first time to account for 61.7% of the GDP in 2008 up from 56.6% in 2007. However, it is important to note that oil & gas sector contribution

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CAGR 03-08 34.2% 34.2%

16.6% 2.3% 27.4%

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to GDP has been declining for 2006 and 2007 in favor of non oil sectors due to the increasing role of diversification. Such trend was reversed in 2008 mainly due to the increasing exports of LNG as well as the huge increase in oil prices during the first half of 2008. On another side, non-oil sector surged to a new landmark of QR142.7bn. Thus, the sector contributed for 38.3% of 2008 GDP down from 43.4% in 2007. Figure 01: Oil versus Non Oil GDP 2008

2007 Non Oil GDP 38.3%

Non Oil GDP 43.4%

Oil & Gas GDP 61.7%

Oil & Gas GDP 56.6% Source: Qatar Central Bank, Planning Council, Qatar Statistic Authority, Global Research

It is important to note that, both oil and non oil GDP sectors continued to report double digit growth rates over the period 2004-08. As a result both sectors reported high average growth rates of 36.0% and 32.8% respectively over the period. However, the growth rate of non oil & gas sector surpassed oil GDP growth rates for 2004, 2006 and 2007. This trend was reversed for 2008 as Oil GDP grew much more rapidly at 56.8% as compared with 27.2% of non oil GDP growth. Figure 02: Gross Domestic Product Growth Rates 60% 55% 50%

56.8% 49.8%

46.3% 41.1%

45% 40%

44.0% 34.8%

33.8%

35%

33.7%

30% 25% 20%

27.1% 27.2%

28.6% 24.5%

23.7%

18.8%

25.1%

15% 2004

2005

2006

Oil & Gas Sector

Total Non Oil & Gas GDP

2007

2008 Total GDP

Source: Qatar Central Bank, Planning Council, Qatar Statistic Authority, Global Research

The increase in oil and gas sector contribution to GDP was on account of the decline in all other sectors contributions to the GDP in 2008, with the exception of other services. Among the non-oil & gas sectors, finance, insurance, real estate & business services sector continued to be the major contributor to the non oil GDP in 2008 accounting for 26% followed by Other services at 21.6%. Manufacturing sector accounted for 17.8% of non oil GDP, while building & construction accounted for about 12.7%. Finally, trade, restaurants & hotels sector accounted for 9.3% of non oil GDP in 2008.

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Figure 03: Non Oil GDP by Sector 2008 Trade & Hotels 9.3% Building & Const. 12.7%

Transport & Comm 8.6%

Finance, Insurance & RE 26.0%

Elec. & Water 3.8% Manufacturing 17.8%

Oher Services 21.6%

Agri. & Fishing 0.2%

Source: Qatar Central Bank, Planning Council, Qatar Statistic Authority, Global Research

On CAGR basis, oil & gas sector grew at a high rate of 35.4%, similarly, non-oil & gas sectors grew rapidly by 32.4% over the period 2003-08. Among the non-oil & gas sectors, the growth rate of “Finance, insurance, real estate & business services” sector was the highest at 41.8% during 2003-08. “Electricity & water” followed at 35.3% as the sector is witnessing increased activity mainly due to growing consumption of both utilities thanks to rising population and increased industrial as well as real estate activities in the country. Following ahead was “transport & communications”, “Building and Construction” and “Manufacturing” reporting 33.3%, 31.3% and 31.1% respectively. “Other services” sector which comprise of government services, imputed bank service charges, household services, social services, import tariffs, etc reported 28.5% of growth. “Trade, restaurants & hotels services” sector achieved CAGR of 25.1%. Activities in this sector will increase further as business events and conferences are gathering pace in Qatar. Finally, the only sector which registered a single digit CAGR was agriculture & fishing increasing by 5.9% during 2003-08. Table 02: GDP by Economic Activity QR mn Oil & Gas Sector Agriculture & Fishing Manufacturing Electricity & Water Building & Construction Trade, Restaurants and Hotels Transport & Communications Finance, Insurance, Real Estate & Business Services Other Services Total Non Oil & Gas GDP Total GDP

2003 2004 2005 2006 2007 2008* 50,551 62,922 92,071 118,443 146,475 229,729 201 210 216 233 250 268 6,553 11,995 13,042 15,875 19,179 25,390 1,205 1,482 2,209 3,513 4,329 5,456 4,654 6,425 8,744 11,991 14,634 18,166 4,345 6,148 6,869 9,452 12,002 13,311 2,911 4,020 5,114 7,159 9,803 12,274 6,446 9,925 14,785 21,392 31,865 37,019 8,797 12,385 11,514 18,586 20,054 30,771 35,112 52,590 62,493 88,201 112,116 142,655 85,663 115,512 154,564 206,644 258,591 372,384

*Preliminary data Source: Qatar Central Bank, Planning Council, Qatar Statistic Authority, Global Research

Analyzing GDP by type of expenditure revealed that Gross Fixed Investment (GFI) and Net exports contributed the most to the Qatari economy over years. Both expenditures accounted for more than 60% of GDP on average over the period 2004-08. On one hand, GFI is mainly seen as the most important type of expenditures as it is related to MEGA and Development

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CAGR 03-08 35.4% 5.9% 31.1% 35.3% 31.3% 25.1% 33.3% 41.8% 28.5% 32.4% 34.2%

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projects that act as a stimulus for the whole economy. This is mainly as increasing capital expenditures are linked to increasing demand, creating new jobs and accelerating economic growth. That is why the stellar economic growth over past years was directly related to the major contribution of GFI to GDP accounting for 32.1% of GDP on average for the period 2004-08. On another hand, net exports accounted for 34.1% of GDP on average over the same period. It is important to note that Qatari economy is seen as a net exporter mainly due to Oil and LNG exports. Table 03: GDP by Type of Expenditure (% of GDP) % of GDP 2004 2005 Private Consumption 17.5 15.0 Government Consumption 13.1 11.5 Gross Fixed Investment 30.1 33.6 Stock building 3.2 1.9 Net exports 36.1 38.0 Exports of goods & services 64.2 67.6 Imports of goods & services (28.1) (29.6) Total 100.0 100.0

2006 23.0 14.5 29.7 2.0 30.8 69.0 (38.2) 100.0

2007 19.2 13.1 34.1 2.1 31.5 72.9 (41.4) 100.0

2008 18.8 12.1 33.2 1.9 34.0 72.0 (38.0) 100.0

Source: EIU & Central Statistical Office

Looking forward, we anticipate that Qatari economy will continue its growth path however at lower pace. We estimate real GDP to grow at a range of 7% to 10% for the year 2009. Such growth rate is considered one of the fastest growth rates during 2009 amid a period of recessionary pressures covering the world economies in general and GCC economies in particular. Major reasons backing such growth will be the increasing dependence on LNG exports rather than Oil as Qatar is pushing ahead with its mega LNG projects to attain its output target of 77mn tons by 2012. Moreover, the ongoing diversification plans will continue to play a major role in waiving the risks of declining oil prices and liquidity crunch facing financial sectors around the world.

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Public Finance Historical trends in Qatari Budget…. Increasing actual surplus over years…

Historically, actual budget figures continued to report increasing surpluses over the period 2003-04 up to 2007-08. On CAGR basis, budget surplus grew rapidly at 83.2%, increasing form QR3.4bn in 2003-04 to stand at a record level of QR38.06bn in 2007-08. As a result, actual surplus as a percentage of GDP increased significantly from merely 3.9% to all times high of 14.7% during the period. Such rapid increase in surplus was supported by actual revenues increasing at a higher CAGR of 39.4% as compared with a CAGR of 29.9% for actual expenditures.

QR bn

Figure 04: Actual Budget surplus to GDP 40 35 30 25 20 15 10 5 0

16.4%

14.7% 9.0%

9.2% 3.9% 3.4 2003-04 (Actual)

18.6

38.1

2006-07 (Actual)

2007-08* (Actual)

14.2

19.0 2004-05 (Actual)

2005-06 (Actual)

Surplus/ (Deficit)

18% 16% 14% 12% 10% 8% 6% 4% 2% 0%

Surplus/ (Deficit)/ GDP

*Preliminary Source: Qatar Central Bank

Table 04: Historical budget performance 2003-04 2004-05 2005-06 2005-06 2006-07 2006-07 2007-08 2007-08* CAGR (in QR mn) (Actual) (Actual) (Budget) (Actual) (Budget) (Actual) (Budget) (Actual) (2003-07) Total Revenue 30,563 55,064 38,028 64,984 56,900 84,998 72,457 115,460 39.4% Oil & Gas 19,593 36,319 N A 43,616 N A 54,919 NA 70,120 37.5% Non Oil & Gas 10,970 18,745 N A 21,368 N A 30,079 NA 45,340 42.6% Total Expenditure 27,187 36,102 37,810 50,833 54,600 66,356 65,712 77,405 29.9% Current expenditure 21,921 28,270 26,081 32,761 34,600 49,444 42,833 48,357 21.9% Capital expenditure 5,266 7,832 11,729 18,072 20,000 16,912 22,880 29,048 53.3% Surplus/ (Deficit) 3,376 18,962 218 14,151 2,300 18,642 6,745 38,055 83.2% *Preliminary, N A – Not Available Source: Qatar Central Bank

Moreover, it is important to note that comparing actual budget outcomes with budgeted figures for Qatar continued to report both actual revenues and expenditures surpassing budgeted figures significantly by more than 50% and 20% respectively on an average. Needless to mention; the major reason is the conservative government assumptions regarding oil prices and production levels when planning the budget. Similarly LNG production and exports increased significantly over the last few years and is still expected to increase more up to 2012 consequently increasing revenues.

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On the other side, both current and capital expenditures continued to surpass the budgeted figures due to the ongoing development projects aiming for diversification. This implies the increasing level of investment in the country to sustain growth. Generally, the increase in capital expenditure has positive impact on the overall economy with maximum impact on sectors like construction, real estate and infrastructure. This will have a trickle-down effect on other areas of economy as well by contributing to achievement of targeted rates of growth and creation of new jobs. Increasing contribution of non oil revenues…

Similar to other Oil economies, Oil and Gas sector plays a major role in Qatari budget. Generally, oil and LNG are the main sources of revenues, although the government’s efforts to diversify Qatar’s industrial base has resulted in the growth of other sources of revenue. Historically, the primary source of revenue for the national budget is from the oil and gas activities of Qatar Petroleum (QP). The Ministry of Finance receives royalties and tax revenues on export sales of crude oil, refined products and gas products. As a result, oil and gas revenues continued to account for more than 60% of actual revenues over the period 2003-04 up to 2007-08. However, it is important to note that oil revenues contribution is declining for the last couple of years in favor of increasing non oil revenues. Non-oil revenues maintained their share in total revenues at an average of 35.5% over the period. However, this share increased to account for 39.3% of total revenues by the end of 2007-08. The increase was mainly due to the ongoing diversification plans to maintain sustainable economic growth in the future. Generally, non oil revenues include custom duties and public utility fees. Figure 05: Actual Budget revenues by sector 80.0% 70.0%

64.1%

66.0%

67.1%

35.9%

34.0%

32.9%

35.4%

2003-04 (Actual)

2004-05 (Actual)

2005-06 (Actual)

2006-07 (Actual)

64.6%

60.7%

60.0% 50.0% 40.0% 30.0% 20.0%

39.3%

10.0% 0.0%

Oil & Gas

2007-08* (Actual)

Non Oil & Gas

*Preliminary Source: Qatar Central Bank

Increasing capital expenditures contribution….

Analyzing actual expenditures by category over years revealed all categories reporting high growth rates. However, more importantly was the fact that capital expenditures continued to grow at higher rates as compared to current expenditures over the period 2004-05 to 2007-08. Capital expenditures reported an average growth rate of 61.2% over the period as compared to 23.4% average growth for current expenditures. Such trend helped capital expenditures to increase its share in total expenditures over years from 19.4% in 2003-04 to account for 37.5% of total expenditures at the end of 2007-08.

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Figure 06: Actual expenditure by type 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0%

80.6%

74.5%

78.3% 64.4%

62.5%

37.5%

35.6% 25.5%

19.4%

21.7%

2003-04 (Actual)

2004-05 2005-06 (Actual) (Actual) Current expenditure

2006-07 (Actual) Capital expenditure

2007-08* (Actual)

*Preliminary Source: Qatar Central Bank

2007-08 Actual As per the preliminary data released by the Qatar Central Bank, the country reported a huge surplus of QR38.06bn by the end of 2007-08. Such level is higher than previously recorded level of QR18.96bn reported for 2004-05. Moreover, this is the fifth surplus in a row since 2003-04. On annual basis, this surplus is 104.1% higher than QR18.64bn reported for 200607. The record surplus was a direct result of huge increase in revenues by 35.8% as compared to 16.7% increase in total expenditures. Total revenues surpassed the QR100bn mark for the first time to stand at QR115.46bn at the end of 2007-08 as compared with QR85.0bn in 2006-07. Oil revenues continued to account for more than 60% of total revenues standing at QR70.12bn. This represented 27.7% annual growth rate over QR54.92bn reported last year. Non-oil revenues grew more rapidly at 50.7% to a new record level of QR45.34bn. On another front, total expenditures grew in line with revenue growth at a rate of 16.7% to reach new peak of QR77.41bn. Capital expenditure rather than current expenditures accounted for the growth. It increased significantly reporting 71.8% of annual growth to stand at QR29.05bn. Current expenditures on the other side reported its first decline in four years, retreating by 2.2% to stand at QR48.36bn. As a result, capital expenditures contribution in total expenditures improved to account for 37.5%. The decline in current expenditures was traced back to the decline in interest payments and other current expenditures by 20% and 19.2% respectively. However, salaries & wages expenditures increased by 28.2% to reach QR13.6bn to account for 59.1% of total current expenditures. Table 05: Summary of Government Finance (in QR mn) Total Revenue Oil & Gas Non Oil & Gas Total Expenditure Current expenditure Salaries & Wages Interest Payments Supplies & Services Others Capital expenditure Surplus/ (Deficit)

2006-07 (Actual) 84,998 54,919 30,079 66,356 49,444 12,971 1,938 1,076 33,459 16,912 18,642

2007-08 2007-08* (Budget) (Actual) 72,457 115,460 NA 70,120 NA 45,340 65,712 77,405 42,833 48,357 NA 13,613 NA 1,550 NA 6,166 NA 27,028 22,880 29,048 6,745 38,055

2008-09 (Budget) 103,300 NA NA 95,900 55,900 NA NA NA NA 40,000 7,400

2009-10 (Budget) 88,700 NA NA 94,500 56,600 NA NA NA NA 37,900 (5,800)

*Preliminary Data, N A – Not Available Source: Qatar Central Bank

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2008-09 Budget Qatar announced a record budget for the year 2008-09 that is the largest in the country’s history in terms of projected spending, income and surplus. Total revenue was projected to rise by 42.6% to a new record level of QR103.3bn. Similarly, total expenditure was set to rise to a new peak of QR95.9bn, or 45.9% of growth over the corresponding figures for 2007-08. As a result, budget surplus, was projected to peak to QR7.4bn to grow by 9.7%. However, we anticipate that actual surplus would be higher than budgeted figures. This is mainly as actual oil prices reached record levels surpassing the US$140/b during mid 2008 while the budget is based on an oil price assumption of US$55/b. Moreover, the year 2008 is estimated to have reported huge increase in LNG exports thus will push revenues much higher. On the other side, expenditures are still expected to surpass budgeted figures, however, not to the extent that will offset the increase in revenues. Therefore, the actual surplus for 2008-09 is expected to be much higher than the projected budget surplus, like previous years. 2009-10 Budget Qatar approved the new 2009-10 budget during April 2009. The new budget is seen as another expansionary one despite the current financial crisis facing the world economies. Similar to other GCC neighboring countries (Saudi Arabia and UAE), Qatar approved a huge expansionary budget to overcome economic slowdown. The new budget will suffer the first deficit since 2001 estimated to reach QR5.8bn. This deficit is to be compared to last year budgeted surplus of QR7.4bn. The new budget aims at supporting the economy against the pressure of the global financial crisis and low oil prices. According to officials from Ministry of Finance “the new budget indicates the keenness of the country’s leadership to be responsive to the demands of sustainable development and to achieve the targets set in the 2030 National Vision to support economic and social development.” Consequently, the private sector hailed the new budget as higher allocations for public projects would help it to overcome the challenges posted by the global economic slowdown. As well it reflects the government’s intention of keeping the private sector engaged in national development. The new budget is based on an oil price of US$40/b as compared with US$55/b estimated for previous budget. As a result, total revenues were slashed to QR88.7bn down from QR103.3bn estimated for 2008-09, a decline of 14.1%. Expenditures on the other hand are estimated to be high at QR94.5bn, slightly lower than its record budget of QR95.9bn for 2008-09. However, it is important to note that out of total expenditures 40% were allocated for strategic development projects mainly to keep the economy upbeat. According to Qatar News Agency, QR37.9bn were allocated for strategic infrastructure projects in some key areas like health, education and human resource development. Finally, it is important to note that the estimated QR5.8bn deficit –almost 2% of GDP- is mainly due to estimating oil price at US$40/b thus the deficit can be offset if the crude rates improve. Moreover, the deficit is expected to be offset by a surge in the country’s LNG output that is expected to keep the upward trend thus improving revenues.

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Current Account Qatar enjoyed a huge increase in oil and gas revenues that helped fuel strong trade surpluses for several years. Especially in 2008 when oil and gas trading activity was at an all time high, oil prices reaching US$147, this has helped Qatar accumulate huge surpluses. High oil prices throughout 2007 resulted in the exports value of the country increase by 23.4% in 2007 to reach QR152.9bn, which was about 59.1% of the country’s GDP for the year. However, imports continued to increase at a faster pace than exports for the third year to report 33.8% of growth, standing at QR72.2bn. The year 2007 witnessed the current account registering yet another year of strong surplus. The surplus increased at a rate of 10.4% during 2007 reaching a new high of QR38.0bn. Such increase was on the back of a 15.4% increase in the trade balance, which reached QR80.8bn. It continued to be the soul positive contributor to current accounts surplus as all other categories continued to report deficits over years. Table 06: Balance of Payments (in QR mn) Current Account Balance of Trade Exports (FOB) Imports (FOB) Services (Net) Income Transfers Capital & Financial Accounts Net Errors & Omissions Overall Balance Trade Balance as a % of GDP Current Account Balance as a % of GDP

2002 13,919 25,210 39,960 -14,750 -3,966 -3,266 -5,522 -6,233 -1,175 6,511 37.8% 19.7%

2003 20,943 32,846 48,711 -15,865 -4,380 -1,516 -6,007 -2,754 -2,790 15,399 38.3% 24.4%

2004 27,488 48,321 68,012 -19,691 -4,468 -8,160 -8,205 -4,861 -8,333 14,294 41.8% 23.8%

2005 27,234 60,781 93,773 -32,992 -3,362 -20,805 -9,380 -4,321 -6,594 16,319 39.3% 17.6%

2006 34,430 70,034 123,945 -53,911 -10,059 -11,941 -13,604 -20,339 5,709 19,800 33.9% 16.7%

*Preliminary Estimates. Source: Qatar Central Bank

Transfers account deficit increased slightly in 2007 to QR13.8bn, up 1.3% from 2006. Income account continued to contribute negatively to the current account over the period 2002-2007 reporting an increasing deficit at a CAGR of 36.4%. On annual basis, income account deficit increased by 29.2% to stand at QR15.4bn by the end of 2007. Table 07: Capital and Financial Account Capital Account Financial Account Capital and Financial Account

2003 (1,160) (1,594) (2,754)

2004 (2,004) (2,857) (4,861)

2005 2006 (2,742) (3,608) (1,579) (16,731) (4,321) (20,339)

2007 (4,118) 6,098 1,980

Source: Qatar Central Bank

In addition to the strong current account, both the capital and financial accounts posted a surplus for the first time since 2002. The overall capital and financial account reversed its direction to report a record surplus of QR1.98bn as compared with last year deficit of QR20.3bn.

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2007* 38,022 80,793 152,951 -72,158 -13,562 -15,430 -13,779 1,980 6,090 46,092 31.2% 14.7%

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It is important to note that, the reported capital and financial accounts surplus by the end of 2007 was mainly due to the positive contribution of financial account rather than capital account. Such financial account surplus was more than enough to offset the deficit in capital account. Historically, both accounts continued to report ongoing deficits over the period 2003-06. Entering 2007, financial account reversed this trend for the first time to report a huge surplus of QR6.1bn. This is to be compared with a record level deficit of QR16.7bn in 2006 up from merely QR1.58bn of deficit in 2005. As for capital account, it continued to contribute negatively since 2003 reaching a deficit of QR4.1bn by the end of 2007, 14.1% higher than previous year’s deficit. External Trade Huge oil and gas demand and limited supply have helped earn Qatar huge revenues on exports. Trade balance reached QR70.9bn as of 2007. The external trade continued to report increasing surplus. On a CAGR basis the surplus of Qatar increased 23.5% during the period 2003-2007, it increased from QR30.7bn in 2003 to QR70.9 in 2007. On a Y-o-Y basis, the surplus increased 13.3% by the end of 2007. Total exports grew by 23.4% while total imports increased by 33.8%. Qatar benefited from the recent bull market that added more revenues from the oil and gas exports, which make up a 90.8% share of Qatar’s total exports. Figure 07: Trade Balance Summary 160,000 140,000 120,000

QRmn

100,000 80,000 60,000 40,000 20,000 0

2003

2004 Total Exports

2005 Total Imports

2006

2007

(Surplus/Deficit)

Source: Qatar Statistics Authority

Exports Analyzing exports composition by commodity revealed that in 2007, 90.8% of total exports are classified as mineral products, while 4.8% is the share of chemical products and 3.29% is plastics/rubber, these three categories hold a 98.84% share of Qatar’s exports. Total mineral products exports reached QR137.0bn in 2007, up 23.2% from 2006.

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Table 08: Exports (QRmn) Live Animals/ Animal Products Vegetable Products Animal or Vegetable fats or oils Prepared Foodstuff/Beverages Mineral Products Chemical Products Plastics/Rubber Raw Hides, Skin, Leather Wood and articles of Wood Pulp of Wood and Fibrous materials Textile and Textile products Clothing Articles of stone, cement and iron ores Natural or cultured pearls Base Metals Machinery and mechanical Appliances Vehicles and other transport equipments Optical an Photographic Equipments Arms and Ammunition Other Total Exports

2003 28.2 1.6 0.4 2.7 44,381.6 1,290.2 969.0 5.3 0.2 8.3 319.2 333.1 1.2 0.0 1,007.4 2.6 1.0 0.2 1.1 48,353.5

2004 25.4 3.3 0.9 20.0 58,917.5 4,851.6 1,603.0 3.4 0.5 37.1 143.2 184.1 1.6 0.2 1,376.8 22.4 152.4 0.3 0.0 2.0 67,345.7

2005 2006 2007 59.1 26.3 39.8 4.4 4.3 2.3 1.5 5.6 5.6 4.5 1.8 3.7 83,330.5 111,292.1 137,080.9 4,873.6 5,530.6 7,247.9 2,308.2 4,101.6 4,974.8 5.0 2.5 1.2 0.1 0.1 1.2 16.3 15.2 20.2 114.2 38.9 7.2 135.5 56.6 29.8 5.2 2.0 1.8 0.0 1,496.0 1,362.8 1,576.8 8.2 13.7 55.8 1.7 1.3 0.6 0.1 0.1 0.6 1.5 0.8 2.8 92,365.4 122,456.3 151,053.0

Source: Qatar Statistics Authority

As for the geographical distribution of exports, partners over the past years were Asian countries accounting for 84.9% of total exports in 2007. Exports to Asian countries reported a high CAGR of 34.0% during the period 2003-2007. Arab and European countries followed at 5.3% and 4.6% respectively. The year 2007, Japan, South Korea and Singapore captured the lion share in trade partnership with Qatar, they accounted for 40.5%, 17.4%, and 11.3% respectively of total exports. Figure 08: Export Partners 2007

Arab Countries, 5.3% Others, 2.6% Africa, 0.4% Pacifics, 1.1% American, 1.0% European, 4.6%

Asia, 84.9%

Source: Qatar Statistics Authority

Imports Analyzing imports composition by commodity revealed that the categories of machinery, base metals and vehicles accounted 73.4% of the total imports of Qatar during 2007. Machinery and mechanical appliances imports stood at QR31.6bn or 40% of total imports to report a Yo-Y growth of 46.3%. Base metals followed with QR16.2bn or 20.2% of total imports, on a 20

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CAGR basis base metal imports increased 57.1% during the period 2003-2007, reporting the second highest growth among imports. Table 09: Imports (QR mn) Live Animals/ Animal Products Vegetable Products Animal or Vegetable fats or oils Prepared Foodstuff/Beverages Mineral Products Chemical Products Plastics/Rubber Raw Hides, Skin, Leather Wood and articles of Wood Pulp of Wood and Fibrous materials Textile and Textile products Clothing Articles of stone, cement and iron ores Natural or cultured pearls Base Metals Machinery and mechanical Appliances Vehicles and other transport equipments Optical an Photographic Equipments Arms and Ammunition Other Total Imports

2003 648.6 466.5 62.6 578.8 494.1 1,030.5 444.2 35.0 184.8 233.9 644.9 85.9 447.5 177.7 2,654.3 5,707.0 2,721.3 695.1 1.1 512.7 17,826.3

2004 662.1 415.5 65.9 511.9 621.6 1,011.6 516.9 42.9 159.1 226.1 646.1 84.5 351.6 335.8 2,717.1 4,631.7 7,647.2 700.3 6.5 501.9 21,856.2

2005 953.8 620.1 92.5 906.8 1,222.2 2,053.7 913.1 70.6 436.2 337.3 958.0 144.3 822.4 512.8 6,160.5 12,176.0 5,808.6 1,402.0 3.8 1,026.3 36,621.0

2006 1,080.5 787.2 115.3 1,197.0 1,720.5 2,517.6 1,337.2 100.1 585.1 442.5 1,283.8 208.1 1,346.3 674.0 11,764.1 21,593.5 9,448.7 1,817.2 18.5 1,804.4 59,841.4

2007 1,367.6 1,124.1 135.1 1,305.5 2,572.7 3,255.1 1,724.4 129.7 845.5 545.3 1,328.9 243.3 1,775.7 1,179.5 16,158.7 31,599.9 11,027.0 1,985.1 36.1 1,757.9 80,097.0

Source: Qatar Statistics Authority

As for the geographical distribution of imports, major import partners in 2007 were European, Asian and Arab countries. Together they accounted for 85.2% of the total imports. On CAGR basis, imports from Asian countries reported the highest growth of 51.6% during the period 2003-2007. European and Arab countries followed, growing at a CAGR of 43.4% and 43.0% during the same period. Figure 09: Imports by destination

Arab Countries, 15.6%

Asia, 33.8%

Others, 0.1% Africa, 0.4% Pacifics, 1.2% Americas, 13.2% Europe, 35.9% Source: Qatar Statistics Authority

On another front, the United States of America was the largest source of imports to Qatar. By the end of 207, Qatar imports from U.S.A stood at QR9.1bn to account for 11.3% of total imports. Followed by Italy, Japan and Germany, they accounted for 10.3%, 9.9% and 7.7% respectively. Among GCC countries Qatar is a major trading partner of U.A.E, which accounts for 77.6% for Qatari exports to the GCC and 49.6% of the total Qatari imports from the GCC. June 2009

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Monetary Policy Since its establishment in 1993, Qatar Central Bank (QCB) has inherited its monetary strategy of exchange rate targeting from Qatar Monetary Agency. The fixed parity between the United States Dollar (US$) and the Qatari Riyal (QR) at the rate of QR3.64 per dollar was inherited as nominal anchor, which is still effective. The de facto exchange rate targeting monetary policy regime as well as the target peg has been de jure authorized by an Amiri decree issued in July of 2001. Keeping in-line with this, the QCB will continue to adjust its discount rate in line with the US Federal Reserve rates. The GCC council is working on establishing the GCC Monetary Union in 2010, Qatar is alongside all other GCC countries in term of currency except Kuwait. Kuwait Dinar is not pegged with the US Dollar. To achieve a monetary union certain criteria’s should be fulfilled, Inflation rates should not exceed the GCC weighted average inflation rates plus 2%, Foreign exchange reserves should cover at least four months of goods imports, Government annual fiscal deficit should not exceed 3% of the GDP, Interest rate parity, low public debt to GDP ratio and average short term interest rates should not exceed the average of the lowest three interest rates +2%. As of 2007 , Qatar have passed all criteria except that of inflation. In 2007, the average GCC inflation rate was 7.26%, Qatar inflation was measured at 13.8% which is considered a complication a achieve a unified monetary policy. Commitment to the US Dollar peg until the formation of the monetary union is the best solution, also the US$ has gained strength amidst the global crisis, which will also strengthen the Qatari Riyal. Keeping in-line with this, the QCB will continue to adjust its discount rate in line with the US Federal Reserve rates. The QCB lending rate is the key rate used by QCB to convey signals to the market revealing adjustments to its monetary policy stance. Recently, Qatar Monetary Strategy has adjusted its key bench mark rates like, QCB reduced deposit rate twice from 4% to 3% and then by 75 basis points to 2.25% in March 2008 again by 25 basis points to 2% in May 2008. The Central Bank maintained its lending rate at 5.5% and repo rate at 5.55%. Going forward, the interest rates in Qatar will take cue from the movement in US Fed rates due to currency peg. Today the Qatar Central Bank will focus on calibrating the interest rate to contaminate inflation without affecting the growth of assets and credit of the banking system. The QCB did not reduce its policy rates on the last two occasions when the Federal Reserve cut its rates. At the same time, however, QCB increased the Required Reserve Ratio (RRR) by 2% and is issuing CDs with maturities ranging from a one-month to nine months, and is also planning to issue 14-day fixed rate CDs. Although the QCB sees not to change its policy, it intends to maintain the current standard, such as the limits to real estate lending, the loandeposit ratio, and the liquidity ratio. However, inflation is a major concern for Qatar, though it has been unstable since the last four years, and if it remains in high terrain the authorities may have to increase the domestic interest rates. Inflation is estimated at 15% in 2008, the highest in the GCC, this is due to the extreme lending spree, rising housing and food prices and robust economic growth. Qatar authorities are considering inflation as a high priority to solve.

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Money Supply As of Q2-2008 broad money supply M2 reached QR149.9bn up from QR100.7bn witnessed during the same period a year ago. M1 which consists of currency in circulation and demand deposits have increased to a new record level of QR55.9bn by the end of Q2-2008. Thus, it reported a high growth rate of 67% as above QR33.48bn reported during Q2-2007. Moreover, it is still higher than the annual growth rate of 26.9% reported for 2007. Generally, M1 growth during 2Q-2008 was mainly backed by the increase in demand deposits by 72.8% in addition to 26.8% growth in currency in circulation. Demand deposits increased from QR29.25bn in Q2-2007 to report a new record level of 50.55bn in Q2-2008. Similarly, currency in circulation increased to another record level of QR5.37bn up from QR4.24bn. On a CAGR basis, M1 increased 41.3% during the period 2002-2007 showing a strong level of consumption and the availability of a huge pool of cash. Table 10: Money Supply (in QR mn) Currency in Circulation (1) Demand Deposits (2) Money Supply (M1) (3)=(1) + (2) Time Deposits (4) Deposit in Foreign Currencies (5) Quasi Money (6)=(4) + (5) Money Supply (M2) (7)=(3)+(6)

2002 1,921.3 4,367.7 6,289.0 19,002.1 6,855.9 25,858.0 32,147.0

2003 2,147.5 9,130.2 11,277.7 17,958.0 7,987.3 25,945.3 37,233.0

2004 2,594.0 12,004.4 14,598.4 20,620.9 9,645.7 30,266.6 44,865.0

2005 2,865.6 19,496.6 22,362.2 26,059.5 15,849.2 41,908.7 64,270.9

2006 3,958.9 23,924.2 27,883.1 36,748.0 24,027.4 60,775.4 88,658.5

2007 4,487.2 30,887.3 35,374.5 60,245.8 22,013.8 82,259.6 117,634.1

Source: Qatar Central Bank

As for M2 -the broad definition of money supply- it has reached QR149.96bn as of Q2-2008, increasing by 48.8% over the same period last year. This reflects the level of credit abundance in Qatar. M2 increase was on the back of the growth in both M1 and Quasi Money by 67% and 39.8% respectively. Within Quasi Money, time deposits reached QR72.79bn in Q2-2008, up 60.6% from Q2-2007. Such growth was more than enough to offset the marginal decline in foreign currencies deposits from QR21.95bn in 2Q-2007 to QR21.25bn during 2Q-2008. As a result, Quasi Money continued its double digit growth since 2004. It stood at a new record level of QR94.04bn in Q2-2008 up from QR67.26bn for the same period last year. Qatar liquidity has been increasing greatly during the period 2002-2008. This has offered different sectors huge credit facilities for growth and expansion. Credit facilities totaled QR201.56bn as of Q2-2008, up 55.1% from the same period a year ago. This have helped the Qatari economy post healthy nominal growth rates of 44% and 10.4% on nominal and real terms respectively by the end of 2008. Thus as long as Qatar posted strong growth, credit facilities are needed to fulfill the economy’s need. Qatar money supply will continue to increase but the inflation levels will be decreasing in 2009. Interest Rate Trend QCB interest rate framework embraces three policy rates: QCB Deposit Rate (QCBDR), QCB Lending Rate (QCBLR), and QCB Repurchase Rate (QCB Repo or QCBRR). QCBDR and

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Q2-2007 4,238.8 29,245.9 33,484.2 45,313.6 21,950.2 67,263.8 100,748.0

Q2-2008 5,373.6 50,548.2 55,922.1 72,791.4 21,249.3 94,040.7 149,962.8

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QCBLR are the interest rates announced by QCB on overnight deposit and loan transactions between QCB and local banks through the Qatar Money Market Rate Standing Facility (QMR), respectively. Generally, the interest rates in Qatar followed closely those prevailing in the United States. However, such trend witness some changes by the end of 2007 and early 2008. Deposit rates continued to follow US Fed fund rtes as they witnessed a downward trend by late 2007 and early 2008. However, QCB lending rates did not follow US Fed Funds Rate especially during 2Q-2008. Lending rates sustained its level at 5.5% as compared with the US declining rates that reached 2% during 2Q-2008. Over years, QMR on lending continued to increase following the US Fed Fund rate to reach a peak of 5.5% by the end of 2007 up from 1.58% during 2002. US Fed Fund Rate continued to increase over the same period from 1% to stand at 4.25% by the end of 2007. Figure10: Qatar Central Bank Monetary Rates 6.5 5.5

%

4.5 3.5 2.5 1.5

Repo

Lending

Deposits

Q4 -2 00 7 Q1 -2 00 8 2Q -2 00 8

Q3 -2 00 7

Q2 -2 00 7

20 07

20 06

20 05

20 04

20 03

20 02

0.5

US Fed Fund Rate

Source: Qatar Central Bank

As for interest rates on credit facilities, almost all categories witnessed an upward trend over the period 2004-07. Entering the year 2008, this trend was reversed to witness a declining trend for 2Q-2008. Rates on bank overdraft witnessed an increasing trend over the period 2004-07 reaching 7.94% in December 2007 from 6.88% at the end of 2004. As for the year 2008, it started the year on a declining trend as overdraft rates declined by Q1-2008 to stand at 7.73% before retreating further to 7.63 by 2Q-2008. Interest on bills discounted followed the same general trend over the period 2004-07 increasing from 6.65% to 8.26%. Moving forward, it decreased to 7.88% in Q1-2008, however, it picked up slightly to stand at 7.91% by the end of Q2-2008. Similarly, interest rate on car loans picked up from 7.99% in 2004 to 8.18% by the end of 2007. However, on annual basis, it declined from 8.61% reported for 2006. Entering the year 2008, the rates increased again reaching 8.37% by the end of Q1-2008 before standing at 8.89% by the end of Q2-2008. Interest rate on credit cards moved up to 20.31% in Q2-2008 from 18.82% in Q2-2007, interest rates on credit cards have averaged 19.2% since 2004, but during the whole period Q2-2008 witnessed the highest interest rates on credit cards.

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Table 11: Qatar Central Bank Interest Rates on Credit Facilities % Overdraft Bill Discounted Loans < 1 year Loans < 3 years Loans > 3 years Loans on Cars Credit Cards

2004 6.88 6.65 4.94 9.78 8.02 7.99 17.67

2005 6.87 7.77 6.35 9.48 8.32 7.44 18.14

2006 7.56 7.46 7.33 9.15 8.52 8.61 20.00

2007 7.94 8.26 7.57 8.92 8.76 8.18 19.48

Q2-2007 7.96 8.91 7.60 8.83 8.40 9.77 18.82

Q3-2007 7.37 7.51 7.30 8.14 8.28 8.23 19.35

Q4-2007 7.94 8.26 7.57 8.92 8.76 8.18 19.48

Q1-2008 7.73 7.88 6.66 8.54 8.50 8.37 19.85

Source: Qatar Central Bank

Finally, interest on personal loans, due in less than one year decreased from 7.57% in 2007 to 6.6% by Q2-2008. As for interest on medium term loans which are due in less than three years declined to 8.67% at the end of Q2-2008 from 8.92% at the end of 2007. In case of loans which are due for more than three years interest rate also moved down to 8.38% in Q22008 from 8.76% in 2007.

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2Q-2008 7.63 7.91 6.60 8.67 8.38 8.89 20.31

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Inflation Inflation in Qatar was never a big economic issue, not until the new millennium when oil prices started to take stage for pick up. In 2002, oil prices ended at US$31.21 which was considered high during that time. This trend continued in 2003 when oil prices averaged US$32.50. As for 2004, inflation was measured at 6.8%. Moving forward, inflation continued to pick up over the period 2005-2007 increasing from 8.8% to 13.8%. Entering the year 2008, inflation picked to a new record level of 15%. This was on the back of oil prices sky rocketing to reach an all-time high of US$147 during July 2008. This meant more oil and gas revenues for Qatari exports which resulted in increased liquidity and therefore inflationary pressure. Increase in oil prices played a big role in increasing prices of other goods and commodities as well. Moreover, new projects were unveiled, infrastructure plans were announced, and oil and gas refineries were in the process of being developed. Therefore, the rise in oil prices has increased the liquidity in the economy. This was coupled with increased government spending on mega projects. Such trend has created a booming domestic demand, increasing money supply, increasing food prices and hiking housing rates. On another front, the exchange rate regime which pegged the Qatari Riyal to the US$ over the last period had its impact on the imports bill due to any change of the US$ value against other major currencies. Generally, a rise in US dollar value will result in cheaper imports because the purchasing power of Qatar pegged currency appreciates against other world currencies. Therefore, Qatar can import more products at lower prices. On the contrary, if the dollar value declined then imports become more expensive. Since 2001, the dollar started to lose value against major currencies. From 2001 to 2008, the dollar lost an average of 40% against a basket of currency. In addition to the currency depreciation, Qatar increased civil service wages by 30%, this rise in disposable income fuelled inflation because people have more money to spend. Table 12: Inflation

End of Period Food, Beverages & Tobacco Clothing & Footwear Rent, Fuel & Energy Furniture & Furnishing Medical Services Transport & Communication Education, Culture & Recreation Miscellaneous Goods & Services General Index

2005 107.5 101.8 176.2 106.7 103.3 99.7 102.2 114.9 119.1

Y-o-Y Change (%) 3.1% -2.7% 26.3% 4.7% 4.4% 3.9% -0.1% 4.1% 8.8%

2006 115.4 114.5 221.9 110.9 104.6 101.6 104.5 130.5 133.2

Y-o-Y Change (%) 7.3% 12.4% 25.9% 3.9% 1.2% 1.9% 2.3% 13.6% 11.8%

2007 123.8 128.9 287.0 116.9 105.8 104.0 109.7 136.5 151.6

Y-o-Y Change (%) 7.4% 12.6% 29.4% 5.4% 1.2% 2.4% 5.0% 4.6% 13.8%

2008 148.5 144.1 343.3 125.9 110.3 113.2 120.5 153.3 174.4

Source: Qatar Central Bank

Generally, rentals, fuel and energy category was the most important contributor to rising inflation over years. It grew at a steep rate of 25.9% in 2006, followed by a whopping 29.35% in 2007 from 221.91 to reach 287 at the end of 2007. Despite the rent cap by the government, property rents have grown at rapid pace much to the discomfort of government agencies. Finally, entering 2008 the rent, fuel and energy category continued to be a major contributor to the soaring inflation as it increased to a new record of 343.33 points, a 19.6% increase.

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Y-o-Y Change (%) 20.0% 11.8% 19.6% 7.7% 4.3% 8.8% 9.9% 12.3% 15.0%

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Four segments namely, “food, beverages & tobacco”, “rent, fuel & energy”, “miscellaneous goods & services” and “clothing & foot wear”, sectors witnessed double digit growth rates in 2008. These segments witnessed a growth of 20%, 19.6%, 12.3% and 11.8% respectively. A major change during the year 2008 was for food and beverage category as it witnessed a double digit growth for the first time since 2005. This was mainly backed by the ongoing rising prices of food imports around the world. All other segments continued to report one digit growth rates, however, still growing at higher pace than 2007. The category of “Education, culture & recreation” reported 9.9% of growth, followed by transport & communication at 8.8%. Furniture & furnishing index stood at 125.9 points up from 116.9 points, or 7.7% of growth. Finally, medical services reported the lowest growth rate of 4.3%. Looking forward, we expect price levels to ease significantly during the course of 2009. This is expected to be a global trend not only for Qatar. This is mainly as the world witnessed a tremendous decline not only in equities and stock markets, but also in commodities prices in the last few months. Falling prices across international economies may lead to excessive deflation that could exacerbate the global economic condition even further. Factors that will help cool off inflation in Qatar is the sharp decrease in oil prices around the world, this will help ease prices of raw materials, but this could affect government expenditure. Secondly, Rental prices are also expected to cool down in the next year. Weighing heavily on the price indices for all GCC countries, rental increases will slow down in 2009. Prices had been skyrocketing in the past few years, which had been a major cause for higher consumer prices. Finally imported inflation is not seen as a major concern as prices of all material around the world have been declining. Also the dollar value has been improving during Q3-2008 up till Q1-2009. This directly appreciates Qatari Riyal due to its peg with the US dollar. Finally, we expect that inflation to ease much more during 2009 to report a one digit level of around 9% on the back of low food, raw material, rental, and oil prices.

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Population Population of Qatar has been increasing at a CAGR of 19.5% during the period 2004-2008 due to the continuing influx of expatriates to the booming economy, ongoing development plans, infrastructure & construction projects and the strong economic activity in the region. Qatari male population grew at a CAGR of 18.7% during 2004-2008, while female population grew by 14.0% during the same period. Generally, males play a bigger and a more important role in the labor market of Qatar due to the fact the 75% of the Qatari population are males, but with the huge spending on education and the more focused importance of the women role in the labor force we could witness an increase in the women’s role in the State of Qatar. For 2008, Qatar continued to witness an increasing population in line with past years economic progress. Qatar’s population reached 1.45mn in 2008, or 18.1% increase from 2007. This has shown a very fast population growth compared with previous four years when the average growth rates during 2004-2007 was 14.4%. Figure 11: Population in Qatar 1,600,000

25

1,400,000

20

1,200,000 1,000,000

15

%

800,000

10

600,000 400,000

5

200,000 0

0 2004

2005 Female Population

2006

2007

Male Population

2008 % Growth

Source: Qatar Statistics Authority

Age Distribution and Gender

As per latest figures of mid 2008, the female population accounted for 24.3% of the total population, while the male population amounted to 75.7%. This shows the dominance of the male population is Qatar. Within female population 50.7% are in the age bracket of 1540 years which indicates a potential and a huge existing labor force. While the age bracket between 0-10 years have a 21.9% share of the total female population, as opposed to men of the age bracket 0-10 years who make up a 9.8% share of the total male population. Figure 12: Age Distribution and Population Pyramid (in thousands) 80-above 70-74 60-64 50-54 40-44 30-34 20-24 14-10 0-4 0

50,000

100,000 Male

150,000 Female

200,000 Total

250,000

300,000

Source: Qatar Statistics Authority

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As for age distribution, Qatar continues to enjoy a growing population, where the largest age bracket lies between the ages 25-29 years old, accounting for 17.6% of total population. Moreover, it is important to note that, Qatar is seen as a nation with young population as youth –the age bracket 20-40 years’ old-accounts for 57.3% of total population. This wide base augurs well for the economic growth if utilized efficiently. Among Qatari population, 32.0% are below the age of 25 years old; this shows the importance of the education sector in Qatar to provide the best learning for the upcoming potential employees. As mentioned in the Qatar Vision 2030 “Education is one of the basic pillars of social progress. The state shall ensure, foster and endeavor to spread it.” In addition Qatar plans to build a modern world-class educational system that provides students with a firstrate education, comparable to that offered anywhere in the world. Labor Force and Unemployment As per latest data, Qatar Labor force amounted to 832,105 of which Non-Qatari’s make up a 92% standing at 768,349. On the other hand, Qatar nationals’ labor force reached 63,756. Generally, unemployment in Qatar was at a very low rate of 0.5%. Thus, total unemployed stood at 4,303 during 2007. However, unemployment was higher among Qataris than NonQataris, 3.31% versus 0.3%, respectively. Figure 13: Employed Population by Economic Activity 2008 Regional and International Organizations, 0.2% Domestic Services, 8.8% Other Community Services, 1.6% Health and Social Work, 2.6% Education, 3.2%

Agriculture, 1.9% Fishing, 0.4% Mining and Quarrying, 5.3% Manufacturing, 8.7% Electricity Gas and Water Supply, 0.7%

Public Adminstration, 6.4% Real Estate, 3.4% Financial Intermediation, 1.1% Transport, Storage & Communication, 4.4% Hotels and Restaurants, 2.0% Whole Sale and Retail Trade, 12.3%

Construction, 37.2%

Source: Qatar Statistics Authority

Analyzing labor force by source of employment revealed that construction sector was the main source of employment during 2007 providing jobs for 307,780 people or 37.18% of job opportunities. This shows the government’s focus on construction and developing the infrastructure in Qatar. Following ahead were the categories of “Whole Sale & Retail Trade” and “Domestic Services” that accounted for 21.1% of total employment. Other major source of employment was manufacturing sector employing 71,938 employees, or 8.7% of labor force.

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Sectoral Trends and Analysis of Domestic Economy

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Oil and Gas Commodities became the center of attention for all economies in 2008 and 2009. Oil prices enjoyed a huge rally in 2008, prices reached as high as US$147 during July 2008 thus oil exporting countries accumulated enormous surpluses that helped fuel their spending efforts. However, the second half of the year 2008 witnessed dramatic changes as commodities prices and especially oil prices deteriorated significantly amid a world recessionary pressures. Oil in 2008…

The real world economy moved from good to bad during the year 2008. By late 2008, the global economy was slowing down faster than expected, which was reflected in downward revisions of forecasts for economic growth for 2009. Plunge in equity markets to an all-time low, despite a move by central banks around the world to safeguard the financial system, highlighted the deteriorating economic sentiment. Reports that some nations had moved into recession had triggered fears of further oil demand destruction. This have called the OPEC cartel to extraordinary meetings to combat the falling economy, during the 4Q-2008 OPEC cut more than 4.2mn b/d, this giving output capacity of 24.8mn b/d for the cartel. Qatar committed to only 83% to the output cut as opposed to 107.6% by Saudi Arabia, Qatar produced 20,000 excess b/d. Table 13: OPEC meetings and actions Date of Meeting February 1, 2008 March 5, 2008 September 9, & 10. 2008 October 24, 2008 November 29, 2008 December 17, 2008 March 15, 2009 May 28, 2009

Meeting Type Extraordinary Extraordinary Extraordinary Extraordinary Consultative Extraordinary Consultative Extraordinary

Place of Meeting Vienna, Austria Vienna, Austria Vienna, Austria Vienna, Austria Cairo, Egypt Oran, Algeria Vienna, Austria Vienna, Austria

Action Taken Unchanged Unchanged Cut 520,000 bopd Cut 1.5mn bopd Unchanged Cut 2.2mn bopd Unchanged Unchanged

Source: Global Research, Reuters

Qatar Marine was on an upward trajectory since 1998. Prices as measured by OPEC increased at a CAGR of 20.4% during the period 1998-2008. Average annual price increased from US$12.23/b in 1998 to US$69.30/b on average for 2007 and as high as US$94.48/b for 2008. Prices almost tripled in 2008, Qatar Marine reached an all time record high of US$132.37/b as an average for July 2008, owing to the continued strong demand emanating from emerging economies. Since reaching the all-time high, oil prices fell 68.93% reaching US$41.24 as an average for December 2008. The price surge during the first half of the year, have helped pile up huge surpluses for oil exporting countries which planned major spending to expand their economy, thus Qatar reported a 44% growth in GDP for 2008. Today’s oil prices are equal to prices prevailed during 2005. Decreased oil prices have caused a major problem for oil exporting countries because they could face major current account deficits.

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Figure 14: Qatar Marine 140.00 120.00

US$

100.00 80.00 60.00 40.00

Apr-09

May-09

Mar-09

Jan-09

Feb-09

Dec-08

Oct-08

Nov-08

Sep-08

Jul-08

Aug-08

Jun-08

Apr-08

May-08

Feb-08

Mar-08

2007

Jan-08

2006

2005

2004

2003

2002

2001

2000

1999

0.0

1998

20.00

Source: OPEC

Although Qatar has an abundant quantity of natural gas reserves, around 14.4% of world’s total natural gas reserves, it is less fortunate with oil reserves. Qatar contains estimated proven oil reserves of 27.4 billion barrels acquiring a 3.6% share in terms of oil reserves among Middle East countries and 2.2% among GCC countries. Table 14: Qatar’s Oil Reserves (bnb) Reserves Share of Middle East Share of World

2001 16.9 2.4% 1.5%

2002 16.8 2.3% 1.4%

2003 27.6 3.7% 2.3%

2004 27.0 3.6% 2.2%

2005 26.9 3.6% 2.2%

2006 27.9 3.7% 2.3%

2007 27.4 3.6% 2.2%

Source: BP Statistical Review

The majority of Qatar’s oil reserves are contained in the onshore Dukhan field, which is the country’s largest producing oil field. Dukhan field produces four different hydrocarbon products, crude oil, associated gas, condensate and non-associated gas. Its 60km long and 25km wide, Dukhan Field which is solely operated by Qatar petroleum can handle up to 335,000 b/d of oil and 800 million standard cubic feet (MMSCFD) per day of gas. Dukhan reserves are estimated at about 2.2 billion barrels. Qatar also has six offshore fields: Id Al- Shargi North Dome, Bul Hanine, Maydan Mahzam, Al-Shaheen, Al-Rayyan and Al-Khalij. According to OPEC, Qatar’s crude oil production averaged 0.84mb/d in 2008, down 0.5% from 2007’s production. Table 15: Qatar’s Oil Production Crude Oil Production (‘000 b/d) Oil Exports (‘000 b/d) Revenues of Oil Exports (US$mn)

2002 568.9 n/a 6,885

2003 676.0 540.7 8,814

2004 755.3 542.7 11,694

2005 765.9 677.3 17,585

2006 802.9 620.3 24,290

2007 845.3 615.1 27,801

2008 792.0 n/a n/a

Source: OPEC

Qatar’s crude production and oil reserves were the lowest among OPEC member countries. State owned Qatar Petroleum (QP) controls all aspects of the country’s oil sector, including exploration, production, refining, transport and storage. QP holds the rights to all petroleum resources in Qatar. However, QP often allows foreign participation in production activities in order to attract foreign investments and benefit from international expertise. In 2008, oil and

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gas sectors contribution to GDP is estimated at QR229.73bn, acquiring a 61.7% of the total GDP. Qatar mainly exports oil to U.S and Asia-Pacific, mainly Japan. There are three main export terminals in Qatar namely Umm Said, Halul Island and Ras Lafftan. Ras Lafftan is the newest of the three ports and is mainly used for Liquefied Natural Gas (LNG) exports. QP investment plan…

QP has in its new five-year plan (2007 - 2011), budgeted an overall investment of QR302.5bn for projects in crude oil, natural gas, gas-to-liquids, refining, petrochemicals, industrial cities and others. QP has embarked upon an investment programme with the intention of expanding oil production from its onshore and offshore fields from the current 841,000 b/d, to around 1,025,000 b/d by year-end 2010. Oil Refining….

Currently, Qatar has refinery capacity of around 80,000 b/d. By 2009 Qatar is developing Ras-Laffan refinery that would produce 146,000 b/d. Ras laffan will be a joint venture between Qatar Petroleum owning 80% and Exxon Mobil and Total.

Thousand b/d

Figure 15: Qatar’s Output of Refined Products by Type 50 45 40 35 30 25 20 15 10 5 0

2003 Gasoline

2004 Kerosene

2005 Distillates

2006 Residuals

2007 Others

Source: OPEC

Gasoline is considered the major output of refined products. By 2007, 45.7 thousand b/d of gasoline were produced, however, the production grew at a low CAGR of 2.94% over the period 2003-2007. On another front, Kerosene production grew at a CAGR of 4.40% during the same period. Finally “others” category grew at a CAGR of 6.18% to stand at 33.3 thousand b/d by the end of 2007. Expansion projects…

Along with other GCC members, Qatar is undergoing several upstream and downstream expansion projects in order to capitalize on economic growth and rising oil demand in Asia. QP plans to invest US$80-100bn in upstream and downstream sectors over the medium-term, with much of this derived from partnership with global energy giants.

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Table 16: Qatar Oil Exploration Plans Exploration Project Al-Shaheen Refinery Al-Shaheen Offshore Development Ras Laffan Condensate Refinery Ras Laffan Condensate Refinery Expansion

Capacity (thousand b/d) 500 525 146 146

Due Date 2013 2009 2009 2011

Estimated Cost (US$bn) 5.0 5.0 0.6 1.0

Source: Zawya

Al-Shaheen Refinery..

Located in Mesaieed Industrial City, Qatar Petroleum plans to produce additional 250,000 b/ d to the current 250,000 b/d of high quality products that include jet fuels, gasoline, bitumen and diesel oil. The refinery costs around US$5bn awarded to Axens of France to develop basic engineering design. While the deadline for commercial bids were delayed to 15th April, 2009 and the technical bids to June 2009, the refinery is expected to be completed by 2013 and operations to begin by 3Q 2009. Al Shaheen off-shore development…

Al-Shaheen Offshore Development, a.k.a. Block 5 Field Development Plan, is operated by Maersk under a production sharing deal with QP. The US$5.0bn expansion of the field is expected to boost its production to 525.0 thousand b/d by 2009 from the current 240.0 thousand b/d. The project is being carried out in several stages, which are at different Engineering Procurement Installation and Commissioning (EPIC) stages of implementation. In addition, Maersk is aiming to obtain an additional offshore storage capacity to store the oil pumped from Al-Shaheen field. From Big to Bigger….

Located in Ras Laffan Industrial City, the condensate refinery will process 146,000 b/d to produce LPG, naphtha, kerosene and gas oil. It is a Joint Venture between Qatar Petroleum, Exxon Mobil and Total and scheduled to be completed on Q2-2009. On October 2007, QatarGas which operates the projects invited international companies to bid for the expansion of Ras Laffan Refinery and increase the capacity by another 146,000 to reach 292,000 b/d. The project is still under the study phase, contracts awards are expected to be announced by January 2010 and is expected to be completed by 2012.

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Natural Gas Natural Gas became a main source of energy supply in the world. It is considered one of the cleanest fossil fuel, safest, and one of the cheapest sources of energy. It’s used for many things including power generation and hydrogen. Natural gas is increasingly becoming the fuel of choice for customers around the world due to its clean-burning and lower emission qualities. Liquefied Natural Gas (LNG) is a way of delivering natural gas to all corners of the globe, safely and reliably. World natural gas consumption increased at a CAGR of 2.66% during 2000-2007. Energy companies around the world are constructing LNG projects that could value more than US$100bn. Consequently, the 7th Doha Oil and Gas Conference during March 2009, witnessed OPEC secretary Abdullah Salem Al-Badri noting that “natural gas is becoming increasingly vital to the overall global energy mix. With its steady growth and a share of world energy supply that is forecast to reach nearly 25 percent by 2030, natural gas has very bright prospects. In terms of both, reserves and production, OPEC member countries have significant shares of natural gas, he said, adding that in 2007, Member Countries had more than 88 trillion cubic meters (tcm) of proven gas reserves - almost half of total world reserves. The volume of marketed production was 471 billion cubic meters (bcm), with an export share approaching 20 percent of the world total. In addition, LNG exports alone were about 93 bcm. This is nearly 41 percent of the world total”. Figure 16: Natural Gas Flow

Source: EIA

State of Qatar has the third largest natural gas reserves in the world after Russia and Iran, and is the world largest LNG exporter. Most of the Natural Gas in Qatar is located in the North Field “Ras Laffan” which holds more than 900 Tcf of proven natural gas. Reserves

By the end of 2008, Qatar’s estimated reserves of natural gas stood at 891.9 Tcf or (25.25Tcm). This represents 14.3% of total world’s reserves and posed Qatar as holding the third largest natural gas reserve in the world. It is worth mentioning that the majority of Qatar reserves are present in its North Gas Field, which is jointly owned by Iran and Qatar. However, the remainder reserves of the country are located in the fields of Dukhan, which contain 5.5Tcf, in addition to other small fields.

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Figure 17: Qatar Gas Reserves 180

40%

160 38%

140

Tn cubic m

120

36%

100 80

34%

60 40

32%

20 0

2001

2002 Qatar

2003

2004 Middle East

2005 2006 World

2007 Share of ME

2008

30%

Source: BP Statistical review, Oil and Gas Journal

Historically, Qatar natural gas reserves stood at an average of 25.55Tcm over the period 2001-08. Thus, it comprised round 35.3% and 14.6% of Middle East and World reserves respectively on average over the period Qatar plans to build a state of the art LNG projects that cost more than US$38bn that include Qatargas trains 1, 2, 3, and 4. Qatargas operates the LNG business in Qatar, its major shareholders include Qatar Petroleum, ExxonMobil, Mitsui, Total and Marubeni. Currently it exports 10mn tones per annum of LNG to three LNG trains. With the expansion and the development of Qatargas 2, Qatargas 3 and Qatargas 4, it will increase the LNG trains to seven from the current three. Production and Consumption The natural gas sector in the country is dominated by the state-owned Qatar Petroleum (QP), the company handles extracting and producing Qatar’s natural gas. Whereas the LNG sector is managed by Qatar LNG Company (Qatargas) and Ras Laffan LNG Company (Rasgas). Rasgas is 70% owned by QP and 30% owned by ExxonMobil, while Qatargas is owned mainly by Qatar Navigation (15.00%), and Qatar Shipping Co. (15.00%), while the rest share is divided by QP, General Retirement and Pension Authority and public investors. Natural gas production in the country has increased during 2001-2007 with a CAGR of 14.17%, which is mainly due to the increase in gas demand on global front. Generally, natural gas extraction in the country is carried out through its state-owned Qatar Petroleum (QP). It is important to notice that most of the country’s production is exported, which make Qatar as a net exporter in the world. Figure 18: Qatar Natural Gas Production 7.0

30.0%

6.0

25.0%

5.0

20.0%

Bcf/d

4.0

15.0%

3.0

10.0%

2.0

5.0%

1.0 0.0

2001 2002 Qatar Production (Bcf/d)

2003

2004 % Growth

2005 2006 Share of Middle East

0.0% 2007 Share of World

Source: BP Statistical Review, Global Research

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Qatar gas production witnessed years of tremendous growth, since 2001 production levels never decreased, production increased at an average of 14.32% during 2001-2007. Qatar follows Iran in the Middle East in terms of gas production; it maintains a share of 16.9% in the ME and a 2.0% of the world’s production share. With more development and explorations, Qatar share could increase in the future. As for Qatari consumption of natural gas, it continued to pick up over years. Consumption almost doubled over the period 2001-07 to increase from 1.1Bcf/d during 2001 to stand at a record level of 2 Bcf/d by the end of 2007. On CAGR basis, consumption increased by 11.02% over the period. However, it is important to note that consumption grew at lower pace as compared to production. Over the same period, total Qatari natural gas production increased from 2.61 Bcf/d in 2001 to more than double by the end of 2007 standing at 5.79 Bcf/d. Figure 19: Qatar Natural Gas 7.0 6.0

Bcf/d

5.0 4.0 3.0 2.0 1.0 0.0

2001

2002 2003 Qatar Production

2004 2005 Qatar Consumption

2006 Qatar Exports

2007

Source: BP Statistical Review, Global Research

Qatar continued to achieve tremendous growth in the natural gas exports. Gas exports increased from a 59.4% of total production in 2001 to 65.7% in 2007, exporting approximately 3.80Bcf/d. and consuming 2.0Bcf/d. Expansion plans In order to maintain the export of gas, the government of Qatar has undergone for massive expansion in the production of gas, along with the development and expansion of LNG handling capacity. As per the expansion plan the government of Qatar is planning to make massive increase in the production of gas in North Gas Field to 25 Bcf/d by 2010. However, two phases expansion is planned in the field of Barzan, which will produce 6.2Bcf/d in country’s gas production by 2013. Table 17: Qatar Gas Exploration Plans Exploration Project North Gas Field Barzan Gas Field Development Qatar Shell GTL Limited

Capacity (Bcf/d of Gas) 25 6.0 1.6

Due Date 2013 Delayed 2010

Estimated Cost (US$bn) 20 N/A 12

Source: Zawya

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Qatar’s No.1... Qatar North Gas Field is considered the world largest non-associated gas field in the world.

Qatar will be producing close to 25Bcf/d of gas from North Field by the end of the decade to supply LNG, GTL and other projects currently being built. Included in the North Field development is the development of Qatargas 2 Qatargas 3 and Qatargas 4, that will develop LNG storages, trains and pipelines. Slowdown Sign…

QP is developing Barzan Gas Field Development with ExxonMobil, “the Barzan”, project to produce gas from Qatar’s non-associated gas North Field for utilization in domestic gas related and petrochemical industries. The project will be developed in three phases: Phase 1 will produce 1.5 Bcf/d of gas, Phase 2 another 2.0Bcf/d and Phase 3 another 2.5Bcf/d. The project execution was handed over to Rasgas. But as of March 2009, the developers decided to delay the projects to benefit from low prices of materials, and to study the possibility of sourcing gas from a new structure in the North field. In 2009 new bids are supposed to be submitted to complete the project by 2013. Qatar Shell GTL Limited, a new company with Qatar Petroleum and Royal Dutch Shell Group as major shareholders. Plan to develop a world class integrated GTL complex in Ras Laffan Industrial City. The projects costs US$12bn and will conduct work in the North Field transporting and processing the gas to extract natural gas liquids and ethane, and the conversion of the remaining gas into clean liquid hydrocarbon products through the construction of the integrated GTL complex in Ras Laffan Industrial City. The project will produce 1.6Bcf/d of natural gas. The project is expected to be completed by Q4 2010. Table 18: Qatar LNG Development LNG Project Qatargas 1 Plateau Maintenance Project Qatargas 2 LNG Trains Qatargas 3 LNG Plant Qatargas 4 LNG Plant RasGas III – Onshore and Offshore

Capacity (tons/year) 10.0mn 15.6mn 7.8mn 7.8mn 15.6mn

Due Date 2012 2009 2010 N/A 2010

Estimated Cost (US$bn) 1.2 12.8 6.0 2.0 9.0

Source: Zawya

Both companies Qatar Gas and RasGas are developing and transporting LNG to the world. Currently Qatargas 1 supplies LNG under long term contracts to customers in Japan and Spain. Qatargas 2, Qatargas 3 and Qatargas 4 will be supplying to markets in Europe, the United States (USA) and United Kingdom in 2009. While RasGas focuses on South Korea, India and latest to Europe. RasGas currently has 12 LNG carriers. On 6th April, 2009 the Emir of Qatar inaugurated the largest LNG project “Qatargas 2”, it will supply 20% of UK’s gas demand. The project contains LNG trains, storage tanks, and an offshore package. It is designed to produce 7.8 mn tons per year and its trains are considered 50% larger than any existing LNG facility. Looking forward, natural gas sector will play a major role in the Qatari development path and will be a crucial contributor to its economic growth. Qatar is aiming to double its LNG output to more than 70mn tones in 2011. Even with a severe credit crisis, Qatar posted a significant GDP increase of 44% during 2008. It accumulated huge account surpluses from oil and natural gas.

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Banking Recent Developments • In the recent past the government of Qatar has taken proactive steps to boost the economy. The government has issued sovereign bonds worth US$3bn. The bonds have been rated as ‘AA-’ by Standard & Poor’s. The bonds have two tranches: a five-year US$2bn bond maturing on April 9, 2014, and a 10-year US$1bn bond maturing on April 9, 2019. The proceeds of the bonds will contribute to the general financing of the State of Qatar’s budget in 2009, including providing funding for entities that it owns or controls. • In October 2008, the government announced to buy 10% - 20% of the capital of listed banks through issuance of new shares. Toward this end, the state owned sovereign wealth fund, Qatar Investment Authority, has already subscribed to the extent of 5% of the capital of some of the banks and another 5% is being planned for December 2009. The subscription for the shares has been done as per the closing price of the bank’s share on DSM as of October 12, 2008. QIA bought stakes in all the listed banks except Qatar National Bank, in which it already holds 50% equity stake. • In March 2009, Qatar launched a new measure to support its banking sector with a government plan to buy banks' investment portfolios in a bid to revive lending and support the economy. The government offered to buy part or all of the DSM investment portfolios of local banks with a provision of any dividends received on such equity portfolios for the year 2008 to be provided to the banks and for subsequent years to be provided to QIA. The investment portfolios were priced at cost less impairment booked for these securities. The conventional banks received about 45% in cash and 55% in bonds maturing in 5 years carrying a coupon of 5.5% per annum. The Islamic bank have received entire amount in cash. The banks have the right to repurchase the entire portfolio, or any part of it, after a 12-month period from the date of sale and within a maximum period of five years at the original sale price. The government had bought QR6.5bn worth of banks' investments as part of the plan. • In May 2009, Qatar government announced that it will spend QR15bn (US$4.1bn) on acquiring the real-estate portfolios of nine local banks to boost the domestic realestate sector. The move involves the government taking over the real-estate investment portfolios of Qatar National Bank, Commercial Bank of Qatar, Doha Bank, International Bank of Qatar, Qatar International Islamic Bank, Qatar Islamic Bank, Masraf Al Rayan, Ahli Bank and Al Khaliji Bank. Peer Group Comparison The peer group comparison is done on all the eight listed banks, namely Qatar National Bank, Commercial Bank of Qatar, Doha Bank, Qatar Islamic Bank, Ahli Bank, Qatar International Islamic Bank, Masraf Al Rayan and Al Khalij Commercial Bank. These banks together accounted for about 85% of the total assets of commercial banks in 2008 and 91% of total credit disbursed.

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Table 19: Key Indicators of Listed Banks – 2008 Qatar National in QR Mn Bank Total Assets 151,974 Gross Loans & Advances 100,678 Total Deposits 104,253 Paid-up Capital 2,409 Equity Capital 14,837 Net Profit 3,653

Commercial Bank of Qatar 61,302 34,184 32,186 2,062 8,535 1,702

Doha Bank 39,002 24,529 23,277 1,722 4,052 946

Qatar Qatar Islamic International Bank Islamic Bank 33,543 12,842 21,235 8,329 16,592 9,139 1,969 1,261 5,765 2,276 1,642 501

Ahli Masraf Al Bank Rayan 17,799 16,769 11,694 13,557 12,111 10,898 584 4,125 1,348 5,076 426 917

Al Khalij Commercial Bank 12,501 7,011 4,674 3,600 4,546 103

Source: Banks’ Annual Reports and Global Research

Balance Sheet Size In 2008, all the listed banks in Qatar have reported a significant growth in their balance sheet size. The aggregate balance sheet of all the listed banks grew by 73% in 2008 to QR345.7 from QR252.4bn in 2007. Al Khalij Commercial Bank recorded the highest growth in its balance sheet among its peers as it grew by 142.7% in 2008. The sector’s largest bank, Qatar National Bank’s assets grew by 32.9% in 2008. Among others, Masraf Al Rayan’s assets grew by 58.9% followed by Qatar Islamic Bank 57.2%, Commercial Bank 35.0%, Doha Bank 29.6%, Qatar International Islamic Bank 29.1% and Ahli Bank 14.3%. Figure 20: Market Share of Total Assets – 2008 Figure 21: Growth in Balance Sheet - 2008

57.2%

Qatar Islamic Bank

Doha Bank

0

Commercial Bank of Qatar 17.7%

58.9% 29.1%

2007

2008

14.3%

0%

Growth Rate

Source: Banks’ Annual Reports and Global Research

In terms of market share of loans & advances, Qatar National Bank has by far the highest market share of system loans and deposits. In 2008, it accounted for 45.5% share of loans & advances and 50.0% of deposits among listed banks. Commercial Bank of Qatar held second position with a market share of 15.5% of loans and 15.1% of deposits. Doha Bank’s share was at 11.1% of loans and 10.9% of deposits. Three Islamic banks, namely Qatar Islamic Bank, Qatar International Islamic Bank and Masraf Al Rayan accounted for 9.6%, 3.8% and 6.1%, respectively, of the market share of loans & advances and in terms of deposits, their respective share was at 7.8%, 4.3% and 5.1% among listed banks. Ahli Bank’s market share was at 5.3% of loans and 5.7% of deposits. The newly established Al Khalij Commercial Bank’s share was at 3.2% of loans and 2.2% of deposits at the end of 2008. In terms of the growth in loans and advances in 2008, almost all the banks have performed exceptionally well. Masraf Al Rayan achieved a growth of 96.7% though on a lower base.

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Economic & Strategic Outlook

50%

June 2009

Al Khaliji Commercial Bank

29.6%

Masraf Al Rayan

35.0%

Ahli Bank

32.9%

Qatar Internationa Islamic Bank

40

150% 100%

80

Commercial Bank

11.3%

142.7%

120

Qatar National Bank

Qatar International Islamic Bank 3.7% Qatar Islamic Bank 9.7% Doha Bank

160

Qatar National Bank 44.0%

(in QR bn)

Al Khalij Commercial Bank 3.6% Masraf Al Rayan 4.9% Ahli Bank 5.1%

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Qatar International Islamic Bank recorded a growth of 63.9% and Qatar Islamic bank 59.7%. The largest bank in terms of size, Qatar National Bank has achieved a growth of 51.5% in 2008. In case of Ahli Bank the growth in loan book was lowest among its peers at 14.1% for the year. Figure 22: Market Share of Loans & Advances – 2008

75%

24.3%

50% 25%

2007

Masraf Al Rayan

Ahli Bank

2008

Al Khaliji Commercial Bank

14.1% Qatar Internationa Islamic Bank

35.5%

Qatar Islamic Bank

Commercial Bank of Qatar 15.5%

100%

63.9%

59.7%

51.5%

Doha Bank

Doha Bank 11.1%

125%

Commercial Bank

Qatar Islamic Bank 9.6%

Figure 23: Growth in Loans & Advances – 2008 96.7%

Qatar National Bank

Qatar National Bank 45.5%

120 100 80 60 40 20 0

(in QR bn)

Al Khalij Commercial Bank 3.2% Masraf Al Rayan 6.1% Qatar International Islamic Bank 3.8% Ahli Bank 5.3%

0%

Growth Rate

Source: Banks’ Annual Reports and Global Research

In terms of the growth in customer deposits in 2008, Masraf Al Rayan, on a lower base, has achieved significant growth of 105.3%. Qatar Islamic Bank was at second position with a growth of 36.0% and the largest bank, Qatar National Bank has achieved a growth of 31.4%. In case of Ahli Bank the growth in loan book was lowest among its peers at 5.4% for the year. Figure 24: Market Share of Deposits – 2008

2007

26.6% 5.4%

2008

25% Al Khaliji Commercial Bank

Masraf Al Rayan

Qatar Internationa Islamic Bank

Doha Bank

16.2%

Growth Rate

Source: Banks’ Annual Reports and Global Research

Asset Quality Over the last few years Qatari banks have extensively focused on improving their quality of assets which resulted in substantial improvement in the quality of their assets portfolio. In the sector, Doha Bank had the highest NPLs to gross loans ratio of 2.9% at the end of 2008, which was followed by Qatar International Islamic Bank at 1.5%. Two banks, namely Qatar National Bank and Commercial Bank have less than 1% of NPL to gross loans, at 0.73% and 0.85% respectively. In case of Ahli Bank and Qatar Islamic Bank this ratio was at 1.4%. The collective NPLs of all the listed banks have gone up by 26.9% to QR2.32bn and sectors NPL to gross loans ration declined marginally from 1.2% in 2007 to 1.1% in 2008.

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Economic & Strategic Outlook

100% 75% 50%

Ahli Bank

36.0%

30.5%

Qatar Islamic Bank

31.4% Commercial Bank

Commercial Bank of Qatar 15.1%

125% 105.3%

Qatar National Bank

Qatar International Islamic Bank 4.3% Qatar Islamic Bank 7.8% Doha Bank 10.9%

Qatar National Bank 48.9%

120 100 80 60 40 20 0

(in QR bn)

Al Khalij Commercial Bank 2.2% Masraf Al Rayan 5.1% Ahli Bank 5.7%

Figure 25: Growth in Deposits

41

0%

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Figure 26: Quality of Loan Portfolio 2.32

2.5

3.8% 3.0%

0.13

NPLs - 2008

1.5% 0.8%

0.16

Sector

0.29

2.3%

1.4% 1.1%

0.29

Qatar Internationa Islamic Bank

0.73%

0.72

Qatar Islamic Bank

0.0

0.85%

1.5%

1.4%

Doha Bank

0.5

Commercial Bank

1.0

0.73

Ahli Bank

2.9%

1.5

Qatar National Bank

(in QR Mn)

2.0

0.0%

NPLs to Gross Loans

Source: Banks’ Annual Reports and Global Research

Capital Adequacy Ratio (CAR) In Qatar, the minimum capital adequacy ratio is 10% as per the Qatar Central Bank requirements and as per the Basel Committee on banking supervision requirements it is 8%. Looking at this standards banks in Qatar are well capitalized. In terms of comparison, Masraf Al Rayan had the highest CAR of 33.09% at the end of 2008, which was followed by Qatar International Islamic Bank 20.11%, Qatar Islamic Bank 17.04%, Commercial Bank 15.66%, Qatar National Bank 13.9%, Doha Bank 13.48% and Ahli Bank’s CAR was at 12.01%. In 2008 many Qatari banks have focused on expanding their capital base through rights issues and 2009. Apart from this, many banks have raised their capital in 2009 by allocating shares to QIA to the extent of 5% of their capital with another 5% allocation is being planned at the end of 2009. All these measures have helped the banks to shore-up their CAR and to leverage their balance sheet. Figure 27: Total Capital Adequacy Ratio - 2008 Al Khaliji Commercial Bank Commercial Bank Ahli Bank Doha Bank Qatar National Bank Qatar Islamic Bank Qatar International Islamic Bank Masraf Al Rayan 0%

20%

40%

60%

80%

100%

120%

140%

Source: Banks’ Annual Reports

In terms of revenue in the sector, other income or non-interest revenue are keeping pace with the core earnings for almost all the banks. In many banks such as Qatar National Bank, Commercial Bank, Qatar Islamic Bank and Masraf Al Rayan non-interest revenue accounted for significant portion of the total revenue of the bank for the year 2007. In case of Qatar International Islamic Bank, Ahli Bank and Doha Bank core earnings have driven the growth in total operating revenue of the bank.

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The combined net profit of the banks under review grew by 21.7% y-o-y in 2008, from QR8.1bn in 2007 to QR9.9bn in 2008. Among the banks under review, the only bank Masraf Al Rayan reported a decline in net profit of 23.1%. Qatar National Bank Qatar reported 45.7% increase in net profit, the highest among the listed banks, followed by Ahli Bank with a growth of 40.7%, Al Khalij Commercial Bank 39.4%, Qatar Islamic Bank 30.8%, Commercial Bank 22.4%, Qatar International Islamic Bank 4.4% and Doha Bank 2.2%. Figure 28: Net Profit 4,000

3,652.5

3,500 (in QR mn)

3,000 2,506.1

2,500 2,000 1,500

1,702.4

1,642.5

1,390.7

1,255.4

500 0

1,192.5

926.5 946.5

1,000 302.7

Commercial Bank of Qatar

Ahli Bank

917.0 480.0

425.8

501.2 74.3

Qatar National Bank

Qatar Islamic Bank 2007

Qatar Masraf Doha Bank International Al Rayan Islamic Bank

103.6

Al Khaliji Commercial Bank

2008

Source: Banks’ Annual Reports and Global Research

Q1-2009 Performance In Q1-2009, the aggregate assets of all the listed banks registered a y-t-d fall of 0.3% to QR344.6bn from QR345.7bn at the end of 2008. The combined net profit of the banks under review grew by 10.1% y-o-y in Q1-2009, from QR2.5bn in Q1-2008 to QR2.8bn in Q12009. Table 20: Performance of Listed Banks in Q1-2009     Qatar National Bank Commercial Bank Doha Bank Qatar Islamic Bank Qatar International Islamic Bank Ahli Bank Masraf Al Rayan Al Khalij Commercial Bank Total

Assets (in bn) 2008 Q1-2009 152.0 140.6 61.3 63.5 39.0 42.2 33.5 32.8 12.8 14.1 17.8 16.9 16.8 19.8 12.5 14.6 345.7 344.6

Change -7.5% 3.6% 8.2% -2.2% 9.7% -5.1% 18.2% 17.1% -0.3%

Net Profit (in mn) Q1-2008 Q1-2009 917.3 1,010.6 436.4 610.1 274.0 329.7 455.6 350.2 135.4 136.7 85.6 86.3 217.8 209.8 7.1 51.7 2,529.1 2,785.2

Source: Bank’s financial results and Global Research

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Economic & Strategic Outlook

43

  Change 10.2% 39.8% 20.3% -23.1% 1.0% 0.8% -3.7% 633.4% 10.1%

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Banking Sector Outlook The factors pertaining to Qatar economy appears bright supported by increased government as well as private sector investments. Qatar is the least affected country in the Gulf from the global financial crisis. Qatar mainly because of its oil-bound economy is likely to remain resilient as compared to other GCC countries. The country has significant expansion plans to increase the production of LNG over the next 3 years. Apart from this, in its 2009-2010 budget, Qatar has allocated 40 percent of expenditure for strategic development, which will ensure that the economy will remain upbeat. At the same time timely action by the government to improve liquidity and confidence building measures will definitely help the economy to remain on track. Qatar’s economy will continue its growth trajectory in 2009 when performances of most other regional oil producers are likely to slowdown. Qatar’s biggest strength is continuous expansion in its liquefied natural gas (LNG) capacity. Qatar is set to almost double its production of LNG to more than 60mn tonnes in 2009 and it is likely to reach 77mn tonnes by end-2011. “Qatar’s economy is still very strong despite the global financial distress…it will remain strong as it is a real economy which enjoys many advantages and points of strength,” said Abdullah bin Hamad Al Attiyah, Qatar’s Deputy Premier and Minister of Energy and Industry. Qatar has launched an impressive domestic investment program aimed at diversifying its economic base from the hydrocarbon sector. The banking sector would be one of the major beneficiaries of these projects and regional diversification program. As part of further support to the local economy, recently the country’s prime minister reiterated the country’s commitment to continue its planned expenditures on major projects and infrastructure development in order to support the various projects over the next four years valued at US$150bn and stands ready to inject funds into local companies hit by the global economic meltdown. The liquidity infusing measures such as recapitalisation of banks and buying of investment portfolio are boosting confidence in Qatar’s banking sector. Though, the banks in Qatar are sound in terms of meeting CAR requirements, further capital infusion by QIA by the end of 2009 will take care of further fund requirement. Apart from this in the recent past, many banks have raised their capital through rights issues are also considered as right in time. With regard to quality of loan portfolio, over the last few years, banks in Qatar have extensively focused on improving their quality of assets which resulted into substantial improvement in the quality of their loan portfolio. We believe that going forward quality of the loan book are likely to remain sound as in the last two quarters banks have also raised their provisioning levels to take care of any unexpected deterioration in asset quality. The outlook for the sector appears bright as banks are well placed to ride out the global economic downturn, thanks to a combination of factors, including the sound state of the country’s economy, prompt intervention by the state to support local banks, adequate levels of liquidity and sound asset quality.

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Industry & Services Qatar has accumulated huge oil and gas surpluses over years to invest them back in developing its industrial sector. Qatar has opened its investment for foreign participants. Moreover, it encourages private investors to establish business ventures. Industrial sector makes up 6.8% of the estimated GDP of Qatar in 2008. It grew on a Y-oY basis of 32.4%. Industrial sector is estimated to have reached QR25.39bn in 2008. Due to the credit crisis, Industrial sector fell 30.39% in Q4 from Q3-2008. Services sector is compromised mainly in the telecommunication, education and health sectors. Collectively, they account for 4.38% of total GDP. Telecommunication sector contribution reached QR12.27bn, while social services stood at QR2.4bn. Leading the Way..

Qatar Steel (QASCO) In 2008, Qatar Steel (QASCO) celebrated its 30 year anniversary. It currently operates in Mesaieed Industrial City and opened its first regional subsidiary in UAE. QASCO was incorporated in 1974, as a joint venture between the Government of Qatar holding a 70% stake and two Japanese companies, Kobe Steel and Tokyo Boeki, to establish an integrated steel plant. However, later on, the share of Kobe Steel and Tokyo Boeki were acquired by the Government that was transferred to Qatar Petroleum and later, to Industries Qatar during a reorganization process during 2003. By the end of 2007, QASCO was producing steel billets, steel bars and coil. The company started its commercial activities with its MIDREX process DR Module-DR1, which was built and commissioned in 1978 with a capacity of 400,000 tons. Moreover, the company has adopted gas based direct reduction process technology in its integrated steel complex for iron-making. By 2004, the overall steel production capacity of the company has increased exceeding 800,000 tons annually. The company has recently completed its expansion, which was commissioned in 2007 with the designed capacity to produce 1.5mn tons of steel. As of Q1-2009, Qatar Steel and its subsidiaries production capacity reached 1.1mn tons of molten steel/years, 118,185 tons of coil/year, 250,000 wire rods/year, 1.1mn ton of steel billets/year, 958,156 tons of steel bars/year, 1.3mn tons of sponge iron per year and 1.5mn tons of rolling mill per year. The company also won GCC environment award for implementing environment standards and measurements, it uses clean raw materials and steel making technology to become the lowest producer of CO2 emission per ton of steel in the world. Due to the credit crisis, the construction and building sector have witnessed a huge decline in 2008 and early 2009, which affected the steel industry in the GCC causing falling production and decreasing prices. Expansion projects have faced huge delays and cancellations because of the liquidity crunch. Qatar steel mentioned that “steel demand fell 30% since the start of the credit crisis”.

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Qatar Fertilizer Company (QAFCO) It is the only fertilizer producing company in Qatar with 75.0% stake held by IQ. In order to utilize the country’s abundant gas reserves, QAFCO was formed in 1969 as a joint venture between the State of Qatar, Norsk Hydro Norway, Davy Power Gas and Hambros Bank, to produce ammonia and urea. The establishment of QAFCO is considered as the first step of the Qatari government towards the industrial diversification program. Since its launch, QAFCO has steered its way successfully, responding adequately to the world market demand for fertilizers. The first production plant of QAFCO was inaugurated in 1973 with a designed capacity to produce 324,000 tons of ammonia and 360,000 tons of urea. Over a period of time, a growing demand in the world fertilizer market has led the company to adopt four expansion plans. Currently, the complex comprises of four completely integrated trains QAFCO-1 (commissioned in 1973), QAFCO-2 (commissioned in 1979), QAFCO-3 (commissioned in 1997) and QAFCO-4 (commissioned in 2004). By Q1-2009, QAFCO production capacity reached 6,150tons of Ammonia per year, and 8,700tons of Urea per year. Qatar Foundation

Qatar Foundation is a non-profit organization dedicated to improve human capital in Qatar and around the world. Its mission focuses on education, scientific research, and community development. The corner stone of QF is the Education City. Education City is an initiative of Qatar Foundation for Education, Science and Community Development. Located on the outskirts of Doha, the capital of Qatar, Education City covers 14 sq km and houses educational facilities from school age to research level and branch campuses of some of the world’s leading universities. Education City aims to be the center of educational excellence in the region, instructing students in fields of critical importance to the GCC region. It is also conceived as a forum, where universities share research and facilities, not only with each other but also by forging relationships with businesses and institutions in public and private sectors. The first such agreement was signed with New York based Cornell University for establishing the ‘Weill Cornell Medical College - Qatar’. Education city include other world class universities such as Virginia Commonwealth University, providing studies for Arts, Texas A&M offer programs for electrical, mechanical, chemical and petroleum engineering. Carnegie Mellon University offer undergraduate programs in computer science, business administration, and information systems. Georgetown University School of Foreign Service which provide degrees in international relations, Northwestern University provided study on journalism and in addition to all those universities, Qatar Faculty of Islamic Studies, an international centre for Islamic thinking and dialogue, committed to enhancing research in the Islamic culture. Qatar Science and Technology Park..

On 16th March 2009, the inauguration of the Qatar Science and Technology Park (QSTP) was commenced. QSTP is a home for technology based companies, and a birth place for new enterprises. It will provide premises, services and support programs that help organizations to develop and commercialize their technology. It is a Free zone for technology based companies mainly involved in aircraft operations, environment, gas and petrochemicals, information and communication technology as well as water technologies.

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Soon after the inauguration, on 18th March 2009 GE has introduced the GE advanced Technology and Research Centre aimed to conduct applied research in Global Research, Oil and Gas, Healthcare, and Aviation. GE Global Research will focus on conduct applied research in potential areas such as emissions technologies, and oil and gas infrastructure. At the centre, the GE Oil & Gas programme will focus on research and development of new technology for efficient and environment-friendly use of Qatar’s oil and natural gas reserves. GE Aviation, the largest of the four business divisions in the centre, will provide education and training in jet engine maintenance. GE Healthcare will transform Qatar into an international hub for healthcare innovation, entrepreneurship and research. The QSTP will bring technology and develop enriched human capital that will help diversify Qatar’s economy and provide the country with a bright future in terms of education, technology, development and innovations. New Competition..

The Telecom market in Qatar was almost monopolized until 2009 with the introduction of Vodafone- Qatar that started its operation on 1st March, 2009. Vodafone-Qatar IPO subscription of a 40% equity offering US$951.60mn was limited to only Qatari investors. Vodafone-Qatar is owned by Vodafone and Qatar Foundation LLC with a 45% stake, 40% of the capital will be listed in the Doha Stock Market, and 15% is spread among Qatar Foundation (5%), Military Pension Fund (3.3%), Military Staff Loan Fund (3.4%), and Health and Education Endowment (3.3%). Up to the end of 2008, Qatar Telecom (QTel) was the sole provider of cellular and fixed lines in Qatar. By the end of 2008 QTel had a subscribers’ base of 1.68mn mobile subscribers and 237,000 fixed lines subscribers. Table 21: Qatar Telecom Profile 000s Cellular Subscribers Cellular Penetration Pre paid Subscribers % Post paid Subscribers % Fixed Line Subscribers Fixed Line Penetration %

2002 266.7 43.2% 51.4% 48.6% 176.5 26.3%

2003 376.5 52.5% 63.5% 36.5% 184.5 26.0%

2004 490.3 64.9% 72.2% 27.8% 190.9 25.8%

2005 716.8 90.9% 78.1% 21.9% 205.4 26.3%

2006 919.8 109.7% 79.9% 20.1% 228.3 27.2%

2007 1264.4 143.4% 83.4% 16.6% 237.4 28.3%

2008 1682.9 163.0% 85.9% 14.1% 263.3 25.5%

Source: Zawya, Global Research

On a Y-o-Y basis cellular subscribers increased 33.0% from 2007, while fixed line subscribers increased 10.9%. Revenues of Qatar Telecom have reached US$625.2mn, up 35.9% from 2007.

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Infrastructure In 2004, Qatar ratified its constitutions which came back in effect in 2005. This was the change that Qatar witnessed that will make it a fully developed nationhood. Today Qatar has abundant wealth that comes either from gas or oil, this created aspirations and develop goals for the future. As a result the “National Vision 2030” was created; it aims to make Qatar a fully advanced country by 2030 with high living standards for all of its people and generations”. State of Qatar is currently witnessing huge rates of population growth, during the period 2004-2008 population grew at an average of 15.2% to reach 1.45mn in 2008. This will induce Qatar to develop large scale projects and more government expenditures in different aspects including electricity, water, roads and airports. Notably, several new independent water and power plants, and associated substations, are planned, with the government hoping to attract considerable foreign participation. In addition, a massive road building programme is in place, which in large part reflects a surge in car buying, as household incomes have improved (household consumption per head reached an estimated US$70,630 in 2008). As of 1st June 2009, total projects in Qatar were valued at US$203.1bn. Such level helped Qatar to account for 9.3% share of the total projects of the GCC as of 1st June 2009. Today Qatar is planning or working with several mega infrastructural projects, including Qatar entertainment city, New Doha International Airports, New Doha Port, Free Trade Zones, Doha Rail Network and Barwa AlKhor, together the mega projects will cost Qatar more than US$20bn. Other mega projects are conducted in the water and power sector, building projects that provides water and power and distribution stations. Qatar’s 2008-2009 was considered the largest budget in Qatar’s history; it is characterized by allocating sizable amounts of money for infrastructure projects besides education and health, a welcome development. The new 2009-2010 budget is almost at the same level as the 20082009 budgets, but it’s likely to post the first deficit in years. It is based on an oil price of $40 a barrel, despite that, the economy is still expected to post a GDP growth between 7%-9%. New Doha International Airport will cover an area of 22 sq kilometer and is estimated to

cost US$11bn. It will handle 50mn passengers, 2mn tones of cargo, and 320,000 aircraft landings and takeoffs each year. The airport is due to open in 2010 with an initial capacity of 24mn passengers a year, rising to 50mn during the final development phase from 2015 onwards. The airport is set to become a regional transfer hub competing with other major international airports of the Middle East and Asia regions. Designed and built by construction giant Bechtel, the airport will be on the so-called midfield model, featuring two runaways with the supporting facilities in the middle. The hub will have a runway of 4.2 km and a second one with a 4.8 km length, one of the longest in the world designed to accommodate the A380. Built over 22 square km, half of which is reclaimed land, the airport will feature some 40 contact gates, 22 remote gates, 62 parking positions, a cargo facility with a capacity of 750,000 tons of cargo per year, a cargo aircraft maintenance centre, and maintenance centers

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capable of hosting aircraft the size of the A380. The airport will also feature a 100-room hotel, a catering facility capable of providing 75,000 meals a day, ground service equipment facilities, an 80-metre high air traffic control tower, a village with administration facilities and mosque. New Doha port, a US$7bn project that will have a capacity of 6mn 20 foot-equivalent units

per year. The new port will be located in Al Wakrah that is south Mesaieed and will be linked with an 8.5km long trestle bridge. The project is expected to be completed by 2025, the first phase will be concluded in 2014 and will have a capacity of 2mn 20-foot equivalent units per year. The commercial port will include 5 cargo terminals, 4 container terminals and berth, a livestock berth, a roll-on/roll-off berth, an administration and customs complex, and a construction of a naval forces base. Doha rail network, is a projects developed by Ashghal which is Qatar’s Public Works

Authority, it plans to build a rail network to link New Doha airport, Doha port, hotels and Olympic village together. The railway is 140km and will be built in three phases. The project is expected to be completed in 2015 with a contract value of US$1bn. Barwa Al-Khor is a project that will develop real estate community project located north of

Al Khor city. The shareholders of the projects are Al-Imtiaz Investment Company of Kuwait and Barwa Real Estate Company. The projects is estimated to cost US$8.2bn to develop a community of 3.6mn sq m built up area, building 24,114 residential units to accompany 80,000 residents. Barwa Al-Khor will include residential apartments, shopping malls, 18 hole golf course, beach fronts and public plazas. The project is developed in three phases and to be completed in 2015. Currently Qatar is developing more than 32 projects of power and electricity. Four main projects cost more than US$12bn, of which are Ras Laffan C Independent Water and Power Provider (IWPP), Kahramaa West coast IWPP, Mesaieed Independent Power Provider (IPP), Kahramaa Power transmition system and Doha North Sewage Plant. Ras Girtas whom is responsible to build Ras Laffan C IWPP plan to build the largest cogeneration IWPP in Ras Laffan Qatar. The plant will have a capacity of 2,730MW of power and 63mn gallon/day of water. The plant will produce 1,600MW and 63mn g/d by 2010, the final completion of the project will be on April 2011 with an estimated cost of US$3.8bn. Kahramaa plans to develop the West coast IWPP in the city of Dukhan to have a capacity to produce 2,000MW to make up for the forecasted shortage that could happen in 2012. It will cost US$3bn and to be completed by 2012. Mesaieed IIP is a project that will be developed by Mesaieed Power Company (MPC). MPC

is owned 20% by Qatar Petroleum, 40% by Japan’s Marubeni Corporation and 40% by Kahramaa. Located in Mesaieed Industrial City, the project will have a capacity of 2,000WM, The plant output will be used to the national grid and the Mesaieed aluminum smelter. Jordan Arab Bank signed a US$1.2bn syndicated loan to finance the project. The project is expected to be completed in April 2010 costing US$2.3bn.

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Energy City Qatar (ECQ) is a pioneering development that will be the Gulf’s first hydrocarbon

industry business centre. ECQ will be a single point of access to markets and expertise, the Middle East home for global players in the hydrocarbon value chain. Envisioned by Gulf Energy, ECQ aims to attract the industry leaders in Oil and Gas production, International Oil Companies, National Oil Companies, support services, infrastructure and downstream activities, shipping and trading, market and resource data, intellectual property and energy trading. ECQ forms part of the major new city development, Lusail, which in addition to major business and entertainment districts, will be home to up to 200,000 residents. The US$2.6bn Energy City Qatar (ECQ) project was launched in March 2006, with the aim of making Qatar as an energy business hub. Energy city Qatar will commence operation by mid-2010. Qatar will continue to develop huge infrastructure to achieve the Vision 2030. Roads, schools, hospitals, stadiums, and power plants will be the focus of Qatar’s infrastructure development. In addition, Qatar is bidding to host the World Cup in 2022, thus it will show the FIFA deciding committee that its capable of handling huge populations and facilitate transportations for them. As a result transportation projects will continue to increase and more infrastructure projects would be streaming to be completed. On the other hand the power sector is still announcing new projects, General Electricity and Water Corporation (Kahramaa) is considering expanding its power network that will cost US$18bn in the next seven years. It is planning to build 29 high-voltage substations. By 2015 electricity demand will reach 10,000MW, thus we can see an increase in power projects activity.

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Real Estate The booming economy is the key factor underpinning the real estate, construction and housing demand in Qatar. High growth in population, very high per capita GDP and abundant resources entailing rapid industrial expansion have all been vital to the growth of the real estate sector in Qatar. As per the data from the Planning Council, the sector’s contribution to the GDP was 10.4% in 2007 as compared to 10.0% recorded in the previous year. The sector’s growth rate was about 30.3% in 2007 as compared to the growth rate of 41.6% recorded in the previous year. The level of government expenditure is a very important factor impacting the growth of this sector in the economy. Due to the realization of budgetary surpluses since last several years, the level of government spending has also increased significantly which will further benefit the sector. The absolute contribution of the Real Estate sector has increased at a 4-year (200307) CAGR of 39.2%. We expect that the contribution of Real Estate sector is likely to go down to about 9.7% of GDP in 2009 from 10.7% estimated for 2008, which is mainly due to slowdown witnessed in the sector since Q4-2008. Table 22: Real Estate Sector Contribution to Nominal GDP (in QR mn) Real Estate Activity as a % of GDP Total GDP Building & Construction Real Estate

2003 2004 2005 2006 2007 2008E 2009F 7,145 10,957 14,542 20,597 26,841 37,028 33,291 8.3% 9.5% 9.4% 10.0% 10.4% 10.7% 9.7% 85,663 115,512 154,564 206,644 258,591 346,059 343,205 4,654 6,425 8,744 11,991 14,634 19,725 17,847 2,491 4,532 5,798 8,606 12,207 17,303 15,444

Source: The Planning Council and Global Research

Real Estate Ownership Law In a milestone move to attract greater international interest in Qatar, the government has issued a decree, in June 2004 that allowed non-Qataris to own real estate properties in selected housing projects. The law allowed Qataris and non-Qataris to buy and own real estate of any description in any of the three projects proposed - Pearl Island, West Bay Lagoon and Al Khor Resort. Non-Qatari buyers could own real estate at the above three locations on a lease basis for 99 years, that would be extendable for another 99 years. Meanwhile, Qatar has started issuing permanent residence visas to foreigners who buy freehold property in select housing projects. The visa remains valid as long as the foreigner keeps the property in his name. The move is aimed at projecting the country as an open and cosmopolitan society and to compete with similar legislation already in effect in Dubai. The government enacted a law in February 2006 related to sale and lease of properties by foreigners. As per the law, GCC nationals can now own land and residential units in three designated areas namely Lusail, Al Kharayej, and Jebel Thiyab. Non-GCC nationals can lease properties for a period of 99 years on a renewable basis in 18 specified areas. The areas are: Musheireb, Frij Abdul Aziz, Doha Jadeed, Ghanem Al Qadeem, Al Rifa Al Hitmi, Al Salata, Bin Mahmoud, Rawdat Al Khail, Al Mansoura and Bin Dirham, Najma, Umm Ghuwailina, Al Khulaifat North and South, Al Sadd, New Mirqab and Al Nasser, areas around the Doha International Airport, Al Dafna and Onaiza, Lusail, Al Kharayej and Jebel

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Thiyab. There are no limits on the quantity of property a GCC national can own, and owners have the freedom to trade their property or use it for their benefit in accordance with the laws of Qatar. Foreigners who lease have also the right to use the properties commercially or for their benefit, transfer the lease to another party, sublet or rent them. The government has assigned the Qatari Diar Real Estate Co, which is fully owned by the government, to manage and develop these areas and handle all applications by GCC and non-GCC nationals who wish to own or lease in any of the specified areas. Real Estate Financing On the back of increased activity in Real Estate sector, credit disbursements to the sector grew at an astonishing pace over the last few years. During 2003-07, total credit facilities of the banking sector grew at a CAGR of 38.4% to reach QR201.6bn while total credit to Real Estate sector grew at a higher CAGR of 79.9% during the same period. As a percentage of total banking sector credit, the share of Real Estate sector credit had increased consistently over the last few years, from 4.3% in 2003 to 12.3% in 2007 and 13.3% in 6M-2008. Table 23: Credit Facilities (in QR mn) Real Estate Total Credit Distribution of Qatar Real Estate credit as a % of total credit

2003 2004 2005 2006 2007 6M-2008 1,893.5 4,053.6 6,183.2 10,624.2 19,811.7 26,903.1 43,787.5 49,482.9 69,733.8 102,547.8 160,596.1 201,557.7 4.3% 8.2% 8.9% 10.4% 12.3% 13.3%

Source: The Planning Council and Global Research

In 2007, credit to Real Estate sector grew by a whopping 86.5% to QR19.8bn while in the first 6-months of 2008 it grew by 35.8% on YTD basis to reach QR26.9bn. Though the liquidity situation in Qatar are somewhat comfortable as compared to other GCC countries, we are of the opinion that in 2009, credit growth to Real Estate sector is likely to decelerate due to tight liquidity situation globally. Very recently, banks in Qatar have also started adopting cautious approach after witnessing a slowdown in some of the real estate markets of the region. Major Growth Drivers We believe that following factors are expected to act as major demand drivers for Real Estate sector in the coming years: • Increased hydrocarbon spending and growing exports of liquefied natural gas (LNG). • High influx of expatriate population • Increased mega projects on the development plan • Growing infrastructure spending However, the following factors could act as significant deterrents to the growth • Tightening credit scenario following the current global financial crisis • Low oil prices are hurting energy-related investments and government spending. As per Qatar’s Oil Minister price of at least US$70 a barrel is required to maintain those investments.

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Declining Building Material Costs…

After months of scarcity, Qatar’s construction industry is now well supplied with cement, sand, steel and other materials even as prospects remain bright for lower commodity prices in 2009. Relaxation in import procedures, production boost and slackening demand globally because of the economic downturn have been cited as major reasons for the stable supply of construction materials in the local market. The relaxation in import procedures has come as a big relief to the construction sector. Industry sources said adequate quantities of cement is now available with the country’s main producer Qatar National Cement Company (QNCC). This has resulted in the company levying a wholesale price of only QR14 a bag at its production facility in Umm Bab. The local market is also well supplied by cement imported from India, Pakistan, Saudi Arabia and Ras Al Khaimah. The sale of cement by unauthorized retailers has already been banned in Qatar. Earlier, cement shortage in the country was triggered by the construction boom and the first major shortage was seen in 2004. Besides the huge demand caused by the country’s rapid expansion, the lack of import facilities at the Qatari ports triggered the shortage and subsequent higher prices. Unauthorized retailers charged up to QR50 a bag when there was severe shortage of cement in the country until a few months ago, as per industry sources. Steel prices have already come down in the local market with Qatar Steel cutting steel prices by about a fourth in line with the international trend. The new retail price for steel (10mm to 40mm) is about QR2,460 per ton, as per industry sources, which came down from high of about QR3,800 per ton. Qatar Steel adjusted prices taking into consideration the prevailing market condition owing to the global financial crisis and the resultant drop in commodity prices. The price of steel, used extensively in manufacturing worldwide, started to fall recently with most observers expecting a further drop in 2009. Industry players are considering it as an opportunity to make the best use of lower prices and speed up works including infrastructure upgrade. Property and Rental Prices Residential Segment The ongoing global economic turmoil has put a sudden halt to the property boom in the country. While the land prices have dropped by nearly 30% within Doha city limits during the month of November alone, the rates in the suburbs are declining faster. Land plots in few suburbs are now available for QR400 (US$110) per square meter, which is almost half of that in the previous month. The property investors are expecting further fall in land prices in days to come.

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Figure 29: Rentals of Residential Apartments in Doha

Q R / m o n th

20,000 15,000 10,000 5,000 -

2002 2003 2004 2005 2006 2007 Mid Income 2 Bed Mid Income 3 Bed High Income Income 2 Bed High Income 3 Bed

Source: Colliers International

Qatar’s Planning Council reported a 22% increase in housing rents between 2002 and 2005, and a staggering 154% increase between 2005 and 2007. Therefore, soaring rents were the major contributing factor for high inflation in the country. However, recently, rents have also begun dropping due to the downturn in property sector in Qatar. As per media reports, the house rents during November 2008 have dropped by as much as 20%. A new apartment which was otherwise available for QR10,000 (US$2747) a month, is now being offered for QR8,000 (US$2,200)as per industry sources. The average monthly rent of a 2-bedroom highend apartment rose from QR3,274 (US$900) per month to QR4,000 (US$1,099) per month in 2005 to QR10,000-plus (US$2,747) in 2007, which is remained almost same for the whole of 2008. This was mainly because of a freeze on property rents imposed by the government. Rent cap of 10% was set by Qatar government for two years in 2005. In 2008, the government has imposed a two-year freeze on property rents, effective from February 15th 2008. A new rent law forbids the increase of rents pertaining to contracts signed after January 1, 2005. Increases will only be allowed after 2 years from the date of the new law i.e. after February 2010. The law also states that rents may be increased for contracts signed before January 1, 2005, up to a maximum of 20% (depending on the amount of rent already paid). The new residential buildings are being completed in large numbers in and around Doha, easing supplies further. But, there are few takers, and this in turn, is increasing pressure on property owners. Hence, if a property has to be rented out, the rental rates have to be lower as per the industry sources. We are of the opinion that residential rental rates may go down by about 10% in 2009, at the same time major influx of expatriates in 2008 is likely to put a check on any steep decline in rental rates. Apart from that as oil prices are sliding, companies engaged in the energy and services sectors may put plans to hire more staff on the back-burner. This could hit the demand for new housing, so rents may fall. Office and Retails Space Segments Over the years, Doha’s office market has also experienced significant growth with demand for office space being driven by global oil and gas companies, the banking and financial services sector and government ministries and agencies. The increase in demand from the financial services sector is predominately attributed to the Qatar Financial Centre (QFCA),

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which has issued in excess of 90 licences permitting financial sector companies to operate in Qatar. Doha is currently facing a strong demand for office spaces specifically in the new CBD (Central Business District), the west bay. The office units are located in West Bay, C – ring road & D - ring road; this is because of the accessibility, superior quality of building and increase of staff head count. The average rent per square meter in new CBD, the West Bay, is QR325 (US$90) which shows a significant increase on the rents being commanded at the end of 2005 of about QR100-QR125 (US$27-35) per square meter per month. However, office rents have started stabilizing for Primary Grade office space. According to Colliers International, current office supply (both government and private) in the market is estimated at 658,000sq.m, which is including all locations such as C& D Ring Road, Grand Hamad Avenue and A& B Ring road. Office space in West Bay alone is expected to bring another 500,000sq.m of supply over the next two years, most of which will be marketed as Primary Grade office space. High GDP per capita and strong consumer demand driven by influx of white collar expatiates in the baking, financial and hydro carbon segments were the major demand drivers for retail space in Qatar. At the same time tourist spending could also drive the demand for retail segment but in Doha majority of the tourist inflow are business tourist and not leisure tourist like in Dubai, therefore, tourist spending remained low in Qatar. According to Colliers International, Doha currently has about 700,000sq.m of retail space which is expected to increase by about 1,130,000sq.m as several projects are expected to come up over the next five-six years. Rentals followed an upward trend for the last three years supported by the limited available shopping space. Average shopping mall rents ranged between a low of US$495/sq.m to a high of US$925/sq.m. per annum during 2008. We believe that as the sizeable amount of supply is expected to come in the retail market and keeping in mind the global financial crisis, the rentals in retail segment are likely to get squeezed in 2009. Table 24: Shopping Mall Rents Location The Mall Landmark Mall City Center Hyatt Plaza Royal Plaza Al Asmakh Mall Villagio Mall

Rent (US$/Sq.m/pa) 660-825 495-825 740-825 595-725 595-925 380-495 740-825

Source: Colliers International Q2 2008 Report

Hospitality Segment Qatar’s tourism segment is mainly characterised by business tourism. Tourism growth in the country picked up in the last few years, coinciding with the economic boom, which points towards the predominance of business tourism in the country. This is expected to increase

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further in view of the open business policies adopted by the government lately. Therefore, Qatar is well-positioned to take advantage of the Meetings, Incentives, Conferences and Exhibitions (MICE) market. The government is targeting to attract 1.4mn tourist by 2010 on the back of influx of about 780,000 tourist in 2007. Qatar currently has almost about 4,800 hotel rooms in the 5-star and 4-star categories and the total luxury room capacity is estimated at about 7,000 rooms. According to the Qatar Tourism and Exhibitions Authority (QTEA), Qatar is targeting a 400% rise in hotel capacity by 2012 with a whopping investment of $17bn. The plan drawn up by the QTEA includes construction of luxury hotels, resorts and other leisure facilities, with a total of up to 29,000 luxury rooms by 2012. A total of 80,000 hotel rooms in various ranges will be available by 2016. Average occupancy rates in Qatar dropped to 70% in 2007 from a high of 75% in 2006, which was mainly due to hosting of Asian Games in 2006. In 2008, average occupancy is estimated at about 75%-plus. Over the last few year, RevPAR jumped from US$149 in 2005 to US$183 in 2006 and in 2007 it declined by 12% according to Colliers International. In 2008 RevPAR is estimated to have increased to US$213. Table 25: Hotel Development Snapshot (2008-10) Project W Hotel & Residences Doha Hilton Shangri-La Rotana Marriot Renaissance Marriot Courtyard Merweb Hotel

No. of Rooms 447 320 272 384 257 327 347

The table does not constitute an exhaustive list of forthcoming supply Source: Colliers International Q4 2008 Report

We are of the opinion that the current expansion projects planned by hoteliers necessitates significant increase in tourist inflow. While the year 2009 is likely to witness curtailment in business tourism, which is Qatar’s main forte, would definitely result in revenue contraction for hoteliers for 2009. Outlook Strong crude prices over the last five years have significantly help in boosting the economic growth of Qatar. On the back of this, the country has made tremendous efforts to diversify away from reliance on oil and gas sector by opening up its economy for foreign investments. However, the current decline in oil prices will lead to a slowdown in the economy for 2009. On the back of this, capital investments in the country are also likely to get affected in 2009. This along with global financial crisis will have their cascading effect on the Real Estate sector as well. Though lately, the sector has started showing signs of correction. In the residential segment, the new residential buildings are being completed in large numbers in and around Doha, easing supplies further. It is estimated that supply of 9,000 new

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apartments are likely to come in the market by 2010. We are of the opinion that residential rental rates may go down by about 10% in 2009, while major influx of expatriates in 2008 is likely to put a check on any steep decline in rental rates. Apart from that as oil prices are sliding, companies engaged in the energy and services sectors may put plans to hire more staff on the back-burner. This could hit the demand for new housing, so rents may fall in 2009. For 2010, despite expected supply of new apartments, residential rates are likely to witness upward revision as in 2010, 2-years rent freeze will get over. However, much depends on the further stance by the government in this regard. In office and retail segments, we believe that the sizeable amount of supply is expected to come on stream and the current global economic conditions could have the adverse impact on these segments. Therefore, we expect that demand for commercial space is likely to remain stagnant for the next two years. We are of the opinion that the current expansion projects planned by hoteliers necessitates significant increase in tourist inflow. While the year 2009 is likely to witness curtailment in business tourism, which is Qatar’s main forte, would definitely result in revenue contraction for hoteliers for 2009. The year 2010 might witness some growth in tourist inflow (business tourists) but growth in hotel rooms supply are not likely to leave a scope of significant growth in average room rents.

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Doha Stock Market Performance – 2008 & Q1-2009 The year 2008, witnessed Doha stock market (DSM) continuing its upward trend up to the 2Q-20008. Global DSM index reported a new record level of 933.66 points by the end of May 2008. However, DSM reversed its trend to decline significantly and rapidly since 3Q2008 due to the world credit crisis. As a result, Global DSM Index posted annual losses of 24.57% closing at 515.96 by the end of December 2008. The four major sector indices in the DSM ended the year in negative. Global’s insurance sector index declined the most retreating by 35.8% to close at 513.51 points. Industry index followed with 28.1% of losses to end the year at 435 points. Finally, Banking and Services indices declined the least retreating by 25.5% and 19% respectively. Figure 30: Global Qatari General Index 1000.0

933.7

800.0 600.0

451.8

433.1

400.0 468.2

200.0

Ja n07 M ar -0 7 M ay -0 7 Ju l-0 7 Se p07 N ov -0 7 Ja n08 M ar -0 8 M ay -0 8 Ju l-0 8 Se p08 N ov -0 8 Ja n09 M ar -0 9

0.0

Global Qatari General Index Source: Global Research

On monthly basis, Global general index witness a steep declining trend over the months of July up to November 2008 as the market reported YTD declines of 32.8% by the end of the period. This trend was reversed for the month of December that reported monthly gains of 2.3%. Entering the year 2009, the market continued the declining trend for the first two month retreating by 23.2% and 12.1% respectively. Finally, by the end of March 2009 the market started to pick up slightly with Global General index reporting monthly gains of 11.1% to close at 386.97 points. However, on Y-o-Y basis, this level still reflects 47.6% of losses as compared with March 2008. Similarly, market capitalization followed the same declining trend during January and February 2009 retreating by 23.2% and 11.6% respectively. However, it rebounded by the end of March to report 11.5% of monthly gains standing at QR210.97bn. On a YTD basis, market capitalization retreated by 24.4% by the end of 1Q-2009 as compared with QR279.04bn reported by the end of 2008. Table 26: Doha Stock Market Indexes 2005 779.2 1246.8 926.1 619.6 564.8

Global General Qatari Index Banking Index Insurance Index Industrial Index Services Index

2006 487.2 845.2 607.3 348.5 342.1

2007 684.0 1044.7 799.7 605.2 478.7

2008 516.0 778.7 513.5 435.0 387.5

Q1-2009 387.0 537.9 343.2 341.1 309.5

Source: Global Research, Doha Stock Market

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On the market breadth front, DSM witnessed the new listing of three stocks during 2008. As a result, DSM had forty three listed companies on the exchange by the end of the year 2008. All the three stocks were listed under the services sector, namely; Ezdan Real Estate, Islamic Financial Securities Company and Gulf International Services Company. On the trading activity front, DSM witnessed an increasing trading activity for both volume and value of trade despite the decline in market indices. This was mainly due to the upward trend prevailing during first half of the year. Such trend helped to offset some of the declining trend during last quarter of 2008. The month of April recorded the highest growth rates of 131.7% and 108.1% for both value and volume of trade respectively. On a Y-o-Y basis, trading activity as depicted by the value of shares traded witnessed a gain of 61.2% in 2008, to reach QR175.55bn. As a percentage of the total value of shares traded at DSM in 2008, the banking sector accounted for 44.8%, services sector accounted for 37.5%, then industrial sector at 15.2% and the insurance sector for the minuscule 2.5%. Entering 2009, traded value stood at QR16.88bn by the end f 1Q-2009 retreating by 53.2% as compared with same period last year. Insurance sector was hit the most with traded value retreating by 77.6% standing at QR0.23bn as compared with QR1.04bn reported for the same period last year. Similarly, heavy weight sectors of Banking and Services retreated significantly by 54.7% and 49% respectively. However, on a monthly basis trading value rebounded significantly by the end of March 2009. It stood at QR7.64bn, or 86.4% monthly increase from February level. Table 27: Value of DSM traded Shares Value (QR bn) Banking Insurance Industrial Services Total Market

2004 9.3 0.9 4.9 8.0 23.1

2005 27.8 2.5 27.9 44.6 102.8

2006 33.3 2.3 10.9 28.5 74.9

2007 45.5 3.4 16.2 43.8 108.9

2008 78.7 4.4 26.7 65.8 175.6

Q1-2008 Q1 -2009 17.5 7.9 1.0 0.2 5.7 2.7 11.8 6.0 36.0 16.9

Source: Doha Stock Market, Global Research

As for volume of trade, it continued to increase significantly for the past four years. On CAGR basis, volume of trade grew by 89% over the period 2004-08. However, on annual basis, the year 2005 reported the highest growth rate ever of 238.4%. Entering the year 2008, volume of trade reported 14.1% of growth to reach 3,893.5mn shares as compared to 3,411.2mn shares in 2007. However, it is important to note that such growth rate is the lowest rate reported since 2005. By sector, Banking sector led the trading volume in 2008 as it accounted for 45.1% of total volume traded, followed by the Services sector which accounted for 44%. Finally, both industrial and insurance sectors accounted for 9.6% and 1.3% respectively of total volume traded.

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Table 28: Traded Volume in DSM Volume (mn shares) Banking Insurance Industrial Services Total Market

2004 54.9 8.3 98.6 143.5 305.3

2005 94.7 11.7 230.3 696.4 1,033.1

2006 744.4 17.3 191.9 911.8 1,865.4

2007 1,459.1 43.3 334.4 1,574.5 3,411.2

2008 1,756.5 50.8 374.4 1,711.8 3,893.5

Q1-2008 281.0 11.3 79.5 317.7 689.5

Q1-2009 361.9 5.5 58.3 308.1 733.7

Source: Doha Stock Market, Global Research

Entering Q1-2009 volume of trade stood at 733.7mn shares or 6.4% growth over 689.5mn shares traded during the same period last year. The two heavy weight sectors of banking and services continued to account for most of the trading activity at 49.3% and 42% respectively. On a monthly basis, it is important to note that volume of trade reported three consecutive months of decline since December 2008. It retreated by 30%, 33.6% and 7% up to the end if February. Thus, the month of March 2009 witnessed volume of trade registering high growth rate of 59.3% standing at 318.6mn shares traded. Figure 31: DSM Market Capitalization 400

200%

350

150%

QR bn

300 250

100%

200 50%

150 100

0%

50 0

2001

2002

2003

2004 2005 Market Capitalization

2006 2007 Growth Rates

2008

Q1-2009

-50%

Source: Doha Stock Market, Global Research

Finally, market capitalization followed an increasing trend up to the end of 2007 before retreating by the end of 2008. On a CAGR basis, the market capitalization of the DSM increased by 53.4% during the period 2001-2007. It increased from merely QR26.7bn during 2001 to a record level of QR347.7bn by the end of 2007. Entering 2008, market capitalization followed the declining market sentiment for the region as well as the world to decrease by 19.7% standing at QR279.0bn. The decline was mainly due to the financial crisis. The same declining trend prevailed for Q1-2009, as market capitalization reported YTD losses of 24.4% to reach QR210.97bn by the end of March 2009. However, it is important to note that on a monthly basis market capitalization rebounded by the end of March 2009 to report 11.5% of growth after two months of decline.

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Corporate Earning As compared to other GCC countries, Qatar remains one of the forefront runners in terms of corporate earnings for 2008. This is indicated as all GCC countries witnessed corporate profitability decline, except Qatar. Publicly listed companies in Qatar experienced a growth in profits by 33.4% reaching QR28.49bn in 2008 from QR21.36bn in2007. Out of 43 listed companies, only one firm incurred a loss, and only six Qatari firms witnessed a decline in their annual earnings. Such performance compares well with other GCC and international markets suffering the financial turmoil. In terms of sectoral growth in earnings in 2008, it was the industrial and services sector which recorded the highest growth of 46.26% and 36.13% respectively to reach at QR8.55bn and QR8.97bn. As opposed the banking and insurance net profits dominated the sector in 2007, but due to the financial crisis, banks have booked provisions. Among the other sectors namely, Insurance sector’s profit stood at QR939.7mn (23.03% growth). Figure 32: Banking Sector Profits 4,000 3,500 QRmn

3,000 2,500 2,000 1,500 1,000 500 0

Qatar National Bank

Qatar Islamic Bank

Commercial Bank

Doha Bank

Ahli Bank 2008

Qatar Al Rayan International Bank Islamic Bank 2007

First Al Khalij Finance Commercial Company Bank

Source: Global Research, DSM

Banking sector is the sector which posted the lowest growth in profits. The banking sector’s earning stood at QR10.04bn, reporting an increase of 23.01%. Sector-wise, banking, insurance, services and industrial accounted for 35.22%, 3.30%, 31.48% and 30.0% respectively of the collective net profit of all the listed companies at DSM in 2008. Table 29: Corporate Earnings of DSM Listed Companies (QRmn) Total Banking Sector Total Insurance Sector Total Industrial Sector Total Services Sector Total Market

2008 10,036.6 939.7 8,549.6 8,968.9 28,494.8

2007 8,159.0 763.8 5,845.5 6,588.5 21,356.9

% Growth 23.0% 23.0% 46.3% 36.1% 33.4%

Source: Global Research, DSM

The heavy weight, Industries Qatar, registered the highest profit among all of the listed companies, recording QR7.28bn, in 2008 as compared to QR4.98bn in 2007, showing an increase of 46 percent. On another front, Qatar Meat and Livestock Company, recorded the highest increase in profits among all listed shares as its income rose by 374.67% in 2008, to QR39.33mn compared to QR8.29mn recorded in 2007. The increase resulted amid the government’s decision to fix selling prices. June 2009

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The financial crisis had its impact on Gulf Warehousing Company, which realized losses of QR16.53mn in 2008, compared to a profit of QR1.4mn in 2007. As a solution, the company announced that it will merge with Agility – Qatar, which is a subsidiary of Agility Kuwait, after finalizing the legal procedures. Table 30: Corporate Earnings 1-Q2009 (QRmn) Total Banking Sector Total Insurance Sector Total Industrial Sector Total Services Sector Total Market

1Q-2008 2,553.4 382.6 2,237.0 2,054.0 7,227.0

1Q-2009 2,810.3 310.4 1,744.9 2,034.7 6,900.3

Growth % 10.1% -18.9% -22.0% -0.9% -4.5%

Source: Global Research, DSM

As for the year 2009, corporate earnings reported 4.5% decline by the end of 1Q-2009 to stand at QR6.9bn as compared with 7.23bn for the same period last year. On a Y-0-Y basis, all sectors reported declining profits except banking sector that reported growth in profits for 1Q-2009. Industrial sector was hit the most as profits declined by 22% to QR1.74bn down from QR2.24bn reported for 1Q-2008. Similarly, insurance sector profits retreated by 18.85% to QR310.4mn down from QR382.6mn. On the positive front, banking sector’s profits reported 10.1% of growth reaching QR2.81bn up from QR2.55bn for 1Q-2008. Such increase in banking sector’s profits could be attributed to government support for the sector. However, it is important to note that despite the marginal decline in corporate profits for 1Q2009, Doha stock market is still seen as one of the best performers amid the current financial crisis. It is mainly due to government’s thrust on developmental projects and increased infrastructure spending there will certainly be a cascading effect on all the sectors of the economy. This will definitely improve revenue and profitability of the listed corporate. Finally, considering the economic fundamentals, Qatar is better-placed in the region. In fact Qatar is expected to post one of the highest economic growths in 2009 in the world, though there will be slowdown from 2008. Thus, looking forward, the recent upturn in the market may signal that investors’ confidence might be returning, especially after the government’s backing which gave strong support to the market. Therefore there is a strong case of market gain in the medium-term. In addition, the surge in oil prices and improving macro-economic environment coupled with positive signs of credit growth will be helping the market to remain in positive territory. Moreover, positive sentiment in other GCC markets especially Saudi market will have some impact on Doha market. Thus, we anticipate the market to remain stable as positive signals are received from other GCC and international markets. Finally, we expect that as the economic environment and oil prices gets more stable; the market will continue to show positive momentum.

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