What are the major initiatives that PWC is undertaking in Qatar?
ANDERSON: In terms of initiatives in Qatar, PWC would be very similar to Qatar itself in being a story of growth. We moved premises about a year ago. Over the 3 or 4 years that I've been here we’ve grown about 40% a year; tracking slightly ahead of Qatar, which is a rare thing to say. We’ve been growing aggressively. All three parts of our business are involved in a number of the major initiatives. So talking about the advisory business, there is two elements to that. One is the strategic consulting part of the business and one is the M&A side of the business. On the strategic consulting part, we've been heavily involved in infrastructure, so things ranging from Qatar Rail through to the 2022 World Cup. If we look at health, there is a huge health agenda here in terms of looking at rolling out health insurance and looking at the framework of the health sector. In education, where we’re working heavily with organizations such as the Qatar Foundation, which put together Hamid Bin Khalifa University, which brings together 6 existing universities under one hub. There are similar initiatives across ICT, food security, looking at developing the SME market. On the M&A side, again we’re looking at two aspects of that. One would be looking at the larger sovereign wealth and “Q” companies, which are large transactions, outbound; ranging from in region, so looking at transactions in Turkey and in Libya, and then through to some of the more traditional investment areas such as Europe, the UK, and increasingly in the Far East. On the family side, again we’re starting to see a little more M&A activity coming from the families who are looking to invest overseas. For example, we were heavily involved with the Axiom transaction with Mannai last year.
The tax side of the business, you’re probably surprised to hear that the tax side of the business is growing in what is a low tax environment. There are two parts to that business as well. One, looking at outbound, and again, helping with M&A. But also in Qatar we have an increasing number of companies, more in the traditional conglomerates, with lots of activities overseas. Also helping those people with bringing employees into Doha where they’ll need support, US tax advice, etc. Inbound, obviously we’re seeing huge activity in companies coming into Doha requiring support in setting up JVs or thinking about how they are going to be structured. Then on the more traditional part of PWC’s business, which would obviously be our assurance side, we have two of our largest global clients, Shell and Exxon. Both have made huge investments. Shell’s gas-to-liquid project is a $20bn project that has just been completed. We’re also seeing from the local market more of a demand for high-quality assurance, audits, and risk management services
Have the international financial downturn and regional political turmoil had any tangible effects here in Qatar?
ANDERSON: If we take the financial crisis first, it’s hard to make some grim statements about the financial crisis and the impact on Qatar when you had GDP growth of 20% in 2011 and a projection of somewhere between 6-10% in 2012. It’s difficult to say that the financial crisis had a big impact. Actually, I’d even go further. The financial crisis in some way had a, and it’s difficult to say this, positive impact on Qatar in some ways in that if you go back to 2008, and I came to Qatar in 2008 just when Lehman was going down, some of that injection of, austerity would be a bit strong, but realism and the need to really consider all of your plans probably served Qatar quite well. In addition, it also took some of the inflationary pressures out of the market, be that input labour or raw materials.
So in some ways, the financial crisis hasn't had a huge impact. That said, we’re not completely immune to the financial crisis and things operating outside of Qatar. In particular, the economy is still quite heavily balanced towards hydrocarbons. Clearly there are some very impressive plans to diversify. I think the financial crisis, at the point where you've seen huge fluctuations in commodity prices, has again provided a little bit of impetus around that diversification program. So future shocks and jolts would hopefully not have such an impact on a country like Qatar. In terms of the geopolitical outlook, there hasn't been a huge impact on Qatar on the day-to-day within the country. Around the region, clearly Qatar has been very involved from a diplomatic standpoint and it has probably been further helped by the way it has been positioned. We do see some reticence in some investments made into some of the countries in the Middle East and hopefully that will play out over the next couple of years.
What is your general economic outlook for Qatar? Which indicators are showing the most positive trends and which are showing the most negative?
ANDERSON: We remain positive. If I play that back onto the firm here, we remain very positive and we expect double-digit, 20-30%, growth in our business here in Doha over the next 2-3 years. We have a positive outlook on GDP and growth. We see increasing diversification. When Qatar is looking to do these sorts of things, it’s absolutely genuine and you just need to walk around the place and see some of that expansion. I think the downside risks, or some potential there, we’re going to be spending somewhere in the region of $150bn over the next 5 or 6 years on infrastructure. We’ve already seen an increase in salaries for Qataris and that will flow into the expat community as well. So on the downside, there is a need to keep some focus on inflation. There is some offset to that in that the global outlook remains relatively weak so that may soften prices as well. But I think inflation is something that Qatar will need to keep an eye on.
Which sectors present the best investment opportunities?
ANDERSON: There’s a big focus in the Middle East on building infrastructure but actually the bigger opportunities are in maintenance and operation. So we see large opportunities there for both investors and local companies in thinking through in how they can rise to the challenge of operating and maintaining the large infrastructures. In terms of the sectors, I’ll just throw out a few as pointers. I think anything food or agriculture related is an interesting play. Qatar is quite focused around re-insurance and insurance. Some of the work that’s going on around the QFC, the Qatar Financial Centre, is quite interesting from that perspective. Education, in all its guises, is a large opportunity here. Something a little different is that we’re seeing quite a lot of activity in the fine arts and museums, which isn’t necessarily something that you’d automatically link Qatar to. But we think there are some interesting opportunities in that sector.
In what ways are family companies becoming more sophisticated in Qatar today?
ANDERSON: I think there are probably four trends that I see on the family side of things. The first trend is a continuation of what we've seen from family businesses over the last 30, 40, 50 years in that they are being opportunistic. They are looking for good opportunities, either overseas or here, to form joint-ventures with companies. The second trend is actually the opposite of that. Family businesses are starting to understand that they need to focus; they’re looking at what they are famous for, how to drive differentiation in the market, and whether they are trying to do too many different things. The third trend that I see is overseas expansion. They’re looking at high growth markets. We've seen a lot of activity in Turkey and a lot of people looking at India. As the political environment progresses, we’ll see more in Libya and Egypt in particular. The fourth trend that we’re seeing is that succession is becoming a big issue for family businesses. A number of families are getting to that generational shift and with that generational shift, it necessitates more of a look at corporate governance, how exactly will that succession happen and is probably driving a little bit more professionalism into those family businesses.
There is an understanding that getting the succession plan thought about early prevents some of that heart ache down the line. We’re certainly seeing a number of the families come to us looking for support and advice on how to think about that succession journey and how to put the right corporate governance in place. We’re even seeing that down into some small families as well. I think it’s a trend that we’ll continue to see more of in the coming years.
How is succession planning and corporate governance evolving among the various family companies?
ANDERSON: I think on succession planning for family businesses, it really varies by family. All the families are unique. On the larger families, there is clearly more of a push. We’re talking what are very large businesses. We use family business as a very catch-all term that covers what are some pretty large conglomerates. Therefore on the larger businesses, we’re seeing a big push to having the succession plan in place. There are obviously Sharia rules around how those succession plans happen. There is the business side to it, but it’s a human, emotional, journey as well. There is an understanding that getting the succession plan thought about early prevents some of that heart ache down the line. We’re certainly seeing a number of the families come to us looking for support and advice on how to think about that succession journey and how to put the right corporate governance in place. We’re even seeing that down into some small families as well. I think it’s a trend that we’ll continue to see more of in the coming years.
What challenges do foreign companies/investors still face when entering the Qatari market?
ANDERSON: I think in terms of the business environment here in Qatar, it continues to evolve and great steps have been made. There are three main challenges in terms of doing business. One is the restriction of foreign ownership. There’s a 49% restriction on foreign ownership. There is then the registration process, both in terms of registering companies and then also some of the licenses that are required. The Ministry of Business and Trade is really focused on that currently and they realize they've got a little way to go. Hopefully we’ll continue to see good progress in terms of the registration of the businesses. There are also some costs in finding partners, sponsorship, etc. So those are probably the three main challenges. That said, on the other side, the tax environment is very friendly. You've got corporation tax running at 10%, although it can go up in certain sectors. We’re seeing withholding tax between 5-7%. Businesses also need to be aware that certain retentions will be made on invoices and payments in advance of having your tax card eventually registered here in Doha.
In certain sectors and with certain approval requirements, the foreign ownership limit has been raised to 100%. Do you see that expanding broadly in the near future?
ANDERSON: I think it will be limited in the short-term. If you look at Qatar’s National Vision 2030, there are many different aspects to it. One aspect is that it is an open society that does welcome foreign visitors and foreign investors. I think it’s a natural progression. Qatar wants to do things in a considered way and to gradually look to increase foreign ownership over time. So I think in the medium term, my expectation is that it would be expanded.