Qatar’s GDP growth rate is expected to be upwards of 20% in 2011. How concerned are you that the pace of growth will also lead to a rise in inflation? What lessons were learned from 2006 and 2007, when Qatar experienced a highly inflationary period?
KAMAL: Of course we experienced inflation in 2006, 2007, and the first half of 2008, where inflation reached almost 15%. After the economic crisis, inflation was around -4%. Concerning 2011, and considering that the state budget is almost 20% more that it was in 2010, if you compare the coming years with what happened in 2006 and 2007, we didn’t have same capacity then that we have today. So the capacity is there. Most of the projects are actually infrastructure projects and the government is catering for the main raw materials. We are doing a strategic storage for the aggregate, sand, cement, and steel bars. So a big portion of this infrastructure is going to be using these four items. Now we don’t have the bottle necks that we had in the past. The second issue is with housing and offices. Again, we don’t have the same issues that we had in 2006 and 2007. There is a surplus of offices especially and there is availability of housing. So these elements that contributed to inflation in 2006 and 2007, we don’t have them. Of course we can’t forget that for food, and this is internationally known, that there will be inflation in the food sector. Food, in the CPI of the State of Qatar, has a little bit of weight.
We hope that with all this expenditure that inflation will be in the range of 4%, not more. If you take the liquidity in the system, two months ago we already sucked from the system more than QAR 50bn ($13.7bn). We issued bonds in the name of the State of Qatar for a period of time. Yesterday (May 15th, 2011), there was an announcement from the Central Bank that we have treasury bills now in the market for around $600m, and these will be revolving every month, so we’ll have 3-month, 6-month, 9-month, up to 12-months treasury bills. This again is going to control the liquidity in the system and this is one of the elements we use sometimes to keep inflation controlled.
What initiatives have been launched to support the growth of SMEs? How successful have these initiatives been?
KAMAL: For SMEs, first of all, you have to have the infrastructure for them. We are in the process of establishing, and have awarded a contract for, a new area that we call an economic zone. This is not a free-zone, but an economic zone. The size of this area is almost 80 sq. km. It is located next to the new jetty and it has a 5km channel of water. It is linked to the jetty and linked to the sea so you have on both sides, 10km of waterfront to be used for this project. The small and medium ones, we have a fund actually and we support from logistics to finance. Logistically, we provide office space for any entrepreneurs, we give them legal support without charges, and we also do feasibility studies on their behalf. Then if we see these things as OK, then we give them the seed funds. Plus, if they approve their project and it’s in a better position than expectations then they can go to the development bank and get a loan. It depends on which sector; each sector has different level of gearing. And we sometimes go up to an 80% level of gearing – so 20% equity and 80% loan. These loans can go up to 15 years at a rate that is 50% of the market rate. We started this nearly one and half year ago and I think there is a good potential in that sector.
The Business and Investment in Qatar Forum was held in the United States for the first time this year. How important is the US-Qatari trade relationship and in what ways can it be further strengthened?
KAMAL: We do the Business and Investment in Qatar Forum every two years. First we were in Germany, then France, the UK, this year in New York, and we hope in the future we plan to go to Asia. These forums are good because there are many business people that don’t know Qatar as much for infrastructure and business as they know us as an oil and gas exporter or that we do investments abroad. So we want to tell them what legal structure we have, and what environment we have actually. Plus we can’t forget that for the United States, many of the companies, such as Exxon-Mobil and Conoco-Phillips, they are here in Qatar and they are the biggest investors in the oil and gas sector. For example, for Exxon-Mobil, around $14bn of their money is located in Qatar. There are many opportunities related to oil and gas if we go down, down, downstream of this kind of project or investment. The things we are looking for are the know-how, the management, and the market and all of these three are available in the United States.
The 2011/2012 general budget is the largest in Qatar’s history. What are the key highlights?
KAMAL: The key highlight is infrastructure. 40% of our budget is infrastructure, which is equal to almost $14bn to be spent this year. We are always saying that, for the coming 10 years, the total expenditure of the government budget only for infrastructure is almost $140bn, which is an average of $14bn per annum. This does not include the oil and gas sector. If we add that sector, then we are talking about $220bn to be spent within the coming 10-12 years. That is the size of our strategy for infrastructure. Still we need to finish the airport, the port, the economic zone, the highways, the rail and the people mover or underground. All of these should be finished within the coming 10-11 years.
What role will Qatari banks play in financing the private sector projects associated with the 2022 World Cup? Do you expect to see an increase in M&A activity among local banks as they try to meet the demand for increasingly large loans?
KAMAL: Let me be clear here, all these figures that I mentioned and all these projects that I mentioned don’t have anything to do with the 2022 World Cup. This is infrastructure and we are in need of it, whether we had the Cup or not. But of course, now because we have it, we have to have a little bit more increase in the budget to cater for the stadiums and these things. For the banks, we are in the process, and I just finished a draft of, a Private Public Partnership. We like them (PPPs), not because of a shortage of cash in the state, as everyone knows we have surpluses, but because we want the private sector to be more engaged in the infrastructure, including the banks. This is from one sector; we have to encourage the entire private sector to take this as an opportunity and as a catalyst to increase the percentage of this sector to the total GDP of the State of Qatar.
Of course we experienced inflation in 2006, 2007, and the first half of 2008, where inflation reached almost 15%. After the economic crisis, inflation was around -4%. Concerning 2011, and considering that the state budget is almost 20% more that it was in 2010, if you compare the coming years with what happened in 2006 and 2007, we didn’t have same capacity then that we have today. So the capacity is there....We hope that with all this expenditure that inflation (in 2011) will be in the range of 4%, not more.
The Qatar Central Bank issued two recent provisions – one directing the country’s conventional banks to close down their Islamic banking windows by the end of 2011, the other capping the loan amount and interest rates that can be charged to individual borrowers. How significantly will these changes impact the profitability of Qatari banks in the short and medium term? Which areas will local banks look to in order to sustain growth?
KAMAL: For the capping of the interest rate, when these banks had a little bit of freedom of increasing the interest rates to individuals, the cost of funding was high at that time, they were paying 7.5%. Today, the deposit costs them only 2-2.5%. So if we take the margin with whatever the cap we have today, still the margin is better than it was 2 years ago. This means they can make more profit today than they did in 2008 or 2009. The Islamic windows, if you take it in percentage, it is so small relative to the overall activities of conventional banks. In the first quarter of this year most of the banks did better than last year. So I don’t think these decisions will have a big impact on their profitability.
QNB recently completed the acquisition of a controlling stake in Indonesia’s PT Bank Kesawan. What is the bank’s strategy for further international expansion? Which markets are top priorities for QNB?
KAMAL: We have a strategic plan at QNB. We had the first five years, which we completed in three years. This year, again we have a plan that varies from four to seven years depending on market conditions. We know that in Qatar we have a percentage of market share and we want to keep that percentage. The only way to increase my growth is to outside the State of Qatar. Because of that we had the rights issue; we increased the capital of the bank by more than 55%. This will allow us to be outside of the State of Qatar. The geographical location is two ways: Asia and Africa. We are not going to Europe or the United States. I think these markets are already full of banks. We have to go to the places that the growth has more potential that Europe. So this is our strategy. I cannot tell you more about this one because our shares are in the market.